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Write an article about: Countries worldwide are dropping the US dollar: De-dollarization in China, Russia, Brazil, ASEAN. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

ASEAN, Brazil, China, de-dollarization, Dilma Rousseff, dollar, gas, IMF, India, Indonesia, Kenya, LNG, Lula da Silva, Malaysia, NDB, New Development Bank, oil, petrodollar, renminbi, Russia, Saudi Arabia, UAE, World Bank, yuan

The global de-dollarization campaign is gaining momentum, as countries around the world seek alternatives to the hegemony of the US dollar. China, Russia, Brazil, India, ASEAN nations, Kenya, Saudi Arabia, and the UAE are now using local currencies in trade. (Se puede leer esta nota en español aquí.) The global de-dollarization campaign is gaining momentum, as countries around the world seek alternatives to the hegemony of the US dollar. China and Russia are trading in their own currencies. Beijing and Brazil have also dropped the dollar in bilateral trade. The UAE is selling China its gas in yuan, through a French company. Southeast Asian nations in ASEAN are de-dollarizing their trade, promoting local payment systems. Kenya is buying Persian Gulf oil with its own currency. Even the Financial Times newspaper has acknowledged that a “multipolar currency world” is emerging. When Chinese President Xi Jinping visited Moscow in March, his Russian counterpart Vladimir Putin revealed that two-thirds of the countries’ bilateral trade is already conducted in the ruble and renminbi. “It is important that our national currencies are increasingly used in bilateral trade“, Putin said. “We should continue promoting settlements in national currencies, and expand the reciprocal presence of financial and banking structures in our countries’ markets”. The Russian leader added, “We support using Chinese yuan in transactions between the Russian Federation and its partners in Asia, Africa and Latin America”. China’s President Xi Jinping traveled to Russia, where he pledged “changes we haven’t seen for 100 years”. Both agreed to deepen economic integration and challenge the hegemony of the US dollar, using yuan and other currencies in international tradehttps://t.co/uTPkDIrfVb — Ben Norton (@BenjaminNorton) March 26, 2023 Just a week after Xi’s trip to Moscow, China announced that it had for the first time used yuan to buy liquefied natural gas (LNG) from the UAE. The deal was negotiated between the state-owned China National Offshore Oil Company and the French company TotalEnergies, meaning European firms are now willing to conduct transactions in yuan. French media outlet RFI described the trade as a “major step in Beijing’s attempts to undermine the US dollar as universal ‘petrodollar’ for gas and oil trade”. The report quoted the chairman of the Shanghai Petroleum and Natural Gas Exchange, Guo Xu, who said the deal encouraged “multi-currency pricing, settlement and cross-border payment”. China's first yuan-settled liquefied natural gas (LNG) trade was completed on Tuesday through the Shanghai Petroleum and Natural Gas Exchange, with about 65,000 tonnes of LNG imported from the UAE changing hands in the trade. (file pic) pic.twitter.com/7J9KYipvmB — People's Daily, China (@PDChina) March 29, 2023 On March 30, China and Brazil (the world’s most populous and sixth-most populous countries) announced they had come to an agreement to trade with each other in their local currencies, yuan and reais. China’s media network CGTN reported, “The deal will enable China, the world’s second-largest economy, and Brazil, the biggest economy in Latin America, to conduct their massive trade and financial transactions directly, exchanging yuan for reais and vice versa instead of going through the dollar”. It noted that China is Brazil’s biggest trading partner, and in 2022 the two countries did more than $150.5 billion worth of trade. Brazil’s leftist President Lula da Silva has called for Latin America to develop a new currency for regional trade, which he calls the Sur. It's happening: Brazil and Argentina are making plans for a Latin American currency, to “boost regional trade and reduce reliance on the US dollar”, the Financial Times reported Lula (a co-founder of the BRICS) had pledged this while running for presidenthttps://t.co/IAiwfeLz2z — Ben Norton (@BenjaminNorton) January 22, 2023 Just two days before China and Brazil revealed their deal to trade in local currencies, the South American giant’s former President Dilma Rousseff officially assumed her new role as chief of the New Development Bank (NDB) in Shanghai. The NDB, commonly known as the BRICS Bank, was created by the bloc of Brazil, Russia, India, China, and South Africa as an alternative to the US-dominated World Bank. Dilma, like her ally Lula, is a leftist from Brazil’s Workers’ Party. In a speech that Geopolitical Economy reported on in 2022, Dilma analyzed the US-China conflict as “a rivalry of two systems”, a struggle between neoliberalism and socialism. She condemned US sanctions and “dollar hegemony” and called for Latin America “to break with the Monroe Doctrine”. H.E. Mrs. Dilma Rousseff, the NDB newly elected President, has started her first day in office in the NDB Headquarters in Shanghai, China. pic.twitter.com/JOLblXhhzQ — New Development Bank (@NDB_int) March 28, 2023 Countries in Southeast Asia are also de-dollarizing. The finance ministers and governors of the central banks of the member states of the Association of Southeast Asian Nations (ASEAN) met in Indonesia on March 28. According to the news website ASEAN Briefing, at the top of their agenda were “discussions to reduce dependence on the US Dollar, Euro, Yen, and British Pound from financial transactions and move to settlements in local currencies”. ASEAN is developing a cross-border digital payment system that would allow the use of local currencies in regional trade. ASEAN Briefing noted that Indonesia, Malaysia, Singapore, the Philippines, and Thailand agreed on this in November 2022. The media outlet added that Indonesia’s central bank plans on creating a local payment system as well. ASEAN Briefing wrote: Indonesian President Joko Widodo has urged regional administrations to start using credit cards issued by local banks and gradually stop using foreign payment systems. He argued that Indonesia needed to shield itself from geopolitical disruptions, citing the sanctions targeting Russia’s financial sector from the US, EU, and their allies over the conflict in Ukraine. Indonesia is the fourth-most populous country on Earth, after the United States. The Association of Southeast Asian Nations (ASEAN) is meeting in Indonesia "Top of the agenda are discussions to reduce dependence on the US Dollar, Euro, Yen, and British Pound from financial transactions and move to settlements in local currencies" https://t.co/BPMGhpgtLv — Ben Norton (@BenjaminNorton) March 31, 2023 Another Southeast Asian nation, Malaysia, is publicly advocating de-dollarization. Malaysia’s Prime Minister Anwar Ibrahim met with Chinese President Xi in Beijing on March 31, where the two leaders discussed plans to weaken US dollar hegemony and even create an “Asian Monetary Fund”. This is a frontal challenge to the US-dominated International Monetary Fund (IMF), which emerged from the 1944 Bretton Woods Conference that established the dollar as the global reserve currency. Anwar proposed the Asian Monetary Fund at the Boao Forum in China’s Hainan province. “There is no reason for Malaysia to continue depending on the dollar”, Anwar said, in comments reported by Bloomberg. The media outlet added that Malaysia’s central bank is developing a payment mechanism so the Southeast Asian country can trade with China using its own currency, the ringgit. China is open to talks with Malaysia on forming an Asian Monetary Fund, said Prime Minister Anwar Ibrahim, amid the world’s growing impatience with the King Dollar’s dominance https://t.co/oXnuqomt9n — Bloomberg (@business) April 4, 2023 Bloomberg noted: The Malaysian leader’s comments come just months after former officials in Singapore discussed what economies in the region should be doing to mitigate the risks of a still-strong dollar that’s weakened local currencies and become a tool of economic statecraft. The dollar’s strength is a headache for Asian nations including Malaysia, which is a net importer of food items. “Economic statecraft” is a roundabout way of saying economic warfare. The unilateral sanctions the United States has imposed on countries all across the planet, in flagrant violation of international law, are backfiring. Many nations are now seeking financial alternatives, afraid that they could be the next target. And with the US Federal Reserve constantly raising interest rates, the dollar has become so strong that it is hurting the currencies of other countries, making imports more expensive. Even US ally India is hedging its bets on de-dollarization. Reuters reported that Russia’s largest oil producer, the state-owned company Rosneft, made an deal with India’s top refiner Indian Oil Corp, which is also state owned, to use the Dubai price benchmark in oil sales, as opposed to the Brent benchmark. The decision “to abandon the Europe-dominated Brent benchmark is part of a shift of Russia’s oil sales towards Asia”, it wrote. Reuters cited “Rosneft’s chief executive Igor Sechin, [who] said in February that the price of Russian oil would be determined outside of Europe as Asia has emerged as largest buyer of Russian oil”. Russia and India agreed to use the Asia-focused Dubai oil price benchmark in their bilateral trade. "The decision by the two state-controlled companies to abandon the Europe-dominated Brent benchmark is part of a shift of Russia's oil sales towards Asia"https://t.co/dpYheR1mHQ — Ben Norton (@BenjaminNorton) April 4, 2023 Several countries on the African continent are advocating de-dollarization as well. In March, Kenya signed an agreement with state-owned companies in Saudi Arabia and the UAE to buy oil on credit, using the country’s local currency, the shilling. Kenya asked to do so because the African nation’s dollar reserves are running low, as it pays for more expensive imports. Kenya to start buying petroleum products with Kenyan shillings https://t.co/Q6HEcB4I6r — Peoples Gazette (@GazetteNGR) March 27, 2023 One of the world’s leading newspapers, the Financial Times, acknowledged in an article in March that these historic developments are part of a transition to a “multipolar currency world“. The chair of the Financial Times’ editorial board and US editor-at-large, Gillian Tett, wrote that “US banking turmoil, inflation and looming debt ceiling battle is making dollar-based assets less attractive”. She noted that the former Goldman Sachs economist who first popularized the term BRICS, Jim O’Neill, has stated that “the dollar plays far too dominant a role in global finance”. Prepare for a multipolar currency world https://t.co/gCoN2YjEEY — FT World News (@ftworldnews) March 30, 2023

Write an article about: Europe angry that US profits from Ukraine proxy war while destroying EU economy. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

EU, Europe, European Union, gas, Joe Biden, LNG, Ukraine

EU leaders are furious that the US is making lots of money from the proxy war in Ukraine by selling weapons and exporting expensive natural gas. Meanwhile European industries are being destroyed as high energy prices and US subsidies push its companies to go overseas. (Se puede leer esta nota en español aquí.) Cracks are emerging in the NATO alliance. Numerous Western corporate media outlets have published reports showing growing political divisions between the United States and European Union. EU leaders are angry that the US is making lots of money from the proxy war in Ukraine, both by selling vast quantities of weapons and by making Europe reliant on its expensive liquified natural gas (LNG), instead of Russia’s significantly cheaper pipeline gas. Meanwhile, European economies suffer from high inflation rates and an energy crisis that make manufacturing so expensive and uncompetitive it could bankrupt entire industries. Politico published an article in November detailing precisely this, titled “Europe accuses US of profiting from war.” An unnamed “senior official” in Europe told the publication, “The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons.” Politico wrote: French President Emmanuel Macron said high U.S. gas prices were not “friendly” and Germany’s economy minister has called on Washington to show more “solidarity” and help reduce energy costs. Ministers and diplomats based elsewhere in the bloc voiced frustration at the way Biden’s government simply ignores the impact of its domestic economic policies on European allies. When EU leaders tackled Biden over high U.S. gas prices at the G20 meeting in Bali last week, the American president simply seemed unaware of the issue. The escalating US-EU conflict recalls the notorious maxim of former Secretary of State and imperial planner Henry Kissinger: “America has no permanent friends or enemies, only interests.” The Biden administration’s passage of the Inflation Reduction Act this August has sent the EU “into full-blown panic mode,” and even threatens to bring about a “transatlantic trade war,” according to Politico. The law pledges up to $369 billion in subsidies to support companies that claim to be environmentally friendly, as part of a “green” transition. These huge US subsidies “threaten to destroy European industries,” the outlet reported, and have led Brussels to “draw up plans for an emergency war chest of subsidies to save European industries from collapse.” An unnamed EU diplomat told Politico, “The Inflation Reduction Act has changed everything,” asking, “Is Washington still our ally or not?” A similar article by a staunchly pro-NATO columnist, also published by Politico, insisted “Biden keeps ignoring Europe. It’s time EU leaders got the message.” The column emphasized that the US government’s top priority its its new cold war on China. “The U.S. remains steadfastly focused on what most perceive to be its main existential challenge: China,” Politico wrote. “In that equation, Europe is often an afterthought.” The media outlet concluded: But what the Europeans are discovering is that the Ukraine war is just one facet of the U.S.’s larger strategic duel with China, which will always take precedence over EU interests. That was true under Trump, and it remains true under his successor. It’s just that the message is delivered in a different style. In the long run, Biden’s polite indifference may prove more deadly. As recently as the beginning of 2022, Russia was the largest exporter of both gas and oil to Europe. But in response to Russia’s invasion of Ukraine in February, the US and EU imposed harsh sanctions on Moscow and vowed to boycott its energy. This has blown back on Europe, and hard. In August, Bloomberg published an article titled “European Power Prices Reach Records as Industry Starts to Buckle.” It noted that electricity prices in Germany have risen as much as 500% in the past year. The report warned the “magnitude of the crisis isn’t comparable to anything in the past few decades.” “Countries across Europe are planning for possible power shortages this winter, with some considering rationing supplies to certain industries to ensure essential demand can be met,” Bloomberg said. These historically high energy prices were already painful enough. But Washington’s proposed subsidies have only further incentivized European companies to move to the United States. In a November report titled “European industry pivots to US as Biden subsidy sends ‘dangerous signal,’” the Financial Times reported the same: the Inflation Reduction Act “is moving momentum a lot from Europe to the US.” The FT wrote: The combination of the Biden Administration’s $369bn package and high energy costs in Europe, where even after recent declines gas prices remain five times more expensive than in North America, is sounding alarm bells in EU capitals. “I think we need a European wake-up on this point,” French president Emmanuel Macron told executives from domestic industrial companies such as glassmaker Saint-Gobain and cement maker Lafarge in a speech last week. Germany’s economy minister, Robert Habeck, described the US support as “excessive” and “hoovering up investments from Europe”. The EU has accused Washington of breaching World Trade Organization rules and set up a task force with the Biden administration to resolve their differences. The Wall Street Journal published a similar article in September, titled “High Natural-Gas Prices Push European Manufacturers to Shift to the U.S.” “The Ukraine war is driving up energy costs in Europe, while relatively stable prices and green-energy incentives are luring companies to the U.S.”, the newspaper wrote. “Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support,” the Wall Street Journal added. The report predicted that Europe “could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent.”

Write an article about: What is ‘socialism with Chinese characteristics’? Inside China’s economic model. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, John Ross, neoliberalism, podcast, socialism

How does socialism with Chinese characteristics differ from Western neoliberal capitalism? Economist John Ross, who has taught in China, explains Beijing’s model. Multipolarista editor Benjamin Norton discussed China’s socialist model with economist John Ross, a senior fellow at the Chongyang Institute for Financial Studies at Renmin University of China. Ross criticized Western left-wing academics like David Harvey, who have argued that China’s economy is capitalist or even neoliberal. “The Chinese model has nothing to do whatever with neoliberalism. And that’s why it produced totally different results,” Ross said. “China has raised, by World Bank criteria, since 1978, 850 million people out of poverty,” he emphasized. “This is the greatest contribution to human rights in the entire world.” “There has never been such an alleviation of poverty in the whole of world history,” he noted. “It’s more than 70% of all those people taken out of poverty on the world scale.” Ross continued: “You can see it most clearly by looking at the state sector within the Chinese economy. The state sector within the Chinese economy accounts for around 40% of the investment in China. And that is concentrated in all the large companies. The largest companies in China are state-owned companies, by far.” “This means that the economy can be controlled by lifting the level of investment by the state up and down. And that’s the way the economy is run.” “Where does the word socialism come from? It comes from ‘socialized,’” he explained. “Of course the economy develops in a very uneven way. You have very, very large, that is highly socialized companies, which are the most powerful, the most developed, and we may say the commanding heights of the economy. And then you go down to single-family farms, single-family shops, etc., which are not highly socialized.” “China does differ from the Soviet Union,” Ross pointed out. “The Soviet Union had what I would call an administered economy. Every single detail down to the prices were controlled.” “China doesn’t do that. The way China runs its economy is that it moves the level of state investment up and down.” In the Soviet Union all industries were owned and run by the state, “whereas China took what you would call the commanding heights, or if you want to use Marx’s term, the most socialized sections of the economy are taken into the state.” “This means in particular, China, the Chinese state, owns the largest companies. It particularly dominates the banks. All the large banks in China are state-owned. The land is state-owned. The energy system is state-owned. The largest manufacturing companies are state-owned.” “But it doesn’t want to take over, and shouldn’t take over incidentally, every little local corner shop, every single restaurant, etc. There, that can be done perfectly well by individual people; in fact it will develop more efficiently.” Ross, who previously served as director of economic policy for London Mayor Ken Livingstone, also discussed the sabotage of leftist Labour leader Jeremy Corbyn and the party’s turn to the right. “If you look at the situation, what was done by the Labour Party to Corbyn, it was a flat out vilification and falsification of him, ridiculous charges such as that he was an anti-semite. Jeremy Corbyn is the most determined anti-racist,” Ross said. “The idea that the Labour Party was institutionally anti-semitic, or that Corbyn was anti-semitic, was absolute nonsense, an absolute frame up.” “And now what has happened is we now have a very right-wing, I’m afraid, leadership of the Labour Party, because this attack on Corbyn was not successfully defeated, which has very terrible consequences.”

Write an article about: BRICS Bank de-dollarizing, promises 30% of loans in local currencies, new chief Dilma Rousseff says. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Brazil, BRICS, de-dollarization, Dilma Rousseff, dollar, inflation, interest, Lula da Silva, NDB, New Development Bank

The new chief of the BRICS bloc’s New Development Bank, Brazil’s leftist ex-President Dilma Rousseff, revealed they are gradually moving away from the US dollar, promising at least 30% of loans in local currencies of members. The new president of the BRICS Bank has revealed that the Global South-led bloc is advancing toward de-dollarization, gradually moving away from use of the US dollar. The New Development Bank plans to give nearly one-third (30%) of its loans in the local currencies of the financial institution’s members. Dilma Rousseff, the left-wing former president of Brazil, took over the leadership of the Shanghai, China-based New Development Bank (NDB) this March. The new chief of the BRICS' New Development Bank, Brazil’s leftist ex-President Dilma Rousseff, revealed they are gradually moving away from the US dollar, promising at least 30% of loans in local currencies of members. More here: https://t.co/CyJKBODc2D pic.twitter.com/PUGokEHYxw — Ben Norton (@BenjaminNorton) April 15, 2023 The NDB was created in 2014, by the BRICS bloc of Brazil, Russia, India, China, and South Africa, as a Global South-oriented alternative to the US-dominated World Bank, which is infamous for imposing neoliberal economic reforms on impoverished countries, which hinder their development. In an interview with China’s major media outlet CGTN on April 14, Rousseff explained, “It is necessary to find ways to avoid foreign exchange risk and other issues, such as being dependent on a single currency, such as the US dollar”. “The good news is that we are seeing many countries choosing to trade using their own currencies. China and Brazil, for instance, are agreeing to exchange with RMB (renminbi) and the Brazilian real”, she said. “At the NDB, we have committed to it in our strategy. For the period from 2022 to 2026, the NDB has to lend 30% in local currencies, so 30% of our loan book will be financed in the currencies of our member countries”, Rousseff added. “That will be extremely important to help our countries avoid exchange rate risks and shortages in finance that hinder long-term investments”, the new NDB president stressed. H.E. Mrs. Dilma Rousseff, the NDB newly elected President, has started her first day in office in the NDB Headquarters in Shanghai, China. pic.twitter.com/JOLblXhhzQ — New Development Bank (@NDB_int) March 28, 2023 Members of the NDB not only include the founders of the BRICS but also Bangladesh, the UAE, and Egypt. Uruguay is likewise in the process of joining, and many other countries have expressed interest. Argentina, Iran, and Algeria have formally applied to join the extended BRICS+ bloc, and according to the foreign minister of Russia, Sergei Lavrov, other nations that are interested “include Egypt, Turkey, Saudi Arabia, the United Arab Emirates, Indonesia, Argentina, Mexico, and a number of African nations”. Flags of the members of the BRICS bloc’s New Development Bank (NDB) South Africa’s foreign minister, Naledi Pandor, revealed in January that BRICS plans to “develop a fairer system of monetary exchange” in order to weaken the “dominance of the dollar”. “The systems currently in place tend to privilege very wealthy countries and tend to be really a challenge for countries, such as ourselves, which have to make payments in dollars, which costs much more in terms of our various currencies”, she said. “So I do think a fairer system has to be developed, and it’s something we’re discussing with the BRICS ministers in the economic sector discussions”, Pandor added. BRICS is making “a fairer system of monetary exchange” to challenge the “dominance of the dollar”, South Africa revealed. Saudi Arabia, which applied to join BRICS, is considering selling oil in other currencies. China says it will by Gulf energy in yuanhttps://t.co/fDWhqExVAw — Geopolitical Economy Report (@GeopoliticaEcon) March 13, 2023 This April, Brazil’s current president, Lula da Silva, a fellow member of Dilma’s leftist Workers’ Party, took a historic trip to China, where he called to challenge US dollar dominance. While in Shanghai, Lula was the first head of state to visit the NDB headquarters, where he attended the swearing in ceremony for Dilma. Lula said the NDB’s goal is “creating a world with less poverty, less inequality, and more sustainability”. He added that the bank should play a “leading role in achieving a better world, without poverty or hunger”. This was the first time that a Head of State visited the Bank's Headquarters in Shanghai and addressed the NDB staff in person. President Lula had the opportunity to witness the NDB's commitment to promoting sustainable development and delivering on its mandate.#NDB #BRICS pic.twitter.com/MlC9tfySPY — New Development Bank (@NDB_int) April 13, 2023 Dilma also commented, “As a former president of Brazil, I know the importance of the work of multilateral banks to support developing countries, particularly NDB, in addressing their economic, social, and environmental needs”. “Becoming the president of the NDB is undoubtedly a great opportunity to do more for the BRICS, the emerging markets, and developing countries”, she said. In her speech, H.E. Mrs. Dilma Rousseff emphasized the Bank's commitment to supporting Brazil's sustainable development goals and highlighted the importance of the presidential visit for strengthening the cooperation between the NDB and Brazil.#NDB #BRICS pic.twitter.com/0aut3dLM1H — New Development Bank (@NDB_int) April 13, 2023 In her interview with CGTN, Rousseff explained her goals with the BRICS Bank: It is very important to me that New Development Bank, the bank of the BRICS, acts as the tool to support the development priorities of the BRICS and other developing countries. We need to invest in projects that contribute to three fundamental areas: First, we need to support the countries with regards to climate change and sustainable development goals. Second, we should promote social inclusion at every opportunity we have. And I believe we should finance their most critical and strategic infrastructure projects. That said, we want to promote quality development. Developing countries still don’t have the necessary infrastructure. They don’t have enough ports, airports, and highways to meet their needs. And many times, the ones they have are not adequate. They still have to build alternatives and more modern models of transportation, for instance. I see China, a country that has developed capability for alternative transportation at the scale and quality it needs. NDB has to support the other countries to also build their quality infrastructure as well, like high-speed trains. It is very important to invest in technology and innovation, invest in universities for example. Our countries will not overcome extreme poverty if we don’t invest in education, science, and technology. When asked what challenges the BRICS and NDB face, Rousseff replied: The world now is under the threat of high inflation and restrictive monetary policy, particularly in developed countries. Such monetary policy means a higher interest rate, and therefore a higher probability of reduction in growth and a higher probability of recession. This presents an important question for the BRICS. We need a mechanism, a so-called anti-crisis mechanism, which must be counter-cyclical and support stabilization. It is necessary to find ways to avoid foreign exchange risk and other issues, such as being dependent on a single currency, such as the US dollar. The good news is that we are seeing many countries choosing to trade using their own currencies. China and Brazil, for instance, are agreeing to exchange with RMB (renminbi) and the Brazilian real. At the NDB, we have committed to it in our strategy. For the period from 2022 to 2026, the NDB has to lend 30% in local currencies, so 30% of our loan book will be financed in the currencies of our member countries. That will be extremely important to help our countries avoid exchange rate risks and shortages in finance that hinder long-term investments.

Write an article about: Economist Michael Hudson explains inflation crisis and Fed’s secretive $4.5 trillion bank bailout. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

banks, China, dollar, economics, Fed, Federal Reserve, gold, Michael Hudson, Russia, Wall Street

Economist Michael Hudson discusses the global inflation crisis and how the US Federal Reserve quietly (and apparently illegally) bailed out big banks in 2019 with $4.5 trillion of emergency repo loans Ben Norton interviewed economist Michael Hudson to discuss what is causing the global inflation crisis, and also how the US Federal Reserve quietly bailed out big banks in September 2019 with $4.5 trillion of emergency repo loans that appear to have blatantly violated the law. TRANSCRIPT BENJAMIN NORTON: Hey, everyone. This is Ben Norton, and I’m joined by a friend of the show, one of our favorite guests, Michael Hudson, the economist. His reputation precedes him; many of you probably know him. You can go to michael-hudson.com and check out his excellent articles and his books. We had him on a few months ago to talk about the new, third edition of his book “Super Imperialism: The Economic Strategy of American Empire.” And today we’re going to talk about the inflation crisis around the world. In the US in 2021, there was inflation around 7%, and this has led to a lot of discussion about what is causing the inflation, why there’s inflation. Professor Hudson has pointed out for many years that inflation in the US and other countries is often measured in a very strange way that doesn’t include housing prices, and it doesn’t include what he calls the FIRE sector: finance, insurance and real estate. So today we’ll talk about the rising rates of inflation and what corporate media outlets are missing about the story. But before we begin talking about that, Professor Hudson, another reason I wanted to have you today is to talk about a big story that went viral. It was just published, and it’s on the website Wall Street on Parade. It went so viral that the website actually went down, because it was being shared so much. This is an article just published at wallstreetonparade.com. I have it up in the archive because the website is down. And the article is titled, “There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.” And this is by Pam Martens and Russ Martens, published on January 3. I’ll just briefly summarize the main point, and then I want to get your response, because I think this is obviously part of the discussion around the inflation crisis. “The Federal Reserve released the names of the banks that had received $4.5 trillion” – that is trillion with a T – “in cumulative loans in the last quarter of 2019 under its emergency repo loan operations for a liquidity crisis that has yet to be credibly explained.” So Professor Hudson, I’ll ask you in a second to explain what that liquidity crisis was. And they point out that, among the borrowers that received $4.5 trillion in loans from the Fed were JPMorgan Chase, Goldman Sachs, and Citigroup, “three of the Wall Street banks that were at the center of the subprime and derivatives crisis in 2008 that brought down the U.S. economy.” “That’s blockbuster news. But as of 7 a.m. this morning (January 3), not one major business media outlet has reported the details of the Fed’s big reveal.” And they suspect there are some journalists under gag orders. And then the other point to add here is that this borrowing was happening in September 2019, and it was actually before the first case of Covid was identified in the United States. They point out that the first Covid case was reported in the U.S. in January, and then the World Health Organization declared a pandemic in March 2020. This massive borrowing spree of $4.5 trillion was happening in September. So there are a few things you can respond to Professor Hudson. Maybe we can start with, why was the Fed giving trillions of dollars to these large Wall Street banks. And why was there a liquidity crisis? That’s unexplained. Why did the Fed refused to release the names of these banks? And was there a financial crisis before Covid that the U.S. government later was able to blame on Covid, but it was actually a financial crisis in the making? MICHAEL HUDSON: There was actually no liquidity crisis whatsoever. And Pam Martens is very clear about that. She points out the reason that the regular newspapers don’t report it is the loans violated every element of the Dodd-Frank laws that were supposed to prevent the Fed from making loans to particular banks that were not part of a liquidity crisis. In her article, she makes very clear by pointing out these three banks, Chase Manhattan, Goldman Sachs – which used to be a brokerage firm – and Citibank, that the Federal Reserve laws and the Dodd-Frank Act explicitly prevent the Fed from making loans to particular banks. It can only make loans if there’s a general liquidity crisis. And we know that there wasn’t at that time, because she lists the banks that borrowed money, and there were very few of them. There were the big three that she mentions. There was also Nomura, that got one-third of the loans in that order that were taken out. I think, on balance, the repo loans were like $20 billion and Nomura got $10 billion of them. And Cantor Fitzgerald was also in there. Well, what happened, apparently, was that while the Dodd-Frank Act was being rewritten by the Congress, Janet Yellen changed the wording around and she said, “Well, how do we define a general liquidity crisis?” Well, it doesn’t mean what you and I mean by a liquidity crisis, meaning the whole economy is illiquid. She said, “If five banks need to borrow, then it’s a general liquidity crisis.” Well, the problem, as she points out, is it’s the same three big banks, again and again, and again and again. And these are not short-term loans. She points out that they were 14-day loans; there were longer loans. And they were rolled over, not overnight loans, not day-to-day loans, not even week-to-week loans. But month after month, the Fed was pumping money into JP Morgan and Citibank and Goldman. But then she points out that, or at least she told me, that these really weren’t Citibank and Morgan Chase; it was to their trading affiliates. Now this is exactly what Dodd-Frank was supposed to prevent. Dodd-Frank was supposed to protect the depository institutions by trying to go a little bit to restore the Glass-Steagall Act that Clinton and the Obama thugs that came in to the Obama administration all got rid of. It was supposed to say, “OK, we’re not going to let banks having their trading facilities, the gambling facilities, on derivatives and just placing bets on the financial markets – we’re not supposed to help the banks out of these problems at all.” So I think the reason that the newspapers are going quiet on this is the Fed broke the law. And it wants to continue breaking the law. And that’s why these Wall Street banks fought so hard to get the current head of the Fed reappointed, [Jerome] Powell, because they know that he’s going to do what [Timothy] Geithner did under the Obama administration. He’s loyal to the New York City banks, and he’s willing to sacrifice the economy to help the banks. Because those are the clients of the New York Fed, the big New York banks. And that’s been the case ever since I was on Wall Street half a [century] ago. And Pam [Martens] is trying to expose how these banks are crooked, and really what the whole problem was. She points out that the Fed is supposed to make short-term loans, but these are long-term loans. And the banks are not structurally insolvent. Without them, they would have lost money. The FDIC could have come in and taken them over. And the depositors, the insured depositors, would have been OK, which is just exactly what Sheila Bair, who was head of the Federal Deposit Insurance Corporation, wanted to do under Obama, when she was blocked by Geithner. She sat with Geithner and Obama, and he said, “Look, I’m backed by the banks; forget the voters. Banks are my campaign contributors.” And he bailed out the banks and sacrificed, pushed the whole economy into what is now a 12-year recession basically, that is not improving at all. So what is happening now is part of the whole quantitative easing bit that has really been a disaster. And the crisis is the Fed is flooding the financial markets with credit in order to increase real estate prices, to increase mortgage lending, to enable the banks and the 1%, that own the private capital funds and the insurance companies and the banks, to continue making money. And the reason that that these three banks were bailed out was they had made bad bets against, apparently, insurance companies, and foreign banks. Apparently MetLife, and Prudential, and other insurance companies made bets as to which way the stock market would go, and they won and Chase lost, Citibank lost, and Goldman Sachs lost. And somebody else must have lost because in September of 2019, when all this was occurring, the overnight rate went up to 10%. Well, that means that someone had really made a bad bet and was technically on paper insolvent, and that nobody would lend to them. For 10% overnight money, that means that nobody’s going to lend to you. Everybody knows that you’re insolvent. And that was all hushed up at the time. Not a word of it in the paper. And this is such a touchy subject that, if the banks would begin to – if the newspapers and the media would begin to get into the explanation of how all this developed, that would sort of counter the whole Fed’s strategy, and the whole Democratic Party strategy, which is to support Wall Street, not the economy at large. BENJAMIN NORTON: And Professor Hudson, what you’re getting at here is that, these banks were engaged in very risky behavior. And essentially all of the indications appear to be that they kind of unleashed a financial crisis in late 2019. And then with the pandemic, they could conveniently blame it in the pandemic. I’m not saying – obviously, they didn’t cause the pandemic. But I’m saying that it was actually, in some ways, it was actually a savior for them, a life saver, because then they could say, “Oh, well, we didn’t cause a financial crash; it was the pandemic.” But we actually see signs that, in late 2019, before Covid even arrived in the United States – well, there’s even discussion about that, but before the first official case of Covid was identified in the United States – there was already a financial crisis, apparently, and the Fed was just trying to cover it up. MICHAEL HUDSON: Well, the problem is that the Fed made sure that it didn’t have to release any of this data for two years, on the theory that after two years, nobody can remember what’s happening and it doesn’t matter anymore; it’s yesterday’s news. And so the material only just came out now. We’re always going to be two years behind. And if you’re two years behind, then the thieves are going to have plenty of time to cover up what they’ve done, borrow even more money, and it’ll be too late to do anything. The whole idea is not to make the Fed transparent, to make a wall of secrecy around the Fed, so that it can do with its pet banks, and bail out the banks that most Americans don’t think should have been bailed out by Mr. Obama in 2009, and certainly don’t think that they should be bailed out now, as long as the depositors and the regular companies in the real economy is kept safe. But the Fed isn’t saving the real economy. It’s saving the gamblers. BENJAMIN NORTON: And Professor Hudson, there’s an incredible line, an incredible paragraph in this article that I want to get up here, that says a lot about not just the US economic system, but also the media. The last paragraph of this piece: “Why might such an outcome be a problem for media outlets in New York City? Three of the serially charged banks (JPMorgan Chase, Goldman Sachs and Citigroup) are actually owners of the New York Fed – the regional Fed bank that played the major role in doling out the bailout money in 2008, and again in 2019. The New York Fed and its unlimited ability to electronically print money, are a boon to the New York City economy, which is a boon to advertising revenue at the big New York City-based media outlets.” I didn’t know – it’s pretty incredible. I knew that, obviously, the Fed is this kind of public-private, complex – whether or not it’s public or private, I know that people say it’s neither and both. So it’s confusing. Maybe you could explain that. But I didn’t know that JPMorgan Chase, Goldman Sachs, and Citigroup are owners of the New York Fed. MICHAEL HUDSON: Well, technically the Fed stock – all the banks have to own Federal Reserve stock; so it doesn’t matter that they’re owners. The ownership isn’t all that important for the Fed. Because the Fed is really a government organization. But the problem is that Wall Street has taken over the government. And it has taken over the Fed not through its ownership; it doesn’t have shares to vote as to who is going to be the head. The heads are appointed in Washington; they’re appointed by Congress. I talked to Pam [Martens] about that and she said because her site was so overloaded, she couldn’t get on it to write more last night, when it was up. And she has other theories. I thought that it’s the tail wagging the dog to say, well, look, it’s about advertising. The banks don’t do that much advertising, and nobody is going to kill a whole big story like this for the ads. And so, when we talked, she said she thinks part of the problem is margin loans. I mean, there are all sorts of problems that could have happened there. And the banks have been, again, operating if not illegally, then, let’s say, stretching the envelope, by pretending that what really are margin loans to help people buy stock are really disguised, or somehow their lawyers have drawn up these contracts as derivatives contracts. And a derivative you can lend 50% against, instead of just 15% for margin loans. So the banks actually have been working around the whole spirit of the law to make much larger loans than they should have. And when the stock market, as you have been watching, back then is doing what it’s doing today; it’s zigzagging, up and down, and up and down in a zigzag. That’s how you make money: Push it up, computerized buying; push it down, computerized selling. And one part of it was other banks venturing not only into derivatives but into the margin loans. I don’t think the ownership can control management. It’s not that Citibank and Chase can say, “Well, we own the majority stock in the Fed, so we’re just going to appoint one of our own guys as manager.” They don’t have to. They’ll give money to the Biden administration, and Biden will appoint their people. So the Fed is really controlled by the government, and all you have to do is give a campaign contribution to the government, and you get whatever you want. And I think Pam [Martens] would agree with that analysis. So that really should be the emphasis, not the banks, not that the New York Times is after more advertising money from Chase. I think there is more bank advertising on television than there is in the newspapers. And also, I think the the older reporters that used to know how to read a financial balance sheet, they’re all retired or they’re not working anymore. Or if they get too close, too embarrassing, and write columns like Pam [Martens] does, all of a sudden, they’re not working for the same organization anymore. So I think people just don’t understand what a repo is, how it’s connected to the money supply – and it isn’t – how it’s connected to quantitative easing. There is just a general economic illiteracy. Because if you get an economics degree in academia, they don’t talk about money, or debt, or credit. None of this appears. None of this is in your money in banking course. It’s all sort of a Mickey Mouse Walt Disney Happy World, where nothing like this occurs. And so how is a reporter going to know how to do the research that Pam goes into year after year? Taking apart all these balance sheets and doing all the analysis you have to do to net out what’s actually happening from the whey. When IBM was fighting an antitrust suit – this must have been 50 years ago – and the government wanted some information from it, IBM through, “We’ve got to give the government information. What are we going to do?” So it gave two huge storerooms of hard printout of information that would have taken five years to go through. Well that’s what the Fed did with these statistics. It gave such a mass of information that you had – it was like looking for a needle in a haystack in order to find it. And as newspapers have been run more like profit-making companies, they have cut the costs. They don’t have the time to do the research to find the needle in the haystack. And since Pam [Martens] doesn’t work for a newspaper that’s under that cost constraint, she knows just what she’s looking for and goes right to it. BENJAMIN NORTON: And Professor Hudson, let’s talk about the inflation crisis and if this is related to it. We we had you on in early 2020 to talk about the CARES Act, and the so-called bailout, that was, as you said, basically a multi-trillion-dollar giveaway to the financial sector. And I believe that’s an addition to the $4.5 billion in the repo loans that we’re talking about. MICHAEL HUDSON: Yeah, that wasn’t the Federal Reserve; that was Treasury spending, not the Federal Reserve. They’re completely separate. BENJAMIN NORTON: Exactly. So we’re talking about over $10 trillion, between the two, over $10 trillion that went to the financial sector in the span of less than a year, in six months or so, from late 2019 to early 2020. Do you think that that is one of the main reasons for the inflation? I want to preface by saying that a point that you often stress, which I think is important to keep in mind, is that, the way inflation is measured frequently, at least in the United States, is that it doesn’t include things like the housing sector. And you have often pointed out for years that there has been a lot of inflation over the past several years in the FIRE sector. And real estate prices are a clear example of that. But that’s not considered the consumer price index. So go ahead. MICHAEL HUDSON: It actually is included, but in a very moderate way, modest way. I’ve looked at the Fed statistics on rent as a portion of income and mortgage payments as a portion of income. And in the last 30 years, there’s been zero change, according to these statistics. Absolutely flat. So they decided what the percentage was; they haven’t changed it at all. The consumer price index doesn’t recognize the increase in either rental costs or mortgage costs as housing prices have risen. So they’re under-reported. But more important, people have had to change what they’re eating and what they’re buying. But it’s certain, the money that the Fed gave to individual families under the CARES Act, almost all of that was used to pay down debt. Because the way the Treasury made the payments was to credit either their credit cards or their bank accounts. And that most Americans are overdrawn on their bank accounts, or they owe money on their credit cards. And the money went right out of their hands to reduce the volume of debt they had. And essentially, it was a debt repayment to the bank. That was what happened to most of the CARES Act. It wasn’t spent on goods and services, and so it wasn’t inflationary. Just the opposite. So there are a number of reasons why prices have gone up. The big reason is, if you look at the prices that have gone up, they’re monopoly prices. The monopolies have been able to charge more because they’re monopolies, and because there’s less and less competition, and because the government is not really enforcing anti-monopoly legislation. President Biden is trying to increase that now, but it’s going to take a little while before the prosecution of monopolies and talk of break-ups really concludes. Also there are a lot of bottlenecks in transportation, as you’ve heard. There are two kinds of bottlenecks: One, you’ve heard about the port in Los Angeles, over the ships. The shipping costs have tripled from Asia to the United States. The ships are unable to unload because the ports are not organized as ports. Particular companies own the trucks; other companies own the containers; other companies own the ships. And there is no way to reconcile them to get the containers that are offloaded from the ships once they’re emptied out, there’s no way to get them back. You have to get them back to particular terminals, and it’s not designed by anybody who is competently put there. The one benefit to the whole economy of all this is that it means that there’s no chance that the secretary of transportation, Mayor Pete [Buttigieg], can ever show his face in public again. But that’s sort of a minor gain. The other fact is that in companies, there’s a new management philosophy that’s come in, maybe about 15 years ago, and that’s called just-in-time inventory. In other words, the idea is, you want to cut – the less you spend on inventories, the more money you have to pay out as dividends to your stockholders. If you don’t have to spend money on inventories, then your profit rates go up, and you can pay more. And so companies say, “Let’s operate with almost no inventories at all. That way, we’ll have a little bit more money to push up the stock price.” And if you’re the CEO, you get your bonus paid on the stock price. Well, the problem is that the purpose of inventories is to prevent zigzags in prices, when there are shortages. If there is a supply problem, well, you have enough inventories on hand so that you are not going to have a crisis. That’s why the United States has a national inventory of oil, and fuels, and national reserves of things that the government and the economy needs. But Walmart, and other stores, and distributor retail stores don’t operate in the same way for the economy. They’re after profits. So they didn’t have any inventories. So a little bit of a shortage all of a sudden caused a massive scramble to try to get enough goods to sell to people. And so it’s that just-in-time budgeting. And also, of course, there are labor shortages from Covid. People are finally beginning to get almost half of the minimum wage; some people are almost able to earn the minimum wage now. Where there is a real labor shortage, in New York City, the transport authority said it’s paying its workers an extra $35,000 to retirees, if they’ll sign on for three months to get over the current shortage. So a little bit is, finally, the class war against labor is alleviated because of the crisis. So those are the real reasons of inflation. It’s not a monetary inflation, except for the financial inflation of housing prices, and the fact that it has created so many multi-billionaires by the Fed’s quantitative easing, that they’ve all created private capital buyout funds, and they’re buying up all the housing and outfitting the owner occupants that want to buy housing, to take over the housing, turn it into rental housing, and charge cutthroat rents to the economy. BENJAMIN NORTON: Yeah, it’s pretty interesting, Professor Hudson, because if you listen to Fox News, or a lot of right-wing analysis, they say that the problem behind the inflation is that the Biden administration is just spending so much money, and he’s a socialist, and he’s funding all of these programs, and Build Back Better. And it’s hilarious because, meanwhile, his own party won’t even approve the watered down version of Build Back Better, which is like every few weeks there’s a trillion dollars less, and then less spending, and less spending. So it’s pretty funny considering that his own party is preventing social spending, and then Republicans are claiming that he’s doing all this social spending, which is creating inflation. I want to point out a graph, an analysis that was done by this really good analyst named Stephen Semler; he’s got a good Substack where he focuses on the Military-Industrial Complex. And he did this study here called “Biden over-delivered on military spending and under-delivered on social spending.” And here this graph really visualizes the disparity, where Biden, when he campaigned, he pledged $700 billion for human and physical infrastructure and has only delivered $55 billion, a tiny fraction. And he campaigned pledging $741 billion for the Pentagon and just delivered a $778 billion dollar military budget. So while the right wing is freaking out and claiming that Biden is a socialist, spending all this money on social programs, in fact that money is going toward increasing the military budget, and not going to social programs. I don’t know if you wanted to comment on that. MICHAEL HUDON: Sure, I think that Schumer has a great influence over the Republican Party, and I think Schumer and Pelosi meet with their counterparts at the Republicans and say, “Please call us a socialist. We’re not going to disagree with you.” Because they know that 85% of Americans like the word socialism. And the more that Republicans call them socialist, that helps them solidify the base that really wants socialism, so that the Democratic Party can throw cold water on that and prevent socialism. It’s a great scam. BENJAMIN NORTON: That’s an interesting point; it’s an interesting idea. MICHAEL HUDSON: But actually, the Biden administration, they haven’t spend money into the economy. Spending money into the FIRE sector – the finance, insurance, and real estate sector – isn’t spending money into the economy; it’s spending money into the overhead that is preventing the economy from growing. Just the opposite. And to be fair to Biden, he hasn’t followed through on any of his other campaign promises, either. He hasn’t cut back student debt like he promised. He hasn’t raised the minimum wage like he promised. So it would be unfair to single out just the infrastructure. He has universally repudiated every campaign promise that he made, because his clientele are the campaign contributors, not the voters. BENJAMIN NORTON: Yeah, excellent point. He also, according to a recent study just published yesterday, on January 3, he also has increased deportation of immigrant children by 30% compared to Trump. He didn’t end the war in Yemen; has continued selling weapons to Saudi Arabia. Professor Hudson, you mentioned something important, that is quantitative easing. For those of us who are not economics experts. Can you explain what quantitative easing is? I just want to get this graph here. So before doing this interview, I wanted to listen to what kind of mainstream business news outlets were saying. This is a graph from Yahoo Finance. And they were talking all about the Fed interest rate, and they said that the Fed is planning on increasing the interest rate three different times this year, potentially. And you can see a graph here of close to zero interest from around 2008 until really 2020 or so. So it does look like it might be slightly increasing interest rates, but do you think that’s smoke and mirrors, or do you think that’s actually a significant factor? MICHAEL HUDSON: Quantitative easing is a significant factor because it has been a huge subsidy to the financial sector. It’s a bad term. It was supposed to be – what quantity is easing? Not the money supply, because all this is occurring on the Fed’s balance sheet. It means that the Fed is letting banks pledge their junk mortgages, their bonds, and their stocks in exchange for Federal Reserve deposits that they can use to increase their lending base. And the official original reason in 2009 was the Fed said, we’ve got to have higher housing prices. Americans are only spending maybe 35% of their rent of their income on rent and housing. We’ve got to increase that to 43%. So if we can lower the interest rates, people can take out larger and larger mortgages, and there will be a huge flood of lending into the mortgage market, and Americans will have to pay more for their housing. And that will make the banks richer, the insurance companies richer, and our clients in the financial sector richer. So quantitative easing was designed to increase the price of housing to Americans, and then it was to create a huge stock market boom. And the banks had lost so much money through their junk mortgage lending and their insurance, their plain fraudulent loans, as Bill Black has pointed out at University of Missouri at Kansas City, that they said, “We’ve got to have the banks make back the trillions of dollars they’ve lost. And so we’re going to have quantitative easing to give them enough money to gamble with, that they can make money at the expense of the public at large, and the pension funds, and other people.” So quantitative easing was part of the war of the financial sector against the economy at large. And it just provides a lot of credit. If you have interest rates at 0.1%, then you can buy stocks that are yielding 5% or 7% or 10%, or you can borrow at 0.1% and buy a junk bond. And junk bond rates went down from about 15%, down to maybe 5% today. It’s all arbitrage. People are borrowing low from the Fed and from the banks that borrow from the Fed to essentially buy higher yielding securities. And this is this is what has pushed up the stock market. It’s not going up because the economy is getting better. It’s going up because the Fed has been inflated. The Fed’s aim is inflation. But it doesn’t want to inflate the economy, real prices, it wants to inflate stock and bond and real estate prices, for the 1%. So essentially, this is part of the war of the 1% against the 99%. They’ve got almost all the growth in wealth since the pandemic began. There has been about, I think, $1 trillion growth, more than that, in the private wealth. All of this wealth that has been created has been basically taken by the 1%, who have made it financially, through financial capital gains, rising prices for their stocks, bonds, and real estate, not by the economy at large. The economy at large, the 99%, have had to go further and further into debt during the pandemic. And once the moratorium on rent and mortgage payments expires in a month or so, there is going to be a huge wave of evictions, not only of renters, but even of homeowners that couldn’t afford to make their mortgage payments. And there’s going to be just a huge explosion. Well, the Fed’s job in an election year is always to help re-elect the president. Whether it’s a Republican president or a Democratic president, it doesn’t matter because they’re basically the same party, but it’s always to re-elect the sitting president. And so the Fed is not going to raise interest rates this year because once the Fed raises interest rates, then people are not going to borrow to buy stocks and bonds anymore. If they can’t make an arbitrage speculative gain by borrowing at 1% to buy a stock yielding 5%, they’ll sell the stock. And if they sell the stock, it’ll go down. And at a certain point, the Fed is running a pump and dump operation, and we’re going to get to the pump stage, quantitative easing, to the dump stage, when the insiders will say, “OK, time to raise interest rates Fed. Let’s raise them now.” They’ll sell out and the market will plunge, and people will say, “Nobody could have foreseen this.” BENJAMIN NORTON: Yeah, Professor Hudson, the kind of conventional bourgeois economics wisdom, if you’re just reading the business press, is that when there’s high inflation, the Fed should increase interest rates. And my understanding, at least according to reading the kind of conventional business press, is that the reason the Fed, at least the reason they claim, that the Fed reduced interest rates so low after the crash of 2008 was to help the economy grow. You can see the graph here showing the Fed interest rate, and it’s been pretty static, at close to 0%, really until the pandemic, and its slightly increased. But still even compared to the 1990s, when the interest rate was around 5 or 6%, or in the 1980s when the interest rate fluctuated, but was almost as high as 20%. I mean, even though the Fed has slightly increased interest rates recently, or it’s still talking about a fraction of 1%. It’s nothing compared to what the interest rates have been in the in the 1980s. So why is why is it? I mean, I think it’s pretty clear, given the answer you just said, but maybe you can further expand. What is the excuse they’re giving for not increasing interest rates further, if they want to supposedly combat inflation? MICHAEL HUDSON: They don’t have an excuse. They have a pretense. They have a cover story. And the cover story is trickle-down economics: We’ve just made enormous billions, trillions of dollars for the 1%, and it’s all going to trickle down. None of this has been spent into the economy, and they say, “We don’t have to spend it in the economy.” The Treasury doesn’t need Biden’s Build Back Better plan. All we need is to make more stock market gains and the 1%, maybe say the 10% of the population that owns most of the stocks, now they’ll have enough money to buy more Andy Warhol etchings, and rare art, and expensive wines, and things like that, and it’ll all trickle down. That’s not really an excuse; it’s so unrealistic; it’s parallel universe talking. But that’s the cover story. And it’s backed by everything that economics students are taught when they get an economics degree in the university. So who’s to puncture their balloon and say, “Wait a minute, here’s what’s really happening”? Well, you know your show; you have Pam Martins’; you have a couple of other sites. But the economy is living in a dream world, and propaganda is the name of the game. BENJAMIN NORTON: Professor Hudson, let’s switch topics a bit here. I want to talk about an issue that we frequently address with you, I think it’s very important, and that is de-dollarization. This is an interesting article that was just published in Nikkei, which is a Japanese website focused on business. This is Nikkei Asia. And they have this article just published December 29: “Central banks accelerate shift from dollar to gold worldwide.” They say “holdings rose to a 31-year high in 2021.” The dictatorship of the US dollar is weakening: "Central banks around the world are increasing the gold they hold in foreign exchange reserves" Central banks have built up gold reserves by 4,500 tons over the past decade, to the highest level since 1990 https://t.co/QltI92x33X — Ben Norton (@BenjaminNorton) January 2, 2022 Let me summarize a few of the main points here. They say, “Central banks around the world are increasing the gold they hold in foreign exchange reserves, bringing the total to a 31-year high in 2021.” And they “have built up their gold reserves by more than 4,500 tons over the past decade.” As of this September, this past September 2021, the reserves totaled 36,000 tons, the largest since 1990, and up 15% from a decade earlier. So why do you think central banks are are shifting to gold? MICHAEL HUDSON: They’re protecting themselves against US political aggression. The big story last year was – if a country keeps its reserves and US dollars, that means they’re holding US Treasury securities. The US Treasury can simply say, “We’re not going to pay you.” And even when a country like Venezuela tried to protect itself by holding its money in gold, where is it going to hold it? It held it at the Bank of England. And the Bank of England said, “Well, we’ve just been told by the White House that that they’ve elected a new president of Venezuela, Mr. Guaidó. And we don’t recognize the president that the Venezuelans elect, because Venezuela is not part of the US orbit.” So they grabbed all of Venezuela’s gold and gave it to the basically fascist opposition, to the ultra right-winger. The Americans say, “We’re going to recognize an opposition leader; we’re going to pick him out of thin air and take all the money away from Venezuela.” Countries all over, from Russia to China to the Third World, think the United States is going to just grab our money, any time at all. The dollar is a hot potato, because the US, basically, it looks like, is prepping for war over the Ukraine; it’s prepping for war with Russia; it’s prepping for war with China. It has declared war on almost the entire world that does not agree to follow the policies that the State Department and the military dictate to it. So other countries are just scared, absolutely scared of what the United States is doing. Of course, they’re getting rid of dollars. The United States said, “Well, you know, if we don’t like what Russia does, we’re going to cut off the banking contact with the SWIFT, the interbank money transfer system.” So if you do hold your money in dollars, you can’t get it. I guess the classic example is with Iran. When the Shah was overthrown. Iran’s bank was Chase Manhattan Bank, which I was working for, as a balance-of-payments analyst. And Iran had foreign debt that it paid promptly every three months, and so it sent a note to the bank, “Please pay our bondholders.” And Chase got a note from the State Department saying, “Don’t do what Iran wants; don’t pay.” So Chase just sat on the money. It didn’t pay the bondholders. The US government and the IMF declared Iran in default of paying, even though it had all the money to pay the bondholders. And all of a sudden, they said now Iran owes the entire balance that’s due, on the theory that if you miss one payment, then you default, and we’re going to make Iran do what the Fed didn’t make Chase Manhattan, and Citibank, and Goldman Sachs do. They couldn’t pay and transfer, but they weren’t pushed under bankruptcy. So by holding your money in the US bank, the US bank does whatever the government tells it to, and it can drive any country bankrupt at any point. If other countries pass a tariff against US goods that the US doesn’t like, it can just essentially not pay them on whatever they hold in the United States, whether they hold reserves in American banks, or whether they hold reserves in the Treasury or the Fed, the United States can just grab their money. And so the United States has broken every rule in the financial book, and it’s a renegade; it’s a pirate. And other countries are freeing themselves from piracy by saying, “The dollar is a hot potato. There is no way that we can believe them. You can’t make a contract with the American government.” Ever since the Native Americans tried to make land contracts in the 19th century with them, the United States doesn’t pay any attention to the contracts signed. And President Putin says it’s “not agreement capable.” So how can you make a financial arrangement with a country whose banks and State Department and financial department are not agreement capable? They’re bailing out. And what’s the alternative? Well, the only alternative is to hold each other’s currencies, and to do something that, for the last 2,000 years, the world has liked gold and silver, and so they’re putting their money into gold because it’s an asset that doesn’t have a liability behind it. It’s an asset that, if you’re holding it, not England, not the New York Fed – the German government has told the New York Fed, “Send us back to the gold that we have on deposit there for safekeeping. It’s not safekeeping anymore. Planeload after planeload of gold is being flown back to Germany from the U.S., because even Germany – satellite as it is – is afraid that the United States may not like something Germany does, like if Germany imports gas from Russia, will America just grab all its gold and say, “You can’t have it anymore; we’re fining you.” The United States has become lawless. And so of course you can’t trust it; it’s like a wild cat bank in the the 19th century. BENJAMIN NORTON: And Professor Hudson, something that you’ve talked about in our various interviews with you over the past few years, which proved to be very prescient, is that China and Russia were in the process of trying to develop a new financial architecture to get around the U.S.-controlled financial system. And they have officially announced that publicly. Anyone who follows our show would have known that a few years ago, because you have been pointing this out for well over a year now. But this is an article that was published this December in the Global Times, which is owned by the People’s Daily, so it’s very close to the Communist Party of China, and it represents the perspective of a certain wing of the Communist Party of China. And the article is titled “China and Russia to establish independent financial systems.” And they also quote Russian media; it was reported in RT as well. Russia and China are developing an alternative to the US-controlled global financial system, to weaken US sanctions This will "deter the threat of the US government's long-arm jurisdiction based on the US dollar-denominated international payment network"https://t.co/suWDWwwLvk — Ben Norton (@BenjaminNorton) December 17, 2021 And very briefly, to summarize the article, they say that “Russia and China have agreed to develop shared financial structures to deepen economic ties in a way that will not be affected by the pressure of third parties.” And we all know when they say third parties, they mean the United States. And they also talk about how this is to “deter the threat of the U.S. government’s long arm jurisdiction based on the U.S. dollar-denominated international payment network.” And they also reveal that they’re trying to drop the dollar in their business, in the business that China and Russia do with each other. And then here’s another article to complement this. This was in Turkish state media back in July of 2021: “Russia accelerates de-dollarization move.” Russia accelerates de-dollarization move https://t.co/TFhMdAni9w pic.twitter.com/WVLnBd1Yek — ANADOLU AGENCY (@anadoluagency) June 7, 2021 And they talk about how Russia at the St Petersburg International Economic Forum, President Putin accused the U.S. of using the dollar as a tool of economic and political warfare. And he said “the US will regret using the dollar as a sanctions weapon.” And he pointed out that that Russia’s oil companies are trying to stop using the currency. And the country’s finance minister, Anton Siluanov, said Russia will completely divest its dollar assets in the National Welfare Fund. And he said – this is a huge quote – “We have decided to get out of dollar assets completely, replacing investments in dollars with an increase in euros and gold.” So this is something that you’ve talked about. Maybe do you have more insight on and the attempts by China and Russia to de-dollarize, and also to, at the same time, create a new financial architecture? MICHAEL HUDSON: Think of it more as President Trump, followed by President Biden, forcing Russia and China to de-dollarize, by threatening explicitly – and that was made a month ago again – of cutting them off from SWIFT, the inter-bank transfer system, officially run out of Brussels, right at NATO headquarters. And the idea is, when you write a check to somebody, you write a check, they put it in their bank; all that goes through the SWIFT system. Well, the SWIFT system covers basically the whole world. It’s a computerized system so that banks can transfer money. You can send money to England, or to Russia or China; or Russia and China can send money back and forth. Well, the problem they had is Trump and his secretary again and again and again threatened to cut Russia off from SWIFT. The U.S. government kept saying, “We can create a crisis with you. We don’t have to bomb you. We don’t have to beat you militarily. We can just paralyze your financial system by cutting you off from SWIFT.” So what they have done is say, “OK, I guess we’d better create our own financial clearing system and bank clearing system well enough that, if you close us down, we’ll have another parallel system ready to go.” It’s as if you’re all using MasterCard and you want to shift the Visa, and you say, “OK, just in case the MasterCard decides it doesn’t like us, we’re going to use a Visa account to transfer money.” So they’ve created their own alternative, ready to go. It costs a lot of money to develop a huge computerized payment system. But since Russia, China, Iran, and the whole Asian grouping has decided, “Well, wait a minute, most of our payments are among ourselves. If China is paying Thailand, or South Korea, or Russia, buying and selling with them, why does it need to do it in US dollars and have a reserve that is lent to the US Treasury to essentially use the dollars to spend abroad and finance all of its military encirclement of these various areas?” So they said, any dollars we hold, that’s a loan to the U.S. Treasury. And the loan enables the dollar to be spent on militarily encircling us, so they can say, “If you break away from the dollar, we’re going to use our military bases that we spent your dollars on to bomb you.” So they’re breaking free of the whole dollar system. And that’s the whole premise of my book “Super Imperialism,” as we’ve discussed before on the show. So that they’re decoupling from the U.S. economy as much as they can. And in any case, they say, “Look, the U.S. economy is going down quickly. Both parties, Democrats, and Republicans, are in agreement that the economy has to shrink by about 20%, in order to pay all of the debts that the 99% owe to the 1%.” So the U.S. economy is not going to be a very good market for it anymore. We don’t need it. It doesn’t need us. Let North America go its way; we’ll go our way. And that’s that’s exactly what’s happening in the world. There’s a global fracture. BENJAMIN NORTON: Yeah, you referred to the recent crisis in Ukraine, where essentially NATO and the hardcore right-wing nationalists in Ukraine are really trying to cause this conflict in the Donbass region, in the east. And then they’re falsely claiming that Russia is going to invade. I mean, this is all a pretense, of course, to justify further aggression against Russia and punitive actions. And then recently, there’s been this discussion, that you acknowledged, of the so-called nuclear option, which is decoupling Russia’s economy, disconnecting the economy from the SWIFT system. And when Russia and China announced their development of a new financial system, it was effectively in response to those news reports that the US government and the EU were talking about the “nuclear option” of removing Russia from SWIFT. And what’s interesting is that Jens Stoltenberg, the secretary general of NATO, has made it clear that they’re not going to militarily challenge Russia over the Donbass, over Ukraine, that if there’s a military conflict – which would likely, by the way, be caused by Ukraine, not by Russia; Russia has made it very clear it has no intention of invading Ukraine – but if the hardcore right-wing nationalists in Ukraine decide they want to attack the Donbass. Russia has said that it would respond. And then the response would be from NATO not military intervention, but disconnecting Russia from the SWIFT system, which they call the nuclear option. Which is actually quite interesting, because it would be basically dropping a nuke on the US-controlled financial system, and would be the final straw that would officially decouple Russia and China from the US-controlled financial system. I think it’s a very interesting moment, because we’ve had you on Professor Hudson for the past few years talking about this issue, of de-dollarization, the attempt to decouple the Chinese and Russian economies from the US- and the EU-dominated financial system. And we’ve really seen in the past few months, I think, an acceleration of that. So do you anticipate – I mean, when people interview me, I hate when people ask me questions about the future, as if I can, you know, predict what’s going to happen – but given what’s happening right now politically with Ukraine – I mean, there are talks that are happening this week between the US and Russia, so it does seem that the Biden administration is trying to put some brakes on, to prevent this from accelerating further. But do you think that this year, in the months that come, that we could actually see that nuclear option used, that Russia could be disconnected from SWIFT. And if it is, what would the consequences be? MICHAEL HUDSON: Well it’s pretty late now because they’ve been talking about it now for so many years that Russia and China have had a chance to put in their own system. Johnson’s Russia list is a list of all of the big articles in Russia every day. And if you’ve been following that, Russia has already said, “Well, yeah, it’ll be an interruption for a while. It’s not going to be like a nuclear bomb. It’ll be more like a stink bomb.” So they’re going to drop a stink bomb on Russia, but that’s not the most serious thing in the whole world. So Russia and China by now have had enough opportunity to protect themselves from this. But from what you said earlier – never, ever quote anything Stoltenberg says. His job is – I won’t even use the word. But the Americans already have troops in Ukraine. Their special operation forces, they’re in Ukraine. The U.S. has already hired I guess what used to be Blackwater troops, mercenaries; they put them in Ukraine. So the U.S. is fighting on the side of the Ukrainian Nazis against Russia. Russia said two weeks ago that the U.S. special forces were planning a false flag chemical attack, and it said the city and the time. And it said, if you do that, we’re just going to come in and bomb. So Russia found out about it and it stopped the false flag attack. But the U.S. has forces there. They thought that somehow they could provoke Russia into actually invading. I can guarantee you. I’m willing to lose my reputation if Russia actually invades Ukraine. It would be crazy. It doesn’t have the money to do it. It doesn’t have the troops. And who needs Ukraine? Russia has no need for Ukraine. And it’s a basket case. It has the lowest living standards in Europe. And on every U.S. international report, it’s the most corrupt country in Europe. Nothing can be done to help at all. Russia doesn’t have to attack it. All it has to do is let it – if somebody is committing suicide, you don’t stop it. Russia did say that if there is a military attack on the Donbass, we are going to respond with missiles, and the missiles will not necessarily be linked to Ukraine. We may bomb, for instance, Romania, where NATO has missile launchers. And Russia has made it clear you’re not going to go anymore with these salami tactics of moving NATO bit by bit. As far as Russia is concerned when America put special forces and troops there, when America gives Ukraine offensive weapons, as the Biden administration does, that is literally backing Ukraine, absorbing it into NATO informally. Whether it has signed the contract or not, it is working for; it is a satellite basically of the State Department. And so Russia says, Look, we’re going to go back to the sponsors. We’re not going to just hit the troops that hit Donbass; we’re going to hit their staging areas. And the staging areas may be to the west of Ukraine. That’s the message you should have. Russia won’t fight Ukraine; it’ll fight anywhere from Romania to Poland to Germany. BENJAMIN NORTON: A few more questions here, Professor Hudson, then we’ll wrap up. One is, we’ve seen a lot of reports in the business press recently about how the Chinese economy’s growth is slightly slowing down. And the last time we had you on, we talked about the property crackdown that was – it seemed to be that Beijing was trying to pop this property bubble before it burst. So there’s been discussion of China’s economic growth slightly slowing. But other analysts, especially actual experts and not the fake experts who are just actually anti-China activists who are portrayed as experts in Western media – actual experts have pointed out that what China seems to be doing is slightly slowing down growth in the short term, but maintaining stability and also increasing domestic consumption, increasing its economic resilience, so it’s not as reliant on exports. China and Russia also have been recently in talks discussing building a pipeline and Chinese importing of Russian gas and oil. So it seems that they’re really preparing, being honest, it seems to me that they’re preparing for economic warfare coming their way in the years to come. It seems that they understand that the years to come are going to be difficult, and they’re preparing for the storm, if you will. Do you agree with that analysis? And what do you see China doing with its economy? BENJAMIN NORTON: Well, I agree with the analysis. When I was in China 10 years ago, I was lecturing the students. I was very impressed by the fact that they said, already at that time, there was a lot of corruption in China, because it achieved growth by letting individuals make as much money as they can. And some people have made an enormous amount of money, and we’re going to change that. Well now they’ve grown up. Ten years later, they have risen within the Communist Party. And this year, there is going to be a very major Communist Party Central Committee meeting that is going to announce a new plan forward for China, the general prosperity plan. And the plan is to have prosperity for the 99%, not the 1%. And just as China has been closing down the Ant billionaires and the real estate billionaires, it’s now moving to essentially cut the wealth of the 1% and promote the wealth of the 99%. And you can see its success in doing that with the Covid epidemic. There’s hardly any Covid there compared to other countries, because it’s able to shut down, because its economic institutions are not aimed at making a profit, if they’re state financed, they’re aimed at helping the economy grow. And that’s the difference between socialism and America’s finance capitalism. BENJAMIN NORTON: Professor Hudson, if I can jump in for a second, I want to point out that, in 2021, two people in China died of COVID. Two. In the U.S., over 400,000 died of COVID. So it says everything about those priorities. And I also want to mention, you were talking about this shift in emphasis in China, they refer to it as common prosperity. MICHAEL HUDSON: Common prosperity. That’s exactly the program. And that’s what they’re really aiming at. And they’ve been preparing for that, and putting administrators in place for the last few years. And most of my lecturing in China is all about a tax policy to essentially prevent the kind of real estate bubble that you have in the United States by taxing away the land rent, so that it won’t be pledged to banks for credit. So China is moving much more to make the shift the central planning away from the banking system back into the government for government purposes of increasing prosperity. And of course, you mentioned the big pipeline that they’re developing with Siberia. That’s going to take about four years to build, but it’s going to make, essentially, Russia and China can be almost independent of Western Europe. Western Europe wants to remain a satellite of U.S. policy. Then Western Europe will go the same way that the United States is going. It’s going to be left out of all of this prosperity that is being created by the Belt and Road Initiative and by the fact that China is able to revive its economy. And even Russia is developing is broadening its economic base. BENJAMIN NORTON: And finally, to conclude our interview today, Professor Hudson, I want to point out an incredible article that was just published in Bloomberg. I have been sharing this a lot and commenting on it because it says so much about the U.S. government and the U.S. economy. This is published in Bloomberg. It was published on December 29. It is titled “[Kamala] Harris Quietly Taps Wall Street, Tech CEOs for Advice on Policy.” And that’s pretty euphemistic. VP Kamala Harris has increasingly turned to corporate executives from Wall Street and Silicon Valley to serve as informal advisers, policy allies and political boosters. https://t.co/Ss4JrNc5ID — Bloomberg Government (@BGOV) December 29, 2021 Basically, what the article reveals is that the US vice president is working directly with executives from large corporations to create policy. And I’ll just read a few paragraphs here: “Vice President Kamala Harris has increasingly turned to corporate executives from Wall Street and Silicon Valley to serve as informal advisors, policy allies, and political boosters as she grapples with a sprawling and at times intractable policy portfolio.” They mention executives from Microsoft, Cisco, and Citigroup, Citigroup being one of the major banks we talked about earlier, that received some of the $4.5 trillion in Fed repo loans. So do you want to comment on this revelation? I mean, it’s not surprising, but this revelation from Bloomberg that the US vice president is farming out her policy to executives from large corporations. MICHAEL HUDSON: It sounds like she is looking for campaign contributions to me, and saying, you know, I will continue to pay attention to you if you give me enough campaign funding that I can get elected over whoever the rival is going to be. But I mean, she has to do something with her time, and she is trying to just pacify big business on behalf of the Democratic Party and the Biden administration. So it just sort of pacifying, saying, we’re on your side. Forget what we put in our platform. Forget the campaign contributions between us. I’m on your side, not the voters. BENJAMIN NORTON: Great. Well, on that note, before we leave, there are a few comments, super chats with a few brief questions and then we can conclude here. This is from a Taste of Bass. Thanks for the super chat comment. They said, “Can you ask Professor Hudson about bitcoin? A lot of bitcoin promoters have been using Super Imperialism in their, I’d say, fallacious arguments.” What do you think about bitcoin? MICHAEL HUDSON: I don’t like it at all. I have nothing to do with it, and I just avoid all discussion of it even. You might as well buy Andy Warhol etchings. BENJAMIN NORTON: Yeah we’ve asked you this before and you said it does seem to me that it’s just a bunch of speculation. And not only is it a bunch of speculation, but it seems to be a pretty unreliable investment considering how much the price fluctuates month by month. MICHAEL HUDSON: Well, let’s look at what they’re speculating on. They’re speculating on that the great growth industry of our time is crime, is drug dealing and its crime. And the criminals use bitcoin. And as they get richer and richer and put all the criminal savings into bitcoin, the price is going to go up and you can make a profit riding the crime wave. BENJAMIN NORTON: All right, well, I want to thank everyone who watched, everyone who commented. Like always it was a great discussion with Professor Michael Hudson. And you can go to michael-hudson.com to check out his articles, his interviews, and I would highly recommend going and reading his book “Super Imperialism.” And for those who want to who are kind of more visual or audio learners, you can go check out the interview that we did here with Professor Hudson on his book “Super Imperialism.” But I still think it’s important to read the book because there’s so much information in there. It really can change the way you see the world. So it’s always a pleasure, Professor Hudson. Do you want to plug anything before we wrap up? MICHAEL HUDSON: I can’t think of anything right now, except my “Killing the Host,” my book on the American economy. I mean, don’t just stop with one book. There are plenty there. You can check on Amazon. BENJAMIN NORTON: Yeah, his books are excellent. He has “J for Junk Economics,” “Killing the Host,” “…And Forgive Them Their Debts” and others. So definitely go to michael-hudson.com and check those out. And thanks to everyone, and we’ll see you all next time. MICHAEL HUDSON: Thanks for having me.

Write an article about: Global 1% own 43% of financial assets, 5 richest billionaires doubled wealth while 5 billion workers got poorer. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Bernard Arnault, capitalism, Elon Musk, inequality, Jeff Bezos, Larry Ellison, neoliberalism, Oxfam, Warren Buffett

The world’s richest 1% own 43% of global financial assets, and the wealth of the top five billionaires has doubled since 2020, while 60% of humanity got poorer, according to a report by Oxfam. The world’s richest 1% own 43% of global financial assets, and the wealth of the top five billionaires has doubled since 2020, while 60% of humanity – nearly 5 billion people – collectively got poorer, according to a report by Oxfam, a leading international humanitarian organization. Oxfam published the study, “Inequality Inc.”, to coincide with the World Economic Forum meeting of corporate oligarchs and Western government officials in Davos, Switzerland this January. The five richest people on Earth in 2023 were Elon Musk, Bernard Arnault, Jeff Bezos, Larry Ellison, and Warren Buffett. Their combined wealth skyrocketed from $340 billion in 2020 to $869 billion just three years later. Adjusted for inflation, this was a real increase of 114%. Oxfam found that the wealthiest 1% of the world population emit as much carbon pollution as the poorest two-thirds of the entire human population. “Only 0.4 percent of the world’s largest corporations are publicly committed to paying workers a living wage and support a living wage in their value chains”, the organization wrote. “While corporate profits are soaring, the wages of nearly 800 million workers around the world have failed to keep up with inflation, resulting in a loss of $1.5 trillion for those workers over the last two years”. Oxfam likewise discovered that seven out of 10 of the largest corporations on the planet either have a billionaire as their CEO or have a billionaire as their principal shareholder. “We are living through an era of monopoly power that enables corporations to control markets, set the terms of exchange, and profit without fear of losing business”, Oxfam cautioned. This growing inequality is especially clear in the differences between the Global North and South. “Rich people in the Global North still own the world”, Oxfam wrote. A staggering 69.3% of the world’s wealth is located in the Global North, which has just 20.6% of the planet’s population. Oxfam warned that the world capitalist “economic system has created a new type of colonialism”. “Many of the world’s super-rich are concentrated in countries that were once colonial superpowers. Neocolonial relationships persist, perpetuating economic imbalances and rigging the economic rules in favor of rich nations”, the anti-poverty organization wrote. It added, “Low- and lower-middle-income countries are set to pay nearly half a billion U.S. dollars a day in interest and debt payments between now and 2029, and they are having to make severe spending cuts to be able to pay their creditors”.

Write an article about: ‘Dollar suffered stunning collapse in 2022’: Share of global reserves fell to 47%, decreasing at 10 times rate. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Bloomberg, dollar, Eurizon, Financial Times, IMF, International Monetary Fund, Joana Freire, Stephen Jen

“The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency”, largely due to US sanctions, falling from 73% of reserves in 2001 to 47% in 2022, according to economist Stephen Jen. Countries in the Global South are seeking economic alternatives in a multipolar world. Major financial media outlets in the West have acknowledged that “de-dollarization is happening at a stunning pace”. Countries around the world, especially in the Global South, are moving away from the US dollar, using other currencies in international trade settlements and diversifying their reserves. In fact, the dollar’s share of the foreign-exchange reserves held by central banks worldwide fell to 47% in 2022, a precipitous decline from 73% in 2001, according to a study by the renowned economist Stephen Jen. This is a historic shift that hasn’t been seen since World War II and the 1944 Bretton Woods Conference, which established the US dollar as the global reserve currency. Chinese President Xi Jinping hinted at this transition when he visited Moscow this March, telling Russian President Vladimir Putin, “Right now, there are changes the likes of which we haven’t seen for 100 years”. Bloomberg reported on April 18 that the “dollar is losing its reserve status at a faster pace than generally accepted as many analysts have failed to account for last year’s [2022’s] wild exchange rate moves”. The US currency’s share of global reserves decreased in 2022 “at 10 times the average speed of the past two decades as a number of countries looked for alternatives after Russia’s invasion of Ukraine triggered sanctions”, the media outlet added. Bloomberg cited a study by the firm Eurizon SLJ Asset Management, which found that the “dollar has lost about 11% of its market share since 2016 and double that amount since 2008″. Eurizon economists Stephen Jen and Joana Freire stated, “The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions… Exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries”. Jen previously served as a currency analyst at US investment bank Morgan Stanley. The Financial Times also published an article based on his study. The newspaper reported: “Jen estimates that if you adjust for price changes the dollar’s share of official global reserve currencies has gone from about 73 per cent in 2001 to around 55 per cent in 2021. Then, [in 2022], it fell to 47 per cent of total global reserves”. This change is significantly larger than what was previously acknowledged by the International Monetary Fund (IMF). In a 2022 working paper titled “The Stealth Erosion of Dollar Dominance”, the IMF estimated that the US currency’s share of global foreign-exchange reserves fell from just over 70% in 2000 to slightly below 60% in 2021. But Eurizon’s estimates, which account for price changes, are even more dramatic. “The prevailing view of ‘nothing-to-see-here’ on the USD as a reserve currency seems too innocuous and complacent”, Jen and Freire wrote in their study. “If the US makes more policy errors and abandons the culture of self-examination, there will likely come a time when much of the rest of the world will actively avoid using the dollar”, they added. “Finally, what needs to be appreciated by investors is that, while the Global South is unable to totally avoid using the dollar, much of it has already become unwilling to do so”.

Write an article about: US Congress plots to save dollar dominance amid global de-dollarization rebellion. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Blaine Luetkemeyer, Congress, Daniel McDowell, dollar, Marshall Billingslea, Michael Faulkender, Tyler Goodspeed, Young Kim

The US Congress held a hearing titled “Dollar Dominance: Preserving the U.S. Dollar’s Status as the Global Reserve Currency”, as countries around the world join the de-dollarization rebellion against Washington’s “exorbitant privilege”. The US Congress held a hearing to discuss the growing international movement toward de-dollarization. Numerous lawmakers expressed concern over what they referred to as mounting “threats” to the “supremacy” of the dollar, warning that China and Russia are challenging the US-dominated international financial system. Economists invited to testify in the session cautioned that Washington’s aggressive imposition of unilateral sanctions has backfired, weakening dollar dominance by encouraging targeted countries to develop new, alternative financial institutions. Titled “Dollar Dominance: Preserving the U.S. Dollar’s Status as the Global Reserve Currency”, the June 7 hearing was organized by the House of Representatives Financial Services Committee’s Subcommittee on National Security, Illicit Finance, and International Financial Institutions. The tone of the two-hour event was deeply schizophrenic. Speakers would triumphantly argue that the dollar remained unbeatable, that its hegemony was inevitable and natural, before a few minutes later complaining that foreign adversaries are conspiring to undermine it. A neoconservative political economist who spoke, Daniel McDowell, boasted of how the dollar is “the king of all currencies” and “a powerful symbol of American financial royalty”. Michael Faulkender, who served as Donald Trump’s assistant secretary of the Treasury for economic policy, declared in the session, “As assistant secretary, I told my team that the Treasury secretary proudly states that the dollar will never not be the world’s reserve currency, and our job is to make sure that’s true”. Representative Monica de la Cruz, a Republican from Texas, said dismissively, “Now this hearing comes at a critical time when some academics and naysayers are spreading theories that de-dollarization has begun, and that the beginning of the end has arrived for the dollar’s dominant role as a global reserve currency”. The session was chaired by Republican Representative Blaine Luetkemeyer, a hard-line anti-China hawk from Missouri. “The conversation around the dollar being the reserve currency is becoming louder and louder, as we have more and more I think threats to it”, he cautioned. Luetkemeyer boasted of the many “economic advantages” that dollar hegemony gives to the United States: The US dollar has been the preferred global currency since the end of World War Two, providing our nation inherent economic advantages, as well as responsibilities. Today, an estimated 88% of all currency transactions by value are conducted in US dollars. Among other things, this limits the risk of a balance of payments crisis, which inherently lowers our exchange rate risk. The dollar’s position also allows the United States and Americans to borrow at rates such as 50 to 60 basis points lower. Our currency strength not only benefits the United States government, but also helps American consumers by lowering the price of imported goods, resulting in an estimated $25 to $45 billion a year in savings. The bipartisan hearing was mostly dominated by Republicans, but it also featured some Democrats. The ranking member of the subcommittee, Ohio Democratic Representative Joyce Beatty, began the session saying, “Thank you to our witnesses for appearing here today to discuss the preservation of the U.S. dollar as the global reserve currency, a topic which we all agree is of the utmost importance”. Beatty’s rhetoric was less aggressive than that of Luetkemeyer, but she essentially echoed the same talking points, stating: The dominance and supremacy of the currency affords the United States numerous benefits, from reduced borrowing costs, to increased financial stability, to influence over global financial markets. It also allows us to leverage economic measures against those that seek to threaten our national security and foreign policy. Given the undeniable value of the U.S. dollar’s dominance, it is critical that we address the currency and the present threats to it. As we speak, foreign adversaries like Russia and China are actively working to undermine the U.S. dollar and cripple our global power and influence. We see this in Russia’s rapid accumulation of gold reserves over the last decade, as well as China’s development of non-SWIFT systems to settle and clear transactions involving the RMB. Furthermore, several other countries are pushing efforts to bypass use of the U.S. dollar and the U.S.-led financial system. That is why I agree that the subject of this hearing unquestionably deserves our time and attention in Congress and in this subcommittee. The hearing also featured testimony from Tyler Goodspeed, a right-wing economist who chaired the Council of Economic Advisers when Trump was president. Goodspeed boasted: The fact that 90% of all foreign exchange transactions continue to involve the United States dollar, and that global central banks continue to hold almost 60% of their foreign exchange reserves in U.S. dollars, confers net economic benefits on the United States economy. First, foreign demand for reserves of U.S. dollars raises demand for dollar-denominated securities, in particular United States treasuries. This effectively lowers the cost of borrowing for U.S. households; U.S. companies; and federal, state, and local governments. It also means that, on average, the United States earns more on its investments in foreign assets than we have to pay on foreign investments in the United States, which allows the United States to import more goods and services than we export. Second, foreign demand for large reserves of U.S. dollars and dollar-denominated assets raises the value of the dollar, and a stronger dollar benefits U.S. consumers and businesses that are net importers of goods and services from abroad. Third, large reserve holdings of U.S. currency abroad, in effect, constitutes an interest free loan to the United States worth about $10 to $20 billion per year. Fourth, the denomination of the majority of international transactions in U.S. dollars likely modestly lowers the exchange rate risks faced by U.S. companies. Fifth, given the volume of foreign U.S. dollar holdings and dollar-denominated debt, monetary policy actions by foreign central banks generally have a smaller impact on financial conditions in the United States than actions by the United States central bank have on financial conditions in other countries. Marshall Billingslea, the Treasury’s assistant secretary for terrorist financing under Trump, who also previously worked in the Pentagon, expressed concern that the central banks of China and Russia have been de-dollarizing their foreign-exchange reserves and instead buying other assets, such as gold, which cannot be easily sanctioned: If we look at what Russia did in the run-up to its further invasion of Ukraine, they began dumping ownership of Treasury bonds in 2018. In that year, they plummeted from $96 billion in holdings down to $15 billion. And they also started buying large amounts of gold. China is now … embarking on its own gold-buying spree. I haven’t seen the data for May, but April marked the sixth straight month of Chinese expansion in its gold holdings. And I’m not sure I believe the official figures. We have to recall that China is the dominant gold-mining player around the world, and half of those gold-mining companies are state-owned. So the actual size of China’s war chest, when it comes to gold reserves, may be far higher, in fact I suspect inevitably far higher than official numbers suggest. Last year, China also started dumping its treasuries. 2022 marked the largest or second-largest decrease on record, with a drop of about $174 billion, and China stood at the lowest level since 2010 in terms of its holdings. In the hearing, Billingslea also warned that, as China stockpiles gold in its foreign-exchange reserves, it could start issuing yuan-denominated contracts that are backed by gold: The thing I do worry – I come back to this fact that they’ve been buying a lot of gold – is that one of the things that they could do, which would be very concerning, if they wind up having larger reserves of gold than we we believe, is they could start issuing yuan-, or gold-denominated, gold-backed yuan contracts. That would further their ambition for introducing the yuan onto the world stage. Also present in the hearing was Daniel McDowell, an associate professor in the political science department at Syracuse University in New York, and author of the book “Bucking the Buck: US Financial Sanctions and the International Backlash Against the Dollar”. McDowell argued that, by imposing more and more sanctions on countries around the world, Washington is actually weakening the dominance of the dollar. The US has sanctions on nations that represent more than one-third of the global population and 29% of the world’s GDP. McDowell explained: Dollar preeminence and U.S. financial centrality are not without consequence for American coercive power, as you all know. With little more than the stroke of the president’s pen, or through an act of Congress, the U.S. government can use financial sanctions to impose enormous economic costs on targeted foreign actors, be they individuals, firms, or state institutions, by freezing their dollar assets or cutting them off from access to the banks through which those dollars flow. As the United States has increased its reliance on financial sanctions as a tool of foreign policy, it has provoked anti-dollar policy responses from our adversaries. Though such steps are unlikely to upend the dollar’s position as top international currency, including the reserve currency role, over time such policies could diminish the coercive capabilities that the United States derives from dollar centrality. Over the last two decades, the United States has used the tool of financial sanctions with increasing frequency. For example, in the year 2000 just four foreign governments were directly targeted under the U.S. Treasury country program, overseen by the Office of Foreign Assets Control, or OFAC. Today, that number is greater than 20; and if we include penalties from secondary sanctions, the list gets even longer. The more that the United States has reached for financial sanctions, the more it has made adversaries in foreign capitals aware of the strategic vulnerability that stems from dependence on the dollar. Some governments have responded by implementing anti-dollar policies, measures that are designed to reduce an economy’s reliance on the U.S. currency for investment and cross-border transactions. While these measures sometimes fail to achieve their goals, others have produced modest levels of de-dollarization. Notable examples here include Russian steps to cut its dollar reserves and reduce the use of the dollar in trade settlement in the years leading up to its full-scale invasion of Ukraine, or China’s ongoing efforts to build its own international payments network based on the yuan – efforts that have taken on a new sense of urgency as Beijing has become more aware of its own strategic vulnerabilities from dollar dependence. … The growing number of states espousing anti-dollar viewpoints and adopting anti-dollar policies does threaten to weaken the future potency of U.S. financial sanctions. … Finally, whenever possible, U.S. financial sanctions should be coordinated with our allies in Europe and Asia, who should feel as if they are key stakeholders in the dollar system, and not vassals to it. Another Republican congresswoman who participated in the hearing, Young Kim from California, complained that China has developed other ways to provide financing to countries that don’t involve the US dollar. Kim singled out the currency swap-line agreements that the People’s Bank of China has signed with the central banks of other countries, such as Argentina, which is a way for Beijing to give liquidity or credit in yuan, bypassing Washington-dominated financial institutions like the SWIFT inter-bank messaging system: We should all be troubled by the increase of central bank swap-line agreements deployed by the People’s Bank of China [PBOC]. According to a 2021 PBOC report, it said that it has swap facilities with 40 countries, with a combined capacity of almost 4 trillion yuan, or about $570 billion dollars. And just a few days ago, Argentina, a country facing a deep currency devaluation and 109% annual inflation, they announced a deal to renew its currency swap line with China and double the amount it can access to nearly $10 billion dollars. So the PBOC justifies the swap lines as a way to force countries to utilize the yuan as a method of exchange. So I want to ask you, Mr. Billingslea, instead of liberalizing its capital account and allowing the yuan to be fully convertible into the currency exchange markets, the CCP has opted to increase its bilateral swap-line agreements to further internationalize its currency. So is there anything that the United States can do to slow down or reduce adaptation of the PBOC’s currency swap lines? All the participants in the hearing treated the hegemony of the US currency as desirable, arguing it must inevitably be maintained. The five expert witnesses who were invited insisted that there is no short-term threat to dollar dominance. The two-hour hearing did not address possible plans for the BRICS bloc to create a new international reserve currency. Instead, the participants only spoke of existing national currencies like the Chinese renminbi, Russian ruble, or euro as potential challengers to the US dollar – while ultimately dismissing all of them. The idea that BRICS could develop an international currency (similar to John Maynard Keynes’ idea of the Bancor) was not even raised as a possibility.

Write an article about: US pressures Saudi Arabia to sell oil in dollars, not Chinese yuan, amid Israel negotiations. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, dollar, Israel, Palestine, petrodollar, renminbi, Saudi Arabia, Wall Street Journal, yuan

As part of negotiations for Saudi Arabia to recognize Israel, the United States is demanding that Riyadh keep pricing its oil in dollars, not China’s renminbi or other currencies. The United States is negotiating behind the scenes with Saudi Arabia, pressuring the country to keep selling its oil in dollars. Washington is concerned that Riyadh may price its crude in other currencies, particularly China’s renminbi. Saudi Arabia is one of the world’s top three oil producers. Since the 1970s, Riyadh has agreed to sell its crude in dollars, helping maintain the greenback’s hegemonic status as the global reserve currency. The Wall Street Journal reported that the US is working on a diplomatic deal in which Saudi Arabia would agree to normalize relations with Israel’s apartheid regime. In return, Riyadh wants Washington to pledge to always protect it, as well as help in developing a nuclear program. Although the negotiations are ostensibly about Israel-Palestine, the Wall Street Journal noted that the US is using the deal to pressure “Saudi Arabia to impose limits on its growing relationship with China”. “The Biden administration is seeking assurances from Saudi Arabia that it will distance itself—economically and militarily—from China”, the newspaper added, citing anonymous US officials. In terms of Saudi-Chinese relations, Washington has three main demands, according to the Wall Street Journal: While many analysts have speculated that the US military will gradually leave West Asia, to prioritize the new cold war, the report emphasized that President Joe Biden’s “focus on the deal [with Saudi Arabia] is a reflection of his view that America has to remain a central player in the Middle East to contain Iran, isolate Russia for its war in Ukraine and thwart efforts by China to supplant Washington’s interests in the region”. The petrodollar system has been a key pillar holding up the hegemony of the US currency. The fact that countries that import oil need dollars to pay for it ensures steady demand for Washington’s currency around the world. This stabilizes the dollar, helping to finance the massive current account deficit the United States has maintained for decades. When most countries have a consistent trade deficit, their national currency depreciates against the currency they use to pay for imports. As the local currency weakens, this makes imports more expensive and exports cheaper, encouraging the country to balance its trade. However, the United States has long been able to maintain a gargantuan trade deficit with the rest of the world because there is so much demand for its currency. The petrodollar system is one important reason for this high demand for dollars (among several other factors – such as overwhelming US military power, the impression that the currency is a stable store of value, open capital markets with many investment opportunities, etc.). Countries by their current account balance, averaged from years 1980 to 2008 (red is a deficit, green is a surplus) When Saudi Arabia has a glut of dollars, it has historically deposited them in the US banking system, which in turn uses the excess currency to fund more loans. Saudi Arabia’s central bank also invests excess dollars it receives from crude sales in the purchase of Treasury securities, effectively financing US government spending. As Geopolitical Economy Report previously noted: In 1974, [US President Richard] Nixon sent his Treasury secretary, William Simon, to Saudi Arabia. “The goal” of the trip, Bloomberg explained, was to “neutralize crude oil as an economic weapon and find a way to persuade” Saudi Arabia “to finance America’s widening deficit with its newfound petrodollar wealth”. Washington signed a historic agreement with Riyadh, pledging to protect the Gulf monarchy in return for Saudi Arabia selling its oil exclusively in dollars, depositing those petrodollars in US commercial banks, and investing in Treasury bonds. Bloomberg explained: “The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending”. China is Saudi Arabia’s largest trading partner, and the two nations have developed closer relations in recent years. For a decade, Beijing has bought more oil from the Persian Gulf than the United States. The region is very important for China’s energy security, providing the East Asian giant with one-third of its energy needs. This March, China helped broker a historic rapprochement between Saudi Arabia and Iran. Washington was furious about the peace breakthrough, and has pushed Riyadh to re-join its aggressive containment strategy against Tehran. Geopolitical game changer: China’s Iran-Saudi peace deal is big blow to petrodollar and US economic hegemony Chinese President Xi Jinping visited Saudi Arabia in December 2022, where he signed agreements with the Gulf Cooperation Council (GCC) and Arab League. In Riyadh, Xi announced that “China will continue to import large quantities of crude oil from GCC countries, expand imports of liquefied natural gas … and make full use of the Shanghai Petroleum and Natural Gas Exchange as a platform to carry out yuan settlement of oil and gas trade”. Saudi Arabia’s finance minister confirmed for the first time in public this January that Riyadh is indeed considering selling oil in other currencies. However, although there has been a lot of speculation about this in the financial press, the Saudi government has not publicly announced any plans to price its crude in yuan or any other currency. In 2021, Saudi Arabia became an official dialogue partner of the Shanghai Cooperation Organization (SCO). The SCO is an important institution promoting Eurasian integration, and fellow members include China, Russia, India, and Pakistan. Iran became a full member of the SCO this July. Saudi Arabia is among of the three biggest oil producers in the world (along with the US and Russia). Iran has long been one of the top 10 producers of crude.

Write an article about: Brazil and Argentina preparing new Latin American currency to ‘reduce reliance on US dollar’. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Andrés Arauz, Argentina, Brazil, CELAC, dollar, Financial Times, Latin America, Lula da Silva, MERCOSUR, Sergio Massa, Sur, UNASUR

Brazil and Argentina are making plans for a Latin American currency called the Sur, to “boost regional trade and reduce reliance on the US dollar”. Lula had pledged it while running for president. The governments of Brazil and Argentina are making plans to create a new currency for Latin America, called the Sur (“south” in English), according to a report in the Financial Times. Other countries in the region will be invited to use the currency. Their goal is to “boost regional trade and reduce reliance on the US dollar”, the newspaper noted, citing government officials. Argentina’s Economic Minister Sergio Massa told the Financial Times that the South American nations will soon “start studying the parameters needed for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks”. Massa said they are preparing “a study of mechanisms for trade integration”. But he cautioned that it could take years to develop, and this is just “first step on a long road which Latin America must travel”. Brazil and Argentina will discuss the currency plans at the meeting of the Community of Latin American and Caribbean States (CELAC) in Buenos Aires on January 24. Brazil has the largest economy in Latin America, and Argentina has the third biggest (after Mexico). Argentina-based Spanish economist Alfredo Serrano Manc, who directs a think tank dedicated to regional integration, the Latin American Strategic Center of Geopolitics (CELAG), told the Financial Times that “the path is to find mechanisms which substitute the dependence on the dollar”. He added that now is the moment, given that “there are many governments that are ideologically similar”, with left-wing leaders across Latin America. Me consultaron en @FinancialTimes para esta nota sobre los desafíos de la cumbre CELAC. La vía es buscar mecanismos para sustituir la dependencia del dolar. Y sí se puede si se quiere. Y más ahora que hay muchos gobiernos afines en lo ideológico. https://t.co/kXjklZgZ1b — Alfredo Serrano Manc (@alfreserramanci) January 22, 2023 Brazil’s leftist President Lula da Silva returned to power on January 1. During his electoral campaign, Lula had floated the possibility of creating a regional currency for trade. At a rally in May 2022, the Workers’ Party leader had said, “We are going to create a currency in Latin America, because we can’t keep depending on the dollar”. Lula revealed that it would be called the Sur. He added that it would not be based on the euro model, in that countries could maintain their sovereign domestic currency. Instead, the plan would be to use the Sur for regional trade, Lula said. Brazil’s left-wing leader Lula da Silva says if he wins the October presidential elections, “we are going to create a currency in Latin America,” called the Sur (“South”), to combat “the dependency on the dollar”https://t.co/NSgzcHtuBB — Geopolitical Economy Report (@GeopoliticEcon) May 7, 2022 After Lula won the October 2022 election, Ecuador’s left-wing politician and economist Andrés Arauz published a blueprint for a “new regional financial architecture” for Latin America. Arauz said the plan would be to revive regional institutions like the Union of South American Nations (UNASUR) and the Banco del Sur (Bank of the South), and to create a Banco Central del Sur (Central Bank of the South) to oversee the new currency. The goal is “to harmonize the payment systems of” the countries that make up UNASUR in order “to carry out inter-bank transfers to any bank inside of the region in real time and from a cellphone”, he wrote. Arauz was a presidential candidate who came close to winning Ecuador’s 2021 election. He is also finishing a PhD in economics. Advising Brazil’s President-elect Lula, Ecuadorian economist and leftist presidential candidate @EcuArauz made a blueprint for a “new regional financial architecture” to unite Latin America, including a currency to challenge the hegemony of the US dollar https://t.co/o7L0fN236F — Ben Norton (@BenjaminNorton) December 1, 2022 Argentina has suffered with odious debt owed to foreign colonial powers for 200 years. Today, Argentina is trapped in $44 billion of debt with the US-dominated International Monetary Fund (IMF). This dollar-denominated foreign debt has led to a constant drain of foreign currency out of Argentina, fueling high levels of inflation. Argentina’s President Alberto Fernández visited China and Russia in February 2022, seeking alternatives to the US-dominated financial system, and joining Beijing’s Belt and Road Initiative. Argentina has also applied to join the extended BRICS+ bloc, with Brazil, Russia, India, China, and South Africa. Buenos Aires attended the group’s 2022 summits at Beijing’s invitation. As former president, Lula was himself a co-founder of the BRICS. China invited Argentina to attend the 2022 summits of the BRICS economic bloc of Brazil, Russia, India, China, South Africa. Argentina’s ambassador says it’s a step toward “formal entry” to the grouping, an alternative to the US-dominated financial systemhttps://t.co/ilTBO37LQi — Geopolitical Economy Report (@GeopoliticEcon) May 9, 2022 Both Brazil and Argentina are already part of a South American trade bloc, known as Mercosur (Mercado Común del Sur, or Common Market of the South). Lula has for years emphasized the importance of economic and political integration of Latin America and the Caribbean. Immediately after returning to office in January, Lula moved to revive and strengthen regional institutions like CELAC, UNASUR, and Mercosur. Brazil’s previous far-right President Jair Bolsonaro had sought to sabotage these organizations, withdrawing or suspending the country’s membership and instead aligning the South American giant closely with the United States. Bolsonaro came to power thanks to two US-backed political coups in Brazil, including a parliamentary putsch against Workers’ Party President Dilma Rousseff in 2016 and the politically motivated imprisonment of Lula on false charges in the lead-up to the 2018 election. Soon after entering office, Bolsonaro traveled to Virginia to visit CIA headquarters. Fearing legal consequences in Brazil for his flagrant corruption and for policies that caused the mass deaths of citizens, Bolsonaro fled to Florida two days before his term ended. He has since been living in the United States as a fugitive from justice. Lula da Silva returns as Brazil’s president, calling to fight poverty and hunger, re-industrialize, strengthen the BRICS, and deepen Latin American integration. Far-right leader Jair Bolsonaro fled to Florida, fearing legal consequences for his corruptionhttps://t.co/RZYABG6oQY — Ben Norton (@BenjaminNorton) January 4, 2023

Write an article about: Economist Michael Hudson on debt relief, inflation, Ukraine disaster capitalism, petrodollar crisis. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

capitalism, China, dollar, economics, Michael Hudson, neoliberalism, Paul Volcker, petrodollar, Russia, Saudi Arabia, Ukraine

Economist Michael Hudson discusses partial student debt relief in the US, inflation and the Fed, disaster capitalism in Ukraine, and China’s challenge to the petrodollar. Economist Michael Hudson joins Geopolitical Economy Report editor Ben Norton to discuss partial student debt relief in the US, inflation and the Fed, disaster capitalism in Ukraine, and China’s challenge to the petrodollar. BEN NORTON: Hey everyone, this is Ben Norton of Multipolarista. I’m joined by one of my favorite guests today, the brilliant economist Michael Hudson. And there are a lot of things that we plan on talking about today. We’re going to address the partial student debt relief in the United States, and the problem of debt, which is something that Professor Hudson has written a lot about. We’re going to talk about the inflation crisis, and some of the history of responses to the inflation that we’ve seen in the US. For instance, I’m going to pick Professor Hudson’s brain about Richard Nixon’s response. Nixon imposed price controls and froze wages for the first time since World War Two. We’re also going to talk about the history of the Volcker shock, when Paul Volcker, who was the head of the Fed, raised interest rates to a level never seen before. We’re going to talk about neoliberalism. I’m going to ask Professor Hudson about comments that French President Macron made about the “end of abundance.” And I’m going to ask Professor Hudson about disaster capitalism in Ukraine. Ukraine’s leader Zelensky just did a virtual bell ringing to open the New York Stock Exchange, and announced $400 billion of giveaways to foreign corporations, mostly US corporations, who are salivating to get access to Ukraine’s assets. And then finally, I’m going to ask Professor Hudson about the challenge of the petrodollar that China has been carrying out, and the potential emergence of the so-called petroyuan, whether or not Saudi Arabia will list its oil in the yuan. So a lot of things are on the table to talk about, today, Professor Hudson. I’m sure you have a lot of thoughts about the madness going on in the world today. It’s a pretty interesting time. But let’s just start with something closest to home. You have lived and worked in the United States for many decades. You worked on Wall Street. You’ve been involved in advising governments. You’re an economic expert. For people who don’t know you, I hope everyone listening and watching to this, they should know you, they should read your work. People can find that at michael-hudson.com. But let’s start with the recent decision by the Biden administration, which announced that it’s going to pardon up to $10,000 in student debt. This is estimated to impact around $300 billion of student debt in the United States. But there’s a small problem. That’s a small fraction of the $1.75 trillion worth of student debt in the United States. So I’m curious what you think about this decision. Of course, the Republicans, Fox News, they were attacking Biden and saying that this is irresponsible because it’s $300 billion that the government is supposedly going to lose – although it’s actually just money that the government could write off. It’s not like you’re spending money; it’s just debt they’re writing off. But clearly, this is actually a tiny fraction of the amount of debt in student debt in United States. So what do you think about this decision by Biden to forgive a little student debt? MICHAEL HUDSON: Of all the politicians in Congress, Biden has always been the most pro-bank and pro-financial sector, largely because he comes from Delaware, which is the corporate headquarters for most companies in the United States, including the credit card companies. Also, Biden has been the most hostile toward students. He recently characterized students who are going to college, saying, who needs a college degree? A lot of them just get in the humanities, and we really don’t need them. So he has a kind of a visceral contempt for students. And it was Biden who made sure that in the bankruptcy law that was reformed, I think, over a decade ago, that student debt could not be wiped out from bankruptcy. So of all the politicians, Biden has been the most hostile, personally hostile, as well as just serving the banking interests in opposing the interests of students. And this is what really sets American social policy and economic policy more against other countries than any other policy. Basically for hundreds of years, and still in many, many countries, Germany to China, education is free, because you want the population to be educated. And in the United States, the whole structure of the United States politically was to divide it into school districts, because they all realized the importance of of education. Basically, if education should be free, students shouldn’t have to run into debt to get it. And in fact, I think in Germany, not only is education free, but if you’re going to college, you’re given a stipend for living costs, so that you don’t have to take a separate job at Starbucks or some other menial job to pay your tuition. So if education should be free, you shouldn’t run into a debt; and if you shouldn’t have run into debt in the first place, the debt should be forgiven. That I think should be, that is, the basic moral ethic of most people. And it’s not in the United States. And you’re right, the amount that is so-called forgiven is only a small fraction. And Biden did not even forgive the penalty fees, the late fees that have doubled and tripled the amount of student debt for many people. So Biden is still leaving, even for the low-income people, debts that are two or three times what it costs to get education in the first place, just for the banks to get these extra fees. So this is a slap in the face – so typical of his position, and of the Democratic Party’s position – for students. Biden is not alone in this. The Democrats were backing him, saying, we want to make it clear to our base, the campaign donors, the donor class, that we’re going to forgive the wealthy financial sector, their carried interest charge, and make that free of the income tax, but we’re not going to favor the working class. Because the class war is back in business. BEN NORTON: And Professor Hudson, you’ve written a lot about debt. You’re in fact an expert on the history of debt, and debt forgiveness. Going back to antiquity, and even before, for thousands of years, debt forgiveness, debt jubilees had been a key part of governance, governing society, to maintain stability. And in the United States, we’ve seen a massive skyrocketing of debt in the past several decades. Now, student loan debt is estimated now at $1.75 trillion. And that is certainly something unprecedented compared to other countries, you know, imperialist, colonialist countries at a similar level of development like the U.S. and Europe. But if you look at this graph here that shows the total debt in the United States, the vast majority is mortgage debt. US household debt from 2000 to 2021, via Statista And you’ve written a lot about mortgage debt. And you’ve emphasized that when we talk about debt, we need to understand that the other side of the balance sheet is the wealth of the debt holders and the bond holders There are $15 trillion in debt in the United States, and most of that is mortgage debt. This is something that is barely ever commented on. Can you talk about how the finance capitalist model that the United States has imposed around the world is a model predicated on debt, not only indebting other countries, but indebting its own population with $15 trillion worth of debt. MICHAEL HUDSON: Well, I’m going to make one point: In Biden’s twisted mind, there’s a silver lining for keeping the student debt on the books and not canceling it. By not canceling it, the students and the young people won’t have enough money to qualify for a mortgage. They’ll have to continue to live at home with the parents. So that actually alleviates the mortgage debt, by keeping graduate students too poor to afford to take out a mortgage, because they’ve already committed their income to the student debt. And that $1.7 trillion you mention has now soared ahead – just in the last two years, student debt has surged ahead of credit card debt and ahead of automobile debt. So it’s really become the fastest growing largest debt, and it’s the fastest growing debt because of all the penalties for late payments. And of course, with the Covid crisis and limited employment, you’re going to have this debt growing even more. And also the amount of paperwork that the administration imposes on students trying to get debt relief is so great that a lot of students are simply not going to be able to get through the maze and pierce the bureaucratic shell that protects the banks and the debt. So I just want to point that out. Regarding the mortgage debt, the whole policy of the Federal Reserve since the 2008 bank crisis has been to bail out the banks by inflating, re-inflating, the prices of houses so that you have to take a larger, and larger, and larger mortgage in order to buy a house. And not only that, but now as of yesterday (September 7), the mortgage rate is 6%. And I think that’s the highest since the 1970s. So you not only have to pay a very high price for the house – the carrying charge in the mortgage is basically, within a 10-year-period at 6%, you actually have repaid as much as you paid for the entire house, you have paid in the form of interest charges. And on the 30-year-mortgage, you have paid three times as much to the banks for the house than the owner of the house got who sold it to you. So the banks end up getting much more than the actual seller of the home. And the way the mortgage market has ended up with increasing the debt ratio of mortgages, Americans now own only about 40% of the value of homes. In other words, home equity has been shrinking, and shrinking, and shrinking for most of the real estate sector as a portion of homes. And of course, if you’re earning less than $200,000 a year, you have much less equity in the home. Basically, buying a home is getting on a financial treadmill, to the point that if you either have a home, or now if you pay the soaring rent rates, you’re not going to have enough money to spend on the goods and services that are being produced. So the effect of debt is to leave less in the budget for actual spending on goods and services. It’s an austerity plan. And the effect is very much like the kind of austerity plan that the International Monetary Fund imposes on Third World countries, or Global South countries, as we say now. So basically, you’re right, the economy is being sacrificed. But there is a silver lining, and that is 90% of the population owe this debt to the 10%. So there’s been a sucking up of income and wealth to the top of the pyramid. And the mortgage debt has been the single largest lever that is shifting wealth and income from the 90% to the 10%. BEN NORTON: Very well said. Professor Hudson, let’s talk about inflation. The United States has been going through decades-high level inflation. I’ve asked you about this before and you’ve emphasized that a lot of that that inflation we’ve seen in the consumer price index recently is because of monopolization of certain key industries, because of the recovery from the Covid pandemic, and bottlenecks in the supply chain and all of that. But a point that you’ve consistently pointed out for many decades, Professor Hudson, unlike other economists, is that this consumer price index inflation that we’ve seen in 2021 and 2022 is certainly new, but in general, inflation is by no means new. We’ve seen massive asset price inflation over the past few decades, which of course has been intentionally pushed by the financial system in the United States in order to push up the value of real estate, of stocks and bonds. Here’s a graph showing asset price inflation in the United States. The green line is asset price inflation, and the purple line are interest rates set by the Fed. And you can see really from the 1990s forward, so in the neoliberal era going forward, there’s been a massive skyrocketing of asset price inflation. And I should point out that with the bailout after Covid, and the trillions of dollars pumped into the financial sector by the government, this big giveaway, we’ve seen a skyrocketing in asset price inflation. So I’m curious if you can expand more on this idea that inflation is something new, because we’re now seeing it in the consumer price index, and also its relationship to interest rates. This is something in a bit here, I want to ask you about some of the history of the Volcker shock and all of that, Paul Volcker. But let’s start with asset price inflation, because this graph I almost never see mentioned in kind of mainstream discussions of economics in the business press. They act as though this consumer price index inflation – some people call it, you know, the Biden inflation or whatever; and certainly Biden bears responsibility for the sanctions on Russia, which caused an energy crisis in Europe, which led to skyrocketing prices of energy, and that fueled the inflation – but why isn’t this inflation, the asset price inflation that has been consistent over decades, ever discussed? MICHAEL HUDSON: Well, the asset price inflation is the response to the Obama depression that we’re still in. In 2008, when the banks crashed, you had Citibank being insolvent, a number of other banks insolvent. The worry was that throughout the whole U.S. economy, banks had made so many junk mortgage loans and lost so much money on derivative gambles that they had a negative net worth. Now, the problem was when Obama came in, the problem was, who are you going to save, the debtors in the economy, the victims of junk mortgages or the crooks, or the crooks, the victimizers, the banks that wrote the junk mortgages? And Obama came in and said, we’re not going to save any of the homeowners who bought these junk mortgages. Most of them are minorities anyway. Most of them were Black and Hispanic people, who the banks, especially through the Countrywide lending company, had exploited more than anyone else. Obama invited the bankers to the White House and said, I’m the only guy standing between you and the mob with pitchforks – those being the people who voted for him – and saying, don’t worry, you contributed to my campaign; I’m backing you. And so he directed the Federal Reserve to essentially re-inflate the real estate prices and the stock market so much that the banks wouldn’t have to be taken over into the public domain for insolvency. He wanted to rebuild the banks’ balance sheet. And the reason he did it was to pump money into the banks. And the result has been $9 trillion, essentially, of bank liquidity that the Federal Reserve has pushed in. Now, despite the fact that it is asset price inflation, the fact is that asset price inflation has all occurred on credit. The asset price inflation has occurred when the Federal Reserve makes basically repo swaps with the banks, enabling the banks to deposit some of their packaged mortgage loans, or bonds, government bonds or even junk bonds, with the Fed. And they get a deposit with the Fed that enables them to now turn around, as if the Fed was depositing money in the bank like a depositor, letting it lend more, and more, and more for real estate, which has pushed up the price. Real estate is worth whatever a bank will lend against it. And the banks have been lowering the margin requirements, easing the the terms of the loan. So the banks have inflated the real estate market, and also the stock and bond market. The bond market from 2008 today has had the biggest bond rally in history. You can imagine the bond prices going down to below 0%. This is a huge capitalization of the bond rate. So it has been a bonanza for people who held bonds, especially bank bonds. And it has inflated the top of the pyramid. But if you inflate it on debt, then somebody has to pay the debt. And the debt, as I just said, is the 90% of the population. So the fact is that asset price inflation and debt deflation go together, because the wealth part of the economy, the ownership part, has been vastly inflated, the price of wealth relative to labor. But the debtor part has been has been squeezed by families having to pay much more of their income on mortgages, or credit cards, or student debt, leaving less and less to purchase goods and services. So if there is a debt deflation, then why do we have a price inflation now? Well, the price inflation is largely a result of the war [in Ukraine], the sanctions that the United States has imposed on Russia. Russia was, as you know, a major gas exporter, oil exporter, and also the largest agricultural exporter in the world. So if you exclude Russian oil, Russian gas, Russian agriculture from the market, you’re going to have a shortage of supply, and you’re going to have the prices way up. So the oil, energy, and food have been a key element. And also, under the Biden administration and certainly the Trump administration, there has been no enforcement of monopoly prices. So essentially companies have been using their monopoly power to charge whatever they want. And even though there wasn’t really a shortage of gas or of oil earlier this year (2022), you had a huge spike in the price, for no other reason than the fact that the oil companies could charge it. Partly this was done by financial manipulations in the forward markets. The financial markets had bid up the price of oil and gas. But also other companies have. And right across the board, if you have a company in a commanding position of being able to control the market, you have essentially permitted monopolies to take place. Well, Biden had appointed a number of anti-monopoly officials that were going to try to impose anti-monopoly legislation. But they’re not supported by the Democratic Party or the Republican Party enough to really empower them to have had much effect so far. BEN NORTON: I had you on in June, Professor Hudson, to talk about the Fed’s interest rate hike. It’s now at around 2.25%, and there’s discussion of potentially increasing it by another 0.75%. And you warned that there are signs that there’s going to be a depression, an economic depression. And certainly after raising interest rates there typically have been recessions in the past. I want to talk about some of that history. Because a name that’s come up a lot in this discussion of inflation in the United States is Paul Volcker, who was the head of the Fed. And he was actually appointed by Jimmy Carter. He is more often associated with Ronald Reagan, but he was first appointed by Jimmy Carter and then continued with Reagan, and reappointed by Reagan. In the ’70s, there was a similar crisis of consumer price index inflation, like what we have seen in the past year. And Volcker had this famous Volcker shock. He raised interest rates to as high as 20%, and then gradually dropped them. The way that Volcker is discussed in the business press, the financial press, is they say that he’s this admirable man who was unpopular in his day, but that’s because he was giving people the medicine they needed, right, and he was he was willing to do the hard thing and be unpopular in order to bring consumer price index inflation down. Can you reflect on why there was consumer price index inflation in the United States in the ’70s, what was causing it? And this portrayal of Paul Volcker as like this great economic wiseman who saved the U.S. economy – I’m curious what you think about the Volcker shock and his decision to raise interest rates so high and why he’s so beloved today. MICHAEL HUDSON: Well, Volcker was my boss’s boss at Chase Manhattan in the early- and mid-1990s. And once a week or so, there would be a meeting of the economists and the policymakers at Chase. And because I was in the economic research department and knew how to do speedwriting, I often took the notes for these meetings, so I had a chance to watch him. And just before he was appointed, I had to be at the White House for some reason and was asked by a member of the Council of Economic Advisors, what was it like working for Volcker? And I said, well, at the meetings, a number of officers would give their impression of what was going to happen, and Volcker would say, well, so-and-so says this, and that’s that position, and you say this, and that’s this position. So let me state what the argument is all about. By doing that, everybody thought, oh, he understands my position. So he was very popular. Because he didn’t make any enemies. He could state everybody’s position and basically be neutral and not take a position. Well, the Council of Economic Advisors person said, that’s the guy we want. And he was appointed about a month later for the the job. And his own view was that of a banker. He had gone back and forth. He had begun at Chase; he moved to the Treasury; and then he actually went back to Chase, and that was something that wasn’t often done at the time. And when he went back to the Treasury again, he met with the Carter people. And Carter – people don’t realize because he’s a sort of a nice old man now – but he was viciously, viciously neoliberal, much more right-wing than anybody could have expected at the time. I think Volcker sensed where Carter was at. And Volcker said that he carried around a piece of paper, an article with him, a chart, and the chart was the wage levels in the construction industry. And Volcker would say the job of the Federal Reserve is to keep down wage rates. He said, although the nominal purpose of the Federal Reserve is to prevent inflation and support full ployment, it’s actually the opposite – it’s to make sure there is not full employment so that there will be a reserve army of enough unemployed that wages are not going up. And of course it’s to inflate asset prices, which is just what the federal Reserve has done. So Volcker was quite aware of what to do. Today you would say what he did was – I guess, what the current Federal Reserve head would say – well, we’re going to have to impose a depression to cure the inflation. And for Volcker, curing inflation was an excuse to lower the wage levels and to bring about a recession. And by increasing the interest rates to 20% – I think 20.5% was the bank discount rate – you had lowered bond prices, and packaged mortgage prices, and housing prices to such a low level that once you changed course, which of course happened from the 1980s on, you would have a huge explosion of capital gains for anybody who bought the bonds at those prices. By pushing interest rates to 20%, Volcker made a buying opportunity, a guaranteed path to doubling, tripling, quadrupling your capital on the capital gains from the rise in bond prices. Well, most people don’t think of the bond prices as being the most important thing to talk about in the news. But actually, as Bill Clinton said when Robert Rubin explained the facts of life to him, he said, oh, it’s all about the bondholders. Well, he got it. And that’s exactly what Sheila Bair said when she was working for Obama. She said she found out it was all about the bondholders, especially the bondholders of the banks, that led Obama to support the banks and do all of that. So what Volcker was doing was using the Vietnam War inflation that had been a bonanza for the working class because it had created basically a drive for employment – the guns-and-butter economy had created rising wage levels. You did have guns, but you also had a lot of butter. And that was really what was ended. You did keep the guns part of the economy. But Volcker’s action, while keeping the guns part, squeezed down the butter part. And that was the idea, that in order to make the industrial economy thrive and make profits, he thought, you need low wages. And by keeping interest rates high, lowering employment to the point that wages went down, you were creating enough of a profit that you would somehow create a re-industrial economy. Well, we all know what happened: the economy was de-industrialized under the financialization policies of the Reagan and Bush administrations, and the Clinton administration that was coming up. But that was at least the idea at that time. I don’t think that anyone, even Volcker himself, had an idea that what was going to come after him was going to be de-industrialization. He thought lower wage rates would make industrial profits and help America regain its industrial power. BEN NORTON: Professor Hudson, can you talk about what caused the consumer price index inflation in the ’70s? This is a graph showing CPI inflation, changes in price. And you can see that there was a big peak in the ’70s, into the ’80s. And it’s been relatively low since then, until past the past year. “There are persistent issues in supply chains,” the chief U.S. economist at Deutsche Bank said. “And the most recent developments have not been positive.” https://t.co/FBxXGZAjWk — NYT Business (@nytimesbusiness) May 12, 2022 Of course, people probably know from the interviews that I’ve done with you and from reading your amazing books like “Super Imperialism” and others, you have talked a lot about the Nixon shock and how important that was to understand the financial system today, when in 1971, Richard Nixon took the dollar off gold. And at the beginning of the Nixon shock, there was an inflation crisis. And he responded in an interesting way – in a way that you can’t even discuss today; it’s no longer on the table for discussion. Nixon imposed price controls, and froze wages as well, but he imposed price controls. Now, in this most recent inflation crisis, I didn’t see anyone in the mainstream calling for Biden to impose price controls. Of course they would all say that if the government imposes price controls, it would lead to a shortage of goods, and scarcity, and all this. So can you talk about Nixon’s response to the inflation? And then you mentioned that Jimmy Carter, really even before Reagan, ushered in neoliberalism. Why, after Nixon imposed those policies, the inflation came back – so why did the inflation come back in the 1970s and ’80s? MICHAEL HUDSON: Well, remember, I think that Kennedy also imposed price controls on steel. There were early price controls on the steel industry. The inflation of the ’70s was the result of America’s military spending in Southeast Asia. Copper – every soldier in Vietnam used an average one ton of copper per year in bullets. So there was a huge copper increase that went up. I think the price tripled. BEN NORTON: Sorry to cut you off, Professor Hudson – and that was of course a factor in the 1973 CIA coup against Salvador Allende, Chile being one of the world’s leading producers of copper, the Anaconda Corporation wanting to get access to that copper. MICHAEL HUDSON: The Anaconda already had been producing the copper. BEN NORTON: Well Allende nationalized the copper. MICHAEL HUDSON: That’s another long story that I was very involved in, but it’s another story. Basically the [U.S.] government was spending so much on military that you couldn’t have guns and butter. And that’s where the guns and butter phrase came from. I think it may have come from Terence McCarthy using it. At least he was the main expounder of that theory, along with Seymour Melman of Columbia University. And it was very clear that the military and the consumer economy was pushing up demand so much that there was a shortage. And there was a shortage of labor, because of the labor that was being diverted, that was needed for the military. So there was a military inflation in the ’70s. That’s quite different from today’s inflation. Today’s inflation is much more – well, the companies can do it, we’re now in a much more highly monopolized economy. We’re in a deregulated economy. Back in the ’70s under Nixon, his policies actually, when you look back, they were much more liberal than the policies of anybody who has come after him, simply because he was pragmatic. It wasn’t because he was a liberal, but because it was accepted by Republicans and Democrats that when you have inflation stemming from companies using purely monopoly power, the right thing to do is to prevent them from raising their prices, so that the economy will not be bled by super rents, monopoly rents that are paid to the monopolies. Well, that was before the monopoly lobbyists fought back. And basically the Republicans and the whole attempt to put [Robert] Bork on the Supreme Court, and later to control the Supreme Court, has been very largely an attempt by the monopolists to do to the Supreme Court what they’ve done to the Democratic Party and the other political parties, to basically have privatized the political process and the legal process, to give a free rein to the monopolists at the top of the pyramid. [It is] to make their money, not by employing labor to produce goods and services for a profit, but simply by charging more for what they’re doing, simply by getting monopoly rent, and financial rents, and natural resource rents, which is where most of the money is made today, along with capital gains, the asset price inflation, which are euphemized as capital gains, but it’s certainly not industrial capital gains; it’s finance capital gains. BEN NORTON: Professor Hudson, I have a kind of complicated question and I really want to pick your brain on this. The issue of interest rates is something that I’ve been researching a lot because there has been this debate about it in the past year or two about the Fed interest rates. And I’m curious if you think if it’s correlation or causation in that, with the rise of the neoliberal era – excluding, you know, after the Volcker shock, in this neoliberal era – in general, there has been a tendency toward dropping interest rates. And of course we have seen that after the financial crash of 2008 and the policy of quantitative easing, interest rates were zero or even technically below zero. And there was this extremely loose monetary policy, basically, the government just investing in all of these junk bonds, giving this massive cash infusion to the financial sector. I’m curious if you think that that’s just correlation or causation – do you think that, if you look at this graph just from an ignorant perspective, not knowing anything about fiscal policy, that in the Keynesian era, in that ’50, ’60s, and ’70s, there was a general tendency toward gradually increasing the Federal Reserve’s interest rates. And in the neoliberal era, there has been a tendency toward dropping those rates all the way to zero. Is that correlation or causation? Obviously raising the interest rates can cause a depression, which hurts working people. But at the same time, you’ve pointed out that, while there there are negatives to raising interest rates, like we’re seeing now, in that it’s going to make average consumers have to pay a little bit more on their mortgages and car loans. But it seems to me that the people who benefit most from low interest rates are not average working people who are trying to buy a house; it seems like it’s actually stockholders, and bondholders, and corporations. And there has been this big bubble in the past 10, 20 years where there’s such a loose, expansionary monetary policy, that there was this big bubble of all these corporations and start-ups that basically made no money. Uber, Twitter, all these big tech companies in Silicon Valley, they’ve never really made money. They basically were able to thrive because they were surviving on free money and all these zero interest loans. And now that bubble is kind of bursting. So do you think that in some ways, even though there could be a depression in the short term, raising interest rates can in some ways be better for working people, because it’s the financial sector that benefits most from low interest rates. I don’t know. It’s a difficult question. I’m curious what you think. MICHAEL HUDSON: That chart is very important, but it’s very misleading the way you put it by itself. What should be alongside of it, the [Fed] interest rate chart, would be the interest rate on credit cards and late fees. At the same time, you had 0.1% of interest rates all toward the end there, you had credit card rates of 19%. And if you’re late on your credit card, as most people have become, the interest rate is 29%. So you have a steady rise in the rates that debtors have to pay, that the 99% of the population have to pay. So the interest rates that fell were the interest rates that banks had to pay to the Federal Reserve and to each other, and that bank customers, financial customers had to pay for, say, borrowing from a bank at maybe 1%, and buying corporate stock that could pay dividends of 3%, 4%, or 5%. So the low interest rates created what’s called arbitrage for the financial sector – borrow cheap from the banks, and buy a higher yielding asset. You could borrow at less than 1% and buy a foreign bond that is yielding more. That’s called the carry trade. That’s what Japan did so much in the 1990s. Or, mainly, you could borrow at 1% and buy junk bonds that would pay much, much higher prices. And so much borrowing from the banks was done to buy junk bonds, that the interest rates on junk bonds actually came down, even though the risk didn’t come down. It turns out that interest rates don’t really reflect risk at all. Interest rates reflect the opportunity to make an arbitrage trade or straddle in the financial sector. So you’re right, the people who benefited from the interest rates were corporate raiders and speculators, and the people who were borrowing at low interest rates to buy real estate. Now, in the past, before 2008, the way to make a profit in real estate was, you take out a loan, and you buy real estate, and the real estate value will go up, and the price will go up. Well, what happened with private capital is they said, well, we can borrow from the banks at a very low price and we can buy the houses as absentee owners. And we can make much more money in rent than the low interest rates we have to pay. So the low interest rates helped finance large real estate private capital companies to come in and begin to become absentee owners of a rising amount of housing in the United States, which is what has turned the home ownership rates way down. At the point Obama took office, about 59% of Americans were homeowners. Now it’s under 50%. It’s fallen by about 10 percentage points as a result of the Obama evictions and the rules that Obama put in, the anti-Black rules, the anti-Hispanic rules, the anti-minority rules, and the anti-consumer rules that Obama put in. [These] have essentially transformed the real estate market away from a home-ownership economy into a rental economy, where you’re recreating a landlord class financed by the banking class, and merging between the finance, insurance, and real estate sector, the FIRE sector. It’s the FIRE sector that has really taken off since 2008. And it’s not simply that the economy has polarized, it’s that the shape of the economy has shifted away from an industrial, manufacturing, agriculture economy into a rentier economy, into a FIRE sector economy. It’s not even an agricultural economy in the sense that farmers, and dairy people are making money off the farms. It’s the trading companies, Archer Daniels Midland, and the other companies that are essentially the marketing choke points that have made money. So you’ve had the American economy since 2008 turned into a chokepoint economy. You need housing; you need food; you need medical care. And all of these have become monopoly rent-gouging opportunities that have essentially paid the wealthy 1% or 10% very, very highly, but squeezed out of the rest of the economy. BEN NORTON: So this might be a very simplistic question: is a looser monetary policy in general better for the financial sector and the speculators, and a tighter monetary policy is in general better for working people? Or is that just one factor among many and it’s more complicated? MICHAEL HUDSON: Look, the key is who is going to be the debtor and who is going to be the creditor. If a looser monetary policy would lower your credit card rates from 19% to 1%, at which that the banks get to borrow, fine. Then you can pay off your credit card debt. Instead of paying 29% with a penalty fee, you’d be paying 1%. That kind of loose monetary policy would be great. A monetary policy of forgiving student debt would be a great. But what’s called a loose monetary policy has been a very, very tight monetary policy for most of the population, but not for Wall Street, not for the financial sector. So you have to think of the American economy as divided into two sectors: the productive economy, of goods and services, production and consumption; and then the wealth economy, of assets and debts, the real estate sector, the financial sector, stocks and bonds, and ownership of monopoly companies. BEN NORTON: Very well said, very well said. I want to pivot a bit and talk about the situation in Europe. Professor Hudson, you have said in the past that the economic war on Russia that the U.S. and the EU are waging – which has caused an energy crisis inside Europe, as winter is soon approaching – you have said that this is basically going to turn the eurozone into a dead zone, economically speaking. We have seen that German industry, German capitalists, are in fact protesting against the government, saying that they really need cheap Russian energy. We have seen German labor unions warning that their industry could go bankrupt and could be offshored, like we saw with the deindustrialization of the U.S. And French President Macron – who of course is an investment banker; we should always keep in mind his own class interests – he gave this very interesting, you could say, historic speech, in which Macron announced the “end of abundance.” And I just want to read one quote from this from The Guardian here: “Macron said France and the French felt they were living through a series of crises, ‘each worse than the last.'” And the French president said, “What we are currently living through is a kind of major tipping point or a great upheaval … we are living the end of what could have seemed an era of abundance … the end of the abundance of products of technologies that seemed always available … the end of the abundance of land and materials including water.” Now, I basically interpreted this as Europe, acknowledging that neoliberalism – this financial, parasitic phase of capitalism that you have spent so much time analyzing and writing about – it is collapsing essentially in on itself. But I guess you disagree. So what do you take of of Macron’s speech on the “end of abundance”? MICHAEL HUDSON: When he said the “end of abundance,” what he really meant was the beginning of an IMF austerity program applied to Europe. And the end of abundance for the 90% is a bonanza of abundance for the 1%, for the financial sector. They’re making huge, huge gains in all of this. For instance, the electric companies in Europe are allowed to charge electricity in proportion to the highest priced marginal input. Well, the highest price input now of course is natural gas. So even though most of the electric companies will make their electricity in the usual way – through atomic energy, or oil, or other sources of energy – they have had a huge marginal increase in energy prices for all of this. The end of abundance means, when you look at it and say, what’s on the other side of the balance sheet? Austerity for the population means we are now going to put the class war in business here. We’re going to show you what European “socialism” is. European “socialism” is the same as it is in the United States with the Democratic Party. It’s lower wages, enabling higher profit opportunities for the companies. It’s going to be the end of abundance for wage earners, but it’ll be a bonanza for the monopoly owners and for the banks. In England, for instance, you can see this energy crisis. They announced the last week that I think the average electricity bill per family is going to go up by about £5,000, which means about $6,000 a year, just to heat the home, just for families. And for businesses like pubs, banks have asked for a $10,000 deposit so that the pubs, if they go bankrupt, can’t wipe out the amount of money that they give to the banks. So the banks have right away said, well, we’re going to make sure that as energy prices go up, we don’t have to suffer the end of abundance. Certainly the large companies aren’t. And from the US point of view – and basically the sanctions of Europe are a US policy – this is a bonanza for American companies that are replacing the German industrial companies in Europe. You had Germany’s Foreign Minister Baerbock go to the Czech Republic and said, my job is to support Ukraine; it’s not to represent my voters. I don’t care what my voters want. I know that they’re unhappy, as you just pointed out, but I’m going to support the sanctions on Russia. The most important thing is to keep up the sanctions on Russia. So you’re basically having almost all of the European Union officials and English officials are acting as local proxies for NATO. NATO is really running European politics. And it shows that Macron could have said – when he said we’re at the end of abundance and the beginning of austerity, he meant we’re at the end of democratic politics. We’re at the end of social democracy. Social democracy wouldn’t do what they’re doing. And socialist policy wouldn’t do what they’re doing. He said, we’ve turned the “socialism” into neoliberalism, just as Tony Blair did in England, and [Keir] Starmer is doing it today with the British Labour Party. You’ve had the end of any kind of social-democratic politics, and basically a concentration of policy – I guess you could call it the Davos class, the neoliberal class – it has really been centralized, largely under US direction and US financing. That’s why the United States, in discussions with Europe, has said these sanctions and the Ukraine war are only the opening overture for what’s going to go in 20 years. What’s at issue is how we are going to restructure the entire world economy. And in order to restructure the entire world economy, in the way that we want and that the Davos crowd wants, is you have to make sure that it is indeed a unipolar economy, not a multipolar economy. We first have got to knock out Russia, so that it can’t support China. Then we’ve got to oppose China, India, Iran, the rest of Asia. We’ve got to make sure that the United States, with our European partners, can impose this neoliberal, financialized economy over the entire world, and make sure that the dream of the 19th-century classical economists, of social democracy and socialism, was only a nightmare from our point of view. BEN NORTON: Yeah, well, maybe I was much too optimistic saying this is the end of neoliberalism, I guess. I think you’re right that what we’re now seeing is that this is the end of the last vestiges of European social democracy. And the very same policies that the IMF and World Bank, the structural adjustment and Washington consensus policies, that they imposed on the Global South for decades, are now coming home to Europe itself. But I do want to talk about something very related. I’m glad you mentioned German Foreign Minister Baerbock’s comments at this conference in the Czech Republic, where she said, what’s important for us is this war on Russia and supporting Ukraine, regardless of what voters want. Now Ukraine itself is being subjected to these same neoliberal shock-therapy policies. A friend of mine, a Canadian activist and writer, Jake Kallio, and I wrote an article over at Multipolarista.com titled “West prepares to plunder post-war Ukraine with neoliberal shock therapy: privatization, deregulation, slashing worker protections.” A conference was held this July in Switzerland called the Ukraine Recovery Conference, in which a bunch of Western governments and corporate leaders met together to plan neoliberal shock therapy to impose on Ukraine. And we couldn’t have seen a more blatant symbol of this than the fact that Ukraine’s Western-backed leader Zelensky, on September 6, he rang the opening bell, digitally, at least via Zoom, in the morning at the New York Stock Exchange. I mean, it’s really incredible. It says so much. With the hashtag #AdvantageUkraine and the slogan, “We are free. We are strong. We are open for business.” And if you read what the financial press is saying about this, this is from this website Business Wire: “President H.E. Volodymyr Zelenskyy rings bell at NYSE to signify Ukraine is open for business.” It notes there are $400 billion in investment options. It spans “public private partnerships, privatization and private ventures.” And “a USAID-supported project team of investment bankers and researchers appointed by Ukraine’s Ministry of Economy will work with businesses interested in investing.” They quote the president of the New York Stock Exchange Group who said: “we stand for freedom, investor protection and unfettered access to capital. We are pleased to welcome President Zelenskyy virtually to the NYSE bell podium, a symbol of the freedom and opportunity our U.S. capital markets have enabled around the globe.” So this, to me, it says everything. It points out that Ukraine has been working with the G7 in the EU to reform the country’s tax system – that is, cut taxes on corporations and the rich – to create a new legal framework and to adopt “rules and legislations to allow companies to build a transparent corporate structure, attract foreign investment more easily, and use additional mechanisms to protect intangible assets.” So, I mean, honestly, what they’re announcing is a massive corporate giveaway. What do you think about this policy of Ukraine being “open for business”? MICHAEL HUDSON: Well it certainly didn’t say everything. The day after Labor Day, significantly, Tuesday, on September 6, the day that Zelensky rang the bell at the stock exchange, he had an editorial in the Wall Street Journal that did say everything. He said, what we’ve done is abolish the right of labor to join labor unions. We have abolished the right of collective bargaining. Every wage agreement is going to be an individual choice between the worker and the employer. That’s a fair market. We are abolishing all of labor’s rights that are in the constitution. We are rejecting the European Union labor laws. We are rejecting everything that the UN International Labor Organization said. Labor, we have reduced labor, under the new law that I just passed, to absolute abject dependency. So if you work in Ukraine, not only are we going to give you whatever you can buy from the kleptocrats, giving them an appropriate markup and owning it, but you will have a completely docile labor force such as no country has seen since the era of Pinochet. You’ve got to read the Wall Street Journal editorial. It’s jaw dropping. It is absolutely – it’s like a parody of what a socialist would have written about how the class war would be put in into action by a fascist government. This is literally what fascism is. So of course he was welcomed on the stock exchange for abolishing labor’s rights. You could not have a more black-and-white example from what you just pointed out. BEN NORTON: Yeah, and I mean, it’s really sad considering that Ukraine already is the poorest country in Europe. And it’s one of the most corrupt countries in Europe, even according to these metrics of Western-government backed organizations. So we have seen that, after the overthrow of the Soviet Union in 1991, that, in Russia in particular, there was this brutal neoliberal shock therapy. Gorbachev just died. You know, he helped bring this in. Gorbachev did this famous Pizza Hut commercial, basically showing that he sold out his country for Pizza Hut. And we saw that under Yeltsin, this alcoholic US puppet, in Russia, the life expectancy of Russians decreased by several years. According to UNICEF, millions of Russians died excess deaths because of the neoliberal shock therapy imposed on Russia. And of course, Ukraine suffered, but the neoliberal shock therapy imposed on Ukraine wasn’t as severe as it was on Russia. And there still are some state-owned assets in Ukraine that all of these Western corporations are just frothing at the bit, they’re salivating about trying to get their hooks into and to privatize all of these assets. So this is a country that is already the poorest in Europe.  It’s already one of the most corrupt countries on Earth. It has a massive problem with far-right extremism. And now it’s being flooded with $40 billion of weapons just from the US, billions of dollars more weapons from Europe. I mean, this seems like such a massive powder keg. I can’t even imagine how disastrous it will be, considering the effect of the neoliberal shock therapy imposed on Chile, you mentioned, under Pinochet, and the neoliberal shock therapy imposed on Russia and the disastrous consequences. I mean, what do you think this is going to do, not only to Ukraine, but to Europe? MICHAEL HUDSON: Well, this is exactly what Mr. Macron said when he said the ‘end of abundance.’ The Ukrainian labor force has just experienced the end of affluence, neoliberal style. And as Mr. Zelensky said, it may be the end of affluence for the labor force, but it’s going to be a bonanza for you investors in the New York Stock Exchange. Come on in and join the party! Somebody’s loss is turned into somebody else’s game. And that’s what happens in a class war. It’s a zero-sum game. There is no attempt at all to raise living standards. And the problem – you said Ukraine is the poorest country in Europe – but Zelensky said it’s not poor enough. He said, you think this is something, wait until our new law takes effect. That’ll really show you what it means to be the poorest country in Europe. But it’ll also be the richest country in Europe for the 1%. Because, as you just pointed out, the kleptocrat class there was the most corrupt. I’ve met some of them, and it’s an experience. BEN NORTON:  Professor Hudson, I mentioned at the beginning of this episode that I also wanted to ask you about the petrodollar. There have been signs that the petrodollar, which Saudi Arabia established in the 1970s, by selling its oil in the dollar, that era might be coming to a close – or if not ending, at least it has a new challenger. There was a report in the Wall Street Journal that Saudi Arabia is now considering selling its oil in the yuan. And it probably will continue selling it in dollars. But maybe it will have a joint system where you can buy it in either yuan or dollars. This is from March of this year. And since then, there have been other developments. There are reports that Chinese President Xi Jinping is actually going to take a trip soon to Saudi Arabia, which would be historic, because this is going to be one of his first trips abroad since the Covid pandemic. And this also explains why President Joe Biden of the U.S. recently just visited Saudi Arabia. Clearly he was trying to pressure Riyadh and Mohammed bin Salman, the crown prince, to cut ties with China and Russia. Saudi Arabia has been increasing military ties with Russia as well. And actually Saudi Arabia is buying Russian oil for domestic consumption, below market price, and then selling its own oil on the market. So anyway, the point is that there are there are more and more reports now that the petrodollar could be challenged by the petroyuan. What do you think about this? And China’s increasing relations with Saudi Arabia? MICHAEL HUDSON: I think we’re seeing a multipolar financial system. This is part of the de-dollarization of the whole rest of the world. I think that Saudi Arabia felt under attack for two reasons. Number one, the United States criticizing the fact that it killed a foreign critic. To Saudi Arabia, this is America’s interference with its philosophy, where if somebody disagrees with you, you kill them. Secondly, America was protesting the Saudi Arabia’s butchering of Yemen, of Yemenis. And Saudi Arabia thought, well, they’re threatening not to sell us arms if we’re going to use them to kill Yemenis. We better diversify. Most of all, though, all of the wealthy sovereign funds of the world were shocked by how the United States announced this year that, if a country does something we don’t like, and that would include Saudi Arabia, we’re going to grab all of its reserves. We grabbed Afghanistan’s reserves, because we don’t like the way they treat women. We grabbed Russia’s reserves, because they want to have a multipolar world. We grabbed Venezuela’s reserves. Well, what’s going to stop them from all of a sudden grabbing Saudi Arabia’s reserves? Any multibillionaire is going to diversify their investments and diversify the assets. And I think Saudi Arabia thought, well, we’re going to be doing a lot of trade with China, because who else are we going to buy our manufacturers from? We’re not going to buy them from Europe, because that’s finished. We’re not going to buy them from America, because that’s de-industrialized. We’re going to have to make our own pivot to Asia. And that means that they’re going to want to be paid in their own currency. So, of course, we’re going to want to begin selling or pricing our oil in their currency so that there can be a mutual trade. And we’re not going to suffer from ups and downs and squiggles in the foreign exchange rate that’s caused by US intervention or US sanctions. The United States is driving Saudi Arabia and driving every country out of the dollar, by its statements that, if you have dollars invested in Treasury bonds or in US banks, we can grab them. And that’s how we can control the world. Well, if you’re going to tell the world that, this is not a way – everybody had thought of the dollar as being something nonpolitical and objective, and they were closing their eyes to the fact that holding dollars is a loan to the US government, that basically is debt that is created by America’s military policy and military spending abroad. So all of a sudden they realized the whole dollarized financial system is an extension of the Pentagon and the military-industrial complex. And they’re becoming more and more bossy. We’ve seen what they’ve just done to Europe. What if America would do to us in Saudi Arabia and other Arab countries what they just did to Germany, and to England, and to their friends, and to Russia and Venezuela? We don’t want, we can’t afford to take the risk of depending on America. So to use Putin’s phrase, America is no longer agreement capable. That means that it’s no longer safe as an investment place. BEN NORTON: Professor Hudson, I actually I had one other question, because we mentioned Chile earlier. And I don’t want to keep you too long; I know you’re a busy man. We just saw that Chile had a referendum to vote on a new constitution. And in that new constitution, it wouldn’t have necessarily nationalized the natural resources and minerals of Chile, but it would have been a step toward protecting them and at least putting some slight restrictions on foreign corporations from exploiting the huge copper and lithium reserves in Chile. And there was a massive campaign by right-wing oligarchs, multimillionaires and billionaires, and the media to demonize this new constitution. And it was voted down; it was not passed. And there of course is a long history of Chile being exploited by foreign powers because of its large mineral reserves. You mentioned your time working in the banking sector and the role of U.S. corporations in trying to get the copper in Chile, after Salvador Allende, the socialist president who was elected, after he nationalized the copper, which which was a significant factor in the CIA coup in Chile in 1973. Before we talk about that really quickly, I just want to point out that Jeff Bezos, who is of course the founder of Amazon, one of the richest people in human history, estimated at $200 billion in wealth, he also owns the Washington Post. And before this referendum in Chile, the Washington Post editorial board published an article lobbying against the new constitution. And what was incredible about this article is the first paragraph is not about democracy; it’s not about the horrible crimes against humanity committed by Pinochet; it’s actually about lithium. The first word in this editorial board article from the Washington Post is lithium, and about how “Chile sits atop the world’s largest lithium reserves,” which is “reason enough to pay attention to Chile’s impending Sept. 4 referendum.” So I’m curious if you can talk about the history of US corporations trying to exploit Chile’s copper and lithium. And maybe you can respond to this this media propaganda demonizing a mild attempt at not even nationalizing the minerals, but just putting restrictions on foreign corporations. MICHAEL HUDSON: It’s not really about lithium or copper itself. It’s about the pollution that is caused by the mining. If a company comes in and mines lithium, it’s going to create a lot of environmental problems, very much like an oil slick, like the American oil companies that went into Ecuador and other countries and had a big oil spill, and the countries were not allowed, were not able, to recover the cost of cleaning up the oil spill and the damage to the economy done by the oil companies. Same thing in lithium. The proposed constitution basically says, if make a contract with a foreign investor developing lithium, they’re going to want just to dig the mine, take it out, and leave a mess behind – sort of like drilling an oil well and then capping it, and then the oil well is going to leak more and more as the pipe rusts, and you’re going to have oil in the water supply. Well, you’re going to have lithium being a huge environmental disaster. You’re also going to need a huge government expenditure on infrastructure of transportation, and electrification, and power, and roads to the lithium. Who is going to pay for all of this infrastructure? Chile might get some dollars in foreign exchange for the lithium, but it would have to have a huge, it’s called external economy, external to the balance sheet, or off-balance sheet costs of this. Who is going to be liable for the off-balance sheet costs and the clean-up costs of the lithium? That’s what it’s all about. Chile would be quite happy to sell lithium, as it’s quite happy to sell its copper, as long as it can make a national benefit from selling the raw material. And really that’s what it has, the raw material. But the problem is, when you’re dealing with a messy mineral – sort of like the rare-earth minerals, that also create a lot of problems, which is why China is one of the few countries that has dominated the rare-earth market, because it’s willing to tolerate all of the environmental destruction that the mines create. Well, other countries don’t want to take a risk on the environmental destruction. So it’s really, how do you think about corporate investment? Do you think of just what’s on the balance sheet for the company, what it spends, and the sales price and the profit it makes? Or do you think of the minerals industry as involving all of these external economies? That was the whole disaster of the World Bank, and why the World Bank has been so destructive since the time it was formed and began to make loans to Global South countries. It would tell Global South countries to make exports, and the loans it would make would be roads for export, ports for export. The countries would take over all of the cost of producing the raw materials and the agricultural crops, the plantation crops for export, leaving all of the profits for the companies that invest. And the countries are stuck with the foreign debt, at inflated prices, to hire US companies to build the ports, and the roads, and all of the infrastructure loans that the World Bank would would lend for. They’re finally becoming aware in South America that the cost, including the foreign exchange cost, of building infrastructure costs much more than the export proceeds that they get. It’s the tail wagging the dog. And they realized that they economic doctrine that they have been told that excludes all of the social costs from the balance sheet of national income, and exports, and the profit, is a tunnel vision. And they’re trying to break away from the tunnel vision. And of course, the companies back the economic profession, which is all tunnel vision. The economic profession says ignore the external costs; ignore the clean-up costs; that’s not what economics is all about. Well, the fact is, that’s what it should be all about. And more and more of the countries are realizing that you have to think of economics as a whole system that includes the environment, which it used to be, already in the 1840s, 170 years ago, the United States was developing a national income analysis to take environmental destruction into consideration. But all of that has been rejected by free-market economics. The free market says a free market is one where all of the profits go for the exporter, and all of the external costs and pollution are stuck with the host country. Well, it turns out it’s the host the host parasite relationship, basically. So there’s an argument in Chile over what the economics is all about. BEN NORTON: Well, I know we’re running out of time here. I just want to ask a brief question here from the chat comments. This is from a Babylon, they wrote, “Please ask Michael to explain why the US dollar continues to be so strong.” Obviously this is a very open-ended question, but go ahead. MICHAEL HUDSON: Well it’s strong because of we talked about at the very beginning of this show. It’s strong because Europe has created an economic suicide. If Europe is unable to produce industrial exports, if the European steel companies are closing down, the fertilizer companies are closing down, the Italian glass companies are closing down because you need gas to make glass and all of a sudden the price goes up, they’re not going to be making much money. And the dollar is going up against the pound sterling. It’s not that the dollar is rising; it’s that the sterling is going down. And the yen is going down, by holding Japanese interest rates low. And the euro is going down, by following the NATO sanctions policy. So this is really a policy of other countries mismanaging their economy, not that the United States is actively doing everything positive, except positively disrupting Europe and England. BEN NORTON: And speaking of England, a lot of people in the comments have been pointing out the latest news that Queen Elizabeth has died. While we were doing this interview today, on this stream, they announced that she had died. I don’t know if you have any thoughts on that. MICHAEL HUDSON: No, I mean, she had pretty much played out, stayed out of politics, and just played a ceremonial role that I think certainly helped their tourist trade. I don’t know what the royal family does except a sort of pose for tourists. It will be very interesting. Prince Charles always had much more of a concern for the environment, and was much more broad-minded and probably activist than Queen Elizabeth was. So he has a chance to really make his point of view more open, and perhaps play some kind of much more active political role than the the monarch did, where Queen Elizabeth thought she should stay out of economic and political affairs, not be activist. We’ll have to wait and see whether Charles puts some of his personal views and convictions. BEN NORTON: Yeah, and I’ll say, Elizabeth really represented a certain generation. Let’s not forget, when Elizabeth was a child, she was taught by her uncle, who was an avowed Nazi, to Nazi salute. And there’s this famous photo of her as a child Nazi saluting. For me, it says a lot about the British royal family and its attempt to rebrand, as you said, to appeal to tourists, erasing this ugly history of support for fascism, of genocidal colonialism, and all of that. So the British monarchy moves into a new era. We see the new, ultra-neoliberal Conservative Prime Minister Liz Truss. So there’s a lot there’s a lot to say there. But Professor Hudson, as we wrap up, what projects are you working on now? Is there anything that you want to plug? I will link in the description to your website michael-hudson.com, and encourage everyone to check it out. What are you working on right now? MICHAEL HUDSON: Well, I’m finishing a book that I have been working on for 20 years, the sequel “And Forgive Them Their Debts.” And the book is “The Collapse of Antiquity.” It’s about how Greece and Rome basically collapsed as a result of the failure to cancel the debts, and the class war of the creditor oligarchy. And the big point is that what made Western civilization different, what made Greece and Rome break from the Near East, is the fact that democracies are not very good at resisting financial oligarchies. And in Greece and Rome, especially Rome, the oligarchy took over at the point where it overthrew the kings and established an oligarchy from the very beginning, ruling by terror, and by force, and violence, and political assassination. So this essentially is an economic history of not only why Greece and Rome ended, but why the pro-creditor laws, the legal system, the whole economic system that Rome bequeathed to the West, when it collapsed, we’re still in it. And what is happening today, with the debt crisis we’re talking about, is really a process of how Greece and Rome shifted the West onto a completely different way of organizing society than had existed earlier in the Near East and which survived and many parts of Asia. So we’re just doing the index and typesetting of that book now. It’ll be out in a few months. BEN NORTON: Great. Well, I look forward to seeing that. Professor Hudson’s books are always amazing. I’ve learned so much from them. They have really influenced my economic and political worldview. With that, I want to remind everyone that every time I do an interview with Professor Hudson, we always publish a transcript of the interview. You can find that over at multipolarista.com. And it will also be on his website, michael-hudson.com. As I wrap up here, I want to thank everyone who joined in the chat. It was a very lively discussion. I wish I had more time to respond to questions. But I want to be respectful of Professor Hudson’s time. Professor Hudson, I’m sure I’ll have you back sometime soon to talk about all of the the latest developments. Things are changing pretty rapidly these days. So I know you’re always writing about what’s going on in the world. You’re always doing great interviews. Anyone who wants to find your writings can go to michael-hudson.com. There’s always a wealth of knowledge. So thank you so much for joining me today. MICHAEL HUDSON: Well, thanks for having me. It was a good discussion. And we touched on all the important topics of this week. BEN NORTON: Thanks, Professor Hudson. And thanks to everyone who watched or listened. If you want to support this show, you can go to patreon.com/multipolarista. And I’ll see you all next time. Thanks a lot.

Write an article about: ‘Western dominance has ended’, EU foreign-policy chief admits, warning of ‘West against the Rest’ geopolitics. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

EU, European Union, Gaza, General Assembly, Global South, Josep Borrell, Sahel, Ukraine, United Nations

The European Union’s top diplomat, Josep Borrell, admitted that the “era of Western dominance has indeed definitively ended”. He warned that the EU must not divide the world into “the West against the Rest”, as “many in the ‘Global South’ accuse us of ‘double standards’”. Europe’s top diplomat has acknowledged that the “era of Western dominance has indeed definitively ended”. Josep Borrell, the European Union’s high representative for foreign affairs, wrote this in a blog post on the official website of the EU’s diplomatic service on February 25. “If the current global geopolitical tensions continue to evolve in the direction of ‘the West against the Rest’, Europe’s future risks to be bleak”, he warned. The wars in Ukraine and Gaza, along with the anti-colonial uprisings in Africa’s Sahel region, have “significantly increased this risk” of Europe becoming geopolitically irrelevant, Borrell said, lamenting that “Russia has managed to take advantage of the situation”. The European foreign-policy chief revealed that “improving our relations with the ‘Global South'” is one of ” the four main tasks on EU’s geopolitical agenda”. “Many in the ‘Global South’ accuse us of ‘double standards'”, he confessed. Borrell is known for sporadically making frank comments, admitting inconvenient truths that most European diplomats leave unsaid. In 2022, the EU foreign-policy chief confessed, “Our prosperity was based on China and Russia – energy and market”, with “cheap energy coming from Russia” and “access to the big China market” as the cornerstone of the European economy. However, Borrell’s insistence that Europe must not divide the world into the “West against the Rest” was contradicted by his insistence in the same February 2024 article that the EU must expand its “cooperation with key partners, and in particular the US”. The top European diplomat wrote that “recent months have reminded us how important NATO remains to our collective defence”, calling to strengthen the US-led military bloc. In 2023, the influential think tank the European Council on Foreign Relations published a white paper titled “The art of vassalisation”. It warned of “Europe becoming an American vassal”, noting how the war in Ukraine had “revealed Europeans’ profound dependence on the US”. The EU’s foreign-policy chief does recognize that it would be an error to pit “the West against the Rest”, yet he is simultaneously calling for deepening the trans-Atlantic alliance between the US and Europe, which only exacerbates that geopolitical division. On the global stage, Europe frequently joins the United States in violating the will of the international community. At the United Nations, the US and Europe often vote together, while the vast majority of member states, which are located in the Global South, vote against them. Source: Alastair Iain Johnston, “China in a World of Orders: Rethinking Compliance and Challenge in Beijing’s International Relations”, International Security (2019) The US only voted with the majority of the world at the UN General Assembly 32.7% of the time from 1983 to 2012. In 1988, just 15.4% of overall UNGA votes coincided with the US vote. Europe is the only region of the world that consistently votes with the US. In November 2023, the West voted against the vast majority of the world in UN General Assembly resolutions concerning democracy, human rights, cultural diversity, mercenaries, and unilateral coercive measures (sanctions). In April 2023, the West once again voted as a bloc against the other countries on the UN Human Rights Council, defending unilateral sanctions, which violate international law. In December 2022, the West voted against the rest of the planet in UN General Assembly votes calling for a new international economic order. West votes against democracy, human rights, cultural diversity at UN; promotes mercenaries, sanctions

Write an article about: West opposes rest of world in UN votes for fairer economic system, equality, sustainable development. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

economics, Israel, Palestine, Turkey, Türkiye, United Nations

The West opposed the rest of the planet in United Nations General Assembly votes that called for a new international economic order based on sovereign equality, sustainable development, and biological diversity. Most countries on Earth voted at the United Nations General Assembly to support a call for a new international economic order that is based on sovereign equality and cooperation, that rejects unilateral sanctions and advocates for debt relief for the Global South. The only countries that opposed this widely popular proposal were the West and its allies. The United States and its proxies were also the lone votes against common-sensical resolutions promoting sustainable development, biological diversity, and basic civil rights for Palestinians. Almost the entire world supported these proposals. Washington showed itself to be a rogue state on the international stage, voting against practically every resolution, even on uncontroversial issues where the rest of the planet is in agreement. Most of these resolutions were commonplace, are introduced every year, and have been voted on many times before, with similar results: the West vs. the rest. In 1974, formerly colonized nations in the Global South proposed a plan to dismantle the remaining economic structures of colonialism. They called it the New International Economic Order (NIEO), and said that it should be “based on the principles of equity, sovereign equality, interdependence, common interest, cooperation and solidarity among all States.” The NIEO has been consistently voted on at the United Nations in the five decades since. And the West has persistently opposed it. On December 14, 2022, 123 countries voted in favor of the NIEO – 64% of the UN’s 193 member states. (The number would have been even higher, but several nations that have been illegally sanctioned by the US, such as Venezuela and Zimbabwe, had their UN voting rights temporarily suspended because they have been unable to pay their membership fees in dollars.) Just 50 nations voted against it, with one abstention, from NATO member Türkiye. The 50 countries opposed to the call for a fairer, more equitable economic system consisted of the United States, members of the European Union, Britain, Israel, Canada, Australia, South Korea, and Japan. This grouping has been referred to as the “Collective West.” The West is not a geographic construct; it is a political one. This is why Australia, which was created as a British settler colony, is located in the eastern hemisphere but is politically and culturally part of the West. The same is true for apartheid Israel, which like Australia was created as a British settler-colonial project and has since become a US proxy with a key geostrategic location in West Asia. Similarly, the two East Asian nations that are part of this Western bloc are military occupied by the United States, which has stationed tens of thousands of troops in Japan since the mid-1940s and in South Korea since the early 1950s. Reflecting on the December 14 vote, Chinese journalist Chen Weihua observed, “It’s US and EU against the rest of the world. Basically 900 million against the more than 7 billion from Asia, Africa to Latin America.” It’s US and EU against the rest of the world. Basically 900 million against the more than 7 billion from Asia, Africa to Latin America. — Chen Weihua （陈卫华） (@chenweihua) December 15, 2022 The UN General Assembly (UNGA) resolution “reaffirms the need to continue working towards a new international economic order based on the principles of equity, sovereign equality, interdependence, common interest, cooperation and solidarity among all States.” It also “reiterates that States are strongly urged to refrain from promulgating and applying any unilateral economic, financial or trade measures not in accordance with international law and the Charter of the United Nations that impede the full achievement of economic and social development, particularly in developing countries.” The resolution calls for “mutually supporting world trade, monetary and financial systems” and “coordination of macroeconomic policies among countries to avoid negative spillover effects, especially in developing countries” It similarly urges debt relief for the Global South, stating that it “expresses concern over the increasing debt vulnerabilities of developing countries, the net negative capital flows from developing countries, the fluctuation of exchange rates and the tightening of global financial conditions, and in this regard stresses the need to explore the means and instruments needed to achieve debt sustainability and the measures necessary to reduce the indebtedness of developing countries.” The December 14 vote took place in the 53rd plenary meeting of the 77th session of the UNGA, featuring reports from the body’s Second Committee, which focuses on economic and financial affairs. The votes were very similar on related UNGA resolutions. They illustrated how the United States and its proxies act as rogue regimes, violating the will of the international community. A proposal on “international trade and development” had almost the exact same vote, with 122 in favor, 48 against, and one abstention (once again, Türkiye). In this resolution, “the Assembly urged the international community to adopt urgent and effective measures to eliminate the use of unilateral economic, financial or trade measures that are not authorized by relevant organs of the United Nations, and that are inconsistent with the principles of international law or the Charter of the United Nations or that contravene the basic principles of the multilateral trading system and that affect, in particular, but not exclusively, developing countries.” A related resolution emphasized the “role of the United Nations in promoting development in the context of globalization and interdependence.” In this vote, European countries abstained. The only votes against the resolution came from the United States and Israel. In the measure, “the Assembly noted with concern that the mobilization of sufficient financing remains a major challenge in the implementation of the 2030 Agenda and that progress has not been shared evenly within and among countries, leading to further deepening of existing inequalities.” Even on other resolutions that were completely straightforward and common-sensical, the US voted against the entire world. The UNGA adopted a resolution calling to implement the Convention on Biological Diversity and reaffirming its contribution to sustainable development. 166 countries supported the resolution, while just three nations opposed it (the US, Israel, and Japan), with one abstention (South Korea). All 193 UN member states except for one, the USA, have ratified the Convention on Biological Diversity. Washington stands alone as the only capital on Earth that refuses to join the planet-saving agreement. The United States also opposed most of the world in a UN vote to recognized the “permanent sovereignty of the Palestinian people in the Occupied Palestinian Territory, including East Jerusalem, and of the Arab population in the occupied Syrian Golan over their natural resources.” This resolution passed with 159 countries in favor and 10 abstentions (Australia, Cameroon, Côte d’Ivoire, Guatemala, Papua New Guinea, Rwanda, Solomon Islands, South Sudan, Togo, and Tuvalu). A mere eight member states voted against recognizing these basic political and civil rights for Palestinians, including the US, Israel, Canada, Chad, and small island nations that typically vote as US proxies at the UN, including the Marshall Islands, Micronesia, and Palau (all former US colonies that have “free association” agreements with Washington and use the dollar as their currency), and Nauru (which uses the Australian dollar). This pattern was yet again visible in a resolution titled “Oil Slick on Lebanese Shores,” in which the UN lightly criticized Israel for illegally bombing Lebanon’s Jiyeh Power Station in 2006, unleashing a massive oil spill that still causes problems today. In addition to severely damaging the environment, the UN noted that this Israeli attack cost Lebanon at least $856.4 million. The language of the resolution was very mild, expressing “its deep concern about the adverse implications of the destruction by the Israeli Air Force of the oil storage tanks in the direct vicinity of the Lebanese Jiyeh electric power plant for the achievement of sustainable development in Lebanon.” 160 member states voted in favor of the resolution, including European countries. It was opposed only by the US, Israel, Canada, Australia, and Washington’s proxies in the Marshall Islands, Micronesia, Nauru, and Palau. These votes on December 14 were by no means the only time the United States has exposed to the world its status as an unaccountable rogue regime. For the 30th year in a row, almost every country on Earth voted at the UN to condemn the illegal, 60-year US blockade of Cuba 185 to 2 USA and apartheid Israel voted against 2 abstained: Bolsonaro's far-right Brazil and NATO's client regime in Ukrainehttps://t.co/g7KFeiYeGP — Ben Norton (@BenjaminNorton) November 3, 2022 In recent UN votes condemning the six-decade US blockade on Cuba and calling on Israel to get rid of its nuclear weapons, Washington and Tel Aviv spat in the face of the rest of the world. The United Nations General Assembly voted overwhelmingly, 152 to 5, to tell the Israeli apartheid regime to get rid of its nuclear weapons, which are illegal under international law https://t.co/YCQsbXWFZp — Ben Norton (@BenjaminNorton) November 1, 2022

Write an article about: Zelensky is literally selling Ukraine to US corporations on Wall Street. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

capitalism, neoliberalism, New York Stock Exchange, NYSE, Ukraine, Volodymyr Zelensky, Wall Street

Ukraine’s Western-backed leader Volodymyr Zelensky opened the New York Stock Exchange telling Wall Street his country is “open” for foreign corporations to exploit it with $400 billion in state selloffs. Ukraine’s Western-backed leader Volodymyr Zelensky virtually opened the New York Stock Exchange on the morning of September 6, symbolically ringing the bell via video stream. Zelensky announced that his country is “open for business” – that is to say, that foreign corporations are free to come and exploit its plentiful resources and low-paid labor. In a speech launching the neoliberal selloff program Advantage Ukraine, Zelensky offered Wall Street “a chance for you to invest now in projects worth of hundreds of billions of dollars.” The financial news service Business Wire published a press release from the Ukrainian government in which Zelensky boasted: The $400+ [billion] in investment options featured on AdvantageUkraine.com span public private partnerships, privatization and private ventures. A USAID-supported project team of investment bankers and researchers appointed by Ukraine’s Ministry of Economy will work with businesses interested in investing. It also quoted the president of NYSE Group, Lynn Martin, who said: As the largest exchange globally, we stand for freedom, investor protection and unfettered access to capital. We are pleased to welcome President Zelenskyy virtually to the NYSE bell podium, a symbol of the freedom and opportunity our U.S. capital markets have enabled around the globe. We are honored the President has chosen the NYSE to mark the kickoff of Advantage Ukraine and engage with the world’s business community. The press release cited executives of US corporate giants Google, Alphabet, and Microsoft, who salivated over the economic possibilities offered by Ukraine. Reuters noted that the Ukrainian government hired British public relations firm WPP to run the marketing operation for Advantage Ukraine. Zelensky coordinated his New York Stock Exchange publicity stunt with an editorial in the Wall Street Journal imploring US capitalists to “Invest in the Future of Ukraine.” “I committed my administration to creating a favorable environment for investment that would make Ukraine the greatest growth opportunity in Europe since the end of World War II,” Zelensky wrote. He continued: To create a safe, transparent environment for business engagement, Ukraine is pursuing investment guarantees from both the Group of Seven and the European Union, reforming the country’s tax system, and establishing a strong new legal framework. Our country has already adopted rules and laws to allow companies to build transparent corporate structures, attract foreign investment more easily, and use additional mechanisms to protect intangible assets. Favorable conditions will allow us to establish Ukraine as a powerful IT hub and implement innovative business ideas quickly and effectively. Ukraine is a land of surprising opportunity. I personally invite you to be surprised by our potential and to invest in the future of Ukraine, writes @ZelenskyyUa https://t.co/sWGpAyQhKq — Wall Street Journal Opinion (@WSJopinion) September 7, 2022 Geopolitical Economy Report previously reported on a meeting by Western governments and corporations in Switzerland in July in which they planned harsh neoliberal economic policies to impose on Ukraine. The Western participants published documents calling to cut labor laws, “open markets,” drop tariffs, deregulate industries, and “sell state-owned enterprises to private investors.” Western governments and corporations met in Switzerland to plan harsh neoliberal economic policies to impose on post-war Ukraine, calling to cut labor laws, “open markets,” deregulate industries, and “sell state-owned enterprises to private investors.”https://t.co/J0n8db8ZLr — Geopolitical Economy Report (@GeopoliticaEcon) July 29, 2022 In an interview with Geopolitical Economy Report, economist Michael Hudson compared the new emergency anti-labor laws imposed by the Ukrainian government to the brutal neoliberal policies implemented by Chile’s far-right Pinochet dictatorship after a CIA-backed coup in 1973. “It’s jaw dropping,” Hudson said of Zelensky’s Wall Street Journal op-ed. “It’s like a parody of what a socialist would have written about how the class war would be put in into action by a fascist government.” “So of course he was welcomed on the stock exchange for abolishing labor’s rights,” Hudson added. “You could not have a more black-and-white example” of class war. “This is exactly what [French President] Macron said when he said the ‘end of abundance.’ The Ukrainian labor force has just experienced the end of affluence, neoliberal style. “And as Mr. Zelensky said, it may be the end of affluence for the labor force, but it’s going to be a bonanza for you investors in the New York Stock Exchange. Come on in and join the party!” “Somebody’s loss is turned into somebody else’s game. And that’s what happens in a class war. It’s a zero-sum game. There is no attempt at all to raise living standards.” “Ukraine is the poorest country in Europe – but Zelensky said it’s not poor enough. He said, you think this is something, wait until our new law takes effect. That’ll really show you what it means to be the poorest country in Europe.” “But it’ll also be the richest country in Europe for the 1%,” Hudson concluded.

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dollar, economics, IMF, imperialism, Michael Hudson, Treasury, treasury bonds, World Bank

Economist Michael Hudson explains how American imperialism has created a global free lunch, where the US makes foreign countries pay for its wars, and even their own military occupation. Economist Michael Hudson explains how American imperialism has created a global free lunch, where the US makes foreign countries pay for its wars, and even their own military occupation.Max Blumenthal and Ben Norton discuss the economics of Washington’s empire, the role of the IMF and World Bank, attempts to create alternative financial systems like BRICS, and the new cold war on China and Russia. PART 2 OF 2 (Interview recorded on April 13, 2020) Part 1: “US coronavirus ‘bailout’ is $6 trillion giveaway to Wall St – Economist Michael Hudson explains” (Teaser – 0:03) MICHAEL HUDSON: The World Bank has one primary aim, and that’s to make other countries dependent on American agriculture. This is built into its articles of agreement. It can only make foreign currency loans, so it will only make loans to countries for agricultural development, roads, if it is to promote exports. So the United States, through the World Bank, has become I think the most dangerous, right-wing, evil organization in modern in history — more evil than the IMF. That’s why it’s almost always been run by a secretary of defense. It has always been explicitly military. It’s the hard fist of American imperialism. Its idea is that, we’ll make Latin American, and African, and Asian countries export plantation crops , especially plantations that are foreign owned. But the primary directive of the World Bank to countries is: “You must not feed yourself; you must not grow your own grain or your own food; you must depend on the United States for that. And you can pay for that by exporting plantation crops.” (Intro – 1:45) BENJAMIN NORTON: Here at Moderate Rebels we talk a lot about imperialism. I mean it’s really the kind of main point of this show. This program explores how US imperialism functions, how it works on the global stage, how neoliberal policies of austerity and privatization are forced at the barrel of a gun through the US military, through invasion and plunder. We talk about it in Venezuela, and Iraq, and Syria, and so many countries. But we often don’t talk about the specific economic dynamics of how it works through banks, and loans, and bonds. Well today we are continuing our discussion with the economist Michael Hudson, who is really one of the best experts in the world when it comes to understanding how US imperialism functions as an economic system, not just through a system of military force. Of course the economics are maintained, are undergirded, by that military force. And we talk about how the military force is expressed through regime-change wars and military interventions. But Michael Hudson also explains how the International Monetary Fund and the World Bank, and the US financial system, and banks and Wall Street, they all work together, hand in glove with the military, to maintain that financial chokehold. He spells this all out brilliantly in a book called “Super Imperialism: The Economic Strategy of American Empire.” He originally wrote that book back in 1968, and then recently updated it in 2002, published again in 2003 with the war in Iraq and the war in Afghanistan, and kind of updated and showed how, even though the system that he detailed 50 years ago hasn’t really changed, but it has shifted in some ways. So today we’re gonna talk about how that international imperialist system dominated by the US works. Michael Hudson, who in the first part of this talked about the scheme that is the coronavirus bailout — if you want to watch the first part you can go find that at moderaterebels.com; it’s on YouTube, Spotify, iTunes, any other platform. Michael Hudson is an economist and he’s also a longtime Wall Street financial analyst. He is also a professor of economics at the University of Missouri, Kansas City, and you can find his work at michael-hudson.com, which I will link to in the show notes for this episode. So without further ado, here is the second part of our interview with Michael Hudson. (4:37) MAX BLUMENTHAL: I think it’s a good transition point to talk about another kind of scam you’ve identified. There’s a really hilarious aside in the second preface to your book “Super Imperialism,” where Herman Kahn, who is, I think he was a founder of the Hudson Institute, which you went to work for, he was also the inspiration for the Dr. Strangelove character and Stanley Kubrick’s film. Herman Kahn is, there’s an award that the neocons give out every year named for him; Benjamin Netanyahu is a recent award winner. But he was he was in the audience, or on a panel for one of your talks, where you laid out your theory of “Super Imperialism,” and how the United States actually gets other countries to subsidize its empire, and is able to expand and carry out this massive imperial project without having to impose austerity on its own population, as other countries have to do under IMF control. So Herman Kahn comes up to you after the talk and says, “You actually identified the rip-off perfectly.” And your book starts selling like hotcakes in DC, I guess among people who work for the CIA, and people who work in the military-intelligence apparatus. MICHAEL HUDSON: What he said was, “We’ve pulled off the greatest ripoff in history. We’ve gone way beyond anything that British Empire ever thought of.” He said, “That’s a success story. Most people think imperialism is bad; you’ve shown how it’s the greatest success story — we get a free lunch forever!” MAX BLUMENTHAL: Right. So explain the ripoff you identified there, and how it is being perpetuated under the Trump administration in ways that I think are pretty amazing, including through the imposition of unprecedented sanctions on something like one-third of the world’s population. (6:40) MICHAEL HUDSON: Well I wrote “Super Imperialism” in 1972, and it was published exactly one month after President Nixon took America off gold in August of 1971. And the reason he took America off gold was the entire balance of payments deficit from the Korean War to the Vietnam War was military in character. And every time, especially in the ’60s, the more money that America would spend in Vietnam and Southeast Asia, all this money had to be spent locally. And the banks were all French banks, because it was French Indochina, all the money would be sent to Paris, to the banks’ head offices, turned over from dollars into francs, and General de Gaulle would end up with all these dollars, and he would, every month, send in the dollars and want payment in gold. And Germany would do the same thing. And so the more America fought militarily, it was depleting its own gold stock, until finally, in August 1971, it said, “We’ve been using gold as the key to our world power ever since World War I, when we put Europe on rations. So we’re going to stop paying gold.” They closed the gold window. And most of the economists were all saying, “Oh my heavens, now it’s going to be a depression. “But what I said was, “Wait a minute, now that other countries can no longer get gold from all this military spending” — and when you talked about the balance of payments deficit, it’s not the trade deficit, it’s not foreign investment; it’s almost entirely military in character. So all these this money that spent abroad, how are we ever going to get it back? Well these dollars we have spent around the world, mainly for the 800 military bases and the other activities we have, these dollars would end up in foreign central banks. And foreign central banks, what are they going to do with them? Well we wouldn’t let foreign central banks buy American industries. We would let them buy stocks, but not a majority owner. My former boss, the man who taught me all about the oil industry, in Standard Oil, who became undersecretary of the Treasury for international affairs, and when Herman Kahn and I went to the White House, he said, “We’ve told the Saudi Arabians that they can charge whatever they want for their oil, but all the money they get, they have to recycle to the United States. Mostly they can buy Treasury bonds, so that we’ll have the money to keep on spending, but they can also buy stocks, or they can do with the Japanese did and buy junk real estate and lose their shirts.” So basically, when America spends money abroad, central banks really don’t have much — they don’t speculate. They don’t buy companies; they buy Treasury bonds. So we run a monetary deficit; the dollars are spent abroad; the central banks lend them back to the Treasury; and that finances the budget deficit, but it also finances the balance of payments deficit. So we just keep giving paper And I think President Bush, George W. Bush, said, “Well we’re never really going to repay this. They get counters, but we’re not going to repay it.” And then, as a matter of fact, you have Tom Cotton a senator from [Arkansas] saying, “Well you know China holds savings of $2 trillion or so in US Treasury bonds. Why don’t we just not pay them? They gave us the virus; let just grab it and nullify it.” We can nullify Iranian assets, Venezuelan assets — it’s like a bank can just wipe out other deposits you have, if it wants militarily. So the United States doesn’t have any constraint on military spending. Now Herman Kahn and I on another occasion went to the Treasury Department, and we talked about what the world would look like on a gold standard. And I said, “Well gold is a peaceful metal. If you have to pay in gold, no country with a gold standard can afford to go to war anymore. Because a war would be entail a foreign exchange payment, and you’d have to pay this foreign exchange in gold, not IOUs, and you would end up going broke pretty quickly.” Well needless to say, I think someone from the Defense Department said, “That’s why we’re not going to do it.” Here’s an example: Let’s suppose that you went to a grocery store. You decided, ok, you go to the grocery store and you buy — you sign an IOU for everything that you buy. You go to a liquor store, IOU. You buy a car, IOU. You get everything you want just for an IOU, and people try to collect the IOUs, and you say, “Well you know that IOU isn’t for collecting from me. Trade it among yourselves. Trade it among yourselves and you’ll get rich in no time. But treat it as an asset, just as you treat a dollar bill.” Well you’d get a free ride. You’d be allowed to go and write IOUs for everything, and nobody could ever collect. That’s what the United States position is, and that’s what it wants to keep. And that’s why China, Russia, and other countries are trying to de-dollarize, trying to get rid of the dollar, and are buying gold so that they can settle payments deficits among themselves in their own currency, or currencies of friendly countries, but just avoid the dollars altogether. (12:21) BENJAMIN NORTON: Michael, in the first part of this interview, when we were talking about the coronavirus bailout and the $6 trillion that were just basically given to Wall Street, you mentioned that basically it is just — I mean, I also said it — that’s it’s just a con scheme. But you said, really, that a lot of people are surprised, that they don’t think the system can work this way, because it just seems so blatantly stacked against them, so blatantly unfair. In your book — “Super Imperialism” is just so mind-blowing because, in simplistic terms to someone who is definitely a non-expert like me, it just becomes so clear that, as you put it, the US for decades, since the end of World War Two, has been really obtaining “the largest free lunch ever achieved in history,” the way you put it. I’m gonna read just two paragraphs here really quickly from your book, and then maybe ask you to unpack exactly how this works. But right at the beginning — and this is the updated version of your book, and we’ll link to your book in the show notes for this show. So anyone, I would highly recommend anyone listening could go buy “Super Imperialism.” I’m going to be republishing it through my own institute. It’s very hard to get the book; that’s why I’m buying the rights back. Because it’s really not marketed in this country very much. So at any rate it’s on my website, and you don’t have to buy the book; you can go to my website and get many of the chapters. Excellent, well I’m gonna link to your website in the show notes that’s michael-hudson.com. And thank you for putting that up, because I’ve been reading the PDF, and it’s incredible. So you write in the the introduction to the new updated version, which you wrote in 2002, on the eve of the invasion of Iraq, you wrote: “The Treasury bonds standard of international finance has enabled the United States to obtain the largest free lunch ever achieved in history. America has turned the international financial system upside down, whereas formerly it rested on gold, central bank reserves are now held in the form of US government IOUs, that can be run up without limit. “In effect America has been buying up Europe, Asia, and other regions with paper credit, US Treasury IOUs that it has informed the world it has little intention of ever paying off. “And there is little Europe or Asia can do about it except to abandon the dollar and create their own financial system.” So this seems to me as an outsider to be totally insane, to be a total con scheme. Can you explain how that scheme works, and especially in light of neoliberal economics? I took, just in college, basic introductory economics classes that were mandatory, especially microeconomics, and in those classes they teach you this neoliberal, libertarian form of economics, and they teach you the famous Winston Churchill quote, “There is no such thing in economics as a free lunch.” But you’re pointing out that actually, on the international stage, this whole thing is just all a giant free lunch for the US empire. (15:53) MICHAEL HUDSON: Well the whole financial economy is a free lunch, and if you’re going to get a free lunch, then you protect yourself by saying there is no such thing as a free lunch. Obviously it does not want to make itself visible; it wants to make itself as invisible as possible. Well most of these countries in Asia get the dollars from US military spending. They say, “What are we going to do with the dollars?” They buy US Treasury bonds, that finance the military spending on the military bases that encircle them. So they’re financing their own military encirclement! It’s a circular flow. The United States spends dollars in these countries; the local recipients turn them over for local currency; the local currency recipients, the food sellers and the manufacturers, turn the dollars over to the banks for domestic currency, which is how they operate; and the dollars are sent back to the United States; and it’s a circular flow that is basically military in character. And the gunboats don’t appear in your economics textbooks. I bet your price theory didn’t have gun boats in them, or the crime sector, and probably they didn’t have debt in it either. So if you have economics talking as if the whole economy is workers spending their wages on goods and services; government doesn’t play a role except to interfere, but government is 40 percent of GDP, mainly military in character, then obviously economics doesn’t really talk about what you think of the economy; it doesn’t talk about society. It talks about a very narrow segment that it isolates, as if we’re talking about a small organ in the body, without seeing the body as a whole economic system, a whole interrelated system that is dominated and controlled by the finance and real estate sector, which has gained control of the government. And if the finance, and the insurance, and military sector, military-industrial complex, make themselves invisible and absent from the textbook, then people are just not going to look there to say, “How did that affect our life? How does that affect the economy?” And they’re not going to see that that’s what’s making the economy poor and pushing it into depression. (18:11) MAX BLUMENTHAL: Well I can’t give out IOUs on everything, on my own debts, because when the debt collector comes, I don’t have gunboats; I don’t have machine guns; I don’t have any gun. I mean if I wanted to get a gun I couldn’t get one, because they’re all bought up in Virginia, across the river, because you know everyone’s panicking. And I’m sure they’re defending themselves by like having their guns accidentally go off and shoot their dogs. But that’s kind of what’s missing as well from this theory is that, if people try to collect their debt on the US, the US can do severe damage to them, militarily or otherwise. Let’s game this out. I mean how do you see this playing out in Venezuela, where the Venezuelan government has tried to go around US sanctions, has tried to to work with Russia and China to sell gold; it’s had something like $5 billion of assets stolen by the US through sheer piracy in the past year. And now the US has dispatched I think more naval ships than we’ve seen in Latin America or in South America at any time in the last 30 years. (19:27) MICHAEL HUDSON: Well that’s the other part of the “Super Imperialism” book: debt bondage. Venezuela had a US-installed dictator, a right-winger, some years ago, and changed the law in Venezuela so that Venezuela’s foreign debt, sovereign debt, when it borrows in dollars, is backed by the collateral of its oil reserves. And it has the largest oil reserves in South America. So the United States wants to grab the oil reserves. Just as Vice President Cheney said we’re going into Iraq and Syria to grab the oil, America would like all these oil reserves in Venezuela. How does it get the oil reserves? Well it doesn’t have to technically invade, or at least finance is the new mode of warfare. It tried to grab these reserves by saying, “Let’s block Venezuela from earning the money by exporting the oil and earning the money from its US investments to pay the foreign debt. So we’re just going to grab the investment, and we’re going to select a mini dictator; we’re going to give it to Mr. Guaidó, and say, “This doesn’t belong to Venezuela; we’re arbitrarily taking it away and we’re giving the oil distribution assets in North America to Guaidó.” “We’re going to block Venezuela from paying the debt, and that means it’ll default on a foreign debt, and so the vulture funds and the bondholders can now grab Venezuelan oil, anywhere, under international law, because it is pledged as collateral for its debt, just as if you’d borrowed a mortgage debt and you’d pledged your home and the creditor could take away your home” — like Obama had so many people lose their home. Well now they’re trying to force Venezuela into relinquishing its debt, but Venezuela still is managing to scrape by. And so they may need a military force out to invade Venezuela, like Bush invaded Panama or Grenada. It’s an oil grab. So what finance couldn’t achieve, finally you really do need the military fist. Finance is basically backed by military, and domestically by force, by the sheriff, by the police department. It’s the force that are going to kick you out of the house. So the question is, is the only defense by the indebted people in America, your Virginia defense? Does there have to be an armed revolution here to cancel the debts? Do they have to eat the rich? That’s the whole question for the politics of America. I don’t see it being solved. If it is not solved by the indebted people simply starving to death, committing suicide, getting sick, or emigrating, then there will have to be a revolution. Those are the choices in Americ. And Venezuela said, “We’re not going to starve quietly in the dark.” And so there’s a military buildup pretending that it’s all about drugs, when Venezuela is threatening to interrupt the CIA’s drug trade. I mean that’s the irony of this! It’s the CIA that’s the drug dealer, not the Venezuelan government. So we’re in the Orwellian world that works through the organs or the New York Times, the Washington Post, MSNBC, National Public Radio, the real right-wing of America. (23:00) MAX BLUMENTHAL: Yeah, I’m so glad you boiled it down like that. Because so much of what we do at The Grayzone is to punch holes in the propaganda constructs that are used to basically provide liberal cover for what is sheer gangsterism. MICHAEL HUDSON: It’s much more black and white than gray. MAX BLUMENTHAL: Yeah well, we should call it The Black and White Zone. We’re seeing it as well in Syria, where we’ve had one kind of human rights propaganda construct after another. And now at the end of the line, as the whole proxy war ends, Trump says, “We have to keep the troops there because of oil. We need them to guard the oil fields.” So it all becomes clear. But it’s unclear to everyone who’s been confused for the past years, following the way that the war has been marketed to them through these corporate media and US government publications that you just named. It’s just, we’re there for the oil. BENJAMIN NORTON: Michael, I mean there are so many ways we could explore this topic further, and hopefully we can have you back more often in the future, because we definitely need more economics coverage. We frequently talk about the political side of a lot of these issues of US imperialism, but of course the economic element is absolutely integral to understand what’s happening. I’m also very interested, you mentioned before we started this interview, that your book “Super Imperialism” is very popular in China, and that even in schools there people are reading it. And the question of China I think is the central question of this century — the rise of China, the so-called “threat” that China poses, in scare quotes, to the US. Of course China doesn’t threaten the American people, but rather the chokehold that the US has on the international financial system. And we have seen under Trump — I mean it’s been happening for years; it really actually began under Obama with the “Pivot to Asia,” and that was really Hillary Clinton’s State Department strategy was to move toward the encirclement of China. But now under Trump it has really become the main foreign policy bogeyman of the Trump White House. And especially now with coronavirus, every single day the corporate media is full of non-stop anti-china propaganda — “China is the evil totalitarian regime that’s going to take over the world, and we have to unite with the Republicans in order to fight against China.” And we now even see figures openly defending the “new cold war,” as they call it. They say we’re in a new Cold War, as the right-wing historian from Harvard Niall Ferguson put it in the New York Times recently. So I’m wondering, your book I think is even more relevant now than it was when you first wrote it, it’s so, so relevant. But what about the question of China? And what about the question of this new cold war? Do you think that could challenge the US-dominated financial system that was created after World War II, using the weapons of the World Bank and the IMF, as you spell out? Are we heading maybe toward the creation of a new international financial system? (26:24) MICHAEL HUDSON: Well what makes China so threatening is that it’s following the exact, identical policies that made America rich in the 19th century. It’s a mixed economy. Its government is providing the basic infrastructure and subsidized prices to lower the cost of living and the cost of doing business, so that its export industry can make money. And it’s subsidizing research and development, just like the United States did in the 19th century and early 20th century. So America basically says to the rest of the world, “Do as we say, not as we do, and not as we’ve done.” So China has a mixed economy that is working very well. You can just see the changes occurring there. And it realizes that the United States is trying to disable it, that that the United States wants to control all the sectors of production that have monopoly pricing — information technology, microchip technology, 5G communications, military spending. And the United States wants to be able to essentially buy goods from the rest of the world with overpriced exports, American movies, anything that has a patent that yields a monopoly price. And China wants to become — it has decided that. America, in the 1950s tried to fight China by sanctioning grain exports to China. You mentioned sanctions earlier, the first sanctions were used against China, to prevent them, trying to starve them with grain. Canada broke that embargo for grain, and China was very friendly to Canada, until Canada turned out to be — the prime minister, now that he has moved into a small basement in the Pentagon, and has agreed to grab Chinese officials. It’s right there in Washington; Canada is right there in Washington in one of the basements. It’s not a country anymore. So China does not feel so friendly towards Canada now that it’s moved. But it realized, we can’t depend on America for anything. It can cut us off with sanctions like it has tried to do with Iran, with Venezuela, with Cuba. So the idea of China, Russia, and the countries in the Shanghai Cooperation Organization has been: “We have to be independent within ourselves, and make a Eurasian trading area, and we will take off because we are successful industrial capitalism, evolving into socialism, into a mixed economy, with the government handling all of the monopoly sectors to prevent monopoly pricing here.” “And we don’t want American banks to come in, create paper dollars, and buy out all of our industries. We’re not going to let America do that.” (29:29) I have gone back to China very often. And I’m a professor at Peking University; I have honorary professorships in Wuhan. I probably lecture mainly in Tianjin. There are a number of articles on my website from the Chinese Academy of Social Sciences on de-dollarization, essentially how China can avoid the use of the dollar by becoming independent in agriculture, and technology, and other goods. And the threat of China is that it will not be a victim. Victimizers always look at the victims as vicious attackers of themselves. So America says China is a vicious threat because it’s not letting us exploit them and victimize them. So again, it’s an Orwellian rhetoric of the bully. The bully always believes that the person he’s attacking is a threat. Just like in Germany, Goebbels said that their surefire way to mobilize the population behind any attack is to say, “We’re defending ourselves against foreign attack.” So you have the American attack on China pretending to be defense against their wanting to be just as independent as the United States always has been. The United States doesn’t want any other country to have any leverage to use over the United States. The United States insists on veto power in any organization that it’ll join — the World Bank, the IMF, the United Nations. And China essentially says, ok, this is the very definition of national independence, to be independent from other countries available to choke us, offering a choke point, whether it’s a grain that we need; or technology; or the bank clearing system, the SWIFT interbank clearing system, to make our financial system operate; or the internet system. So by essentially waging this economic warfare against China to protect America monopolies, America is integrating China and Russia. And probably the leading Chinese nationalist in the world, the leading Russian nationalist, is Donald Trump. He’s saying, “Look boys, I know that you’re influenced by American neoliberals. I’m gonna help you. I believe that you should be independent. I’m gonna help you, Chinese, and Russians, and Iranians, be independent. I’m going to keep pushing the sanctions on agriculture, to make sure that you’re able to feed yourself. I’m gonna be pushing sanctions on technology, to make sure that you can defend yourself.” So he obviously is, I believe he’s a Chinese and Russian agent, just like MSNBC says. (32:09) BENJAMIN NORTON: Yeah and Michael, this actually reminds me, I used to follow you regularly at The Real News, and I worked there for a bit, and unfortunately there was kind an internal coup there, and it has moved to the right a bit. But the point is, a few years ago at The Real News, I remember you did an amazing debate between you and the Canadian economist Leo Panitch, and it was about the nature of the BRICS system. This was when this is before the series of coups that that overthrew the left in Brazil and installed the fascist government now of Jair Bolsonaro, a right-wing extremist. And at the time there was Dilma Rousseff, a progressive from the Workers’ Party. And Brazil and Russia were helping to take the lead in the BRICS system. This is Brazil, Russia, India, China, and South Africa. And of course the coups, the series of coups in Brazil, kind of ended that project of South-South regional integration. And also the rise of the right-wing, the far-right, in India with Narendra Modi. But there was a moment there when the BRICS community, these countries were trying to build their own bank. China of course has a series of banks. You mentioned the Shanghai Cooperation Organization. So there have been these international institutions, multilateral institutions, created to kind of challenge the hegemony of the World Bank and the IMF. And I remember in that debate, Leo Panitch was arguing that, “Oh the BRIC system and the Shanghai Cooperation Organization, all of these institutions are just going to be the new form of neoliberalism, and they’re just going to replace the World Bank and implement many of the same policies.” You disagreed with that. So maybe can you kind of relitigate that debate here a little bit and just kind of articulate your position for our viewers? (34:08) MICHAEL HUDSON: The World Bank has one primary aim, and that’s to make other countries dependent on American agriculture. This is built into its articles of agreement. It can only make foreign currency loans, so it will only make loans to countries for agricultural development, roads, if it is to promote exports. So the United States, through the World Bank, has become I think the most dangerous, right-wing, evil organization in modern in history — more evil than the IMF. That’s why it’s almost always been run by a secretary of defense. It has always been explicitly military. It’s the hard fist of American imperialism. Its idea is that, we’ll make Latin American, and African, and Asian countries export plantation crops , especially plantations that are foreign owned. But the primary directive of the World Bank to countries is: “You must not feed yourself; you must not grow your own grain or your own food; you must depend on the United States for that. And you can pay for that by exporting plantation crops that can’t be grown in temperate zones like the United States.” So China and Russia, they’re not really agricultural economies. The buttress of America’s trade balance has been agriculture, not industry. Obviously, we de-industrialized. Agriculture, since World War II, has been the foundation of the trade balance. And you need foreign dependency. The purpose of the World Bank is to make other countries’ economies distorted and warped into a degree that they are dependent on the United States for their trade patterns. BENJAMIN NORTON: Well Michal, isn’t it also true though that China has massive agricultural production, and Russia produces a lot of wheat right? (36:14) MICHAEL HUDSON: Sure, but it does it doesn’t have to base its exports on agriculture to African countries. It can afford having African countries growing their own food supply so that they won’t have to buy American food; they can grow their own food. Imagine, if China helps other countries grow their own food and grain, then America’s trade surplus evaporates. Because that’s the only advantage that America has, agribusiness. BENJAMIN NORTON: Yeah it’s like that famous quote: If you give a man a fish, he’ll eat for one day; if you teach a man to fish, he’ll eat for the rest of his life. And then I think Marx, didn’t Marx complicate that? MICHAEL HUDSON: But if you lend them the money to buy a fish, then he ends up bankrupt and you get to grab up all his property. MAX BLUMENTHAL: Yeah I mean we saw this play out clearly in Haiti. MICHAEL HUDSON: Yeah, that’s the typical — what America has when it has a free a reign, that’s exactly the Haiti story. That’s absolutely terrible. It’s depressing to read. I get cognitive dissonance, because it’s just so unfair. It’s so awful to read; I avert the page. MAX BLUMENTHAL: Yeah I mean just observing all of this is what kind of brought me to the point where I concluded that there had to be another international financial system, when I saw how Haiti was brought to its knees. First with the School of the Americas graduates staging a coup, and Bill Clinton reinstalls Jean-Bertrand Aristide. And so it all it takes place under the guise of goodwill by Washington. But Aristide is forced to sign off, basically sign away Haiti’s domestic agricultural production capacity. And the next thing you know, their rice economy’s wiped out, and they’re importing rice from Louisiana. And the only economy left, the only economic opportunity left, is to work in these free trade zones for US companies. And that’s just the model writ large. It kind of helped lead to the next coup, that removed Aristide, and look where Haiti is today. MICHAEL HUDSON: Right, it means, you must not protect your own economy; only America can protect its own economy. But you must not. That’s free trade. (38:45) MAX BLUMENTHAL: Right, going back to the JFK Seeds of Peace program. It’s big agro subsidies, and then you bomb the Third World with cheap seeds and cheap goods, and then you have a migration crisis. MICHAEL HUDSON: Seeds for Starvation is what the program is known as. Because by giving a low price of foreign aid to these countries, they they prevented domestic agricultural development, because no farmer could compete with free crops that America was giving. The purpose of the Seeds for Starvation program was to prevent countries from feeding themselves, and to make them dependent. MAX BLUMENTHAL: Yeah, when I lived in LA I would meet families who had initially come across the border because of the program — they would point the finger directly at Seeds for Starvation. They’d say, “We came from rural Mexico, and our livelihood was wiped out.” So this is a long-standing program. And we’ve seen in the coronavirus bailout five times more money provided to USAID for so-called stabilization programs than for hospital workers. And that’s to do exactly what you just described: USAID is sort of the spearhead of these programs which aim to wipe out land reform programs, and replace them with US aid in the form of these cheap seeds and so on, cheap bananas to Burundi, and everywhere else. So do you see, through your experience in China, that Belt and Road is a genuine alternative to this model? (40:27) MICHAEL HUDSON: Well they’re certainly trying to make it. By the way, what you’ve just described, it’s not a bug; it’s a feature. When you have the same problem occurring after 50 years, it’s either insanity — and we know it’s not — or it’s the intent. You have to assume at a certain point that the results of these aid programs are the intended results. And certainly if you look at the congressional testimony, Congress knows this, but the media don’t pick it up. In China, they’re really trying to create an alternative. They want to break free from the United States. And if Trump’s policies of “America First” continue, and as he said, “We have to win every deal.” That means, any deal we make with the foreign country, that country has to lose. So he’s integrating the whole world, and isolating the United States. And when you isolate the United States, China realizes that what will be isolated is the neoliberal philosophy that is the cover story, the junk economics that justifies all of these destructive policies. BENJAMIN NORTON: Well Michael, this was I think one of our most interesting episodes. We want to more economics coverage, so hopefully we can talk more with you and get some more of your analysis. I guess just concluding here, my final question would be, I mentioned that the term cold war has been thrown around a lot. And of course, the new cold war is going to be different from the old cold war in a lot of different ways. And of course Russia is not the Soviet Union at all. Russia does not have a socialist system. China’s system as you mentioned is mixed, there are still socialist elements, but even China’s economy is not nearly as state controlled as the Soviet Union was at the peak of the cold war. So I’m wondering, it’s pretty clear if you listen to the rhetoric coming from the Pentagon, that “great power competition” as they refer to it is now the the undergirding philosophy of US foreign policy. What is the economics of that? Because the economics of neoliberalism, after the destruction of the Socialist Bloc, and George H. W. Bush’s declaration of a “new world order,” which is of course just neoliberalism and US hegemony — in that period, the clear economic philosophy, the kind of guiding foreign policy, was destruction of independent socialist-oriented states and forcible integration of those countries into the international neoliberal economy. We saw that with Iraq; we saw that with former Yugoslavia; we saw that with Libya — which is really just a failed state. So now I think we’re in a kind of new phase. The Pentagon released two years ago its national defense security strategy saying that the new goal of the Pentagon and US foreign policy is to contain China and Russia. That is the stated, professed goal. What does that look like economically going forward? (43:31) MICHAEL HUDSON: Well I think that’s quite right. Of course it’ll contain Russia and China, and there’s nothing that Russia and China want more than to be contained. In other words, that they’re talking about is decoupling from the US economy. And the US will say, “Well we’re not going to let them have access to the US market, and we’re not going to have anything to do with them.” And Russia and China say, “Boy that’s wonderful, ok we’re on the same wavelength there. You can contain us; we will contain you. You go your way; we’ll go our way.” So basically the cold war was an attempt — it’s neoliberalism and privatization. It’s Thatcherism. It’s, “How do we make China and Russia look like Margaret Thatcher’s England, or Russia in the 1990s under Yeltsin?” “How do we prevent other countries from protecting their industry and their financial system from the United States financial system and US exports? How do we prevent other countries from doing for themselves what America does for itself? How do we make a double standard in world finance, and world trade, and world politics?” And the result of trying to prevent other countries from doing this is simply to speed the parting guest, to accelerate their understanding that, they have to make a break; they have to be contained. In other words, they have to create their own food supply, not rely on American food exports. They have to create their own 5G system, not let America’s 5G, with its spy portals all built in. And they have to create their own society, and go their own way. Which is what China was like before the 16th century. It was always the “Central Kingdom”; it always looked at itself as being central and independent from the rest of the world. And it’s going back to that. Except it realizes that it needs raw materials from Africa and other countries. And the question is, what is Europe going to do? Is Europe going to just follow the Thatcher right deflationary Eurozone policies and end up looking like Greece? Or is it going to join with Eurasia, with Russia and China, and make a whole Asiatic continent? The cold war really is about what is going to happen to Europe. Because we have already isolated China and Russia and the Shanghai Cooperation Organization. The question is what will happen to Europe, and what will happen to Africa. (Outro – 46:04) BENJAMIN NORTON: Great, well I think that’s the perfect note to end on. We were speaking with the economist Michael Hudson. He is a Wall Street financial analyst and a distinguished research professor of economics at the University of Missouri – Kansas City. He’s also the author of many books, and we were talking about “Super Imperialism: The Economic Strategy of American Empire.” He has two versions of that, and we will link to that book in the show notes of this episode. We will also link to his website, where you can find a lot of great interviews with transcripts, his articles — and that’s michael-hudson.com. Michael, thanks a lot. That was a really great, two-part interview. I learned a lot, and I think our viewers will benefit a lot. MAX BLUMENTHAL: Yeah thanks a lot Michael. MICHAEL HUDSON: Thank you. I hope we can fill out all the details in subsequent broadcasts. MAX BLUMENTHAL: Absolutely.

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economics, Geopolitical Economy Hour, inflation, Michael Hudson, Radhika Desai

What is inflation? What causes it? What are the problems in how the Federal Reserve and other central banks respond to it? Economists Radhika Desai and Michael Hudson explain in this episode of Geopolitical Economy Hour. In this episode of Geopolitical Economy Hour, economists Radhika Desai and Michael Hudson discuss inflation: what it is, what causes it, and what are the problems in how the Federal Reserve and other central banks respond to it. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello, everyone. Welcome to the second Geopolitical Economy Hour. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: Thanks to all our viewers for making our inaugural show such a success. As many of you know, in this collaboration with Ben Norton’s Geopolitical Economy Report, Michael and I will present every two weeks a discussion of the major developments and trends that are so radically and rapidly reshaping the world order. Issues that involve not just politics and economics but, rather, as Michael and I like to put it, political economy, and, as my 2013 book had it, Geopolitical Economy. Today’s discussion is focused on inflation and its much-debated return after many many decades. We thought we would structure our discussion around certain key questions. What is inflation? What is the textbook definition? How has it been understood in the past? What causes inflation? What are the supply and demand-side factors? Given that capitalism is considered such a powerful productive machine, why are the most powerful capitalist countries suffering from inflation today? What does it say about their productive system? What is, in fact, causing the current inflation? What is the Federal Reserve in the United States particularly — the most powerful central bank in the world — doing about it, and what’s wrong with what the Federal Reserve, and many other central banks, are doing? So Michael, why don’t you just start with your thoughts on the first question. MICHAEL HUDSON: Well, [there are two kinds] of inflation. I think most people are expecting us to talk about consumer price inflation because that’s what the media talks about. I’m going to give you my punchline first because that’s how we’re going to end up in this discussion. What has really been inflated, since 2008, has not been consumer prices, but asset prices — [that is,] real estate prices, stocks and bond prices, things that the 1% hold. Wealth has been inflated much more than goods and services. [This is especially true] for real estate. This debt has been inflated not by government debt, not by government deficits, but by the Federal Reserve creating a $9 trillion subsidy to the banks to support real estate prices, and hence the value of bank-held mortgages and stock and bond prices. This is not discussed, or even recognized, in the mainstream economic models. Instead, we have a kind of mythology by right-wing anti-labor financial lobbyists. This mythology is about what I think most of the listeners are expecting us to discuss: the inflation of rising consumer prices. That’s the only kind of inflation that the Federal Reserve talks about. This is all blamed on increasing the money supply, as if somehow money is creating the inflation. They are not talking about inflation as the result of monopoly pricing. They are not talking about inflation as a result of NATO’s sanctions against Russia. They are just talking about money [as if] somehow, if we [could] just stop money supply, if we could stop the government spending so much money on Social Security and Medicare, and other social spending (not military spending) then everything would be over. We’re actually going to be talking about the relationship between, [on the one hand,] the inflation of housing and asset prices [and,] on the other hand, how this actually affects the inflation of consumer prices, and how debt and inflation all go together. RADHIKA DESAI: Thanks Michael. I think I’m also going to follow suit and give people a sort of little preview of the way we are going to end up. I think Michael is absolutely right. There are actually two distinct inflations to be talked about. One is asset price inflation. [The] other — which is real, it’s happening right now, people are feeling it in their pocketbooks and their bank accounts and so on — is consumer price inflation. Nevertheless there are some very interesting relationships between them. One part of the relationship is that of course, as Michael said, the Federal Reserve constantly talks about consumer price inflation. But in reality, its actions are geared towards asset price inflation. Not towards dampening it — on the contrary, towards keeping it going. This is going to be, from my point of view, from various things that I’ve written, including an article called “Vectors of Inflation” that I published in the New Left Review blog Sidecar a few months ago. In this I argue that, precisely because the Federal Reserve actually wants to keep asset price inflation going, because that is the financial house of cards on which the wealth of so many extremely wealthy people, big financial corporations, high-net-worth individuals, depends in order to preserve this wealth, the Federal Reserve is actually also not going to be able to tackle inflation in the only way it can, using the sledge hammer of high interest rates. This might be a little bit of good news for some of us, but nevertheless it still means that the underlying problems are not being solved. So let me, with that, [return to] the question of: What is inflation? Generally speaking, the textbook definition of inflation involves, essentially, too much money chasing too few goods. There is a decrease in the purchasing power of money, there is a devaluation of money, and so on. And of course, the Federal Reserve, and most people, as Michael already pointed out, believe that. So the textbook definition of [inflation] is one in which money loses purchasing power, it is devalued, [and] it happens due to money printing. [This] conventional view, which Michael has pointed out the Federal Reserve generally tends to subscribe to, was expressed by Milton Friedman and Anna Schwartz in a book they wrote back in 1963, titled A Monetary History of the United States, 1867-1960, in which they claimed that inflation is, everywhere, always a monetary phenomenon. Which means [in their view] it is [essentially] caused by the Federal Reserve and other central banks supplying too much money into the system. And this can only be quashed by restricting the money supply — by raising interest rates, by employing other means such as [so-called] Quantitative Tightening, in order to restrict the supply of money. And of course everybody remembers, or not everybody but some people (some people are old enough) will remember that back [at] the end of the 1970s and the early 1980s Paul Volcker imposed precisely such a “shock” on the American economy essentially to quell inflation. So the textbook definition is this. But Michael, how would we criticize the textbook definition? MICHAEL HUDSON: Well, it only looks at money, as you just said, from the Milton Friedman quote. But it doesn’t look at all the non-monetary causes of inflation. For instance, we’ve seen oil prices and food prices rise simply as a result of the sanctions against Russia. We’ve seen the pharmaceutical prices rising, especially from Martin Shkreli, who vastly increased the prices. All across the board in the United States companies have been saying, “We’re raising the prices because we think there’s going to be inflation, and we’re just trying to raise it in advance.” Since the Democrats took power in the 1990s under Clinton, they’ve stopped the anti-monopoly regulation. They’ve stopped the antitrust laws from being enforced, and you have a great concentration of monopolies, and they can raise prices for whatever they want, as much as they want. For agricultural goods, the distributors have simply raised the prices without paying the farmers and the dairy farmers any more. So when you say that inflation is only a monetary phenomenon, what Milton Friedman is saying is, “Don’t look at the power structure. Don’t look at how markets are structured. Don’t look at monopolies. Don’t look at how the wealthy corporations are inflating [prices]. Look at something that we can blame on labor.” The inflation that Milton Friedman talks about — and you just mentioned my old boss’s boss Paul Volcker — is wages. So when the Federal Reserve talks about inflation, they say, “It’s really wages rising.” Well, we know that wages have not risen anywhere near as fast as the cost of living, so that can’t be the reason — that wages are rising. But if you can claim that inflation is only caused by labor making too much money and hurting other workers as consumers, then you have the Federal Reserve able to come in and say, “We’ve got to have a depression. We’ve got to have unemployment. We’re going to raise interest rates because we want more unemployment to increase the reserve army of the unemployed so that wage earners will be so desperate for a job that they’ll work for less. And if only they worked for less, then prices will come down, if somehow the companies are going to lower their prices because they can pay their labor less.” The pretense is that it’s all labor’s fault. RADHIKA DESAI: You know, Michael, I completely agree with you, and I would actually go a step further. Basically by insisting that inflation is a monetary phenomenon — and you know in that original work by Friedman and Schwartz and later on in many other pronouncements — Milton Friedman has even said, “It’s not even about the unions.” He’s not saying that because he particularly cares about the unions. [Rather,] the reason he’s saying that is basically because people like him insist that the only way to deal with inflation is, as you said, to cause a recession. By restricting money supply sufficiently, and in fact money supply has to be restricted to a point where interest rates go above the rate of inflation. For example, that would have meant [that last] June [2022], in the United States, [when] inflation was above 9%, that [interest rates] would have [had] to go above [9%] in order to dampen inflation. So the point is, that by insisting on monetary authority’s causing inflation, what you’re doing is, you’re saying, “The only way of dealing with this is to cause a recession, to cause unemployment which is sufficiently high that it will drive down prices (wages, that is to say, the price of labor) and also therefore the price of everything else.” You simply quash demand to such an extent. And therefore you’re [essentially] saying that you [will] restrict people’s consumption. And by the way, at the present moment, it may be difficult to say that wages are causing inflation — although strike activity has been going up in the United States and in many other countries. [Wages] are only running to catch up with the extent to which workers wages have gone [down]. But nevertheless what they are doing is [pointing] to the stimulus that the U.S. government has given — which they say has now gone into the pockets of people and is causing inflation — [and saying that the stimulus money] is basically pushing up demand. But in reality, if we look at the studies that have shown exactly where the stimulus went, again most of the stimulus never even ended up in the pockets of people, and the little bit that did more or less immediately left those bank accounts to go to the bank accounts of the big financial institutions, because ordinary people are so indebted that they were essentially deleveraging, they were reducing that debt. So anyway, that’s an interesting initial take on the first question, which is how the textbook definition is such a misunderstanding of inflation. Maybe we can move towards how inflation is understood, and also experienced historically. Maybe I should just start by saying that essentially, historically we’ve seen that inflation has typically been the result of major disruptions. Wars cause inflation. Various obvious economic crises have caused inflation. And yes, it’s not entirely untrue that it’s possible that an influx of money material — as happened in the 15th, 16th, and 17th centuries in Europe due to the discovery of gold [and silver] in the new world — this influx of money did cause a rise in prices. But the fact of the matter is, very interestingly, it was directly connected with the birth of capitalism. The rise in prices actually encouraged the economic activity that gave rise to capitalism in these centuries. MICHAEL HUDSON: Well, you mentioned the inflow of money. That is another area where Milton Friedman went wrong. Milton Friedman and Anna Schwartz had no concept at all of what money is. They actually put forth a great falsification that has been leading to confused people for more than half a century — ever since I had to go through school and actually read the book. Money is — most people think of it as an asset: what you have in your pocket. All monetary assets have debt on the other side of the balance sheet. All money is debt. The currency in your pockets is actually, technically, a debt to you. Most [physical] currency is hundred-dollar bills, and they are shrink-wrapped and sent in airplanes to pay Al-Qaeda, to Ukraine, to pay Mr. Zelensky, to pay kleptocrats — they are used by drug dealers, they are put in mattresses all over the world. They have nothing to do with American inflation. By far [though], most money is bank credit. And bank credit is debt. And if you look at debt, then you have a whole different perspective, not only on inflation, but on how wealth is created and how the economy is polarizing. You have to look at the whole economy as an economic system, which you and I have been talking about for years. The purpose of the mainstream media talking about inflation is to prevent you from looking at how the economy is working, to prevent you from looking at how corporations are raising prices, and to prevent you from looking at monopolies and war. People talk about hyperinflation and again and again you will see the New York Times, the Washington Post, the Wall Street Journal, saying that, “Well, if we keep running budget deficits to spend on Social Security and Medicare we are going to end up like Zimbabwe. Or like Germany in the 1920s.” Well, as I’ve shown in Super Imperialism, and Killing the Host, every hyperinflation in history has resulted from trying to pay foreign debt — it’s by dumping your currency on the foreign exchange markets to pay debts denominated in another currency. Germany was saddled with a war debt far beyond its ability to pay, and the Reichsbank kept throwing German marks onto the foreign exchange [until] the currency collapsed. [In the] United States, [the] inflation of the 1970s [was] caused by the balance-of-payments deficit for the war in Vietnam and Southeast Asia, and the almost 800 military bases the United States had. But you’re not going to have any of the media saying, “Well, it’s the war debts and the war spending that is causing inflation.” [Instead, they say,] “Well, look what happened in the 1970s. Wages went up. That must be what caused inflation.” Paul Volcker, who you mentioned, walked around with a table — a chart — in his pocket, of construction industry wages, and he said, “Until we can bring down construction industry wages,” largely by the poorest sector of the population, “then we are not going to fight inflation.” He didn’t say, “We’ve got to bring down housing prices, or stock or bond prices.” [He only said,] “We’ve only got to bring down wages, and increase profits, because the profits will be used to spend on more investment and that will save us all.” All of this is a fairy tale, and shows a lack of understanding of what money is. RADHIKA DESAI: Absolutely. And you know, this is very interesting, Michael. One thing I wanted to pick up on from what you [said] is that the Federal Reserve can print a lot of money. The Federal Reserve has been printing money hand over fist essentially throughout this century, and particularly after the 2008 Financial Crisis. So if there was going to be inflation, how come it didn’t happen earlier? For the simple reason that, as you mentioned earlier, when the Federal Reserve prints money, it can go in one of two directions. It can either go into the financial system, where it is hoarded, where it is used for speculation, precisely in order to drive up the asset prices that you are so emphasizing, Michael, totally correctly. Or it can go into the economy, leading to productive investment, etc. — and that is what it has not been doing. [Basically,] every period of economic growth is actually connected with at least mild inflation. Because, essentially — and rising prices are actually a boost to the economy. I remember reading, many years ago, Pierre Vilar’s A History of Gold and Money: 1450-1920 in which he points out that, had it not been for the effects of the inflation in the early centuries of the emergence of capitalism, capitalism would not have emerged. Because, you see, left to itself, if capitalism functions as it’s supposed to — which is to constantly bring down the prices of things — capitalism would suffer from a deflationary environment which would be a curb on investment. So mild inflation — there’s nothing wrong with it. Of course, in the neoliberal period, it’s precisely — people may remember, central banks were aiming for 0% inflation, which is essentially very deflationary. It’s basically saying that we are not going to allow for any productive investment, any productive growth, etc. So absolutely, if the money is not going towards productive investment, then it’s not going to cause consumer price inflation. As it had not been, when you had all this money printing that went on throughout the 21st century in the United States. So this also brings us to another question. I guess we have now slipped into talking about the third question, which is: What really causes inflation, both the demand and supply side? I want to talk about both consumer price inflation and asset price inflation. But I maybe want to open up with a certain point [The] Federal Reserve’s policies — and the policies of many other central banks that have drunk the neoliberal Kool-Aid, the monetarist Kool-Aid and so on — essentially is to claim that the only way to deal with inflation is to have high interest rates. And this is essentially a class war. It’s a class war in at least two senses. At both ends of it it’s a class war. [On] the one hand, by causing high levels of unemployment, what you’re doing is, you’re devaluing labor, which is the only thing we have to sell. Most of us — the majority of working people — all they have to sell is their labor. So, by causing a recession by increasing interest rates, you’re devaluing labor. On the other hand, by increasing interest rates, by keeping asset prices high, you are preserving the wealth of the wealthy, and this is not the least reason why this century has seen such a great shift in income from labor to capital, and particularly to financial capital. And that is why we have seen inequality rise to such obscene levels. MICHAEL HUDSON: Well, the result has been what has been called the “Hudson Paradox,” and I’ve described that in my book Killing the Host. More money and credit is used to bid up asset prices for housing, and retirement income, and that puts downward pressure on consumer spending. Because if you have to spend more money on paying a mortgage, on a house that’s rising in price, if you have to spend more money on rent, if you have to spend money on monopolized healthcare services, on monopoly goods in general, then you are going to have less and less income to spend on goods and services. Again, what’s deflated is [the] spending of 99% — well certainly 90% — of the population on goods and services, because their spending is diverted to pay for access to assets and to monopolized goods, and to goods that are subject to protectionism or warfare. So the irony is that asset price inflation leads to rising housing prices and consumer income deflation. You have to look at the economy as an economic system, [not simply as] two variables ( consumer prices and money). You have to look at who owns the wealth, who owes what to whom, how much debt is diverting money away from consumer spending to the upper asset holders (the 1%, the 10%), who owns most of the stocks and bonds and real estate, and who are now buying up private capital investment in medical practices, and almost every kind of consumer goods, and taking them private, and sharply raising the prices. If you don’t look at how the economy is structured, and how the ownership is changing, and the relationship between ownership and non-ownership, and consumption and labor, you’re going to miss all of the variables that are really necessary to explain how the economy works. Most discussions of inflation are designed to avoid talking about how the economy works. RADHIKA DESAI: Precisely. And how it’s structured. I think the Hudson Paradox is absolutely fascinating, and on top of that I would perhaps add a — shall we say — Desai Corollary to the Hudson Paradox. That would be that, in its own way, asset price inflation actually adds to consumer inflation, for the simple reason that when you have asset price inflation, some people of course are getting very rich, and they can afford to pay widely inflated prices for various goods and services and so on. And so, because they can easily pay, they end up driving the prices up further because they can pay, so enough people are making money by selling at those prices. So in that sense they can also keep inflation going. Now, this brings us of course to the discussion of what causes inflation, and perhaps, Michael, if I can kick it off by presenting a very simple scenario. The simple scenario is: Imagine that — saying that “Inflation is too much money chasing too few goods,” is essentially reading the symptom. [It’s] a bit like saying, “You have a fever.” [The response would be:] “But doctor, why do I have a fever? Is it because I have an infection? Is it because I have some other illness, a more serious illness? ” You have to examine why too much money is chasing too few goods. In any healthy capitalist economy, or any healthy market economy, you would expect that [if] prices are rising [for] certain goods, or maybe many goods, there would be a supply response. An energetic intrepid capitalist would invest in precisely those kinds of production where there are rising prices. And once, of course, they start increasing the production of those goods, prices would normally come down. So in any decently organized capitalist economy, in any reasonably productive capitalist economy, there should be a supply response and, therefore, if inflation does occur it would be temporary, it would be in certain goods and services. So why [have] there been general rises in consumer prices over time? What have been the causes? So I would say that certainly there can be rises particularly in the prices of two sorts of commodities, which are quite special. And then of course there can be mismanagement of money. So yes of course there can be oversupply, yes there can also be rising wages if unions are strong, and we hope that they would be, that they can in fact increase wages and that can add to the price of things, and it has happened historically at various points — I would definitely say that was an element in the 1970s when unions were indeed strong. And there is [another] very key reason why you can have inflation and that is commodity price inflation. Both sorts of primary commodities — the products of agriculture, as well as the products of mining — can have big lags in production, so you can have rising prices, but it takes a long time before additional supply can come on the market. In agriculture because of course you have to wait until the next season for the production of that commodity, or in the case of mining because a lot of investment has to go into mining before the new supplies can come on the market. So there are many other issues involved with this. But these are some of the common reasons why you can have inflation. But Michael, maybe you wanted to add something. MICHAEL HUDSON: You’ve been focusing so far, and quite correctly, on physical output, but the main inflation has been on infrastructure services. Education — getting the cost of education has gone up much more than other things. Medical care. What’s caused this is the privatization of what used to be social infrastructure services. The whole dynamic of industrial capitalism, a century ago, was to lower the cost of basic needs, of retirement income, of healthcare, of education, because if you could provide these basic needs freely, or at subsidized prices, then you wouldn’t have to pay labor more wages to buy a high-priced education, or high-priced healthcare. You would make your industry more productive because you [lowered] the cost of living by socializing the cost of education, medicine, transportation, communications. Look at what happened in England after Margaret Thatcher. Privatizing council housing pushed housing prices way up, tripling, doubling, ten times as high. Same thing for medical care — way, way up. Privatization of infrastructure has been probably the single major cause of price inflation squeezing the budgets of the 99%. RADHIKA DESAI: And Michael I’d add something to that. You already mentioned this, and of course a lot of left-wing economists are pointing out — people like Robert Reich — quite correctly, that definitely a very large part, a very large contribution has been made to the current inflation precisely by these sorts of privatizations, which is not just privatization in a competitive market, but practically every one of these privatizations has been a form of privatization in which they have created private monopolies. And so the contribution of private monopolies to rising prices has definitely been very high. MICHAEL HUDSON: The prices of these monopolized services have increased not only because of higher debt service, but because of higher dividends, higher managerial payments. None of this would occur under the previous public sector services. So you have a transformation of the organization of industry as a result of privatization that builds huge financial costs to the banks and to the financial sector into the pricing of goods and services. So the whole character of what the prices consist of is transformed and expanded and inflated. RADHIKA DESAI: So Michael, what you’re saying is really fascinating. On the one hand, of course by diverting so much income towards these high-priced goods, [this] should [obviously] lead to inflation in the prices of these goods and so on, but [on the other hand] it should also — by depressing consumer demand as well — actually have a depressive effect on the prices of other things. But we are seeing the prices of all these things going up anyway, which brings us to the next question. You know, everywhere we look, in most of the literature, even in much of the so-called Marxist literature, we find a depiction of capitalism where capitalism is the best thing since sliced bread as far as the productive system is concerned. Capitalism continuously expands production, it is the only system that is capable of doing so. In fact, indeed, back in the 1950s or 1960s, I think the Hungarian economist János Kornai had actually argued that socialism can be understood as a supply-constraint system, whereas capitalism should be understood as a demand-constraint system. Which implies that in capitalism there are no constraints on supply. But the fact of the matter is that we are today witnessing a pervasive rise in prices across the board — prices of all those monopoly services — and of course the financial services that Michael rightly pointed out — rising rents, to which Michael has also pointed, but also rises in the prices of ordinary commodities — not just food and fuel, which can conveniently be blamed on the war in Ukraine, but also other things. Core inflation is very high, which tends to measure inflation net of volatile prices like food and fuel. So why is that? If capitalism is supposed to be so wonderfully productive, why are we experiencing this problem? Michael, what do you think? MICHAEL HUDSON: Well, there’s obviously two kinds of capitalism. The textbooks like to talk about industrial capitalism, especially industrial capitalism as it seemed to be evolving in the 19th century into socialism. But what we’ve had instead is something very different, and that’s finance capitalism, that’s based on basically rentier income: land rent, monopoly rent, natural resource rent, and financial debt charges. So when you talk about demand, the textbooks think, “Well, workers pay their wages on buying goods and services.” But that’s not what they do at all. That’s not how it works. Before they have any money to spend at all, they have to pay their taxes that are taken off, and their medical care. That’s taken off the top of their paycheck, and they are given after-tax income. Milton Friedman developed this anti-labor policy during WWII when he was working for the War Department. But also, before the wage earner can spend the money on goods and services, [they] have to pay rent for the house, they have to pay medical care, they have to pay the credit card debt, they have to pay the auto-loan debt, they have to pay their education debt. So the actual disposable personal income is not simply what they can spend after paying taxes, but what they can spend after paying taxes and rentier services. And [the] increase in these various forms of economic rent has widened so much that it squeezes what’s actually available out of the worker’s paycheck to spend on goods and services. And if you don’t look at this rentier overhead, then you’re not going to understand why finance capitalism today doesn’t produce the rosy results that advocates of industrialism talked about. They are 100 years behind the times. They are not looking at the transformation into finance capitalism and how it’s transformed the economy. RADHIKA DESAI: Indeed. And this exactly ties back into our inaugural conversation, Michael, because one of the things we emphasized in that conversation is that when neoliberalism was sort of the neoliberal policy paradigm — [when it] was ushered in as sort of the thing that was going to restore capitalism’s mojo, restore its productive dynamism — it did nothing of the sort, for the simple reason that capitalism is no longer competitive. It’s monopoly capitalism and monopoly firms are price makers, they are not price takers. Essentially they don’t have to react to rising prices by supplying more. They can simply react to it by keeping prices high, which is kind of what we are looking at right now. Neoliberalism did not resolve this issue, but, on the contrary, it has vastly inflated financialization. So neoliberalism, rather than restoring capitalism’s productive dynamism, has actually unleashed the storms of financialization which bring us regular financial crises, which bring us all these other problems we’re talking about, and which have also gone into weakening the productive economy. MICHAEL HUDSON: Neoliberalism really is financialization. Neoliberalism is financial lobbying for a financier’s view of the world. It’s Wall Street’s view of the world. [It’s] the central bank’s view of the world. It’s not the industrialist’s view of the world, and it’s certainly not the wage-earner’s view of the world. The question is: Whose perspective are you going to use in looking at how the economy works? RADHIKA DESAI: If we may round up this part of the discussion, because we have a couple of really important further questions to discuss, I would say that what’s causing the current inflation is a combination of things. Yes, of course the war, the conflict over Ukraine, which by the way the United States is doing nothing to stop, and we will be discussing this at a later date as well. Secondly, yes, monopoly is certainly contributing to it. Financialization is contributing to it. All of these things are contributing. But there are two things which are definitely not contributing to it. Number one, the stimulus did not contribute to it, because the overwhelming majority of the stimulus never ended up in the pockets of ordinary Americans. And number two, yes, even though there may be a wave of strike activity — which absolutely needs to happen, which workers need in order to catch up with the loss of income, real wages, they’ve had for a long time — [it] is not contributing to inflation. If anything it is only mildly mitigating the effects of inflation on the lives of workers. But ultimately, I would say that the reason that core inflation is high and is likely, in my humble opinion, to remain high, particularly in the very neoliberal financialized capitalisms like the United States and the United Kingdom, is because of the productive debility, the underlying productive problems of the economy. This is the main thing that is causing inflation and, as I’ve argued in my “Vectors of Inflation,” unfortunately while the Federal Reserve, while talking about employment levels and economic activity levels and so on, is actually really concerned about keeping asset inflation going. It is going to fail to deal with it. So that’s how I want to sum up this aspect. So we can now shift, perhaps, Michael, to talking about what the Federal Reserve is doing, how we [are] to understand it, and what’s wrong with it. MICHAEL HUDSON: Well, the Federal Reserve was created in 1913 to take monetary policy out of the hands of government. The idea was, actions that the Treasury used to do — managing the economy — would be transferred to Wall Street and other centers. The Treasury Secretary was not even allowed to be a member of the Federal Reserve Board. J.P. Morgan organized the bankers and said, “We’re going to take the twelve Treasury districts and we’re going to make them into Federal Reserve districts. Basically we’re going to shift economic planning away from Washington and put it in the hands of Wall Street in New York, Boston, Philadelphia, Chicago, San Francisco. But we’re not going to let the government do the planning. The problem is that people vote for politicians. And you don’t vote for who’s going to be on the Federal Reserve Board. We’ve got to take planning away from democracy and put it where it belongs: in the hands of the 1% and the bankers.” That was the purpose of central banks in every country. Central banks were the alternative to socialism. Central banks were to prevent industrial capitalism from developing into socialism, but [rather] to develop into a financialized capitalism that instead of being productive was predatory. That explains why, if you look at what Janet Yellen and other anti-labor economists are saying, she’ll say, “Our job is to prevent wages from keeping up with the cost of living. We have to keep wages down to keep our businesses’ profits high. Because corporations are our customers. Our customers are real estate people. Our customers are people buying houses, and if we can raise the debt necessary to buy a house, then we’ve got an enormous amount of economic rent that has ended up paying interest instead of being used as the tax base.” Which [by the way] is what Adam Smith and John Stuart Mill and the first line of the Communist Manifesto urged, to treat land as a public utility. RADHIKA DESAI: Absolutely. You know, Michael, all that reminds me of a really interesting strand of the story that you’re telling. You know, you rightly reminded us that the Federal Reserve was created in 1913, that J.P. Morgan insisted that even the Treasury Secretary could not be a member of the Federal Reserve Board. So you know, particularly in the very era when this financialization really got going, it was accompanied by the rise of a myth. The Myth of Independent Central Banks. The idea was that central banks were to be made independent, which means that there should be no political interference in the central banks, and the idea was that this would allow central banks to set monetary policy independently for the good of the economy to keep employment high and inflation low. In reality of course central banks have behaved in ways that have only benefited the financial sector — the financial sector which produces nothing, which makes profit without production. But nevertheless these are the sectors of the economy whose interests have been minded by the central banks, not the interests of the productive economy. From this point of view, it’s really very interesting that it is precisely in the era when labor was very powerful, up to the 1970s, it was only the late 1970s that the Federal Reserve was given a new mandate. Up until then, the Federal Reserve’s mandate was only to keep inflation low. But with the strength of labor and the Democratic Party being in power, and Carter and so on, they passed legislation which added a new mandate for the Federal Reserve. Which is that the Federal Reserve should also organize monetary policy in such a way as to keep employment levels up. Of course, no sooner had they passed this legislation then the Federal Reserve acted in precisely the opposite way. Rather than worrying about [employment] levels, the Federal Reserve focused only on bringing down inflation. Paul Volcker was made the Federal Reserve chairman because he was known as a “sound money man,” a man who was willing to restrict money supply to such an extent, and allow interest rates to go as high as they wanted, in order to curb inflation. Eventually, as some of the older ones of you may remember, or the rest of you may have read, interest rates went to 18% — double digits, high teens — before they brought inflation down. Ultimately the Federal Reserve didn’t bring inflation down. The Federal Reserve imposed such a deep recession — some people will remember the W-shaped recession of the early 1980s — [on] the American economy and the rest of the world economy as well, as to essentially bring prices down. So in that sense, even though employment was added as a mandate, and today the Federal Reserve chairpeople, whether Janet Yellen, Alan Greenspan, Jerome Powell, Ben Bernanke, have all continued to use the rhetoric of, “Oh, we are looking at employment levels. We are going to calibrate our monetary policy to these things.” In reality they have only been concerned about keeping asset inflation going, because, as I’ve said before, and as Michael says, these are the markets on which the assets of the really rich Americans rely for their wealth. MICHAEL HUDSON: Two comments, Radhika. First of all, you said the financial sector is not productive. What does it produce? It produces debt. Debt is what it produces. That is what yields interest. Its product is debt, even though it’s really an anti-product, that is what it produces. Debt is a form of overhead. So the financial sector produces overhead, and the effect is to polarize the economy. Secondly, you talked about the shift in the Federal Reserve’s purpose towards inflation, not towards full employment. It’s actually much more subtle than that, and much more sinister. Listen to Janet Yellen and she’ll say, “Well of course the Federal Reserve is trying to increase employment. How do we increase employment? Wages have to fall by 20%. We’ve got to pay those greedy workers less. And if we pay them less, then there will be more employment. So the solution to make more employment is to create unemployment. And if we can create enough unemployment, then workers will become so desperate to eat that they will have to avoid homelessness by actually taking minimum wage jobs, which we are not going to raise in keeping with inflation, because inflation is what’s squeezing the budgets, basically, to this whole economic system designed to transfer wealth from the goods-and-services-producing sector, to the rentier, debt, and monopoly sector.” That’s the irony. They’ve twisted all the meanings into an Orwellian Doublethink. RADHIKA DESAI: Very interesting. So Michael, what would you say the Federal Reserve is doing, and what is right and wrong with it? MICHAEL HUDSON: Well, what’s wrong with it is that it believes that the way to make an economy grow is to make it poorer. This is the doctrine that the International Monetary Fund tells all of its borrowers. Latin America, Africa, Asia. [The IMF says to them,] “If you can only prevent labor unionization. If you can only cut social spending. If you can lower wages, you’ll be more competitive and you will grow. So yes, we will bail you out of debt so you can pay the bondholders in the United States and other dollar bondholders, and the foreigners who’ve lent you money, because the World Bank has pushed you into dependency on the creditor nations. If you can pay them by being poorer.” That’s the financial philosophy. The financial philosophy in a nutshell, is: Pay labor less, leave the economic surplus for the owners of wealth, the owners of money, and most of all the owners of [monopolies on] creating credit and creating money. That’s what makes Western capitalism different from the Chinese system, where it’s the central bank of China that creates the credit, not the commercial banks that end up turning all of this rent into interest and economic overhead that is responsible for most of the cost increases. RADHIKA DESAI: This is very important. We should probably wrap up our discussion now because we are getting close to an hour. But let me just say a couple of things. To add to what you are saying, as I said earlier, the Federal Reserve has been acting in the interests of the financial sector throughout the neoliberal period. This period I would divide into two distinct parts. [First,] we had the 1980s and 1990s where, beginning with the Volcker Shock, interest rates became very high. And then later on they did come down a bit, but they remained at historically quite high levels during these decades, so basically banks were making a lot of money simply by buying bonds and earning relatively high interest. [Second,] particularly after the 2000s bursting of the dot-com bubble, we had the Federal Reserve changing course and adopting — changing course, by the way, I should add, for a very interesting reason, they realized that the only thing that was keeping the dollar’s value up, and the economy going, even at a weak rate, was basically the [housing] price bubble that had been brewing in the U.S. economy since the 1990s. So in order to keep it going, the Federal Reserve adopted a radically low monetary policy, a paradigm which allowed the inflation of those huge asset bubbles which we saw which ultimately burst in 2008. Of course, even after that the Federal Reserve kept up the easy money policy. So there are these two distinct periods. But in both cases, they are looking after, in one way or [another], the interests of the financial sector. Now [therefore], at the present moment, when inflation really began to hit, the Federal Reserve basically first of all reacted to it — Jerome Powell first reacted to it by saying, “Oh, we don’t have to worry about it, we are going to continue low monetary policy, because inflation is going to be transitory.” Remember, I’m not endorsing the Federal Reserve raising interest rates. What I’m saying is, they didn’t raise interest rates, which is what they would have willingly done if they thought the threat of inflation was higher, because they first of all dismissed it as transitory because they couldn’t afford to accept that they would need to increase interest rates, because increasing interest rates will prick all these asset bubbles, beginning with the weakest asset bubbles. So, first they tried to pretend that inflation [was] going to be transitory. Then, by early 2022, they were forced to admit that inflation was there — it was proving persistent, it was not going to go away easily, so the Federal Reserve began a series of rate hikes. Now, the thing about these rate hikes is, yes of course they have been quite amazing. At various points they have been going up, not only by the normal 25 basis points, but by 50 basis points and 75 basis points, and so on. But the fact of the matter is that the Federal Reserve is going to have to find some way of stopping raising interest rates because it is already entering that danger level. Let me give you a comparison. Back in 2005, 2006, 2007 — the Federal Reserve was forced to start raising interest rates because the dollar was declining. There was downward pressure on the dollar. Oil prices were rising, and so on. So the Federal Reserve started raising interest rates, ever so gently, incrementally, in a series of steps, 25 basis points at a time. It brought the interest rates up to something like 5.25%. That was enough to burst the financial bubble, essentially. And the Federal Reserve, if it allowed that to happen, it would essentially bring down all these asset bubbles. Today, you know, we don’t have one or two asset bubbles, you know, credit bubble, housing bubble, we now have an Everything Bubble. And already, many of these bubbles are bursting in many areas where money has been going. The bubbles have been bursting. So now what you are going to see is, the Federal Reserve is going to fight shy of raising interest rates very much. So the sledgehammer of high interest rates will not be used. The Federal Reserve has no other way of dealing with inflation The point is that, from our point of view, what needs to be done in order to both combat inflation but also to remedy a whole host of other ills that ail the U.S. economy, is in fact to move away from financialization and create the sort of industrially-focused, productively-focused economy that Americans needs. But the Federal Reserve is loath to do it. The elites are loath to do it, because it involves a level of financial regulation, and regulation of capital, which really brings it very close to what they fear; — namely, some sort of socialism. And this is my argument in the article I wrote, “Vectors of Inflation,” and also of course what I continue to argue today. MICHAEL HUDSON: What you’re advocating is just what the central banks are unable to do. The fact is that the debt that has been run up can’t be paid. There is no way that the Federal Reserve can cope with the fact that every recovery since WWII, every recovery since 1945, has started from a higher and higher and higher debt level, until, now, there’s so much debt that the economy cannot compete, and cannot avoid homelessness and polarization, unless the debt is wiped out. And that is what the Federal Reserve doesn’t do. The Federal Reserve can’t change the financial system and say, “Well, for the last 100 years, actually for centuries, commercial banks, when they make a loan, they make it against collateral. Banks do not make loans in order to create new means of production. The stock market may do that, for seed capital. But banks don’t lend for assets that are not already in place. They only lend against assets that are already there that they can foreclose on if the debt can’t be paid.” Well, we’re now in a mass foreclosure period, and the reason that all this $9 trillion was created when Obama bailed out the banks, was that the banks were insolvent. They had made so many bad loans that, as the FDIC had pointed out, Citibank was bankrupt, all the big banks were broke. We spoke about that in the very first show. And the financial system is still basically insolvent. It’s being kept alive — it’s a zombie-bank system, keeping zombie corporations afloat by more and more debt that ultimately is going to have to be written down. But banks don’t do that. And the only solution is beyond the Federal Reserve’s policy. Number one, [it has to] write off the bad debts. This is certainly obvious for many Global South countries. But you also have to have a different financial system. You have to make credit a public utility, as it is in China. A public utility that actually is designed to create money and credit, to create new means of production, without adding to the overhead costs and debt service. This requires de-privatization as well as making credit a public utility. Economic rent should be socialized and used as the basic tax base so you don’t have rent being used to pay interest. You have rent to prevent housing prices from being bid up on credit by a financial sector whose job is to inflate asset prices to keep the Ponzi scheme going so the economy doesn’t — RADHIKA DESAI: Precisely. Maybe in closing, actually, I just remembered a couple of points that are really worth making before we close today, so we may go a tad over an hour. The first thing is, you know, earlier I mentioned the mystique of independent central banks, and of course, throughout this period, from the 1990s onwards, for more than two decades, we have been living through a sort of mystification of the role of central banks, and particularly of the Federal Reserve. There was a book written about Alan Greenspan whose work was portrayed as though, when he was the chairman of the Federal Reserve, he was like a maestro who was conducting the complex orchestra of the U.S. economy and even the world economy merely with deft little movements of his monetary policy baton. In reality, of course, if we ask ourselves what really kept inflation low — because you see the central banks are lauded for having defeated the dragon of inflation over the last two or three decades — in reality what has really kept inflation low over the last many decades is basically an attack on labor. It is basically an attack on Third World countries, particularly their ability to develop, which we saw particularly strongly in the 1980s and 1990s. As you know, the economists Utsa Patnaik and Prabhat Patnaik have argued in their book A Theory of Imperialism, a key to keeping the value of the money of First World countries is to keep the development of Third World countries low. Because if Third World countries started developing, they would demand and buy more of the commodities that First World countries have been so used to getting for next to nothing. Whether it is copper or oil or lithium or whatever, now one of the reasons we are looking at inflation is, despite the best efforts of the United States and Western countries, at least some Third World countries, led by China, but also many others, are beginning to develop — they are making policy choices, and they will say, “We also want our share of commodities and products,” and this is also going to create a very different scenario. Finally I just want to add, just give you a little preview for our next discussion — Michael and I have agreed that our next discussion will be about de-dollarization. These financial asset bubbles are deeply connected with the reason why the dollar has appeared to remain the world’s money — which is, essentially, these asset bubbles have been drawing money into the dollar-denominated financial system, but this is also rapidly changing. One of the things that Michael mentioned is, the inflation of the balance sheet of the Federal Reserve, doubling with the 2008 Financial Crisis, and then again under Q.E., and then again with the recent pandemic crisis and so on. So today it stands close to $9 trillion. What is all this money doing? [The Federal Reserve] is essentially printing money. It has not contributed to rising prices, rising consumer prices, because it has not gone into the pockets of ordinary people. It has basically kept the asset inflation going. This asset inflation now has artificial support. The Federal Reserve is propping up asset markets. This is just one of the signs of the weaknesses which [are] going to doom the dollar. That is what we are going to be talking about next time. MICHAEL HUDSON: As preparation, I’ve discussed dollarization in my book Super Imperialism, and a scenario for de-dollarization in The Destiny of Civilization, [which] is all about that. Both Radhika and I have written much about de-dollarization, and it would help if you could take a look at what we’ve written in the past so we can start from there in saying what’s actually unfolding today. RADHIKA DESAI: If you would also look at Michael and my paper, “Beyond the Dollar Creditocracy,” and also my book from 2013, Geopolitical Economy, which is very much focused on the dollar as well. Hopefully you have a chance to take a look at some of these things now or later, and next time we will return with a discussion of de-dollarization. Thank you for now, and goodbye.

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European Central Bank, Fed, Federal Reserve, IMF, inflation, Isabella Weber, Jerome Powell

Rising corporate profits have caused 45% of inflation in Europe, compared to 40% for rising import prices and just 15% for workers’ wages, according to research by IMF economists. Corporate profits have been the biggest contributor to inflation in Europe since 2021. This is according to a study published by the International Monetary Fund (IMF). “Rising corporate profits account for almost half the increase in Europe’s inflation over the past two years as companies increased prices by more than spiking costs of imported energy”, wrote IMF economists this June. The IMF said “companies may have to accept a smaller profit share if inflation is to remain on track to reach the European Central Bank’s 2-percent target in 2025”. IMF economists Niels-Jakob Hansen, Frederik Toscani, and Jing Zhou detailed their findings in a research paper, “Euro Area Inflation after the Pandemic and Energy Shock: Import Prices, Profits and Wages”. They found that domestic profits were responsible for 45% of the average change in consumption deflator (inflation) from the first quarter of 2022 to the first quarter of 2023, whereas rising import prices contributed 40%. Some of the main factors contributing to rising import prices have included supply-chain disruptions due to the Covid-19 pandemic, the war in Ukraine, and Western sanctions on Russia – one of the world’s leading producers of oil, gas, fertilizer, and wheat – which caused a big spike in global commodity prices. However, the share of inflation caused by import prices reached its peak in mid-2022 and has since been falling. This suggests that post-pandemic supply-chain problems have largely been solved, and some commodity prices have dropped. But corporations have continued hiking prices anyway. The IMF economists noted that “the results show that firms have passed on more than the nominal cost shock, and have fared relatively better than workers”. Rising corporate profits were the largest contributor to Europe’s inflation over the past two years as companies increased prices by more than the spiking costs of imported energy. https://t.co/iEf6Emu0Rp pic.twitter.com/HYulCZgb8p — IMF (@IMFNews) June 26, 2023 Many neoliberal economists and Western central bank officials have ignored the rise in corporate profits, however, and instead blamed inflation on workers’ wages. In response to the inflation that shot up as the world came out the pandemic, the European Central Bank and US Federal Reserve have been aggressively raising interest rates, at a speed not seen since the Volcker Shock of the 1980s. Fed chair Jerome Powell admitted that his goal is to “get wages down”. Former US Treasury Secretary and World Bank chief economist Larry Summers called for five years at 6% unemployment or a year at 10% unemployment in order to bring down inflation. They put the blame largely on workers, overlooking how companies have exploited a time of uncertainty to make a killing. US Federal Reserve says its goal is ‘to get wages down’ Perhaps the most vocal economist in calling for her discipline to research how corporations have contributed to inflation in the past two years is Isabella M. Weber. A professor at the University of Massachusetts Amherst, Weber has dubbed this “sellers’ inflation”. Yet, while her work is meticulously sourced, Weber has faced harsh criticism from neoliberal economists. In December 2021, she published an op-ed in The Guardian titled “Could strategic price controls help fight inflation?” In the debates around inflation, “a critical factor that is driving up prices remains largely overlooked: an explosion in profits”, Weber wrote. “In 2021, US non-financial profit margins have reached levels not seen since the aftermath of the second world war. This is no coincidence”. She noted that “large corporations with market power have used supply problems as an opportunity to increase prices and scoop windfall profits”. Weber’s article set off a firestorm, and she was brutally attacked. New York Times pundit Paul Krugman claimed Weber’s call for price controls was “truly stupid”. In February 2023, Weber published an academic article further explaining the phenomenon: “Sellers’ Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency?” The IMF economists in fact cited this Weber article in their own working paper on inflation in Europe. Contemporary mainstream economists typically discuss three types of inflation: demand-pull inflation, cost-push inflation, and built-in inflation. Cost-push inflation happens when the prices of inputs used in the production process increase. When the international prices of commodities like oil or gas skyrocket, in response to the war in Ukraine for instance, this contributes to cost-push inflation. Built-in inflation accounts for expectations that inflation that happened in the past will repeat in the future. Corporations often increase their prices every year, for example, simply because they expect costs to increase, not because they actually did increase (but by doing so, costs do sometimes increase). However, discussions of inflation among Western neoliberal economists are usually focused on demand-pull inflation. The godfather of monetarism, infamous right-wing University of Chicago economist Milton Friedman, argued that “inflation is always and everywhere a monetary phenomenon”, and specifically consisted of demand-pull inflation: “too much money chasing too few goods”. Friedman was an inspiration for Chile’s fascist dictator Augusto Pinochet, who came to power in 1973 in a CIA-backed military coup against the South American nation’s democratically elected socialist president, Salvador Allende. Friedman was so fixated on government monetary policy that he essentially argued that cost-push inflation doesn’t exist, claiming it was merely a product of demand-pull inflation. But this recent IMF study shows that the right-wing, monetarist view of inflation is much too simplistic. Capitalist firms can cause inflation simply by hiking up their profits to unreasonable levels. Nevertheless, some monetarist holdovers today still insist that the inflation the world saw following the Covid-19 pandemic was merely caused by central bank money printing. This fails to explain why there was little consumer price index inflation in the first 12 years of quantitative easing (QE), from 2008 to 2020, before the pandemic hit, and why QE suddenly caused prices to rise only around 2021. Economist Michael Hudson has pointed out that QE by the US Federal Reserve and European Central Bank in fact fueled asset price inflation, not consumer price index inflation. In an interview with Geopolitical Economy Report in September 2022, Hudson explained: The result [of quantitative easing] has been $9 trillion, essentially, of bank liquidity that the Federal Reserve has pushed in. Now, despite the fact that it is asset price inflation, the fact is that asset price inflation has all occurred on credit. The asset price inflation has occurred when the Federal Reserve makes basically repo swaps with the banks, enabling the banks to deposit some of their packaged mortgage loans, or bonds, government bonds or even junk bonds, with the Fed. And they get a deposit with the Fed that enables them to now turn around, as if the Fed was depositing money in the bank like a depositor, letting it lend more, and more, and more for real estate, which has pushed up the price. Real estate is worth whatever a bank will lend against it. And the banks have been lowering the margin requirements, easing the the terms of the loan. So the banks have inflated the real estate market, and also the stock and bond market. The bond market from 2008 today has had the biggest bond rally in history. You can imagine the bond prices going down to below 0%. This is a huge capitalization of the bond rate. So it has been a bonanza for people who held bonds, especially bank bonds. And it has inflated the top of the pyramid. But if you inflate it on debt, then somebody has to pay the debt. And the debt, as I just said, is the 90% of the population. So the fact is that asset price inflation and debt deflation go together, because the wealth part of the economy, the ownership part, has been vastly inflated, the price of wealth relative to labor. But the debtor part has been has been squeezed by families having to pay much more of their income on mortgages, or credit cards, or student debt, leaving less and less to purchase goods and services. So if there is a debt deflation, then why do we have a price inflation now? Well, the price inflation is largely a result of the war [in Ukraine], the sanctions that the United States has imposed on Russia. Russia was, as you know, a major gas exporter, oil exporter, and also the largest agricultural exporter in the world. So if you exclude Russian oil, Russian gas, Russian agriculture from the market, you’re going to have a shortage of supply, and you’re going to have the prices way up. So the oil, energy, and food have been a key element. And also, under the Biden administration and certainly the Trump administration, there has been no enforcement of monopoly prices. So essentially companies have been using their monopoly power to charge whatever they want. And even though there wasn’t really a shortage of gas or of oil earlier this year (2022), you had a huge spike in the price, for no other reason than the fact that the oil companies could charge it. Partly this was done by financial manipulations in the forward markets. The financial markets had bid up the price of oil and gas. But also other companies have. And right across the board, if you have a company in a commanding position of being able to control the market, you have essentially permitted monopolies to take place. Well, Biden had appointed a number of anti-monopoly officials that were going to try to impose anti-monopoly legislation. But they’re not supported by the Democratic Party or the Republican Party enough to really empower them to have had much effect so far.

Write an article about: US Federal Reserve says its goal is ‘to get wages down’. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Fed, Federal Reserve, Jerome Powell, Michael Hudson, neoliberalism, Paul Volcker, wages

US Federal Reserve chairman Jerome Powell said his goal is “to get wages down,” complaining workers have too much power in the labor market. Economist Michael Hudson says this is “junk economics,” and corporate monopolies are driving inflation, not wages. The chairman of the US Federal Reserve, Jerome Powell, said his goal is “to get wages down.” In a press conference on May 4, Powell announced that the Fed would be raising interest rates by half a percentage and implementing policies aimed at reducing inflation in the United States, which is at its highest level in 40 years. According to a transcript of the presser published by the Wall Street Journal, Powell blamed this inflation crisis, which is global, not on the proxy war in Ukraine and Western sanctions on Russia, but rather on US workers supposedly making too much money. “Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years,” Powell complained. The Fed’s proposed solution: bring down wages. There are more job vacancies than there are unemployed people in the United States, as the economy recovers from the Covid-19 pandemic. Powell claimed this discrepancy between job vacancies and unemployment is due to high wages, which discourage workers from taking bad, low-paying jobs with few benefits, and therefore give them too much power. “Wages are running high, the highest they’ve run in quite some time,” the Fed chairman lamented. Workers need to be disciplined by the labor market, he insisted. Powell argued, “There’s a path by which we would be able to have demand moderate in the labor market and have—therefore have vacancies come down without unemployment going up, because vacancies are at such an extraordinarily high level. There are 1.9 vacancies for every unemployed person; 11½ million vacancies, 6 million unemployed people.” Powell aims to do this by reducing wages. “By moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that,” he said. The Federal Reserve chairman did concede that “these wages are to some extent being eaten up by inflation.” But Powell blamed that rising inflation on increasing wages, which economist Michael Hudson says is an example of ridiculous “junk economics.” Powell was first appointed Fed chair by Donald Trump in 2018. On May 23, 2022, he started his second four-year term, after being re-nominated by President Joe Biden and confirmed in a landslide bipartisan Senate vote of 80-19. The US federal minimum wage is just $7.25 per hour, and has remained at that level since 2009, despite significant increases in inflation. In 1968, the US federal minimum wage was $1.60, which would be equivalent to $13.29 in 2022 dollars. It is true that the minimum wage has increased in recent years in numerous US states, especially ones that have significantly higher costs of living like New York and California. But real wages have not kept up with inflation. Even the Washington-based think tank the Peterson Institute for International Economics, which is infamous for its avid promotion of neoliberal policies, acknowledged in a January 2022 study, “US wages grew at fastest pace in decades in 2021, but prices grew even more.” The report explained: Since December of 2020, nominal wages and salaries were up 4.5 percent, the fastest increase since 1983. These increases bring nominal wages and salaries to 1.2 percent above their pre-pandemic trend. … Prices, however, have also risen rapidly, and so inflation-adjusted wages fell by 4.3 percent at an annual rate over the last three months, 2.4 percent over the last year and 1.2 percent lower than they were in December 2019. Inflation-adjusted wages should have grown 2.1 percent over this period if pre-pandemic trends had continued, leaving real wages well below their pre-pandemic trend. While nominal wages have still grown faster in some sectors relative to its pre-pandemic trend, all sectors have seen below-trend real wage growth. Economist Michael Hudson responded to these remarks by the Fed, analyzing the inflation crisis in a May 13 panel organized by the International Manifesto Group. “Inflation is basically the excuse that right-wing governments have for trying to lower wage levels by blaming the inflation on rising wages,” he said. “What economists like to blame it [inflation] on is labor, on rising wages, on government social spending, and of course on Russia trying to break away from America’s unipolar international order,” Hudson explained. He recalled his time working at Chase Manhattan Bank in the 1960s. Hudson’s boss was Paul Volcker, who would go on to serve as Federal Reserve chairman under US presidents Jimmy Carter and Ronald Reagan. He noted that Volcker had “always said that the big concern of finance is wage gains will mean that the purchasing power of all of our investors, who have bank accounts, and stocks, and bonds, will have less power over wages. And our class interest is in increasing our power over wages, so we’ve got to keep wages down, even if it causes a recession. That’s basically the Federal Reserve’s policy.” “The present Federal Reserve chairman, Jay Powell, came right out and announced that the Biden administration, Democratic Party policy is quote, ‘to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially’,” Hudson continued. “In other words, you want to keep the finance, insurance, and the stock market, real estate sector going; you just want to squeeze down wages somehow.” “So the objective of all this is that, if labor wants to get a job, and the health insurance that goes with it, then labor will have to lower its wage levels. That’s the current US government policy.” “Well it’s junk economics, of course,” Hudson continued. “Today’s inflation throughout the world, not only in the United States but now in Europe, is led by pure monopoly powers, headed … by energy and food prices.” “The United States and NATO are trying to blame inflation on Putin and Russia not exporting oil and gas to Europe, as a result of the NATO sanctions against it, but gas hasn’t stopped yet, and … the US oil companies have said that, looking forward, they see a supply problem, and they’re raising prices now even though the supply of oil hasn’t really changed at all.” “So you have supply being fairly constant, but prices going way up, because the oil companies say, ‘We anticipate they’ll go up, therefore we’re raising oil prices, because we can.’ Well, the same thing is happening in agriculture.” “You’re also having rent rising as a result of the plunge in home ownership rates, that started with President Obama’s mass evictions of the victims of junk mortgage lending.” “And the private capital investors that are taking over all of the houses, the owner-occupied houses that have defaulted, they’re being sold off, and you’ve had home ownership rates falling by about 10 percent in the United States since 2008.” “Well now you have companies like Blackstone very sharply rising rents. In New York they’ve been jumping by about one-third in the last year. So again, with the same amount of real estate, prices are going way up.” “So none of this can be blamed on labor,” Hudson stressed.

Write an article about: NATO/West or Global Majority? Unipolar destruction or multipolar development? The world must choose. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, EU, European Union, Geopolitical Economy Hour, India, Israel, Michael Hudson, Narendra Modi, Radhika Desai, Russia, Ukraine

Political economists Radhika Desai and Michael Hudson discuss the fracturing international order between the NATO/West bloc and the Global Majority, analyzing Israel, Gaza, Ukraine, Russia, Argentina, and Europe. Political economists Radhika Desai and Michael Hudson discuss the fracturing international order between the NATO/West bloc and the Global Majority, analyzing Israel’s war on Gaza, Ukraine’s defeat in the proxy war against Russia, and the rise of the far-right in Argentina and Europe. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello, and welcome to the 19th Geopolitical Economy Hour, the program where we discuss the evolving political and geopolitical economy of our time. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. And we bring you this program with the help of our host Ben Norton, our videographer Paul Graham, and our transcriber Zach Weisser. The carnage in Gaza has paused, though the possibility that this will open the door to a permanent resolution is remote. Little else seems to have changed. The U.S. remains doubled down on its one-sided support for a murderous Israel, the tail that wags the U.S. dog. MICHAEL HUDSON: Well, it’s not only the United States that’s doubling down, it’s Europe that’s doubling down. And it’s becoming, you’re seeing, they’ve banned protests supporting the Palestinians in Germany, in France, and in Italy. And this is leading to the break between Europe, I think, and the Islamic countries. Yesterday, Prime Minister Netanyahu called Hamas the Nazis. And in Europe, the Arabs are calling Germany the Nazis. So it looks like the question is, what kind of Nazism is the U.S. and NATO alliance going to have? RADHIKA DESAI: And what is the definition of what a Nazi is anymore? I mean, it’s completely losing touch with the historical record. Indeed, as Michael, you rightly point out, the U.S. and Western governments generally are growing even further apart from their people, most of whom seem to favor a permanent ceasefire and a lasting solution to the Israel-Palestine conflict. And one might add an end to the war over Ukraine and an end to persistent saber-rattling directed at China. The U.S. and NATO continue to mouth support for Ukraine, even as the inability to support Ukraine, whether with money, military production, or political legitimacy, becomes clear. And defeat for Ukraine is all but acknowledged. While the U.S. refuses to acknowledge it, the hunt for scapegoats has already begun in Kyiv. The upcoming NATO foreign ministers meeting continues to invite foreign ministers of Asian non-members such as Japan, South Korea, Australia, and New Zealand, even though the possibility of the U.S. sustaining a third war front remains in question, even with allies, while the key to the entire Indo-Pacific strategy lies in tatters, because India’s Modi stands accused of organizing murders of citizens of allied countries on their territories, because, Modi claims, they are doing nothing about what he alleges is Sikh separatism in favor of a homeland called Khalistan. So all in all, the Western powers present a picture of increasingly impotent rage. Meanwhile, the world majority continues to side raucously in demonstrations or silently for peace and development. So today we want to discuss both the international and domestic dimensions of the increasingly divergent strategies represented by these two parts of the world, the NATO- and U.S.-led West on the one hand, and the world majority, which now includes, one would imagine, the overwhelming majority of the ordinary people of the Western world, who do not wish to pursue this militaristic and war-like line. They would rather have a policy which is more in line with what China, Russia, and other world majority countries are pursuing in favor of development. So we are looking at two very stark alternatives. The first represents destruction, both economic and military. And the second represents, again, development, both, in this case, economic and military, at least in the sense of providing for defense against the increasing aggression of Western powers. So I think you wanted to start our discussion off by discussing a couple of instances of economic self-harm that we are seeing in Western countries and those countries that seek to ally with them. MICHAEL HUDSON: Well, while you were in China for the last few weeks, the whole post-1945 U.S.-centered order has been breaking up, most clearly in Germany and Argentina. So I want to talk a bit about the crises there, because they’re very closely related. And the BRICS countries also are just beginning to define themselves as an alternative to this. The main strains are financial right now, and not only financial, but the particular way in which the U.S.-centered neoliberal order that was put up in 1945 has now reached its limit. And you’re seeing that in the crises. And it’s largely a balance-of-payments crisis in Germany and Argentina connected to the budget deficits, all that with a kind of neoliberal junk economics that has frozen spending in Germany to prevent Germany from essentially using public funding to get over the depression that it’s created by declaring war on Russia, and it looks like China, too. And the fact that its middle class and labor class are being squeezed, just as they’re being squeezed in Argentina. So I think underlying both countries and their balance-of-payments deficit is a kind of false view of what causes inflation. And I just want to say one thing about where the German nuttiness comes from. The Germans say that we have to freeze government spending because that’s what is causing inflation. It’s not that the United States has blown up Nord Stream. It’s not that energy prices have gone up. It’s not that food prices have gone up. It’s because we’re running a deficit, too much social spending. And the only cause that the Germans realize except for inflation is government money creation. But that’s obviously not the case. Every hyperinflation in history, such as we’re seeing in Argentina now, whose prices have gone up 140% in the last year, every hyperinflation has come from the currency depreciation, from the balance-of-payments deficit. And Germany, now that it is deindustrializing, now that it cannot import, if affordable, gas and oil to run its industry, all of a sudden this anchor of the euro’s exchange rate has turned into a deficit, meaning the euro is looking like it’s on the downside. The reality back in the 1920s is Germany had to pay reparations. The payment of reparations caused the currency to plunge. When a currency goes down, as Germany’s did and Argentina’s today, the price of imports go up. And the price of imports go up, increase the domestic price of food, the domestic price of doing business. And so the government then has to create more money to enable these transactions of the economy to take place at the higher price level. In every case, the hyperinflation and even regular inflations are led by the balance-of-payments deficit, followed by a declining exchange rate, followed by increasing import prices and domestic prices, and then at the very end, money creation increases, just the opposite of what Milton Friedman and the Chicago School and the right-wingers say. When you have a false view of what causes inflation for the last 100 years, ever since the 1920s, it’s not a mistake. It’s because there’s a social interest in having a wrong view. The social interest is essentially to squeeze government and essentially privatize everything. What you’re seeing in Argentina now is that the incoming Mr. [Javier] Milei is trying to create a new government. He’s dropped the idea of dollarization, but he says there’s a simple way to stabilize Argentina’s balance-of-payments. And it’s exactly what Argentina did in 1991, and that is you sell off the public domain. Argentina was able to stabilize its exchange rate by selling its banks, selling its natural resources, selling its public utilities. Milei says, we can raise the exchange rate once again and stop the depreciation if we just sell off everything, sell off our roads, sell off our streets, sell off our land, sell off whatever natural resources we have, and you’re going to have an influx of foreign money coming in, and that foreign money is going to buy up our government, what we sell off from the government, and that will stop the inflation, and now you middle-class and working-class people can somehow survive. And, of course, the problem with this is once you privatize the public domain, the private owners are now going to raise the prices for public services. They’re going to turn government infrastructure into monopolies and extract monopoly rent, and all of this rent is then going to be remitted to their own countries abroad, and most foreigners in Argentina are Argentinians, the 50 families that run the economy, operating out of offshore banking centers, the Dutch West Indies, the United States, London, and so they’re pretending to be foreigners, so you’re having a huge privatization and the squeeze of the middle-class and the working-class. RADHIKA DESAI: What you say is really interesting, Michael, but first of all, let me just make one little qualification to what you’re saying, because, you know, Germany yesterday has announced that it has actually raised the debt brake. And so what that means is, and by the way, this is not the first time they’ve done so, they have done so repeatedly, particularly over the pandemic, but even before that, because quite frankly, the position they have taken that the German public debt should be limited to some ridiculously low amount, or rather the German deficit should be limited to a ridiculously low amount, can actually not be sustained, even in the case of an economy like Germany. And as you rightly point out, more recently, they have been indulging in deindustrialization. And what is at stake this time around is precisely the ability of the German government to give subsidies to German corporations to allegedly organize a green transition, but in reality, it’s not so much the green transition that matters, but the subsidy to the big corporations. And that’s the point I want to make, because, you know, we all say that neoliberalism is all about essentially freeing up markets and rolling back governments and reducing government spending even, but in reality, it is about none of those things primarily. That is the rhetoric that is indeed used, but it is used in order to essentially create a government policy paradigm, whose main purpose is to focus, is to protect the interests of and advance the interests of the biggest corporations in the country. And that’s what the German government was being prevented from doing by taking the money that it did not spend during the pandemic, which the parliament had allocated, and giving it to the Green Fund. The issue is not that it’s a Green Fund, the issue is that this would have gone in the form of subsidies and supports for Germany’s big corporations. So in that sense, neoliberalism is less about markets, all the junk economics is indeed junk economics, but its primary purpose is to serve the interests of big corporations. MICHAEL HUDSON: That’s quite correct. Under the claim that there’s a budget squeeze, what is cut back is the social spending on the population at large, the consumers. In Germany, what was cut back has been the subsidies of families that have to pay much higher prices now for their heating and for their oil and gas. And that’s cut back precisely for what you say, in order to help the large corporations. But the large corporations in Germany were very large, primarily industrial corporations. And there’s no way that a government subsidy can really protect these corporations, given the sixfold, somewhere threefold, sixfold increase in energy prices. So it’s very difficult. So what Germany has done is saying, OK, we are going to need more money, we’ll cut back social spending, but we’ll spend it on the war. And that’s what EU Commissioner President Ursula von Leyen said. And back in February, the Minister [Robert] Habeck, the economics minister, went to Washington and he said, the more Germany serves, the greater its role. That was his quote. In other words, he’s trying to increase, his role in Germany is to serve the U.S. interests in Ukraine. And you’re having Germany more for a war economy right now, even than how, I don’t know if it can save its industrial sector and its economy. But what it can do, at least, is act as America’s puppet, going for the war economy. And essentially, that’s really the problem. The inflation is going to increase there. There’s going to be a wage squeeze. And that’s what’s leading to the right wing shift all throughout Europe. The Social Democrats and the center parties are really the pro-war parties and the anti-labor parties now. And ironically enough, it’s the right wing in Germany with a little bit of the old Linke party with Sarah Wagenknecht. And it’s the right wing parties in Holland and in Hungary that are doing what used to be the left wing parties. All this is posing the question, will the European Union break up? And you can say the same thing for what’s happening for the global south countries now that Argentina is saying that it wants to leave the BRICS. RADHIKA DESAI: So this is really, again, very important and interesting, Michael. Because what we are looking at is really the world is splitting. And it’s splitting at two levels. On the one hand, there is a split, of course, among the countries of the world. And that split is a little more messy than we thought it would be. So countries like Argentina and India may not really remain part of this non-Western alliance or the world majority alliance. Although, of course, we’ve seen this before. It’s not necessarily anything new. When Bolsonaro was in power, then Brazil was not exactly pulling its weight in the BRICS, et cetera. So that was so but nevertheless, there is a polarization at the international level. But increasingly, there is also a polarization that is taking place within the Western countries. You don’t see the same polarization elsewhere. Within the Western countries, you are seeing a polarization between ordinary people upon whom governments are imposing austerity, low wages, ever-disappearing social services, increased taxes, et cetera, in order to finance, in Germany’s case, the war and subsidization of big corporations. And in the case of Argentina, as you said, essentially to service the interests of a small number of really rich families there. So at both levels, we are seeing polarization. And I would say that the real issue is that the neoliberal strategy does not work, which is why you get the election of people like Geert Wilders, because the so-called centrist governments basically create the mess and then people get alienated with it. They have nobody else to vote for, but these populists like Milei or Geert Wilders or what have you. And this is the whole sort of spectrum of Western politics has moved to the right in such a way as to leave people with no alternative. So essentially what we are also at the root of what we are looking at is the exhaustion of Western capitalism and the inability of political forces in most of the world to see that their salvation lies in a political strategy which is fundamentally different, which is not aimed at protecting the interests of a small number of big corporations. It is not articulated in the form of junk economics, but it is fundamentally a developmentalist strategy which involves pursuing the interests of the vast majority of the people, much like what we see in China. It’s not perfect, but it is broadly correct. MICHAEL HUDSON: Well, we’ve been talking about this for the last few months and well, we’ve been talking about this in China, Russia and the global majority have been talking about this. The amazing thing is there is no talk about this in any major NATO party, nowhere in Europe, nowhere in the United States, nowhere in Canada are people coming and saying there has to be an alternative. The only alternative that is being discussed is in Eurasia, which is very interesting. And for the first time now, because of the split of the Israeli war against the Arab countries to create a greater Israel, you have the Arab countries now, I think, beginning to turn away from the European Union and from NATO. Now that they see Europe is backing the U.S. and they’re now working, I think, opening their eyes, at least, to the possibility of the kind of alternative there’s going to be. And that’s really what all of these shows that we’re doing are all about. RADHIKA DESAI: Absolutely. And I just want to go back to what we started with, you know, you pointed out that a lot of this is financial and I completely agree with you that it is indeed financial, but it is also military and economic and political. So in the military sense, of course, what we are looking at in the Western world generally, which is backing Ukraine and now Israel, what’s really going on is that these countries which spend so much of their money, particularly the United States, but also these other countries, you know, a small proportion of their very big GDPs is still a very large amount. So they spend a lot of money on their militaries. But in fact, the last 18, 20 months of war against Ukraine has already depleted the arsenals of these countries. And even though the military industrial complex is making money hand over fist producing new weapons, the fact of the matter is this military industrial complex is turning out to be a toy weapons complex. It is not actually able to produce at the rate at which, say, Russia is able to produce or China is able to produce. So once again, on the productive front, even though it involves military production, which is usually regarded as a national priority, even though in the United States, the military industrial complex eats up about a trillion dollars, and probably that’s an underestimate every year. The fact is they cannot produce the weapons. The second associated fact is that they cannot produce technologically sophisticated weapons. I was just recently reading in the news that Iran has now produced a hypersonic missile. So Russia produces hypersonic missiles, China produces hypersonic missiles, now Iran produces hypersonic missiles. Meanwhile, the coddled military industrial complex of the West is not able to produce anything of the sort. So it is also a military confrontation which the West is losing. MICHAEL HUDSON: Well, this is why there are calls for a ceasefire right now, both in Ukraine saying, well, there’s a stalemate in Ukraine, let’s just stop. And they want to stop because the West has run out of the weapons, even though the weapons don’t work. What they have, they’ve run out of. They’ve run out of tanks, they’ve run out of bullets, they’ve run out of missiles. They’re trying to buy some more bullets from South Korea, I think, the Ukraine is. But the fact is, obviously, it’s not a stalemate. The Ukrainians have been essentially losing their entire population and turning Ukraine into a land without the people, as they used to say of Palestine in 1947. It’s depopulated. And so what you’re having is a military that doesn’t work there. And regarding what you commented on quite correctly on Iran, it looks like both Israel and the United States want to end the ceasefire and then resume the fighting. It’s now primarily on the West Bank. There’s been no ceasefire at all on the West Bank. The murder squads have been going out. They call them “settlers”, to shoot the existing homeowners, take over their homes, and essentially make the West Bank and Palestine only for the Israeli population. If this continues, you’re going to have not only Lebanon and Hezbollah come up, you’re going to have Iran actually use these missiles. And you may see in the Near East fighting to the last Israeli to support the United States’ attempt to fight Iran. And they will not succeed, I don’t think, in the Near East any more than they’ll succeed in Ukraine. RADHIKA DESAI: Absolutely, Michael. This is exactly what I was saying the other time when we were chatting with Pepe, you know. And in fact, let me say another thing, which is, you know, this is how the international and the domestic interact, you know, what we call the political and the geopolitical economy of the world interact. Part of the reason why we are going in this direction is that the West in general, and Biden in particular, cannot afford to admit defeat in Ukraine. And nor can he, in fact, what he seems to have decided to do, particularly given that he is essentially, you know, I never thought there would be such a thing, but you know, there are lame duck presidents. Well, I think he is a lame duck candidate. That is to say that there are essentially people in his own party who are saying that he should basically step aside. He’s not capable of running, but he is insisting on running. And I think one of the ways in which he’s going to try, he may not succeed, but he’s going to try to force the hand of the rest of his party and make them keep him as the candidate for president, is essentially he wants to run the campaign as a war president and a war president and then some. So he wants to go into the campaign with certainly one war, certainly two wars now, the war against Russia and as I pointed out last time, the war. So the war against Russia with using Ukraine as a proxy and now a war against Iran using Israel as a proxy. And here the position of Hamas and the Palestinians is actually to be likened not to Ukraine, not to Russia, as President Zelensky tried to do. But in fact, it is to be likened to Donbass, which Ukraine was pummeling before it became the proxy for a war against Ukraine. So now Israel will be a proxy for a war against Iran. And of course, meanwhile, the possibility that there may be a third front has not been closed. President Biden has said repeatedly that the United States will defend Taiwan in the case of, in the case of China trying to take Taiwan by force, etc. The fact is China has no intention of taking Taiwan by force. China has been engaged in an economic and charm offensive vis-a-vis Taiwan for decades now. And what, however, we have to look out for, is some provocation in the case of which the Biden administration will try to use Taiwan in the same way as a proxy against China, as it is using Ukraine against Russia and in the coming weeks and months may use Israel against Iran. Thankfully, there are elections in Taiwan and it is very likely that a sensible government will be elected in Taiwan, which may kibosh this possibility. But nevertheless, President Biden so far can be assured of at least trying to run as president, as a war president with a war on two fronts going on well into next November. That is why he can’t afford to admit defeat. MICHAEL HUDSON: Well, in order for a sensitive government to take place, there has to be, I think the awareness is spreading now that the Western policy is a U.S. policy. It’s to try to control other countries by war. That’s the only way that the United States can exert control. It can’t have trade control anymore because it’s de-industrialized. It can’t even have financial control because of the problems that it has here. The only way that it has is to force other countries in a zero-sum game. As Donald Trump, who will be running against Biden, has said, America has to win on every trade deal. Well, the difference is that if China, Taiwan, Russia, Eurasia says there is an alternative to try to fight other people, and that’s to offer mutual gain. If you have the global majority following a policy of mutual gain, the Belt and Road Initiative to develop mutual trade among them and to have it Eurasian-centered instead of all centered on the United States and its satellite in London and Frankfurt, then that is really going to be the whole difference in Western from Eurasian policy. If you can have this at least at the center of Eurasian politics, I think you’ll have a recognition of just how great an alternative there is, even if it’s not appearing in the American and European political scene. RADHIKA DESAI: Again, I want to add to your point and to strengthen the excellent points you’re making, Michael. Let me take a minute to reflect on, just as we said, what is the domestic basis of U.S.’s militarism. It is an increasingly senile, financialized capitalism, which needs to be able to suck value out of the rest of the world in order to survive, which explains its militarism, its international aggression, etc. Meanwhile, we can very well ask, what are the contrasting domestic bases of the completely different foreign policy that China is pursuing? What we see here is that, essentially, sometime early in this century, in the first decade of the 21st century, the government in China realized that decades of reform and opening up had been important, it had been very good, it had created employment, it had dealt with the series of multiple crises that China had to deal with in the late 1960s with the Great Proletarian Cultural Revolution and then the 1970s, but what it had not been able to do was to help China climb up the value ladder. So to modernize China’s industry, to make China’s industry develop technologically, and in order to address that problem, since that time, the Chinese government has been taking numerous industrial policy initiatives designed to upgrade the technology of China, and within less than a decade, by about the middle of the 2010s, it already became clear that China was becoming a technological leader in many fields, whether it is information and communication technology with Huawei, or with artificial intelligence, with green technology, and so on, with high-speed rail. By the way, we were in China, and we experienced a most amazing high-speed rail ride from Beijing to Xi’an, and I have to say, if they had high-speed rails like that, I’d never take another airplane ever in my life, unless it was for, you know, crossing oceans and so on, but anyway. So these are just amazing levels of technological development, and as we know, the US-led West has been reacting to this by increasingly making the international environment hostile to the extent they can for China, so all of the initiatives China has taken over the last decade and more, whether it is the Asian Infrastructure Investment Bank, the Belt and Road Initiative, which celebrated its 10th anniversary this year, or more recently, all the various BRICS initiatives, its increasingly close alliance with Russia, its attempt to try to win over its own neighborhood, all of these things are essentially a way to try to resist this attempt of the United States to create a hostile international environment, and instead have a competing international order, which will be based not on aggression, on sucking out capital and value from the rest of the world, but rather on facilitating the development of the rest of the world, and that’s what we are looking at, and this is where, again, the world is standing before a set of alternatives, a very clear fork in the road. On the one side lies China, and still the world majority, even though countries like Argentina and India may be stepping back temporarily, we hope, from that, and on the other hand, the Western-led alliance, the U.S.-led alliance, which basically stands for financial exploitation, the sucking out of value through financial means from the rest of the world, while giving nothing in return, and militarism and aggression to compel the world to cooperate with this. MICHAEL HUDSON: Well, there’s also a parallel fork in the road that we haven’t mentioned, but is very important, and that’s the global warming and the extreme weather that we have. Certainly, that’s one problem that’s facing China. What is making this a fork in the road is, why is the United States fighting so much to support Israel? It’s fighting not for Israel, but because Israel is a landed aircraft carrier to control the Near Eastern oil, and the American foreign policy is based, the one way in which it can control trade is by monopolizing the oil trade that American companies have been monopolizing ever since World War I, along with England and Holland for that. Well, if America is not going to leave the Near East easily, it’s still pumping oil out of Iraq, even though it’s been told to leave. The American forces in Iraq and in Syria are being attacked. Over the coming six months, I think you’re going to see the war being settled, one way or another, in the Near East. If there’s a defeat of the American oil in the Near East, this will entail a defeat of Israel, too. This fight is parallel to the Ukrainian fight, which ended up all to split Europe away from reliance on Russian oil. Well, obviously, Eurasia and the other countries that are threatened by global warming, despite the fact that Europe and the United States says that it’s in favor of the green ecology and cutting back pollution, the United States is the leading lobbyist for pollution, for accelerating global warming because the global warming is caused by its oil and gas. And that’s what the United States is using, hoping to use as a lever to control the energy and hence the GDP of other countries. That’s a related fight to what you’ve been saying. RADHIKA DESAI: Absolutely, Michael. And let me bring this back to a monetary and financial question. You know, that is to say, climate change is also a monetary and financial question. Why do I say that? Because you see, recently, of course, we’ve had a lot of inflation. And while it is undoubtedly true that on the one hand, some of it has been caused by the war in Ukraine and the rise of food and energy prices. And while it is also true that big corporations in the United States in particular, but also elsewhere, are taking every opportunity to try to jack up prices and keep them there. Interestingly, they can only do this because, we’ve had big corporations for a very long time. So if that was the case, why didn’t we have inflation for the last two decades? We’ve had a highly monopolized economy in the US and many, most Western countries since then. The opportunity to jack up prices is only provided by supply chain bottlenecks, where those companies that do not suffer to the same extent from supply chain bottlenecks then use the opportunity to jack up prices. Fine. All of this is true. But there is an underlying cause of this. Why are supply chain bottlenecks being disrupted? I think they are being disrupted for two reasons, both of which have to do with the destructive strategy that the United States-led West is trying to impose on the rest of the world. On the one hand, you have an increase in supply chain bottlenecks to the extent that countries like China, but also a few other countries increasingly refuse to provide the United States with cheap goods, whether they are cheap primary products such as, you know, food products or coffee or whatever, and of course, oil, or whether it is cheap manufactured products. In both of these cases, the ability, the willingness of these countries to provide cheap goods has been declining because their own domestic markets are expanding and their own wage costs are rising, particularly in the case of China, which is a good thing. This is not a complaint. Wage costs should rise in developing countries. That’s what development is about. So that’s the first thing. And then the second thing is that neoliberal policy has so, has laid agriculture to waste in so many countries. And today, with climate change and the United States essentially ensuring through its wars that the world will remain too divided to do anything about climate change, we are looking at an increasingly desperate situation. Take, for example, the recent ban that India had to place on the export of oil. With the squeezing of consumption of ordinary poor people in India, India had become a major exporter of oil, sorry, of rice, on which countries like Nigeria, for example, had come to depend. Nigeria imports a lot of Indian rice. Now, if India bans the export of rice, Nigeria cannot import rice, which means prices of food in Nigeria are going to go up. And they are also going up in India because of climate change, because the rice harvest has not been sufficiently robust. So you can see that in general, you know, just as people have lost, have left the labor force in Western countries after the pandemic and so on, the labor market has shrunk. So similarly, more and more farmers have been either leaving or have been pushed out of agriculture, which means that agricultural production is in decline. And if we in the West think that this is an easy thing, just go to the supermarket and look at the number of things we import from the rest of the world, particularly the third world, in our daily diet, and you will see where the inflation is coming from. MICHAEL HUDSON: Well, you mentioned India and I think that’s going to be a topic of some of our future broadcasts because there’s a whole crisis. It’s occurring right now. India has been exporting oil largely that it’s gotten from Russia and it’s paid for the oil In blocked rupees in other words, Russia can only use these rupees to buy Indian goods But there are only so many Indian goods that it can buy And at the current point in time. it doesn’t want to get more Indian rupees. So it’s the question that’s going on in Russia is, are they going to continue to sell oil to India for rupees that they can’t spend? Well in the past they were doing it because they hoped to have an alliance with India. And that’s why India and Russia, India was part of the BRICS. But now that it looks like India has decided to change its policy radically and to throw its backing behind the United States and to be sort of America’s landed aircraft carrier in Eurasia. You have Pakistan now saying, well, we want to apply to be a member of BRICS Plus at the upcoming January meeting. So if you have Pakistan replacing India in the BRICS that is going to obviously make the Belt and Road Initiative much easier for China, but it’s going to leave India out of this whole reconstruction of Eurasia that’s taking place. That’s a really radical change and India may end up just like Ukraine and Israel left out of the whole process. RADHIKA DESAI: Let me add a couple of complicating factors there. So what you say is absolutely right, but let me add a couple of further complicating layers. So the complicating layer number one is of course that the United States has been pursuing a strategy of essentially bringing India into its strategy in the Asian region in a very big way and this is represented by the shift from using the term Asia-pacific, which was the term that was favored until recently from the 1990s onwards until recently, the US foreign policy towards the Pacific region towards the what’s called the Western Pacific has been articulated by using the term Asia-Pacific. Now over the last three or four years, they have been using the term Indo-Pacific. And the purpose of using the term Indo-Pacific, and many people have dwelt on how you know, there was this German geographer who first coined the term etc, etc. But that has nothing to do with it. It has everything to do with bringing India into the picture as a counterbalance to China, something that India has offered the United States for a very long time, especially when we have had this BJP, you know governments of this party that is in power today. So this happened early in the late 90s and is again happening now. And of course the same party has also pursued closer alliances with Israel. However, and now the West loves them for the same reason as they love Zelensky these are fucking fascists, I’m sorry, pardon my Greek, but these people are fascists in India. And so they thought they were going to get a strongman in Asia to support them, but the fact is that this strongman has turned out to be a bit of a rogue as far as they are concerned because now both Canada and the United States are saying that this government, the Modi government, has tried to assassinate Canadian and US nationals on Canadian and US territory. And it’s also the case I don’t know the truth of this but I can certainly report that the WhatsApp world and and the social media world in India is absolutely abuzz with supporters of the current government not saying how dare US and China accuse us of this but rather, we got them, we did it, we gave it to them. So really this is you know, there is an old saying, Who rides the tiger dare not dismount. So this is the situation in which Canada and the US now find themselves. So that’s the first complicating factor. The second is that Mr. Modi faces an election. It must take place before May of next year. Now, of course, there is every possibility particularly if it looks as though he’s going to lose. And this is a real possibility this time because all the opposition parties created a big coalition and they are going to fight as a big coalition, and if that coalition remains together Modi cannot win. So either he will try to disrupt this coalition, and if he cannot do that, then he will try to perhaps create a national emergency to postpone the election. This is also a possibility. But nevertheless, I would say we may very well see a new government in New Delhi coming up. So both of those things are complications. And we should probably wind down Michael, but can I just introduce a new thing? Maybe ask you to lead with it But you know you pointed out you pointed me to this book which was recently reviewed on Moon of Alabama By somebody called Fernandez about how there is a split between the US strategy of security versus hegemony. Maybe we can have a closing exchange about that and then bring our discussion to a close and of course any other remarks you want to add. MICHAEL HUDSON: That’s a good idea obviously the idea that national security is going to increase security is just the opposite in practice. The national security has not made Europe more safe. Europe is now threatened. It’s not made America more safe. The whole world now is threatened by Insecurity as a result of America’s national security saying if we can’t control every other country we don’t feel secure. That’s why America has to go to war all over the world. And it’s the national security that is making the whole world insecure. RADHIKA DESAI: Well, you know, let me just remind you of this particular paragraph. So basically we’re discussing the review of a discussion of a book by someone called Clinton Fernandes, who is an Australian and he has written a book called Subimperial Power which describes what Australia is doing and of course along with Australia other powers like the European powers as we know who are behaving like vassals of the United States. So this is the key paragraph in the review. In other words Fernandes’s point is that the key characteristic of the rules-based international order relates to the actual structure of the American or British or French or Australian social and economic system which seeks to enforce an order where the whole world is open to the penetration and control of their respective national monied classes which is why the order is about hegemony and not about security, Which is why the former so often come at the expense of the latter. So essentially what it seems that Mr Fernandes is arguing is that countries like Australia or Britain or France are not being vassals of the United States. They are in fact pursuing a strategy of what he calls hegemony, which is opposed to what he calls security. And so what he’s saying is that the pursuit of hegemony is antithetical to the pursuit of security. In other parts of this review it seems that Mr. Fernandes discusses the position taken by John Mearsheimer that you know the US which is essentially that US security is not advanced by these behaviors of the United States. But what we are really looking at in my humble opinion is a situation, or rather, let me rephrase that. What this argument completely forgets is the fact that all these countries the United States, Britain, Australia etc. They have never been pursuing national security if by that we mean the security of ordinary Americans, British, Australians, French, etc, etc. The fact is that they have always used the rhetoric of national security to justify what has always been what what would be called by Mr. Fernandes as hegemony and what ordinary people would call imperialism. Today imperialism is not like Roman imperialism or even the imperialism of the czarist Empire or the Ottoman Empire or the Austro-Hungarian Empire. It is a specific capitalist imperialism in which, as I’ve argued under my geopolitical economy rubric, the contradictions of capitalism. On the one hand its tendency to overproduce commodities and capital and on the other hand its reliance on a constant supply of cheap inputs and labor. These two things come together to essentially create an impulsion or an imperative on the part of capitalist countries like the US, France, Britain, Australia, to essentially try to create a domination over peripheral nations so that they can require these peripheral nations in the past to absorb their excess commodities and capital. But today, when quite frankly excess commodities and capital are not the problem they once used to be because these capitalisms have become productively quite debilitated, but rather they are now sources for financial profits and sources of cheap labor and sources of cheap goods. But in all of these ways that this world is escaping from them. But anyway, this has always been the case. Imperialism has never been about the security of ordinary Americans. Ordinary Americans can be sent to die in the killing fields of Vietnam or Korea or wherever else as British people did and so on and so forth. So this is the real issue. And so to me I would say that while I don’t disagree with Mr. Fernandes in a certain sense what he’s saying is not necessarily very new because we’ve been saying the same thing but using different expressions. MICHAEL HUDSON:  So imperialism goes hand-in-hand with the class war and also with warfare financially by the United States and the core against the global majority. So what you’re having right now to put it all in the context of what we’ve been saying is that the whole Arab-Israel split is a catalyst. Somehow it’s shocked the whole world into forcing the global majority to Isolate itself from this NATO-US center or be sucked into it. And the only way it can isolate itself is to end not only end what has turned out to be a post-1945 financial colonialism. But you’ll have to reverse the effects of financial colonialism: the privatization of the government sector. You have to restore the government to the position that it was in throughout all of the rest of world history before privatization, this financial takeover in the name of national security. And that’s going to involve debt cancellation. It’ll involve de-privatization It’ll involve all the things that we’ve been talking about for what will be a Eurasian alternative to the US Cold War economic order. RADHIKA DESAI: That’s really a great note to end on Michael and I’ll just maybe add to that a very personal point and then we can wrap up. And that is that you know, as you said, I was recently in China. I attended the Tongzhou Global Development Forum there, which was a really exciting event with a lot of absolutely stellar speakers. And one of the things that I came away with is particularly after listening to the speeches of the major office holders in China and so on is that basically Chinese are really exceedingly angry at the way in which they are being treated by the United States and so on. But it is remarkable how they are restraining this anger in order to very quietly and methodically putting forward essentially a development agenda to counter the security agenda. So I think that, and maybe just one thing and maybe I’ll flag this for a future discussion, what really also came through in these discussions is the Chinese use the word globalization in a radically different sense in the way in which we use it, and perhaps we can weave this into our next discussion. And so I should say that we’ve been absent for a while over the last month or so, but we will now get back on a regular basis. We just had a very hectic month. I was traveling a lot and as you know, I was the target as well of a certain kind of campaign by my own government for pointing out that the government had been rather silly and bad by applauding a Nazi in Parliament. But anyway, we should be back. So you will hear from us in another couple of weeks. Thank you very much for joining us. Thanks once again to our host Ben Norton, our videographer Paul Graham, and our transcriber Zach Weisser. And until next time, bye, bye!

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Economists Radhika Desai and Michael Hudson introduce their show Geopolitical Economy Hour discussing the rise of the multipolar world and decline of US hegemony. Introducing Geopolitical Economy Hour: This is the first episode of a show being hosted every two weeks by economists Radhika Desai and Michael Hudson. They present the program and discuss the rise of the multipolar world and decline of US hegemony. You can find more episodes of Geopolitical Economy Hour here. Listeners can download a free audio version of Geopolitical Economy Hour at any major podcasting platform, such as Apple Podcasts or Spotify. RADHIKA DESAI: Hi everyone, and welcome to this Geopolitical Economy Hour. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: Every fortnight we are going to meet for an hour to discuss major development in the fast-changing geopolitical economy of our 21st-century world. We’ll discuss international developments. We’ll discuss their roots in individual countries and regions. We will try to uncover the reality beneath the usually distorting representation of these developments in the dominant Western media. We plan to discuss many subjects: inflation, oil prices, de-dollarization, the outcome of the war over Ukraine which is going to determine so many things, the threats the U.S. is making against China about Taiwan, China’s increasingly prominent role in the world, how China’s Belt and Road Initiative is going to reshape it, how Western alliances and the Western-dominated world that was built over the past couple of centuries is so rapidly fracturing. We’ll discuss financialization, the West’s productive decline. Many important things. Michael, am I leaving any important things out? MICHAEL HUDSON: Well we have been talking about this for many decades. Already in 1978 I wrote a book, Global Fracture, about how the world is dividing into two parts. But that time, other countries were trying to break free so they could follow their own developments. And today it’s the United States that is isolating other countries – not only China, Russia, Iran, Venezuela, but now the Global South – so the United States has ended up isolating itself from the rest. What we’re going to talk about is how this is not only a geographic split, but a split of economic systems and economic philosophies. We’re going to talk about what the characteristics and the policies [are] that are shaping this new global fracture. RADHIKA DESAI: Indeed, Michael and my collaboration goes back a couple of decades. In fact, even before we met I had read books like Global Fracture and Super Imperialism, which were quite prescient, and with which I agreed. [Unlike] all those people talking about globalization and U.S. hegemony, Michael could see, and I also could see, the fractures underlying the system. My own approach has been characterized by such skepticism about enduring Western dominance, U.S. hegemony, dollar dominance, etc. And after thinking and writing about small bits of it for a couple of decades I eventually came up with this book, Geopolitical Economy, from which Ben [Norton] has also taken the title of Geopolitical Economy Report, with which of course we are collaborating. In Geopolitical Economy, I question the dominant cosmopolitan understandings of the world. In ‘globalization discourse’ the world is seamlessly united by markets. In ‘American hegemony discourse’, or ‘hegemony-stability discourse’, the world is united by a single leading power. None of these narratives are really true, and the advance of multipolarity, which I’ve argued goes back at least to the 1870s, continues apace. Of course today multipolarity is in a very rapidly advancing phase, and we are looking at some major changes in the world order. We are going to be discussing all these things, but today, for our opening show, what Michael and I thought we might do is to introduce the big idea that frames our thinking, which is the advance of multipolarity – that is, the difficulty of retaining Western dominance. The difficulty is so great that not only are the West’s attempts to preserve this dominance futile, but they are even counter-productive, like the conflict over Ukraine or many other things that are actually boomeranging back on the West, like financial sanctions against Russia. So we basically want to talk about this big idea, the emergence of the multipolar — or some might even say a bipolar — world order. Michael, do you want to start off with some reflections on that? MICHAEL HUDSON: I think the most obvious driving force that’s splitting the world is the U.S. attempt to create a unipolar world under its control, [particularly] its national security diplomats and financial interests. They insist on monopolizing the international finance system so that if countries try to follow a policy that supports their own development, the United States can simply pull the plug and block their financial transactions. The U.S. tries to control the oil trade. Oil has always been, for the last century, a centerpiece of American diplomacy, because if the American oil companies (along with British Petroleum and Dutch Shell) can control the oil, then they can turn off the power, and the lights, and the transportation, of any country that is not following the U.S. plans for a world order. And also food. The United States, from the time that the World Bank was formed, has blocked other countries from developing their own food production, and has steered them into producing export crops (non-food crops, tropical crops) remaining dependent on the United States for its grain, so the United States can starve them out if they try to go their own way. So the United States approach to leading the world order is to lead by being the aggressor — to threaten, to hurt other countries — not by providing mutual gains [or] by helping them [develop], but by saying, “If you don’t do what we want, we will overthrow you. We’ll have a coup d’état. We’ll do to you what we did with Pinochet in Chile. We’ll do to you what w did with Boris Yeltsin in Russia. We’ll interfere.” This has been easiest of all in probably the most corrupt region of the world, Western Europe, where the United States Treasury officials have told me that all they need to do is give little white envelopes filled with dollar bills and they’ve been able to control European politics. The United States is essentially trying to use its threats and its sanctions, and it believes that it can hurt another country. Behind it all, of course, is the military threat, as you were saying, in Ukraine. But it turns out there isn’t really any military threat by the United States. Not only have the U.S. and NATO run out of normal military arms, but America really can’t mount a land war anymore. There will never be another Vietnam. There will never be the United States invading another country, or Europe invading any other country, because you’ll never get a population willing to be drafted, since the anti-war movement. And without that, America has only one military leader against other countries: the hydrogen bomb. There is nothing in between a targeted assassination attempt and an atom bomb. That basically is what has enabled other countries, for the first time, to break away. They couldn’t do this back in the 1970s, when Radhika and I were first noticing it, because at that point, Indonesia and the Caribbean and Latin America didn’t have the critical mass to go it alone. Now they do have the critical mass to go it alone, thanks to Russia, China, Iran, India. They are able to go it alone. There is only one part of the world that is not able to go it alone, and that’s the United States and Western Europe. They de-industrialized. In their class war against labor, looking for lower-priced labor abroad, they have cut their own industrial labor force, but they’ve also shifted the center of manufacturing, technology, agriculture — everything has shifted to Eurasia and the southern hemisphere. The United States turns out to have left itself alone [i.e. isolated itself]. The problem that is frustrating American diplomats is: How are they going to dominate the world without industrial leadership, with debt deflation, with a debt that is much higher than other countries. How on earth can they lead, in a weakening position, without any military? RADHIKA DESAI: Absolutely. I think this whole point you’re making — that the United States’ attempt to dominate the world is increasingly failing — the United States turns out to be essentially a giant with clay feet. From the point of view of today, it becomes much more credible to say so. But I’ve been saying, and I think also with a lot of help from Michael’s writings, that in reality, when people talk about ‘American hegemony’, ‘American dominance’, ‘American imperialism’ — what we have to realize is that what we are looking at, what the United States has attempted to do for more than a century, is attempt to dominate the world. But this attempt has actually never been successful. The story that I tell in my [book] Geopolitical Economy is actually a rather different story, which does not try to deny the huge extent of the harm the United States has done by its wars, by its economic coercion, by its suppression of attempts of countries to develop. [The book] acknowledges that all these things have happened, but the key point is that the United States has never actually succeeded in exerting its dominance. What we are looking at today, what we are calling multipolarity, in fact shows the failure of America to dominate. What I argue in Geopolitical Economy is that, in the early 20th century, it was very clear to many observers that British dominance over the world economy was weakening, and the United States felt that it was going to take over the torch from Great Britain and be the dominant power in the world. But they knew, of course, even then, it was very clear that they would never be able to match the scale of British dominance; they could never acquire an empire, a formal empire, of the size that Britain had. Remember, Britain had an empire on which the sun never set. So what [the U.S. ruling elites] decided to do was, instead, lower their sights and say, “We can’t have an empire of this size, but we are going to try to make the dollar the world’s money.” The way they tried to do so after the First World War, and the financial mayhem they caused is a really interesting story that I’ve written about, Michael has also written about, and so on. But, after the Second World War, we are told that the dollar became the world’s currency, but the fact of the matter was, that the first attempt to try to make the dollar the world’s currency fell afoul of the very famous Triffin dilemma – which is to say that, since the United States could not export capital, since it had no capacity to do so – Britain could export capital because it had an empire, it had an empire from which it drew surpluses – the United States had no such empire, no such surpluses, so it created dollar liquidity by running deficits. And Robert Triffin pointed out, the bigger the deficits, the lower will be the value of the dollar, and the lower will be the attractions of the dollar. This logic finally worked itself out, and the United States was forced to break the dollar’s link with gold, because people were ditching the dollar in favor of gold. Countries were ditching dollars in favor of gold, including famous Western allies, European allies. And since then – what Michael and I argued in a recent paper we did called “Beyond the Dollar Creditocracy” – and by the way, this is also my argument in Geopolitical Economy – [since 1971], the dollar has become reliant on a series of financializations, or a series of expansions of purely financial activity, so that the unattractiveness of the dollar for normal economic use, for trade use, and so on, is counteracted by vastly expanding the financial demand for the dollar. And that is why this (post-1971) age of alleged dollar dominance has in fact rested on a series of financializations, one after another. It has also been an age of recurring financial crises. To emphasize: What we are looking at are American attempts to dominate the world, but they are all attempts that have failed. And this is another story that we will tell. MICHAEL HUDSON: It’s interesting that when President Biden and the State Department and the media talk about what’s happening in the world, and [when] they describe policy, they don’t talk about anything that Radhika has just said. And they don’t even talk about the fight between unipolar and multipolar world. President Putin talks about that, and [Russian Foreign Minister] Lavrov talks about that, but not the U.S. If you listen to what President Biden and the State Department say, this global fracture is “between democracy and autocracy“. That is how they characterize it. This is Orwellian Doublespeak. [To them,] ‘democracy’ means a financial oligarchy. Aristotle, 2500 years ago, wrote a book on constitutions of Greece. He wrote, “All these constitutions call themselves democracies, but they are really oligarchies.” Democracy tends to turn into oligarchy. So by ‘democracy’, what President Biden means, is a financial oligarchy in control of policy. And what Biden means by ‘autocracy’ is a mixed public-private economy with strong government support for industry, for technological research and development, for rising living standards, and most of all for providing basic needs: public health, public education, retirement income, transportation – all subsidized to minimize the cost of living for labor, so that the economic surplus can go to upgrade education, improve the productivity of the labor force, and do essentially what China has done and what other countries are doing, and what everyone expected industrial capitalism to do in the United States and Europe, but which finance capitalism is not doing. So you have to go beyond this rhetoric to ask what is really happening. To the Americans, public spending, anti-monopoly regulation, and protection of consumer rights is ‘socialism’. Well, it is socialism, and that’s why in the United States, they’ve done polls, and find that most people prefer the world ‘socialism’ to ‘capitalism’. Many people in the United States claim to be socialist, but finance capitalism is not socialism. This distinction, which Rosa Luxembourg called the fight between barbarism and civilization, that’s really the fight between democracy and autocracy, with a different vocabulary. RADHIKA DESAI: Let me take one or two of those points. First, the United States’ claim to lead the ‘democratic world’, to stand for humans rights and democracy, sounds increasingly hollow. And this is also really interesting to reflect on why, because the policies that the United States has had to follow in order to exert dollar dominance, in order to create the financializations on which dollar dominance rests, have tended to undermine the United States’ productive economy. They have tended to divide society because they have created astronomical levels of inequality in the United States, and other countries that follow that kind of policy paradigm. And as a consequence they have essentially created the present political breakdown that we witness in the United States, where a character like Trump can get elected president. And then when Biden is elected, he must more or less continue Trump’s policies. So you’re looking at a serious breakdown of democracy in Western countries themselves. [Second], this is going to be a show about world affairs, and it’s interesting to explain to you how our approach to world affairs differs from the ones that you normally see. So in the study of international relations, some people take a liberal point of view, which is essentially what I was earlier criticizing, [characterized by] globalization, U.S. hegemony, cosmopolitan views of the world economy, with the world economy seamlessly united. [In the liberal view,] nations don’t matter, nation-states have become irrelevant, etc. etc. You can take that point of view. Or, you can take a so-called ‘realist’ point of view in which all nations are out to ‘do down’ other nations. But in reality, the point of view that we take comes from a very strong tradition of critical thinking that goes back to Marx and Engels, but has continued to develop in a big way since then, which is to understand world affairs as the contest between imperialism and anti-imperialism. Trotsky used to call this uneven and combined development, which is to say that the countries that are already developed, the imperialist countries, want to retain the uneven configuration of development in the world, with some countries being developed and other countries less so. But the ones who are less developed, the ones who are left behind, contest this by promoting their own development through policies that are designed to improve their productive capacities and so on. So what Michael is trying to say when he says that the United States is always trying to prevent development, is basically, for all the talk of Western countries trying to help the development of Third World countries, in reality when Third World countries develop in the only way they can, which is by focusing on productive activity, controlling trade and financial flows and so on, as all successful developers have done, including the United States in its own time, when they try to do this, the United States tries to force them open. They talk a lot about ‘free markets’, ‘free trade’, ‘openness’ – what does this ‘openness’ really mean? It means that countries should lay themselves open to being dominated by, penetrated by, Western capital, Western corporations, and be open to supplying, cheaply, what the West needs – namely, commodities, labor, low-cost goods, etc. So this is really a contest of anti-imperialism and imperialism in which, today, the cracks of multipolarity is that the forces of anti-imperialism are winning. MICHAEL HUDSON: What Radhika said that is most radical is America really is trying to stop the development of other countries. This may seem surprising to some people – not to listeners of this show – but those very words were set into stone in America’s national security report, saying that “any other country’s development, to the point where it is independent of the United States, is a threat to the United States.” And the reason that China is the number-one opponent and “systemic” rival, as they put it, to the United States is that it is developing, and the United States really is against any development except that which American financial interests control and receive the rental earnings and the profits from turning this development into a U.S. monopoly. So, I guess what is going to be really unfolding, in this show and the future, is, we know the aim of other countries is to develop, we know what they want to do, but how are they going to actually implement this in policies? Radhika mentioned my book Global Fracture, back in the 1970s, and that was right after the Vietnam War had forced the United States off gold and Saudi Arabia had taken ownership of its oil reserves. And U.S. diplomats already at that time were [concerned to] make sure all the development was U.S.-centered, not foreign-centered. They were in the dark as to how to navigate, because, as ironic as it might seem, I was hired by Herman Kahn at the Hudson Institute [of no relation] to go to the State Department, and the White House, and the Defense Department, to explain how super imperialism worked. The largest purchase of my book [Super Imperialism], 2,000 copies, was by the CIA, [where it was] an operations manual. The United States thought that, well, if we can continue to make other countries keep their savings in the United States by buying U.S. Treasury bills, if we can tell Saudi Arabia and the oil countries that they can charge whatever they want for their oil, [they could] quadruple the price of oil, but they have to keep all of their earnings in the United States, in the U.S. stock market. They cannot buy a major U.S. corporation – but the U.S. can buy control of other economies, but no other countries’ investors can buy control of critical U.S. industries. Saudi Arabia can buy minority stock holdings, can buy Treasury bills; the Japanese were allowed to buy golf courses, that they lost a billion dollars on; they were able to buy the land under Rockefeller Center, that they lost a billion dollars on. But they couldn’t really buy American industry. So you had the whole plan for what seemed to be making other countries dependent on the United States and U.S. satellites, and getting very little for their dollars. But the fact is, the United States found that it had developed a new kind of imperialism. It wasn’t the old kind of colonial imperialism. They looked at what happened to Haiti. When it bought itself independence from France in 1804, France said, “Yes, we will give you the independence, but you have to reimburse our military invaders for having conquered you. You have to pay them the current value of what they took for free when they took you over.” Haiti for the last 200 years has been a debt peon of France and the international financial community. The United States said, “We can do the same with other countries. We can make them borrow, base their monetary systems on creating their own credit by U.S. banks, creating their own credit in dollars, and all the interest payments and the capital gains on all of this will be remitted to the United States. We don’t need military colonialism anymore. We know that we can’t have another Vietnam. What we can have is dollar dependency.” That is a system that they put in place, and that is the focus of talks between China, Russia, Iran, and the Global South, has been de-dollarization. And that is what both Radhika and I have been writing about and focusing on for the last few years. RADHIKA DESAI: Absolutely. And one of the things I was also reminded [of] by what you were saying: the United States has changed its economic structures very radically over the post-Second World War period, because if you – I remember when I was researching my book Geopolitical Economy, I came across this quote from a major American official [George Kennan] at the end of the Second World War, where he says, ‘Today we account for half of the world’s production, and our aim should be to retain that position of relative dominance’ – that is to say, that the United States must continue to account for half of the world’s production. So the rest of the world can only grow insofar as its growth does not outpace that of the United States. But of course that is exactly what happened. It was impossible. One of the things people forget, you know, even major historians such as Eric Hobsbawm, for example, when you read the books The Age of Extremes, in which he writes about the history of the 20th century, he talks as though the United States started growing from the late 19th century onward. By the eve of the First World War, it was a really major producer, and so when [the US] came to become such a dominant producer, when it came to account for half the world’s economy at the end of the Second World War, this was [portrayed as] some kind of a completely natural process. What people entirely forget is that the United States acquired this position of dominance not through some secular process of growth, but because of the war. During the war, the United States essentially grew, as the so-called ‘arsenal of democracy, its economy boomed. Between 1939 and 1945, U.S. GDP doubled. It would not double again for another 22 years, even though these were the years of the so-called ‘golden age of capitalism,’ and growth was relatively high. So you can imagine the sort of boost that the war gave the U.S. economy. Plus, of course, if you’re talking in relative terms, the war is boosting the U.S. economy while it is destroying productive capacity in the rest of the world, where the war is actually occurring, where the fighting is actually happening. So it was the complex result of this. So there was nothing natural about the U.S. position of dominance. There are a couple of things one can add to this. [The first thing is that] you know, today, when people are once again celebrating the United States’ role as ‘the arsenal of democracy,’ it’s really ironic because the United States, both in the First World War and the Second World War, profited in this manner. Many countries have only recently finished paying off the war debt, etc. So the United States essentially has been indebting other countries simply by posing as an ally, when in fact it was not an ally. The second thing is that, of course this also should tell us, give some background to how the U.S. economy has become so reliant on military production [and] armaments production, why the military-industrial complex is such a large part of the U.S. economy. MICHAEL HUDSON: Well you pointed, quite rightly, to the role of debt in all of this. During WWII, the United States used its position of supplying arms to the Allies to force the creation of two institutions, the World Bank and the International Monetary Fund (IMF) – along lines that were opposed by Europe – designed to, number one, break up the British Empire. Under Lend-Lease of WWII, and under the terms of the IMF, they make Britain [overvalue] the pound at 5 pounds-per-dollar, and promise not to devalue it until 1949. They also insisted that Britain could not maintain its sterling area. Britain had a sterling area that was much like the dollar area today. During the war, India and other former colonies had exported raw materials and built up huge government savings in exchange for these raw materials. And, as [part of] the sterling area, they were obliged to spend all of these savings on British manufactures. But America said, “We want free markets! Free markets means you can spend your money anywhere.” They broke open the British sterling area and said, “You can buy goods anywhere”, meaning, from the United States. Because with Britain being committed to an [overvalued] pound sterling, and the United States having the industrial capacity, the United States ended up with all of these savings that the British Empire had accumulated. And the United States, under Franklin Roosevelt, signaled that Britain was America’s number-one rival. Britain was in the position that China is in today. So the [British] empire was broken up, and basically forced into debt in the balance of payments, because Britain could no longer earn its way to dominate the sterling area by exporting. It was on the road to deindustrialization. Meanwhile, the second thing that was important, is that the United States emerged from the war with almost no domestic debt at all. The [Great] Depression had wiped out domestic personal lending and corporate lending. There was nothing to buy in WWII, in the civilian economy, because it was war production. So there was hardly any debt. So, since WWII, [for] every recovery there has been a business cycle in America, Europe, all over the world. Every business cycle recovery has started from a larger and larger proportion of debt-to-GDP, a larger proportion of personal debt to personal income, and corporate debt to corporate income. This is what has essentially made America spend so much money on domestic debt service, that neither its labor compete with other countries – if you have to pay mortgage debt, and personal debt, credit card debt – but American industry is debt-ridden. Suppose, now, you’re China, Russia, and the Global South. How can they develop their economies in a way that does not simply replicate the American debt overhead? How can China develop its real estate without following the American real estate [model], that, what people thought was increasing middle-class wealth by the price of housing going up and up, all of a sudden, you’re house poor – you’re spending so much money on your mortgage that you don’t have enough money to buy goods and services. How are China, Russia, and the Global South going to create an alternative economic system that doesn’t simply replicate what the United States has done since WWII? And how are they going to create, to help this, an alternative to the World Bank and the IMF, that is quite different, and with different principles? RADHIKA DESAI: And that brings us to another theme that Michael and I have both collaborated on and written independently about, which is really: What should the structures of finance ideally be? And when Michael poses all these questions – how China can organize its financial sector and its economy in such a way as to promote production without creating these debt overheads? In one sense, of course, these are always new questions, because economic circumstances change. But in another way, we have models going back at least a century, century and a half. That is to say, that in their own industrialization, major industrial countries, including the United States, Germany, Japan, China today, they have all had financial sectors in the period of their most rapid development. For the United States, we are talking about the 19th and early 20th centuries. In this period they had a very different model of finance. It was, the financial sector was structured in such a way as to aid production. Finance was the handmaiden of production. Finance facilitated long-term investment in productive capacity. Finance did not focus on consumer lending and so on. In fact there was hardly any consumer lending. So in all of these ways, finance has actually powered the development of these countries, and finance was subordinated to production. By contrast, Britain has always had a very different financial model which — ironically, for the home of the first industrial revolution — actually was not geared to promoting production. It was rather geared to short-term credit for commercial purposes, eventually for speculative purposes, and so on. So this short-term financial model, which was originally British but has been adopted by the United States through a creeping process of financial deregulation that began in the 1970s and 1980s, and reached a peak in the repeal of the Glass-Steagall Act in 1999, under the supervision of none other than the so-called “Maestro,” Alan Greenspan. I’m sure we will have an episode discussing the role of central banking as well. So anyway, this model of finance, which the United States has adopted over the last many decades, is actually the opposite of the sort of financial structures that you need. You need financial structures that are going to aid production, whereas these financial structures actually strangle production. These financial structures actually create the economic inequality which we have seen scaling new heights. And the opposition of the interest of finance and production is so great that we saw, for example, during the pandemic over the last two or three years, while the economy was tanking, stock markets were doing nothing but scaling new heights, and increased the wealth of those with the greatest number of financial assets. These contrasting models of finance, historically and today, will be another theme that Michael and I will be addressing. MICHAEL HUDSON: Well, what’s so remarkable, is that the point that Radhika has just made was well understood in 1914. After WWI broke out, the British press began to write articles about how they thought that they were probably going to lose WWI because of British banking. They said, “Germany has a great advantage over the United States. In Germany, the banking is for long-term. There is a three-way [relationship] between the German government, the banks, and the large corporations — especially the steel-making and heavy industry for the militaries.” And there was a belief that German industrial banking, that they had been able to industrialize, and that the banking in England was post-feudal; it was short-term banking, the financial time frame was only short-term, and the British stock market especially was hit-and-run. It was like a brokerage in the United States today. They’d put clients into a stock [and] pump-and-dump. That was the British way of making money. But when the British were creating the industrial corporations, they were run by financial managers, just like has happened in the United States with General Electric and other financialized firms. They didn’t take their profits and reinvest in new industrial capital formation; they paid them out in dividends. Instead of industrial engineering, they had financial engineering. And the result was that finance in Britain was predatory. All of this was understood. And it was believed that, in the aftermath of WWI, you were going to have what Marx had described in volume three of Capital, that finance was going to be industrialized. And Marx said the revolutionary role of industrial capitalism was to get rid of the landlord class and make land rent and natural resource rent part of the public domain, and not for private absentee owners, and to get rid of predatory finance, English style, and replace it with productive finance. And he [Marx] believed that this would lead naturally into socialism, with the banks being, if anything, the model of socialist planning and government planning for the economy. And that was actually what was happening in Germany under the Reichsbank. I described this in my book Killing the Host. And instead, what happened was, with America’s victory [in World War One], you had the Anglo-American financialization policy that, as you know, brought on the 1929 stock market crash and the 1931 debt cancellation of inter-Allied debts and German reparations. So there were two opposing financial systems. And what Radhika is saying is that the Global South and China and Russia are doing today is finally a recognition, a replay, of this same debate between finance capitalism and industrial socialism that you had a century ago. RADHIKA DESAI: Yes, and there’s another point worth making in connection with the history you were recalling, Michael. So in the United States, like I said, in the late 19th and into the early 20th century you had very different banking structures. And then, yes, as Michael said, in the 1920s, the financial structure sort of began to evolve towards this British-style predatory short term. Of course, you also had this enormous boom in consumer lending in the United States in the 1920s. These were the “roaring twenties” as we remember them. And a large part of what made them “roar” was debt-fueled consumption in the United States. So anyway, so there was a brief period, but then you got the 1929 crash, you got the Great Depression, and you got the depression-era banking legislation — Glass-Steagall chief among them — which really made American banking, U.S. banking, among the most regulated banking sectors in the world. Because you had a system of essentially state regulation of banks, and a sharp distinction between banks that were commercial banks that took the deposits of ordinary customers like you and me, and enjoyed federal deposit insurance, which was the new institution that was created by this depression-era banking legislation. So if you enjoyed federal deposit insurance, which basically allowed ordinary depositors like you and me, trust that if we put a few thousand dollars in the bank, that it would not disappear if the bank went bust. But, banks that enjoyed this deposit insurance were heavily regulated in terms of how much they could lend, at what interest rate they could lend, what purposes they could lend for, and they were forbidden from speculating in financial markets; whereas, banks that did so – banks that speculated in financial markets – the so-called investment banks – were not given federal deposit insurance. And this structure of US banking, which allowed US banks to play a positive role in the economy, continued into the 1970s. And it was then, particularly after the dollar’s gold link was broken, and it became gradually clear that expanding dollar-denominated financial activity would be able to counteract the Triffin dilemma to a considerable extent. That’s when the financialization really took off, so you saw vast increases in financial activity in terms of government borrowing, in terms of lending to Third World countries – eventually the stock market bubble, the dot-com bubble, the East Asian financial bubble, and finally the mother of all bubbles, which broke in 2008: the housing and credit bubbles. And of course now, nothing has been done in all of these decades, despite repeated financial crises, to regulate American banking structures, or very little has been done. And as a consequence, we today have an even bigger so-called “everything bubble.” Anything that even remotely smacks of any lucrativeness is an asset to be acquired. So the United States has undergone quite a transition. And this is important to remember as well. MICHAEL HUDSON: Well, what the implication of what you’re saying is: What are other countries going to do to avoid this same problem? Because many other countries followed the US [banking] philosophy. What we’ve been discussing is not at the center of economic discussion, either here or abroad. Well, what has made China so successful, and what is so unique about Chinese socialism, is they have treated money creation, banking, and credit as a public utility. That means that, if the United States cannot really cure the debt bubble it’s built up really since the 1980s, because if it writes down the debt there will be huge defaults, and in 2008 the head of the FDIC, [Sheila Bair] said that Citibank was the most corrupt bank, and incompetent bank, in the country; it was in negative equity, it had wiped out the entire stockholder wealth. But fortunately, President Obama had appointed a treasury secretary, Robert Rubin, who worked for Obama’s sponsor, Goldman Sachs. And Obama was the political lobby of Citibank. They bailed out Citibank, instead of letting it go under – instead of letting it go under and turning it into a government bank, to actually loan money for productive reasons. Obama sponsored the super-financialization of the United States, and, since 2008, has traded $9 trillion in subsidies to the financial sector, that is used – this $9 trillion – to buy control of the industrial sector, to financialize corporations, to [deindustrialize] them, and essentially the financial sector has helped destroy industry in the United States. Well, China is not in this position. It doesn’t have a powerful financial interest to take over the government; just the opposite. China has a very large corporate debt, now, and especially a real estate debt. But when its corporations get insolvent, China does not say, “Well we’re going to break you up and you’ll have to be sold to foreign buyers and anyone who can buy them.” China essentially writes down the debt. And it’s easy for it to write down the debt, because it’s writing down debt that is owed to itself. There is no private bank to fight it and to lobby against it. The same situation occurs in Chinese real estate right now. There are a lot of complaints in China that families have to go into long-term debt in order to borrow the money to buy their housing, because their housing has been bid up – like the United States – on credit. How can China lower the price of housing to keep its labor force with low housing overhead, so that it can remain competitive, and so that it can use labor’s income to buy the goods and services that labor produces instead of paying the banks? RADHIKA DESAI: These contrasts that you’re drawing, Michael, between Chinese financial structures and what American financial structures have become over the last several decades, this is very pertinent for talking about de-dollarization, on the one hand, and the rise of the renminbi, or the yuan – the Chinese currency has two different names – as a major world currency. Now, there are a couple of things one should say about this. First of all, as far as the de-dollarization is concerned, the fact of the matter is that this is happening because the rest of the world is increasingly becoming aware that participating in the dollar financial system has many disadvantages, including the tendency of the dollar system to incur increasing financial crises and so on. But in addition, there is another point one must make, which is that the dollar system, which rests on the structures of financialization, have been strangling the American economy. They have been making the American economy less productive. They have been increasing social inequality in the United States. And of course, all of this has also had repercussions for politics. But of course, the way American politics works, you know, it’s “the best democracy money can buy.” So essentially the extremely wealthy interests, which are also those interests which have an interest in financialization, are keeping the system going – even though it is having these bad effects on the American population, and even though the dollar system is actually decreasingly attractive to the rest of the world. And therefore we are going to see its demise very soon. So, these interests are keeping it going. By contrast, in China what you have — people say that the Chinese yuan must be internationalized in the same way as the dollar — and this is where they are making a mistake. Yes, there will be increasing use of the Chinese yuan in international trade, but also you are seeing that the new structures that are emerging are not just about yuan domination. On the contrary, China is signing more and more agreements to trade with other countries’ currencies. So it will also enable the currencies of, say, Iran or India, to become used in a limited, regulated way, nevertheless, but nevertheless used in international trade. But this will be about trade. As long as you don’t have a vast investment in the financial bubbles regularly blown up by the American financial system, you don’t need the dollar system, basically. So the yuan will be internationalized in an extremely different way. It will not look the same as dollar internationalization has looked over the last many decades, reliant on financialization. So China, we will see that, but it will look very different. That’s a clarification that must be made. MICHAEL HUDSON: Well the question is, how are they going to create an international bank to oversee international reserves that do not really contain the dollar, except some dollars for foreign-exchange stabilization. Certainly the first step is going to be bilateral and multilateral currency swaps. China will hold Saudi Arabian riyal, and Saudi Arabia will hold Chinese yuan, and the result will be the petroyuan that people have talked about. The members of the SCO (Shanghai Cooperation Organization) and the allies of China, Russia, Iran, are going to develop mutual currency swaps. And at some point they will join together and create an international bank that will be able to create credit to finance the huge investment in infrastructure, port development, transportation, that we’re so far seeing China take the lead in developing along the old Silk Road and the Belt and Road Initiative. This is going to be coordinated by an international bank, so that they can essentially have their economy without much contact with the dollar and the euro. Because the dollar and euro have very little to offer – not raw materials, not much technology. They can make specialized machinery for producing computer chips, but basically it requires a whole institutional development. And I’m sure that’s what they are discussing right now. And this is going to be unfolding in future programs that we’ll be discussing. RADHIKA DESAI: Exactly. We’re nearly at one hour, Michael, so let’s wind down this conversation. Maybe I’ll wind it down by underlining something that you and I argued in our article “Beyond the Dollar Creditocracy.” The dollar system has operated with a carrot and a stick. The carrot has of course been the vast financialization bubbles that the United States has blown up regularly in order to invite the rest of the world to buy dollar-denominated assets, and thereby increase demand for dollars. And that also has of course been running into increasing contradictions, to such an extent that today, Michael mentioned earlier the Federal Reserve’s expanded balance sheet. It went from about $1 trillion in the early years of this century to about $2 trillion, then $4 trillion after the 2008 Financial Crisis, and now it is over $9 trillion dollars. The bulk of this money is there because essentially foreigners are not crowding into American asset markets to buy dollar-denominated assets. So those asset markets have to be supported by the Federal Reserve. Of course, eventually it can become a sort of self-contained system, in which the Federal Reserve continues to inflate the wealth of some Americans, but the rest of the world is decreasingly interested in it. The other – the stick – has of course been control over commodities. Michael mentioned control over oil. Of course today many other commodities are becoming important – food of course is becoming important. Various resources connected with the production of various ‘green’ technologies, like lithium is becoming important, so there will be a big attempt to control this. But American attempts to try to keep control over oil has also been slipping over the last many decades. Oil prices take a turn of their own. And of course as commodity prices go up, the value of the dollar falls. And so this is another – essentially the reason why commodity prices are going up is because the rest of the world is demanding more, because the rest of the world is also developing. And so the development of the rest of the world itself is going to have a negative effect on American attempts to retain purchase. So the sooner the United States realizes the folly of trying to dominate the world, and focuses on being a productive national economy, the better it will be for Americans themselves. Because Americans have also paid a big price. The world has paid a big price, but so in a lesser way Americans have paid a price for the U.S.’s vain attempts to retain dominance over the world, even if it is only by keeping the dollar as the world’s money. MICHAEL HUDSON: Radhika, we could have gotten a million dollars from the State Department by keeping this to ourselves and just telling them how the world works. RADHIKA DESAI: Well I hope instead we get a million viewers. This would be far more rewarding for us. So please watch out for our next show, which we will record in two weeks time, and you will see in two weeks time. Meanwhile, please also give us your reactions, your suggestions, for topics we might cover. We’ll try to do that as much as we can, and we look forward to talking with you every fortnight from here on. Thanks very much, and see you next time.

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Adolfo Diz, Alberto Fernández, Argentina, Carlos Menem, Cristina Fernández de Kirchner, debt, Domingo Cavallo, IMF, International Monetary Fund, Jorge Rafael Videla, José Alfredo Martínez de Hoz, Juan Domingo Perón, Mauricio Macri, neoliberalism, P2, Propaganda Due, World Bank

Argentina has constantly been trapped over two centuries in unpayable external debt owed to foreign imperial powers. This affects the everyday life of everyone: inflation, salaries, employment, public services, elections. Here is a brief history of the deuda. The deuda (“debt” in Spanish) is one of the most persistent elements in the two centuries of Argentina’s history. It has conditioned the political life and the economy of the country like no other factor, for generations. But this should not be confused with just any debt. The word deuda normally refers to the external debt (both public and private), a debt owed to foreign creditors. Historically, the key aspect of the deuda is that it is based on a foreign currency, the world trade currency controlled by the ruling empire. It was once the British pound. Since 1944 it has largely been the US dollar. The United States can “print” dollars (and the Federal Reserve does so regularly), but Argentina cannot. The same is true of other countries in the Global South with large external debts denominated in foreign currencies. There are only two ways for these nations to get dollars: exporting and borrowing. But there are also multiple ways to reduce the need for dollars by reducing imports or increasing the value of exports. For example, instead of relying on a rent economy based on the export of cheap commodities with a low value added (the model adopted by many former colonies rich in natural resources), a country can develop its own industry and reduce its dependency on expensive imported goods, especially advanced technologies or fashionable consumer products. If a nation excels in some sectors of the economy, it may be able to export more, improving its balance of payments. In a more advanced stage, a country may even dare to associate with its friends and neighbors, creating a regional bloc in which they trade using their own currencies and rules, or a barter system, circumventing the US dollar. All these common-sense policies may sound like nothing special for sovereign nations, yet they are a mirage in semi-colonial countries like Argentina. As Argentine as the tango and mate, the deuda affects the everyday life of everyone: inflation, salaries, employment, public services, elections. Everything. And yet its technical and historical intricacies make the deuda a daunting topic, perfect to keep millions in the dark and bureaucrats safe, while instigating an eternal battle of the have-nots. The deuda doesn’t just relate to the way Argentines think about the economy. In some cases, it contributes to shaping their opinions about history, culture, media, race, and class. It almost always defines their vote as well. Argentina has defaulted on its debt eight times. It even made history with the world’s biggest ever default ($95 billion in 2001) and largest ever loan ($57 billion in 2018) from the US-controlled International Monetary Fund, making it a privileged case study. How could this happen? A first hint could be that a man who bears heavy responsibility for some of these negative world records, neoliberal guru and Harvard doctor in economics Domingo Cavallo – who directed Argentina’s central bank during the last dictatorship and served as economic minister in the 1990s – was lavished with years of praise, given rewards by international institutions, and heroized in the US media as a kind of semi-god. It is no coincidence that Argentina also has the dubious distinction of boasting one of the Earth’s highest ratios of “free market” think tanks to the population. The reality is that Argentina’s ruling class has not changed much in the last 200 years. So let’s start from the beginning. This is a brief history of Argentina’s debt, and the neocolonial relationships that dictate it. In 1824, only eight years after the declaration of independence from the Spanish empire, the union of provinces that would eventually become the Argentine Republic obtained a loan of £1 million pounds (a whopping £110 billion today, according to the Bank of England) from Barings Bank, a British private bank that also had lent money to the US government. The loan, denominated in pound sterling, was supposedly destined to fund the port of Buenos Aires and build new infrastructure. Instead, it quickly evaporated in a war with Brazil (from 1825 to 1828), which was militarily supported by the British, who helped block the port of Buenos Aires for three years – cutting off Argentina from its only source of foreign currency. Corruption and betrayal played a key role in making the 1824 loan possible. The delegation that represented Argentina in London was made up of British and Argentine traders and financiers who offered the entire State of Buenos Aires as collateral: all its assets, lands, and rents. Of the original £1 million loan, Argentina only received £570,000, while the enormous remaining sum was lost in commissions and other fees, mostly to pay the negotiators. Less than 20% of the money delivered was in gold coins; the rest was in paper notes. By 1827, Argentina was already unable to service its debt obligations and entered its first default. Two frigates belonging to Buenos Aires that were under construction in England were seized by the bank, weakening Argentina’s naval defense. A few years later, Argentina had no deterrent that could stop the British empire from occupying the Falklands, extending its power projection to Antarctica. These islands (officially known as the Malvinas) remain colonized by the United Kingdom to this day. Argentina subsequently defaulted twice in the 19th century, and had to emit new bonds to keep paying the growing interest. It was only in 1904 that Argentina’s original debt was formally repaid. It had taken 80 years, more than three generations, and had cost about eight times the original value. This simplified account of Argentina’s first experience with a neocolonial debt trap only scratches the surface of a scam that inspired the more sophisticated schemes developed in the two centuries that followed. Today’s practice of trapping former colonies in unpayable debts is the result of well-engineered financial, diplomatic, political, and legal strategies that have been tested dozens of time in a neocolonial laboratory. These neocolonial extortion schemes have three major effects. First, they facilitate the transfer of enormous amounts of hard-earned wealth from the real economy of developing nations to banks and speculative funds controlled by super rich individuals and families in the Global North – largely based in the United States, Europe, or offshore tax havens. Secondly, by installing dictatorships, leveraging institutions like the International Monetary Fund, or getting US courts and judges to seize funds of sovereign nations, lenders obtain the power to dictate the monetary, economic, labor, and even foreign policies of indebted countries, effectively creating semi-colonies whose democratically elected governments are incapable of implementing policies demanded by their people. Thirdly, these policies imposed from outside in turn strengthen a local parasitic capitalist class that is fundamental to perpetuate a regime of foreign control. This type of traitorous bourgeoisie, still dominant in Argentina and in all Latin America, was described by Chinese revolutionary Mao Zedong as the “comprador” class, an appendage of foreign capital that benefits from the foreign exploitation of its own country. Argentina is a case study of this neocolonial process. When the International Monetary Fund (IMF) was formed in 1945, Argentina initially refused to join. The South American country’s democratically elected President Juan Domingo Perón implemented a progressive nationalist program that encouraged independence and sovereignty. He was very successful in boosting Argentine industry through two five-year plans, and briefly neutralized the effects of the deuda during his tenure. Argentine President Juan Domingo Perón But Perón was toppled by a bloody military coup in 1955. And Argentina promptly entered the IMF under dictator Pedro Eugenio Aramburu in 1956. A virulent anti-communist, Aramburu’s unelected military regime also severed the ties with the Soviet bloc and moved Argentina into the neocolonial orbit of the United States during the first cold war. Argentina is one of the world’s biggest agricultural producers. Agriculture accounts for most of the country’s exports and it is the main source of foreign currency (the other being loans). Because of this, Argentine landlords and their ultra-conservative civic organization, the Rural Society, have been extremely powerful throughout the country’s history. Argentina did experience formidable industrial growth in the first half of the 20th century, especially between the 1930s and 1950s. Until then Argentina, had often ranked among the 10 richest countries in the world by total GDP. According to long-run economic development data, the GDP per capita even ranked first in the world in 1895 and 1896. But Argentina also had a relatively small population. When Perón took power in 1946, Europe was in ashes and Argentina’s per capita income ranked seventh in the world. In 1955, when Perón was overthrown in a US-backed military coup, Argentina ranked 16th – still a very high position considering that the reconstruction of Europe was boosted by Washington’s Marshall Plan, not to mention the fact that Washington’s policy of flooding Europe with US agricultural products had had a negative impact on Argentine exports. That year, Argentina’s GDP per capita was the highest in Latin America – almost five times that of Brazil. Compared to colonial Britain, it was only 19% lower. And it was half of that of the United States. Argentina’s GDP per capita never got better than it was in the year Perón was overthrown. By 2016, it had plunged to 63rd. The statistics aside, the point is that before it got sucked into Washington’s cold war, Argentina was a significant economic power. Although politically unstable and dominated by a backward landlord and comprador class, the South American nation’s rapid growth, large immigration flows, and incipient industrialization created the conditions that could challenge the colonial status quo. Perón was not a Marxist, but he envisioned a third way between US capitalism and Soviet socialism, and was a clear symptom of those tensions. The dominance of the United States in Latin America, a region with a population of more than 660 million today, was achieved and is maintained through a number of strategies. One of the least understood yet perhaps most significant is the intentional sabotage of independent economic development. With a growing industry and an industrial working class strengthened by a diverse mix of immigrants, Argentina’s economy was particularly difficult to undermine. Even more so because many of the millions who had fled from poverty, fascism, and wars and ended up in the South American country were socialists or some variety of leftist. But one of Washington’s preferred ways to impose its control over Latin America, especially during the first cold war, was through violent force. The 1955 coup that removed Perón was carried out with aerial bombings on the presidential palace and the center of Buenos Aires. Roughly 360 people were killed. In the two decades that followed, Argentina descended into a spiral of military coups and intermittent right-wing dictatorships backed by the United States. In 1970, the former dictator Aramburu (de facto president between 1955 and 1958) was assassinated in circumstances that are still unclear today, accelerating a complex process of further destabilization. Argentina’s former dictator Pedro Eugenio Aramburu (wearing the sash) The chaos was exacerbated (or caused) by the US government’s Operation Condor, a secret plan to eradicate all Marxist elements from Latin America through the provision of anti-insurgency support, coordination between intelligence services, and training to carry out infiltrations, torture, and assassinations. The leaders of the last Argentine dictatorship (which governed from 1976 to 1983), who were later charged and convicted with crimes against humanity, used to describe their mission as a war – more precisely as a war on “Marxist terror”. But the limited cases of insurgent violence, which paled in comparison to the wildly disproportionate state terror and repression, were used as a pretext to persecute and exterminate all dissent and resistance against the post-1955 regimes. Between 1973 and 1976, many of these crimes were carried out by the Triple A (Argentine Anticommunist Alliance), a death squad founded by far-right Peronist José López Rega, who had been a key ally of Perón in the 1970s and a member of Italy’s infamous Propaganda Due (P2). But anti-Peronist and anti-communist Emilio Eduardo Massera, one of the leaders of the 1976 coup and the military regime that followed, was also a member of the P2. P2 shows how European governments also assisted in Washington’s war on the left in Latin America. Propaganda Due was a criminal organization based in Italy and linked to Italian intelligence, allied with the CIA and NATO. It was exposed in 1981 and dismantled in 1982 by law. P2’s leader was Licio Gelli, an Italian fascist, intelligence operative, and financier who had lived in Argentina. The organization was considered a sort of Italian deep state with strong connections to the right-wing media and anti-communist environments. On March 28, 1976, just four days after a right-wing coup, Gelli sent a letter to Argentine coup leader and P2 member Massera saying that he was “happy everything went according to the plans” and wishing that “a strong government” could repress “the insurrection of the Marxist movements.” The Italian parliament published a report investigating P2 in 1984. With a number of secretive far-right entities and plots overseen by the US and European governments at the height of the first cold war, Argentina was ready for its shock. Argentine President Juan Domingo Perón with his wife, future President Isabel Perón When Argentina’s military arrested constitutional President Isabel Perón (the politically unskilled wife of Juan Domingo Perón) in the early hours of the March 24, 1976, many believed that things could not get much worse. Inflation was at 700% and political violence was already extreme. In fact, it was one of the bloodiest nights in the history of Argentina – probably only surpassed by the genocide targeting Indigenous nations and the slavery of the previous century. What followed the US-backed coup was a campaign of terrorismo de estado (state terror), desaparecidos (forced disappearances), systematic rape and torture, arbitrary detentions, countless people forced into exile, burning of millions of books, dystopian surveillance, and propaganda. Like Chile under Augusto Pinochet and other countries in South America, Argentina had entered its neoliberal experiment, an economic reset under the supervision of the United States and its Operation Condor, the local comprador oligarchy, and the Argentine branch of the Chicago Boys. The new regime was called the “National Reorganization Process” – a name that implied it had a mission to accomplish. The US-backed military junta, an unelected government controlled by the armed forces, acted as the main enforcer of the “reorganization”. Dictator Jorge Rafael Videla, a rabid anti-communist,  was in power during most of the “process,” and proudly defended his countless crimes until his death in prison in 2013. Argentina’s military dictator Jorge Rafael Videla (in the center, with the mustache) But the men who oversaw most of the economic shock were Adolfo Diz and José Alfredo Martínez de Hoz. Diz directed Argentina’s central bank (and was followed in 1981 by the US media’s golden boy Domingo Cavallo). He was a pupil of Milton Friedman in Chicago and a former IMF executive director. Elite right-wing economist Martínez de Hoz was appointed economic minister. He was a Cambridge graduate from a wealthy family of landlords, the CEO of several large Argentine companies, and a personal friend of US billionaire oligarch David Rockefeller. Those who followed for shorter periods of time had very similar résumés, full of degrees from elite US universities and sinecures at the IMF, World Bank, and other Washington-dominated neoliberal institutions. Martínez de Hoz used his position to favor Argentine and foreign elites, including his personal friends and the companies he had worked for. Almost immediately after the Videla dictatorship came to power, Martínez de Hoz got a $100 million IMF loan (worth a much higher sum today). He also implemented aggressive neoliberal shock therapy: smashing trade barriers, allowing US and European products to flood Argentina’s market, and removing subsidies (including on gasoline). In a vicious attack on Argentine workers, Martínez de Hoz froze wages by law, while inflation remained well above 100% throughout his tenure. This caused a devastating drop in the cost of labor, and therefore in the real value of salaries, which declined some 40% by 1980. He also successfully dismantled most of the Argentina’s still competitive industry, selectively saving his friends. Argentina’s military dictator Jorge Rafael Videla (right) with his neoliberal economic minister José Alfredo Martínez de Hoz The US-backed Videla dictatorship oversaw an intense de-industrialization, marking an end to Perón’s era of state-owned company, which since 1951 had produced domestically designed cars, motorbikes, trucks, airplanes, and engines. Decades of industrial research and development, tens of thousands of jobs, and large public investments were disintegrated in Argentina. Claiming to be fighting inflation, in 1979, Martínez de Hoz introduced an artificial system of exchange regulation between the peso and the US dollar known as la tablita (the little table). Leveraging large and ever increasing foreign debt, la tablita overvalued the peso, favoring imported products over domestic ones, so thousands of Argentine businesses went bankrupt. It also allowed speculative funds to exploit a scheme known as carry trade (bicicleta financiera). Speculators could get low-interest loans abroad in US dollars and absurdly high interests on pesos in Argentina, with no capital control whatsoever, so they started moving money in and out making enormous profits. This made foreign and domestic speculators much richer than they already were, but the gains from the trick had to be paid by the state – or more precisely Argentine workers – in US dollars. The strong peso was a clever ingredient of the dictatorship, defining a neoliberal myth that was called “sweet money” – a sort of consumerist orgy with an unhappy ending that was portrayed in a 1982 film with the same name. Because of la tablita, the most coveted imported goods (consumer electronics, clothes, and accessories) became cheap almost overnight. Imports rose by more than 550% between 1976 and 1980. The huge increase in imports under Argentina’s US-backed military dictatorship from 1976 to 1983 The overvaluation of the peso meant that many Argentines could suddenly afford to travel and go shopping abroad. While factories were closing en masse – and while thousands of mothers were looking desperately for their children and grandchildren, who had been disappeared for opposing the junta – the military regime propagandists celebrated the new era as a positive opening to the world. The euphoria after the victory at the 1978 football World Cup led to a feast of nationalist propaganda. This economic deception lasted two years. La tablita was abolished in 1981, with a master stroke leading to the opposite effect: a sudden devaluation of the peso. More Argentine businesses went bankrupt because their pesos were now worth nothing, and their debts denominated in US dollars had become unpayable. Videla, Diz, and Martínez de Hoz resigned a month later, leaving the country in recession and the state in monetary and financial chaos. In 1982, the military junta had been weakened by five years of suicidal neoliberal economic policies. It attempted to stay afloat with a jingoistic wave of paradoxical anti-colonial propaganda. The regime that had humiliated the nation and the people of Argentina by selling it off and betraying it in all possible ways did the unthinkable: It waged a war with Britain over the Malvinas. The Falklands War ended in a catastrophe, but also accelerated the end of the dictatorship. Taking advantage of the last days in power, the right-wing-controlled central bank nationalized the private debt of a selected group of companies in December 1982, including Grupo Macri, a holding founded by the father of Mauricio Macri (whose neoliberal presidency between 2015 and 2019 was a nostalgic homage to the families benefited by the dictatorship). The nationalization of this private debt cost the state about $17 billion dollars. The financial deregulations of the regime led to uncontrolled capital flight, destructive speculative schemes, rampant fraud, and the crash of dozens of financial companies, including banks. The desperate need for US dollars to repay debts forced Argentina’s de facto government to keep emitting bonds at always higher interest rates. Argentina’s debt skyrocketed during the US-backed military dictatorship (1976 to 1983) According to data from the World Bank, the external debt of the government was $4.6 billion in 1976. At the end of the dictatorship in 1983, it was $25.6 billion – an increase of more than five times. This debt would double to $52 billion by the end of the 1980s, and subsequently skyrocket to $103 billion in 2004, doubling again. And these figures do not include private foreign debt. In the 28 years since the beginning of the US-backed state terror – between 1976 and 2004, constituting roughly a generation – the deuda had increased more than 2200%, while GDP had gone up only 49%. The world average for GDP growth in the same period was 90%. The increase in Argentina’s external debt was 45 times the growth of its GDP. The country was in an economic apocalypse. Operation Condor turned Argentina into a broke country whose economy was heavily indebted in US dollars. With the 1983 election of Raúl Alfonsín, the military boots left the presidential palace, but the debt contracted by the dictatorship never did. Alfonsín could have contested the legitimacy of the debt. After all, it had been contracted by a dictatorial regime installed by the CIA, operating under US influence and favoring foreign interests over Argentina’s. The debt was the result of a deliberate effort to undermine the economy and sovereignty of the Latin American country, so the legitimacy of the deuda was a valid matter of debate. But Alfonsín’s government and the new, fragile democracy were too weak for such a challenge. Argentine President Raúl Alfonsín The first elected president in a decade was inaugurated in an atmosphere of great hope, after a war and nightmarish horrors that would soon become public, thanks to an investigation that concluded with the publication of the book Nunca más (“Never Again”), and a historic trial that ended with the conviction of the junta leaders. But by accepting to comply with all the obligations imposed by the deuda, Alfonsín’s presidency was destined to be a failure. The government depended on negotiations with the Washington, DC-based IMF and World Bank, the only entities that could provide the dollars Argentina needed. Every decision of these organizations in matters related to Argentina had a strong influence over the country’s political and monetary stability, including the inflation which remained very high throughout the 1980s. Alfonsín’s presidency ended with a hyper-inflation crisis in 1989 that got even worse in 1990, when wages and savings quickly evaporated, poverty and extreme poverty skyrocketed, riots and lootings erupted. The shock caused a desperate demand for change, and played a key role in electing Carlos Menem, a conservative Peronist who had campaigned with vague promises to favor the poor and leveraged the fame of Perón, who remained popular among large sectors of the working class. One of Menem’s most repeated slogans was “Follow me, I won’t deceive you!”, a trivial political message that was actually a lie, considering the betrayal that followed. The unpayable debt, that kept growing like a snowball under Alfonsín, prepared the ground for the infamous “structural adjustment” programs that were “recommended” (that is to say, forcibly imposed) by the IMF, the World Bank and the US Treasury Department. Neoliberal structural adjustment was presented as a simple technocratic solution, a doctor’s prescription to heal economies in formerly colonized countries that, coincidentally, all suffered from the same illness: external debt. The therapy proposed in the so-called Washington Consensus demanded financial deregulation, no tariffs on imports, cuts to public services, and radical privatizations of public assets. Medical metaphors became a classic trope of the neoliberal propaganda, and were also used by reputed economists. Jeffrey Sachs is often associated with the infamous concept of “shock therapy.” The first patient he could experiment his theories with was Bolivia in 1985. There, Sachs’ task was to stop a hyper-inflation crisis – which, as in Argentina, came after years of a US-backed right-wing dictatorship. Sachs did manage to contain inflation by forcibly overvaluing Bolivia’s currency. But his treatment could only be applied by deporting labor leaders, allowing mass layoffs, impoverishing workers and Indigenous people, and undermining the country’s real economic growth. Sachs, a Columbia University professor who would go on to rebrand himself as a progressive social democrat and supporter of Bernie Sanders, first made his name in the centuries-old tradition of colonial philanthropic megalomania. His 2005 book “The End of Poverty”, prefaced by U2 singer Bono, used the medical metaphor to explain how to cure extreme poverty by 2025. Despite the good will behind this and other initiatives, it is difficult to find any fundamental ideological (and especially technical) difference between Sachs and Argentina’s neoliberal idol Martínez de Hoz – even though the latter operated inside a fascist military regime that raped, tortured, and disappeared dissidents or threw leftists to their deaths out of airplanes. Two decades after Sachs’ “therapies” were sent from Washington, DC to La Paz, Bolivia’s socialist President Evo Morales showed what an economy looks like when the state protects its people, their work, and the domestic market. The massive growth of the Bolivian economy under Morales – an Indigenous farmer and labor organizer who did not finish high school – is only one of the many indicators that exposed the pseudo-scientific economic doctrine developed in the most prestigious US universities under the guise of clinical rigor. Bolivia’s GDP per capita was just $1034 in 2005. Morales came to power the next year, and by the time he was overthrown in a US-backed far-right coup in 2019, Bolivia’s GDP per capita more than tripled to $3552. Bolivia’s massive economic growth under President Evo Morales (from 2006 to 2019) Overvaluing a currency by pegging it to the US dollar, in one way or another, was the core of the shock therapies that neoliberal economists had implemented in Bolivia, Argentina, and elsewhere. This is certainly the easiest way to contain inflation, but it also undermines the domestic market and the people of a country – the two variables that are often ignored by free-market economists and institutions. Other solutions to inflation exist, but because these include capital controls – an idea considered blasphemy in orthodox economics – and because they help preserve and stimulate local economies instead of international finance, they are most unpleasant to US and European banks and corporations. No corporate media pundit or reputed economist would suggest a shock therapy that negatively affects the ruling class to fix a crisis, even though it would be sensible, because that would compromise their reputation and career. So the concept of shock in economics is always reserved as a tactic for ripping off the working class and the poor – especially in formerly colonized nations. Shortly after Carlos Menem took power in 1989, he pardoned all crimes committed during the Videla dictatorship. This horrified the survivors, and made it clear that his presidency would be dominated by oligarchic and foreign interests. Menem also removed some taxes and regulations on agricultural exports, obtaining the support of the powerful landlords and the conservative establishment. The mask was off. Hyperinflation reached a staggering 20,000% in 1990. Combined with the debt and pressure of the IMF, the crisis provided the justification for another “shock therapy”. Inflation in Argentina in 1990 In 1991, Menem chose as his economic minister Domingo Cavallo, who had directed the central bank during the dictatorship. Together, they practiced what the president had famously called a “surgery without anesthesia”. Cavallo’s landmark policy is known as the uno a uno (“one to one”). This was the new edition of Martínez de Hoz’s disastrous la tablita in 1979 and Sachs’ shock therapy in Bolivia. The scheme was based on the same monetary principle: stop inflation by artificially and forcibly pegging a currency to the dollar (or overvaluing it). Argentina’s latest version of this scam was even simpler than the previous manifestations. The Menem government issued a new currency – the peso still in use today. It retired old notes and coins and issued new ones. The law then ordered that one new Argentine peso was now worth one US dollar – hence the name one to one. The Argentine peso would thus remain pegged to the dollar. It was a de facto dollarization, a surrendering of Argentina’s monetary sovereignty. Everybody could freely exchange pesos and dollars, now backed by the state with its reserves. This meant that the law restricted the emission of new pesos to the amount of US dollars in Argentina’s reserves. From the point of view of the speculative financial markets, pesos had become “sound money” again, by law. But they had also become expensive for the state, and therefore limited in circulation. Inflation did go down to almost zero, but Argentine workers’ purchasing power dropped too. Cavallo was celebrated in the West as a genius, as if he had invented free dollars. Clearly, they weren’t free. The uno a uno was not meant to come alone, and was part of a larger plan of deregulations and privatizations. With the support of the Peronists in the Congress, Menem launched one of the biggest operations of privatizations in history, an unprecedented pillage of public resources that Perón (who had nationalized the central bank and the railways) would have likely have opposed. Argentina President Carlos Menem (left) with his neoliberal Economic Minister Domingo Cavallo In a few years, the still powerful Argentine state privatized the pension system, national railways, public banks, telephone grid, national airline, ports, postal service, water supply network, power grid, gas network, several TV and radio networks, and some healthcare services. The naval, chemical, and aerospace industries were privatized, along with the national oil company. In all, more than 400 public companies in Argentina were privatized. US and European corporations bought the country practically overnight. The privatizations occurred in the context of wild corruption and mismanagement. Companies and assets were sold off or given in concession at ridiculous prices and conditions. Some services became up to 10 times more expensive. Others collapsed. One of the most dramatic cases was the destruction of Argentina’s railways network. In its effort to de-industrialize the country, the military dictatorship had closed hundreds of stations and thousands of miles of rails. Menem finished the job by dismantling most of the 29,000 miles of rails – which had been the eighth-largest network in the world. Thousands lost their jobs. Some remote villages were disconnected from the rest of the world. Neoliberalism turned a functioning public infrastructure that had been built, operated, and used by generations of Argentine workers into landfills. In many cities and towns, these abandoned industrial, almost post-atomic ruins have not been dismantled or converted to this day, three decades later. Trains, rails, bridges, warehouses, and stations were reconquered by nature and left to rust, offering a depressive glimpse on the past and a warning for the future. The euphoria over Cavallo’s apparent victory against inflation did not last. An initial boost in confidence caused by the low inflation and the strong peso gave the illusion – buttressed by a worldwide neoliberal propaganda campaign praising Argentina’s model – that the economy was not going to collapse this time. The growth between 1991 and 1994, based on the overvalued currency, gave Menem a second mandate. But in 1995, unemployment reached 18.8%, indicating that not everybody was enjoying the consumerist joys of the rise in imported goods – the new “sweet money” phenomenon, which was similar to the one experienced in the Videla dictatorship under Martínez de Hoz. Unemployment skyrocketed in Argentina in the 1990s, under Carlos Menem Because of the strong currency, Argentine exports were also hurt. National products had become too expensive, leading to a growing trade deficit. The imbalance was compensated by the dollars obtained where? From one-off income from privatizations, and, once again, loans. But how long could this scheme last? The recession and crisis that followed Menem was brutal. The so-called structural adjustments imposed by the IMF boosted unemployment, extreme poverty, and hunger to record levels, while capital started leaving the country. In 1999, the widespread disgust for Menem – whom many remembered as a corrupt buffoon who drove a $120,000 red Ferrari while overseeing the pillage of his country – led to the defeat of the Peronist candidate in the presidential election. Argentine President Carlos Menem driving in his expensive red Ferrari At that point, Argentina had already entered a technical recession that would last four years. Yet with the shock therapy, nothing changed. During his short presidency, from 1999 to 2001, the liberal Fernando de la Rúa kept implementing the suicidal recommendations of the IMF, with more rounds of cuts in public services and pensions. De la Rúa reduced salaries of public employees and fired thousands. He also made it much easier, and cheaper, for employers to fire workers in the middle of a long recession, without the obligation to pay severance packages. In December 2000, the government obtained a $37 billion “bailout” package from the IMF under the condition of annihilating the state and the economy by reaching a zero deficit. In January 2001, the government renegotiated parts of the debt in order to postpone it for three years, while increasing the interests. But in March, the negative results forced the economic minister to resign. In a surreal plot twist, de la Rúa called back an old acquaintance: free market star Domingo Cavallo, the former Menem minister who started the uno a uno conversion that had crippled Argentina’s national economy probably more than anything else ever conceived. Cavallo was appointed economic minister, again. Once back into the operatory theater, the economic butcher started doing the only thing he and all the other ministers in the previous 25 years had always done. Further cuts were approved, while the ghost of an incoming Armageddon loomed. The unsustainable macroeconomic situation led to a bank run in Argentina in November 2001. Many people and companies feared a meltdown of the financial system. They started withdrawing large sums from banks and exchanging their pesos to US dollars, even though Cavallo’s now infamous landmark policy, the one to one conversion, was still in place. In a desperate attempt to save the banks and contain a situation that was clearly out of control, on December 1, 2001, Cavallo and de la Rúa ordered an almost complete freeze of all bank accounts, limiting withdrawals to $250 in cash per person per week, a measure then called the corralito (small corral). The sudden limit in liquidity, after years of financial deregulation and in the midst of a brutal recession, drastically affected trade and broke the chain of cash payments, leading to terrible consequences for millions of informal workers who did not have bank accounts, and thus could not be paid. Considering it time to let the boat sink, the IMF announced on December 6 that it would not send the dollars expected from the last bailout, because Argentina had not met the zero deficit goal. The following weeks were followed by a general strike, lootings, violence, and several deaths. So on December 19, President de la Rúa ordered a curfew, inciting an infuriated response from the people. Protesters stormed the Plaza de Mayo, the square in front of Argentina’s presidential palace, the Pink House. The day after, de la Rúa resigned and fled from the roof on a helicopter. Three days later, on December 23, abandoned by the IMF, Argentina officially defaulted on a $95 billion debt. Argentine President Fernando de la Rúa (right) with Carlos Menem The 2001 default was a watershed moment for all Argentines, and became a symbol of the effects of neoliberalism and imperialism across the planet. But this historic default on debt managed by award-winning, highly respected economists was just the surface of a decades-long, fabricated crisis that was really a neocolonial takeover. Record levels of poverty, shocking child malnutrition, a growing infant mortality rate, devastating unemployment, and increasing outward emigration shattered the false image of the country that had once been an economic powerhouse and the destination for millions of migrants seeking a better life. Argentina was not just broke; it had been socially, economically, and politically demolished as a sovereign country. The state, productive fabric, currency, trade, public education, and healthcare, public transportation: nothing was left untouched by the pillage that effectively led to a reset of Argentine society. Something similar was happening in other Latin American semi-colonies of the United States. The region found itself divided into those who recognized the fraud of neoliberalism – a word that had become in the political discourse – and those who believed that the shock therapies designed by people like Jeffrey Sachs, José Alfredo Martínez de Hoz, or Domingo Cavallo were not “true” neoliberalism. The staunch believers in the virtues of neoliberal ideology implied that, instead of changing course, the real solution was more of the same, but in a more extreme form. Some of these free-market pundits and academics, who still thrive in major corporate media outlets, articulated a fundamentalist “libertarian” critique, claiming the neoliberal regimes did not go far enough when they removed most tariffs on imports, that they should have eliminated all of them, effectively destroying local industries. And they insisted everything should have been privatized, not almost everything. The extent of the privatizations is something that even the free-market fundamentalists’ most eloquent evangelist, Milton Friedman, struggled to explain in practical terms. Friedman argued that the state should still control “some roads”, and maybe the police or the army. He confusedly claimed that he was not against public control when debating schools, but simultaneously insisted that government control was bad. The biggest neoliberal rhetorical fallacy has always been related to the debt. Neoliberals typically associate the debt with public spending on social programs, using a straw man that implies that the debt crisis of “developing countries” is a trivial problem of excessive spending that can be solved by simply reducing it. The neoliberals act as though poor working people, especially from oppressed Black, Indigenous, or mixed race communities, are unable to manage the money that wealthy people have supposedly given them. This narrative is totally false. It ignores key factors, including foreign control, deliberate pillage, and de-development. In regard to foreign control, unpayable debts were deliberately created and expanded in Argentina by dictatorships or corrupt elected governments, like Menem’s, which operated on behalf of foreign interests and oligarchs, and which were forced to apply suicidal measures demanded by the IMF, World Bank, and US Treasury Department. As for deliberate pillage, the need for massive quantities of US dollars was in large part caused by fraudulent schemes, like Argentina’s “financial bicycle”. These were made possible thanks to the deregulation of the exchange market, overvaluation of the currency, and other policies that favored scams paid by the state. When billionaire speculators were allowed to exchange Argentine pesos for unlimited amounts of dollars, benefiting from high interest rates in pesos, it was the state that had to borrow those dollars from US private banks or from the IMF and pay interests on them. Once exchanged, the dollars obtained by the speculators were moved out of the country, leaving the debt to the state. And in terms of de-development, the money borrowed under Argentina’s neoliberal regimes was virtually never used for social programs that would stimulate the real economy, support domestic demand, or improve people’s lives in any way. Instead, those dollars were mostly used to pay interest, service new loans, or increase the demand of dollars for speculative purposes. Only days after Argentina’s 2001 debt default, interim President Eduardo Duhalde abolished Cavallo’s dollarization scheme – the one peso to one dollar fixed exchange rate. The peso lost 40% of its value overnight. This long-due monetary devaluation, together with a timid stimulus in the form of social subsidies, gave oxygen to an exhausted population and to the economy as a whole. The defaulted country was in ruins, and the lasting crisis led to immense suffering. But as a response to the robberies and horrors of the previous decades, new creative energies and popular movements were emerging across Latin America. In a surprising turn of events, the barely known governor of a remote southern province became president of Argentina in 2003, with a measly 22% of the vote. The widespread contempt for the arrogant and corrupt political class of Buenos Aires played in favor of Néstor Kirchner, a progressive Peronist who belonged to the faction that opposed fascist Peronist José López Rega in the 1970s and neoliberal Peronist Menem in the 1990s. Not many thought that Kirchner would have changed Argentina’s political direction. But he laid solid foundations for a debt-free economy that grew almost 9% every year during his presidency – a success neoliberal detractors tried to explain simply as the luck of a “commodity export boom“. The new president joined the progressive wave that had brought Hugo Chávez in Venezuela and Lula da Silva in Brazil, forming a key part of what would later be dubbed the “Pink Tide”. Argentine President Néstor Kirchner As of 2003, when Kirchner became president, Argentina’s defaulted external debt was a combination of IMF loans and bonds owned by private investors of all kinds. These two types of creditors operate and affect the government in very different ways. The IMF is a political organization ruled under a very specific economic ideology, which imposes the Washington Consensus on countries that it “helps” financially. The US has always had the main quota and veto power in the Fund. The policies demanded by the IMF are detrimental to the real economy and undermine the borrower’s growth and domestic market, trapping it in a cycle of debt. But the bondholders, which are mostly private companies operating in international financial markets, cannot directly enforce a policy on a government. They are private companies that profit from speculative trades, which inherently involves risks, and normally the higher the risk, the higher the gain. The more a government is in economic trouble, the higher the interests on its bonds will usually be, in order to find speculators willing to buy them. This game makes it very profitable to trade risky bonds – in other words, to speculate on countries that are financially desperate. While formally separate, the IMF and the bondholders (sometimes referred to simply as “the markets”) cooperate and need each other in order to maximize their effectiveness. The more a country is financially desperate, the more speculators will profit, and the more leverage the IMF will have in order to enforce neoliberal reforms and other political pressures. On December 16, 2005, Kirchner announced that Argentina would repay its entire IMF debt in full, and in advance, with its foreign reserves. On January 3, 2006 the payment of $9.5 billion was confirmed by the Fund. The central bank only held $27 billion in US dollars in its reserves, but that was still more than the record low of the previous years. The reserves had grown thanks to the budget surplus obtained from the suspension of the payments to private bondholders, and the rapid growth of exports caused by the devaluation of the peso, which made Argentine products more competitive. Kirchner’s decision to pay off the debt early saved the country an estimated $842 million in interest. While far from being a long-term solution to the huge problems the Argentine people were facing, this was a game changer. The move was anticipated by Brazil’s President Lula da Silva, who had paid the IMF in full a few months earlier. But the announcement was received as a shocking surprise by Kirchner’s supporters and detractors alike. It also annoyed part of the Argentine establishment, whose corruption had been mercilessly exposed: Why did none of Kirchner’s predecessors pay off the IMF debt like this before? The repayment was a demonstration that Argentina never actually needed “aid” from the IMF. The Fund had become seen as a national enemy by popular movements, and was even publicly criticized by Kirchner in his speeches. Argentine President Néstor Kirchner with his wife, future President Cristina Fernández de Kirchner The debt that Argentina held with the IMF was important because of its political implications, but the government still owed much more to private creditors. In 2003, Kirchner started a complex process of negotiations with diverse groups of creditors. These talks continued under the subsequent presidency of his wife, Cristina Fernández de Kirchner (CFK). The robust approach of the Kirchner administrations was effective – and it angered wealthy creditors, as could be seen at the time by the frustration of their media mouthpieces like The Economist. In 2005, Argentina abandoned the seemingly endless, unsuccessful negotiations and made a unilateral offer with discounts of up to 66.3% on the original bonds. The offer was accepted by most bondholders and ended restructuring 76% of the defaulted debt (then $81.8 billion in total). In 2010, under CFK, Argentina completed a second bond exchange under less favorable conditions for the creditors, which led to a total of 91.3% of the defaulted debt being restructured. The Kirchners’ strategy had proved a success. Tens of billions were saved, and Argentina was on its way to finally normalize its status vis-à-vis the international credit markets, while all economic indicators were showing strong signs of recovery. But the remaining defaulted debt, which represented just about 8% of the total from 2001, was now owned by holdouts that had refused the offers of 2005 and 2010, and decided to turn to the US judicial system to help them litigate. Most of these creditors were known as “vulture funds” – firms that are illegal in many countries, but not the United States. (In 2008, an ambitious bill designed to prevent investors from speculating on sovereign debts of developing countries was introduced in the US Congress, but it failed to pass.) These particular kinds of hedge funds profit by buying defaulted debts at a much lower price than their nominal value, and then use aggressive strategies, most notably lawsuits, to extort the debtor, in an attempt to get the full value plus penalties. Some of the world’s most infamous vulture funds had bought Argentina’s defaulted bonds after 2001. The largest slice of the cake was owned by NML Capital, the Cayman Islands subsidiary of New York-based Elliott Management Corporation, whose US founder and CEO, Paul Singer, is a billionaire vulture capitalist and top donor to the Republican Party. Billionaire vulture capitalist Paul Singer, a top owner of Argentina’s debt Also profiting on Argentina’s debt was Cayman Islands-based billionaire Kenneth Dart, the owner of Dart Management, a pioneer in vulture practices targeting Brazil, Russia, Ecuador, Turkey, and Greece. Part of Argentina’s remaining defaulted bonds were owned by Aurelius Capital Management, which was led by speculator Mark Brodsky, a veteran of Elliott Management Corporation who saw Singer as his mentor and has also profited from Puerto Rico’s odious debt. Singer, Dart, Brodsky, and their super-rich colleagues belong to a generation of speculators who learned to take advantage of the 1976 Foreign Sovereign Immunities Act, a law that provides the legal basis to sue a foreign country in a US court. Before that law, vulture funds could not engage in distressed-debt litigation against sovereign countries. But in 1992, Dart opened Pandora’s box by suing Brazil, right in the middle of its debt crisis, and getting a favorable settlement. In the following years, after the overthrow of the Soviet Union and imposition of neoliberalism across much of the world, wealthy speculators followed Dart’s example. “When Dart and Singer started, fewer than 10% of sovereign debt crises involved litigation. Today that figure is more like 50%”, the New York Times reported in 2019. Argentina’s record 2001 default was the perfect opportunity for vulture funds. Their threat was so clear that even right-wing media outlets in the country that were owned by pro-US oligarchs, like the conservative newspaper Clarín, dubbed Kenneth Dart “the number one enemy of Argentina”. After a long legal battle between the vulture funds and the Kirchners’ governments in several US courts, New York judge Thomas Griesa ruled in 2012 that Argentina had to pay the vulture funds at full value. That meant that Singer’s company, for example, would get a return of 15 times its initial investment. The ruling became effective in 2014. It also blocked Argentina from paying any other creditor who had accepted the bond exchanges of 2005 and 2010 until it had paid the vultures in full. This was technically possible because almost of all bank accounts and financial transfers involved were under US jurisdiction. In other words, the US ruling created a paradoxical situation where Argentina was considered in default for being unable to comply with payment deadlines, even though the government had actually ordered the payments. The only way to unblock the freeze of the transactions was for Argentina to submit to a parasitic group of billionaires and speculators who were trying to make a killing off of its odious debt. Following the ruling, Cristina Fernández de Kirchner denounced the vulture funds on the international stage, accusing them of weaponizing US law to wage “economic and financial terrorism.” Addressing the General Assembly of the United Nations in 2014, CFK argued that these companies “are economic terrorists who destabilize the economy of a country and create poverty, hunger, and misery, from the sin of speculation.” Despite the extortion and the high tension with Washington and its local representatives in Argentina’s opposition, President Kirchner ended her mandate in December 2015, still refusing to pay the vulture funds. Argentine President Cristina Fernández de Kirchner denounces the “economic and financial terrorism” of US vulture funds at the United Nations General Assembly in 2014 Mauricio Macri, a right-wing multi-millionaire whose family had profited from the dictatorship, and whose fortune also came from Menem’s privatizations, won the 2015 presidential election by a small margin. At the end of CFK’s second term, Argentina’s debt-to-GDP ratio was 52.6%. It had increased a bit in the last years, but was still easily controllable. When Macri left power in 2019, the debt-to-GDP ratio was 90.2%, and growing. But probably the most absurd development was that under Macri, in less than four years, Argentina once again defaulted on its debt. On December 7, 2015, three days before the inauguration of President Macri, Argentina’s future finance minister and central bank manager Luis Caputo, a former JP Morgan trader, flew to New York and met the representatives of the vulture funds. Nothing else was more urgent. Three months later, in February 2016, Macri’s Argentina transferred $9.3 billion to the vulture funds, while the New York judge, Griesa, unblocked the other payments to the other bondholders, the owners of the 93% of the defaulted debt who had accepted the offers made in 2005 and 2010. Paul Singer’s NML Capital alone made $2.28 billion on an original investment of just $177 million, for a total return of 1180% – while also forcing Argentina to pay the legal fees. Macri’s payment of the vulture funds amounted to a national humiliation for a sovereign countr. It also angered many small investors, including pensioners and workers, who lost money with the debt exchanges, while a small group of US billionaires and foreign speculators made a killing. The reason Macri gave the operation such a priority was because he hoped to obtain access to the international credit markets as soon as possible. The new right-wing president wanted to once again to borrow money by emitting new bonds – something Argentina had been banned from doing since the default in 2001. By paying the enormous ransom to the vulture funds, Macri’s government had the power to flood the country with borrowed US dollars. In the early days of his administration, Macri removed several regulations in order to favor financial speculators and companies in sectors like agriculture – the most important in Argentina – as well as mining, energy, finance, and the media. These industries, especially the media, are controlled by Argentine billionaires, who were President Macri’s main supporters. Macri got rid of capital controls and the so-called cepo, a foreign exchange regulation introduced in 2011 under CFK that limited the amount of US dollars individuals and companies could buy with pesos, in order to prevent capital flight and inflation. For years Argentina’s mainstream media, which is dominated by the powerful telecommunications corporation the Grupo Clarín, described the “freedom” to buy dollars almost as a human right, so CFK’s regulations were presented as a violation of liberty. Clarín was one of the most powerful supporters of Macri, so it was extremely easy for him to remove the currency controls overnight. This meant that Argentine oligarchs could buy any amount of dollars, even billions, with pesos. And that is exactly what speculators did. The end of capital controls and the possibility to borrow virtually without limits were an explosive mix. They paved the way for Argentina’s third neoliberal robbery, the fastest and the first based almost exclusively on financial methods. The previous two pillages had taken place during the 1976-1983 military dictatorship and Menem’s presidency from 1989 to 1999. In a formidable show of effectiveness, Macri and his team wrecked the relatively healthy finances of the Argentine state in less than two years. Argentina’s President Mauricio Macri (right) with Brazil’s Jair Bolsonaro Macri’s single-term presidency used the state as a tool to bring dollars and euros into the country through easily accessible borrowing. Those dollars ended up in private hands, thanks to the now unregulated currency market, which meant anybody could buy or sell any amount of pesos. This inevitably caused significant inflation. At the same time, big funds were now free to move their dollars out of the country, thanks to the absence of capital controls. The new conditions led to a rapid increase in capital flight. Under Néstor and Cristina Kirchner, capital flight was contained and was mostly paid with the surplus in the commercial balance, given exports were higher than imports. During the “K” years, some of the money obtained from economic growth did leave the country, but under Macri, the capital flight not only grew faster, it ended up being funded with the foreign currency borrowed by the state. Capital flight was quite literally borrowed money. Pundits propagandized on behalf of the government and Macri’s suicidal economic policies by stirring up the desire for dollars in the population, even among those who could not afford to buy any. Deregulation of the foreign currency exchange led to high inflation in Argentina, but the right-wing-controlled media outlets blamed the Kirchners. They brought back the old neoliberal dog whistle that Argentina was now “open to the world,” and promised that the new policies would attract foreign investors who never arrived. Macri’s most important achievement was to allow wealthy families and speculative companies to dollarize their assets, thus moving them to more profitable markets abroad. Wealthy speculators were also allowed to profit from the old scheme known as carry trade (bicicleta financiera), which had been used during the last dictatorship. Their trick was to buy pesos, profit from the high interest rates in pesos, then convert them to dollars and move the dollars out of the country. In the meantime, the state had to provide a virtually infinite amount of dollars for the speculators, and was left with the pesos. Thanks to a reckless emission of bonds to support the uncontrolled demand of foreign currency, including an extraordinary 100-year bond and very high interest rates, Argentina was already on the brink of another default just two years since Macri took power. The debt-to-GDP ratio passed from 56% in 2017 to 86% in 2018, a catastrophic 30% increase in one year. In 2018, the Argentine peso was the worst-performing currency in the world – excluding Venezuela, which was suffering under illegal unilateral sanctions and relentless economic war by the United States. The Argentine peso lost about 50% of its value to the dollar. Inflation rose by the same amount. Macri’s central bank increased interest rates to record levels in an attempt to attract investors – or more accurately, speculators – but it was too late. The economic figures did not lie. Argentina’s debt was already unpayable in 2018, and all macroeconomic indicators showed that a crash was imminent. At the beginning of the year, virtually no one wanted to buy Argentine bonds anymore, meaning that a country whose debt had been under control only two years before, and had no absolutely reason to rush into deregulating its currency and financial markets, was now on the brink of yet another default. In this uncertain context, Argentina went through two major currency crises in 2018, in June and August, forcing the central bank to waste billions of dollars to contain the extreme devaluation of the peso. The country was bleeding dollars, and toward mid-2018, the so-called “Macrisis” was a reality. Macri’s days in power seemed numbered. Argentine President Mauricio Macri (right) with US President Donald Trump in Buenos Aires in 2018 On May 8, 2018 Macri announced that he had formally requested financial aid from the IMF. For millions of Argentines it was a shock. The country had not dealt with the disgraced organization since 2005, when Néstor Kirchner had paid the debt in full and decoupled the national economic policies from Washington, after years of tense relations. The US representative at the IMF at the time, Mauricio Claver-Carone, revealed that EU members of the Fund considered Argentina’s situation at the time “unsustainable.” They were against a loan that was clearly meant to save Macri’s face and buy him time to attempt a re-election. But according to Claver-Carone, US President Donald Trump saw Macri as an important ally in his coup attempt against Venezuela. At the time, the White House was preparing a regime-change operation to remove Venezuela’s democratically elected President Nicolás Maduro and replace him with Washington’s hand-picked “interim president,” Juan Guaidó. And Macri did indeed go on to recognize Guaidó, who never received a single vote in a presidential election, as the supposed head of state in Venezuela. #Argentina Ya nos encontramos en territorio argentino, donde nos reuniremos en instantes con el Presidente @mauriciomacri en el marco de nuestra agenda para que Venezuela recupere su democracia y conquiste su libertad. pic.twitter.com/SoCTM1bPpH — Juan Guaidó (@jguaido) March 2, 2019 So Trump forced the IMF – whose biggest contributor is the United States, and therefore mainly controlled by the US government – to provide Argentina with the biggest loan in the Fund’s history, to keep Macri and his plutocratic friends afloat. Agreeing on a $57 billion loan with a government whose policies allowed record levels of capital flight was economically nonsensical, especially considering that article VI, section 1(a) of the IMF articles of agreement states that a “member may not use the Fund’s general resources to meet a large or sustained outflow of capital.” But the multifaceted scam designed in the White House was carried on anyway, and an agreement was reached in September 2018. Under Macri, Argentina was ultimately disbursed $44 billion by the IMF. But not a single dollar sent by the Fund was ever seen by the Argentine people, or used for any project for economic development. The money evaporated, trickling up into the pockets of domestic and foreign oligarchs, funding the massive demand of US dollars generated by speculators and by the interests of the debt. The billions sent from Washington disappeared in just 11 months. In August 2019, Macri’s Argentina had to postpone some scheduled payments, meaning that it was already in default – the country’s first official default for lack of funds since 2001. The effects of Macri’s short administration were dramatic. His tenure was dominated by politically motivated judicial attacks (known as lawfare) against the opposition, which involved the meddling of the US embassy, intelligence services, corrupt judges, illegal surveillance, and a torrent of media propaganda. Under Macri, Argentina’s inflation skyrocketed, the value of wages plummeted, unemployment rose, and poverty grew above the 2001 crisis levels, reaching almost 40% when he left office. Poverty was 30% when the multi-millionaire took power, meaning that more than 4 million people had become poor in four years. About one in 10 Argentines was in extreme poverty. The total value of capital flight during Macri’s four years in government was estimated at $79.8 billion, while the payments of interest on the debt were $40.7 billion. The debt-to-GDP ratio reached 90% in 2019, almost doubling from when Cristina Fernández de Kirchner left office in 2015. Without Trump’s intervention, Argentina would have defaulted two years earlier, and the chaos would have probably forced Macri to resign. So the IMF loan was effectively an injection of oxygen that gave the right-wing president a chance to run for an almost impossible re-election. With the vote approaching in 2019, the opposition had to find a candidate to deal with Macri’s catastrophic legacy. Polls showed that CFK could win again, but years of lawfare had weakened her to the point that a new presidency would have been politically unstable, especially looking at the trend in the region, where right-wing, US-aligned governments were thriving. CFK therefore decided to run as vice president, and offered the lead to Alberto Fernández. The new Peronist candidate had been chief of ministers under Néstor Kirchner, and had served briefly under Cristina as well. But Fernández had left CFK’s government and became a vocal opposition figure within Peronism. In the past, he had even been a political ally of the infamous neoliberal economic minister Domingo Cavallo. Because of his reputation as a “K” critic, the new alliance appeared counterintuitive, but it earned the Alberto-Cristina alliance more support at a moment of extreme vulnerability for every progressive candidate in Latin America. In the August 2019 primary election, CFK’s coalition with Fernández, called the Frente de Todos (Front of Everyone), won with 48%, compared to the 32% of Macri’s right-wing alliance Juntos por el Cambio. Macri’s August 2019 default was rarely called a default by Argentina’s right-wing-dominated media, especially because it occurred in the middle of the presidential campaign and the catastrophic primary vote. But even US rating agencies like S&P and Fitch, as well as foreign financial media outlets like Bloomberg, which are notorious for their strong bias in favor of neoliberal governments, admitted that Argentina was in “selective default” or “quasi default”. In order to protect Macri, the Argentine media made up a new word, reperfilamiento (reshaping), and used it instead of “default,” successfully obfuscating the president’s economic disaster behind a smokescreen of propaganda. Denying the default was a desperate attempt to put some lipstick on the corpse of Macri’s political and economic legacy. But it did the job. The multi-millionaire did lose re-election in the October 2019 presidential election, but the enormous propaganda apparatus operated by Clarín managed to significantly improve Macri’s poor result in the primary, boosting him up to 40% against Fernández’s 48%. The election showed what a media monopoly and millions of dollars systematically invested in troll armies on social media can do, even in the most unfavorable conditions. The media narrative of the “heavy legacy” (pesada herencia) that Argentina supposedly received from Néstor and Cristina Kirchner, and the often fabricated allegations and charges of corruption took a significant toll. More than appreciation for Macri’s policies, the 2019 vote expressed the anti-Kirchner sentiment that had been cultivated through years of lawfare. Argentina’s conservative sectors needed to undermine the positive reputation of the “K“ governments and character assassinate CFK, because she was by far the most popular leader on a national level. The right-wing oligarchy’s ultimate goal was to make it impossible for CFK to run again (which they would go on to accomplish with a judicial coup in December 2022). But the 2019 electoral victory of Fernández and CFK ended up being the easiest part. Argentina’s President Alberto Fernández and Vice President Cristina Fernández de Kirchner The country Alberto Fernández received on December 10, 2019 was very different from the one Macri got four years before. In 2019, Argentina was on fire, with an economy in recession, poorer, indebted at 90% of GDP, and even more polarized than before. The new president had the daunting task of fixing Argentina’s devastated public finances, hit by another default on its sovereign debt, while dealing with one of the worst social and economic crises in its history. The Frente de Todos coalition that Fernández had formed with Cristina Fernández de Kirchner was very large, including parties ranging from the center to the left. This meant there were many differences inside the Frente de Todos, which began to emerge when they took power. But everybody in the coalition knew that Argentina’s media monopoly Clarín and the wealthy oligarchy were not going to help extinguish the fire, because they were responsible for it. After the fall of Macri, the mainstream media continued pushing endless conspiracies against Vice President CFK. The right-wing press even got created and added a strange new chapter about her supposed plots to undermine Fernández, the man she chose and helped put in the Pink House months before. Although CFK was not president, and despite years of politically motivated allegations of corruption and dozens of legal prosecutions (but no convictions at this point), she was still by far the most charismatic and popular leader in Argentina. But just a few months after Alberto and Cristina took power, in early 2020, the crisis in Argentina reached a whole new level, when the global Covid-19 pandemic hit. In September 2018, Macri had gutted the Ministry of Health, among others, and turned it into a sub-department, as part of his harsh austerity cuts, which were justified as administrative “simplifications”. So on March 3, 2020, when the first case of Covid-19 was identified in Buenos Aires, the new government was still in the process of reviving the national health administration, which had been systematically defunded and nearly dismantled by Macri. In this disastrous context, President Fernández and his Economic Minister Martin Guzmán, a neo-Keynesian academic and collaborator of Joseph Stiglitz, played a complex game with the two different groups of creditors, the private bondholders and political organizations like the IMF. Shortly after being sworn in, Fernández had said Argentina would stop until 2024 all payments on the $44 billion that the IMF had lent to Macri’s administration. In February 2020, Vice President Kirchner publicly suggested that the debt was illegitimate. Noting that the IMF statute forbids lending money to countries with significant capital flight, CFK pointed out that loan had not been given to fund infrastructure projects or social programs. No fue un préstamo para hacer represas, carreteras, programas ni obras de infraestructura. El Fondo presta para dar estabilidad a los países, pero acá se prestó para que se fugara el dinero. — Cristina Kirchner (@CFKArgentina) February 9, 2020 Following the neoliberal disasters of the 1990s, the IMF has tried to rebrand itself as a more collaborative and humanistic institution. The Covid-19 pandemic seemed to have forced the Fund to soften its infamous obsession with austerity policies and accept the priority of economic growth over debt consolidation. Whether this was a true change in paradigm or just a marketing campaign is not clear – although Argentines are deeply skeptical. Part two of this article will detail the attempts by the Alberto Fernández administration to renegotiate Argentina’s debt with the IMF and private creditors.

Write an article about: West votes against democracy, human rights, cultural diversity at UN; promotes mercenaries, sanctions. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

democracy, General Assembly, human rights, mercenaries, sanctions, unilateral coercive measures, United Nations

The West voted against the rest of the world on United Nations General Assembly resolutions, opposing democracy, human rights, and cultural diversity, while supporting mercenaries and unilateral coercive measures (sanctions). Western governments frequently claim that their foreign and domestic policies are motivated by “human rights” and “democracy”. They often even lecture their adversaries for purportedly failing to respect these concerns. But on the international stage, Western capitals have shown their commitments to be merely rhetorical, as they have consistently voted against these noble causes and refused to support measures that would tangibly protect them, in flagrant violation of the will of the vast majority of the international community. These stark double standards were on display on November 7 in the meeting of the United Nations General Assembly’s Third Committee, which is devoted to social, humanitarian, and cultural issues. In this three-hour session, the West opposed draft resolutions that called for promoting democracy, human rights, and cultural diversity, while  simultaneously supporting the use of mercenaries and the application of unilateral coercive measures, commonly known as sanctions. The extended West voted against the rest of the world on these issues. Its positions were virtually uniform as a bloc, led by the United States, including Europe, Canada, Australia, New Zealand, South Korea, and Japan. In fact, the chair of the General Assembly’s Third Committee is Austria’s representative to the United Nations, Alexander Marschik, and even he could not help but laugh in the session at the constant protestations of the US representative, who dominated the debate, speaking out against nearly every resolution to explain why the world should join with Washington in voting against it. (Marschik could not contain his laughter despite the fact that his own country, Austria, voted along with the US on each resolution.) Geopolitical Economy Report has created maps that illustrate the clear political divide between the West and the rest. In the November 7 session, nations debated a draft that condemned unilateral coercive measures, or sanctions, for violating the human rights of civilians in targeted countries. The resolution passed with 128 votes in favor and 54 against, and no abstentions. The General Assembly’s Third Committee likewise considered a measure that called for the “promotion of a democratic and equitable international order”. The resolution passed with 123 votes in favor and 54 against, plus 7 abstentions (from Armenia, Chile, Costa Rica, Liberia, Mexico, Peru, Uruguay). Another resolution sought to promote “human rights and cultural diversity”. The measure passed with 130 votes in favor and 54 against, and no abstentions. The Third Committee deliberated a draft that called for the “promotion of equitable geographical distribution in the membership of the human rights treaty bodies”. The resolution passed with 128 votes in favor and 52 against, and no abstentions. Another measure condemned the “use of mercenaries as a means of violating human rights and impeding the exercise of the right of peoples to self-determination”. The resolution passed with 126 votes in favor and 52 against, plus 6 abstentions (from Kiribati, Liberia, Palau, Mexico, Tonga and Switzerland). The United Nations published a full video of the Third Committee’s session on November 7, in the 48th plenary meeting of the General Assembly’s 78th session.

Write an article about: Brazil’s ex-president Dilma Rousseff: US-China conflict is neoliberalism vs socialism. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Brazil, BRICS, China, Dilma Rousseff, economics, neoliberalism, Russia, Ukraine

Former Brazilian President Dilma Rousseff analyzes the US-China conflict as “a rivalry of two systems,” a struggle between neoliberalism and socialism. Condemning US sanctions and “dollar hegemony,” she called for Latin America “to break with the Monroe Doctrine.” Brazil’s former president Dilma Rousseff has condemned US meddling and “hybrid war” in Latin America, while simultaneously praising China for creating a new model of economic development that challenges US-led neoliberal capitalism and the “Washington Consensus” imposed on the world. “We want, basically, to be able to break with the Monroe Doctrine,” Rousseff said, referring to the nearly 200-year-old colonial doctrine in which the US government claims Latin America as its geopolitical “backyard.” “We want Latin America to be for the Latin Americans, and not as the US wants it, in the Monroe Doctrine, which means Latin America for the North Americans, precisely the opposite,” the former Brazilian head of state added. “The so-called hybrid war unleashed by the US through second-generation coups, lawfare processes, and sanctions against Cuba and Venezuela led to a great setback, returning to the continent the inequality, misery, and hunger that had been overcome, or that it was about to get over,” she lamented. A leader of the left-wing Workers’ Party, Rousseff served as president of Brazil from 2011 until August 2016, when she was overthrown in a soft coup backed by the US government and her country’s powerful right-wing corporate oligarchy. Rousseff spoke about the increasing conflict between the United States and China not as a mere interstate dispute, but rather the result of “a rivalry of two systems”: US-led neoliberal capitalism versus socialism with Chinese characteristics. “The so-called Washington Consensus, a concept adopted by conservative Latin American governments, imposed the deregulation of the economy, the drastic reduction of the role of the state, and the abandonment of social and development policies,” she said. These neoliberal capitalists “condemned Latin America to be the most unequal continent in the world, with reduced economic growth, concentration of wealth and income, and specialization in the production of raw materials,” Rousseff commented. The former Brazilian president praised China for creating a “new development paradigm” based on “shared development” and “common prosperity.” China and Russia are also leading the development of a “new geopolitical pole,” she said, and this offers opportunities for Latin America to be more independent. Rousseff made these comments in a panel event on March 19, a virtual conference titled “21st Century Socialism: China and Latin America on the Frontline,” organized by the group Friends of Socialist China. Geopolitical Economy Report obtained a copy of Rousseff’s Portuguese-language prepared speech, and has translated some of her key points into English below. “Brazil always had a position of absolute independence with regard to international relations, with all countries in the world,” Dilma Rousseff emphasized at the beginning of her talk. “Latin America wants to have an autonomous and independent position,” she said. “It is not possible to continue reproducing the inferiority complex of the conservative elites and oligarchies that have done nothing but submit to the United States in a shameful way.” Rousseff argued that China has played an important role in balancing Latin America’s political and economic relationships, so the region is not so dominated by Washington. In this sense, Beijing has helped the region maintain independence and strategic autonomy. China is Brazil’s largest trade partner, and the largest trade partner for many other countries in the region, she noted. “Latin America’s position is not with the United States,” she stressed. “Latin America’s position affirms sovereignty, our position is independence, at the side of China. And this independence is not just for individual countries; it’s for the region.” Rousseff emphasized the importance of institutions like the BRICS, the framework integrating Brazil, Russia, India, China, and South Africa. The BRICS “sought to reduce this unfair asymmetry” represented by institutions like the International Monetary Fund (IMF) and World Bank, which are dominated by the United States and Global North countries, she noted. “Compared to the US, China has more respect for the role played by international organizations,” Rousseff added. Beijing defends multilateralism while Washington has attacked the United Nations and withdrew unilaterally from the Paris Agreement, she recalled. Unlike the United States, Rousseff argued, China has been a more equitable partner. And leaders in the Global South are increasingly looking to Beijing for lessons on how to develop their own countries. Dilma Rousseff applauded China for its “extraordinary development,” and for lifting more than 800 million people out of absolute poverty. She noted how China was an exemplary model for managing the Covid-19 pandemic, juxtaposing it against the public health disaster in the United States, where nearly 1 million people have died. China’s success in the pandemic, and its leading role in sending vaccines and protective equipment around the world, reflects its relative rise, whereas Washington’s failure shows its comparative decline, Rousseff argued. The former Brazilian president traced the beginning of Washington’s new cold war on Beijing back to the 2008 financial crisis. While the West was suffering, the crash did not significantly affect China, Rousseff noted. This led US elites to decide that China had to be contained; its economy had to stop growing so rapidly. The Barack Obama administration’s attempt to create a Trans-Pacific Partnership (TPP) was aimed at economically isolating China, she stated. Rousseff called this part of a larger US “containment policy,” and argued it is “extremely flawed and harmful to everyone.” US policy toward China subsequently “became very aggressive” under Donald Trump, and while the Joe Biden administration has tried to portray itself as more “diplomatic,” she noted, Washington has still pushed a needlessly hard line against China. Speaking of the US “prejudice” toward China, Dilma Rousseff noted that Western politicians have espoused chauvinistic views that China, or any other nation, could not develop without adopting their own model based on the free market and liberal democracy. Although she refrained from referring to the conflict as a new cold war, the former Brazilian leader stipulated that the crisis in US-China relations is a result of their two contrasting economic systems. “China has become a kind of factory for the world, while the US has de-industrialized, losing economic muscle and transforming itself into a kingdom of finance, with a fantastic concentration of income and wealth.” Neoliberalism is specifically what “laid the foundations for the decline of the US,” Rousseff said. There are three serious problems caused by neoliberalism, she argued: “the financialization of the economy, the increase in income and wealth inequality, and the erosion of democracy.” And these ills “are prevalent in all capitalist countries.” “The biggest problem with this system is the widening gap between rich and poor,” Rousseff cautioned. She cited Nobel Prize-winning economist Joseph Stiglitz, who “admitted that 40 years of neoliberal practices have severely weakened the role of the state and public health policies, rendering the West helpless in the face of the pandemic.” “China is accelerating its policy toward a society where equity prevails,” she said, “while in capitalist countries, including the US, per capita income has concentrated and jobs have stagnated or shrunk. Social wealth is rapidly concentrated and the richest 1% is getting even richer.” “The financialization of the economy as a result of neoliberalism is the culprit that kills the dynamism of the capitalist system itself. Credit and finance gradually become obstacles rather than driving forces of production.” “The pursuit of limited government, uncontrolled labor market liberalization and the pursuit of profits lead to a rapid accumulation of financial wealth for those at the top of the social pyramid and de-industrializes the economy.” Rousseff contrasted these systemic problems of neoliberal capitalism with the alternative proposed by Beijing. “China’s strength lies in its pursuit of the path of socialism with Chinese characteristics,” she argued. “This path follows the law of the market, but attaches strategic importance to the role of the state.” “The market mechanism and macro-regulation complement each other in China. Open to domestic and foreign private investment, it has increasingly controlled the distortions of oligopoly and speculation.” Chinese “regulation of economic activity acts to preserve competition and avoid financial bubbles and market distortions,” while the state ensures stability with “tighter control over real estate and tutorial services.” Rousseff praised China for creating a “new development paradigm” based on “shared development,” and commended Beijing for its idea of common prosperity. The United States has historically had excellent systems of education, science, and technological development, but this intellectual infrastructure has been in decline since the emergence of neoliberalism in the 1980s, and is at threat because the ultra-capitalist model has led to a massive disinvestment, Dilma Rousseff argued. On the other hand, China has become the world’s new leader in science and technology, thanks to its heavy public investment and state leadership, she said. China’s progress led Washington to launch a “technological lockdown” on Beijing, she noted, pointing to the ongoing “chip war” over control of semiconductors. The world knows that the Chinese company Huawei has the best 5G technology, and it is also cheaper than its US competitors, Rousseff stated. But “the US tries to prevent other countries from using Chinese 5G technology, even if they don’t have alternatives of their own to offer.” Meanwhile, neoliberalism has led to technological stagnation, the former Brazilian leader stated, because “companies only want and can only make money quickly, bringing limits to R&D activities.” China’s historic development, economic growth, and scientific and technological advancement have created opportunities to challenge “US dollar hegemony,” Dilma Rousseff argued. “In the financial sector, US dollar hegemony faces new challenges. As a global currency, the US dollar holds an irreplaceable position in international trade and payments. This has made the dollar a weapon of retaliation and a tool of extortion against other countries.” “Here in Latin America, we have two terrible examples: 60 years of blockade against Cuba, and now more recently the blockade on Venezuela, at a time of pandemic.” “The US government has been imposing far-reaching sanctions on foreign banks and companies that do business against the US’s wishes with countries like Iran, Venezuela, Cuba and now Russia. They use their national jurisdiction as an international weapon. Given this, it is unlikely that the dollar will remain irreplaceable forever.” Dollar hegemony is also based on the SWIFT inter-bank messaging system, Rousseff said, which Washington has turned into a financial weapon. China began testing its own alternative to SWIFT as far back as 2015, she noted, and it is still being developed, but this process has been accelerated by the war in Ukraine. The People’s Bank of China has been testing digital currencies, including its own sovereign digital renminbi, Rousseff added. She criticized the US strategy of “decoupling” from China, calling it “absurd,” because Beijing is thoroughly integrated into the world economy, in complex webs that involve many nations. “In 2019, around 100 countries around the world traded and invested more with China than the US, and that number is still growing,” Rousseff said. China signed the Regional Comprehensive Economic Partnership (RCEP) in 2020, she noted. This free trade agreement in the Asia-Pacific region involves nearly one-third of the global population and 30% of the global economy, making it larger than the European Union. The global political and economic system is in a process of fundamental change, Dilma Rousseff said. And “there is no more significant geopolitical consequence today than the growing strategic partnership between China and Russia.” “Ironically, it is precisely the maximum US pressure on Russia and the containment of China that played a key role in bringing the two countries closer together,” she added. “The economic sanctions stemming from Russia’s annexation of Crimea and now the war in Ukraine are strengthening a new geopolitical pole, and accelerating changes that would only come slowly.” In regard to the war in Ukraine, Rousseff complimented China for maintaining a neutral policy. The former Brazilian president called for peace while emphasizing how NATO helped to create the conflict in the first place. She emphasized that Latin America must unite and maintain an independent foreign policy, while seeking opportunities with this new geopolitical pole. Latin America needs to adapt to the changing economic order, she argued, to reduce its dependency on export of commodities, and “seek re-industrialization with new characteristics,” to partake in the new “technological revolution.” “Whoever remains as a mere importer of this technology,” she said, “will remain on the periphery, submitted and subordinated to foreign interests and policies.” “The transformation of the productive model is the main challenge for Latin Americans, to recover a path that allows them to achieve considerable economic growth with social justice.” “Producing and exporting mineral or agricultural commodities alone does not support equitable growth. Another model is needed for our region to reach high levels of industrialization and have a great capacity to add value to production based on the quality of education and work and scientific-technological innovation with the generation of better jobs.” Regional integration is a key part of this process, Rousseff stressed. “A true integration of Latin America is essential,” she said, noting the region has nearly 1 billion people, with “fantastic natural resources,” including oil, minerals, agricultural products, and water reserves. “The creation of UNASUR and CELAC was the political-institutional framework needed to ensure our autonomy and independence and enable an integration that would not only be commercial, but also productive, industrial, and educational, in order to reduce asymmetries and inequalities between countries and regions.” Progressive governments in Latin America need to increase the “presence of the state in the economy, the defense of the sovereignty of nations and democracy, and an open geopolitical relationship,” she added. China’s economic partnership and its Belt and Road Initiative offer many possibilities for the region, presenting an opportunity to be more independent, Rousseff argued. What “is wanted is Latin America for Latin Americans,” she said, “to be able to break with the Monroe Doctrine.”

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economics, Geopolitical Economy Hour, Michael Hudson, Mick Dunford, neoliberalism, Radhika Desai, Russia, Ukraine, Vladimir Putin, Volodymyr Zelensky

Political economists Radhika Desai, Michael Hudson, and Mick Dunford analyze the conflict in Ukraine, discussing the aggressive neoliberal reforms being imposed by the Ukrainian government and Europe’s suicidal policies. To analyze the conflict in Ukraine, political economists Radhika Desai and Michael Hudson are joined by economic geographer Mick Dunford. They discuss the aggressive neoliberal reforms being imposed by the Ukrainian government and Europe’s suicidal policies. You can find more episodes of Geopolitical Economy Hour here. (What follows is a lightly edited transcript.) RADHIKA DESAI: Hello everyone and welcome to this ninth Geopolitical Economy Hour, the fortnightly show on the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And today we have a special guest, Professor Mick Dunford. Mick is professor emeritus at Sussex University and a visiting scholar at the Chinese Academy of Sciences, and his work focuses on world development, especially of Eurasia and China. Mick is going to help us discuss the political and geopolitical economy today of the Ukraine conflict. The conflict is dragging on. The much anticipated spring offensive has started and is sputtering. Western propaganda is beginning to portray what we know is in many cases a bloodbath for Ukraine as a triumph. President Zelensky is jetting around European capitals, eliciting very uncertain promises of help. Western powers are filling Ukraine with what somebody recently called a zoo of incompatible weapons and weapon systems of different vintages. The EU continues imposing ever newer sets of sanctions while President Biden continues to proclaim his support for Ukraine’s cause as long as it takes to regain its 1991 borders, which of course includes Crimea. So all of this is going on. We know there is much that is puzzling about the conflict. And today what we want to do is follow the money on the conflict. Wars are not just fought with arms, strategies and tactics. Armies march, as they say, on their bellies. So what is the political and geopolitical economy of this conflict? While the mainstream press makes it sound as if the West is involved in the conflict entirely altruistically, standing up for Western values and democracy, even as it supports, by the way, an ever-more fascist government in Kiev, a few critical sources do focus on the profits that are being made by arms production. But what we think we will be able to show in the course of this hour is that, in fact, the underlying political economy and geopolitical economy is far more complex. So what we’ve decided to do is organize the conversation by country and region. So we will first discuss the points relating to Ukraine. Then we’ll come to Russia. Then we’ll come to Europe. Then we’ll go to the US. Then we’ll discuss China and then the rest of the world. So that’s roughly how we want to do it. And so beginning with Ukraine, what I find really remarkable about the whole sort of economic situation in Ukraine is that normally when a country is at war, you’d expect that the country pulls together, the government creates policies that are egalitarian. You know, in the course of the conflict in the Second World War in Britain, there was talk of fair shares and equal sacrifices. But what you find in Ukraine now is absolutely the opposite. What you are looking at in Ukraine is what we may call neoliberalism on steroids. The Zelensky government, even as it is conducting a war, which is very often a kind of “show war” anyway, but it is supposedly at war, it is fighting a great enemy. Meanwhile, the government is implementing exceedingly anti-labor legislation. It has banned the opposition that will try to resist that. And it is privatizing all sorts of state assets in order to finance the war. So you’re essentially selling off the family silver in order to pay for an ongoing expense. And what’s more, the privatizations include the very, very fertile land of Ukraine. And it is not being privatized to ordinary farmers or anything. On the contrary, the land is being sold off to large agribusiness. So every time you hear about, you know, how urgent it is that Ukrainian grain has to get out to world markets, it’s not the interest of ordinary farmers that are being protected, Ukrainian farmers. On the contrary, these big agribusinesses must get their products out for sale. So this is what’s going on. And in many other ways as well, private enterprise is deeply involved. Every time there is a loan being given to Ukraine, private sector operators, big financial institutions are involved. And of course, the IMF is funneling money to Ukraine in various ways and so on. Don’t you think, Michael, isn’t that really quite an exceptional state of things for a country at war? MICHAEL HUDSON: Well, it certainly is. And in the press discussion every day, it’s obviously about the military, but the military discussion about whether there’s going to be a counterattack by Ukraine, the military situation is, all what they’re really talking about is, Ukraine has to make some victory so that it can now negotiate peace with the Russians and install exactly the neoliberal policy that you’ve described. There’s no way in which that can happen. I think we should say at the beginning what the other side has to say. And I think Russia’s foreign secretary Lavrov made it clear on May 4th. [Lavrov] said, ““Everyone understands the geopolitical nature of what is happening. Everyone understands that, without solving the main geopolitical problem, which is the desire of the West to maintain its hegemony and dictate to everyone its will, it is impossible to solve any crisis, be it in Ukraine or in other parts of the world.” So you can see right now how the U.S. has been preparing for that. Every day, certainly in the New York Times and the Washington Post, there is a list of all of the war crimes that Russia has been allegedly committing in Ukraine, beginning with faked massacres, the [Bucha] massacre, and all of the attacks. So the U.S. is accumulating a bill that now the New York Times says is $2 trillion that Ukraine will have to pay the West in order to become solvent once the fighting is over. And the U.S. says, — Well, we’re already preparing a war crimes trial in the International Criminal Court against Russia for what this is going to be, a list of damages to charge Russia so that Ukraine can begin to pay. But of course, the war crimes trial is going to take years and years. And in the meantime, Ukraine is going to have to sell off exactly all of its assets that you have mentioned. It’ll have to sell off its agriculture to Monsanto. It’ll sell off its gas rights to Chevron. The U.S. has hired BlackRock, the Wall Street firm, to make a repertory of all of the assets Ukraine has and how they will be sold to U.S. buyers. Well, the whole question is, what will happen? Will that really be sold off? Well, how can it be sold off if the sellers are a government that was installed by a coup d’etat, a government which actually itself has become a terrorist government, and the money that is received for these special privileges are actually turned over to the kleptocrats and to the government officials to put in their own accounts, and much of it has actually been recycled into campaigns for the U.S. Congress, the U.S. senators and U.S. politicians. And that is sort of a key economic aspect of this that hasn’t been discussed apart from Hunter Biden’s laptop, where he promised to pay Hunter Biden and the big man, presumably the father, to act as lobbyists for Ukraine. And we know that much of the money that has been donated to Ukraine has been paid by Ukraine on public relations agencies and lobbyists to pay senators and representatives. But also, when you have BlackRock in charge of neoliberalizing and carving up the Ukrainian economy, the senators and congressmen can expect campaign contributions not only from Ukraine but from BlackRock, from Chevron, from all of the other companies that are able to buy a killing there. Well, what is the response? And I think what I want to point out is that Russia obviously needs its own criminal court. It needs a shadow court to say, — Yes, of course there has been the aggressor must pay reparations. The aggressor in this case is the U.S. and NATO. We are owed money. We’re not the payees. — And these assets in Ukraine, especially in the Russian part that are now part of Russia, are not Ukraine’s to sell. They are our assets now. They are Russian assets. And we are not going to sell them to the West, and we are not going to install a neoliberal program that is being proposed by the West. So there’s obviously going to be a standoff for a number of years. That standoff will have to go beyond just an international criminal court by the global majority, but a whole set of counter-institutions to counter, for instance, the IMF, which is lending money to Ukraine in violation of its articles of agreement, lending to a country at war, lending to a government that is anything but democratic to fight the war. So I think we may have a little back and forth here before we finish Ukraine, but to get into this, the fact that the economic solution can only be settled on the battlefield. Everybody agrees with that. The U.S. is expecting Ukraine to win enough on the battlefield so that they can say, let’s stop and talk. And Russia has made it very clear, we’re not going to stop and talk. We are going to continue to put our national security demands up front, and this is not something that’s going to end this year or next year or even the year after. MICK DUNFORD: I just want to pick up on what Michael said about the way in which neoliberalism is seen as the way forward from this point in time. And I want to do that by talking about the way in which neoliberalism, the way in which a particular path to transition, the way in which a country in which ethnic nationalists came to power through a series of successive color revolutions, laid the foundations, many of the foundations for the current crisis. It’s very interesting, you know, that in 1991, the Ukrainian ethnic nationalists, of whom Gorbachev had actually warned Bush, envisaged that Ukraine would very quickly become another France. In fact, what happened was that Ukraine, in a sense, actually went backwards. In 1989 to 1991, there were a series of transformations in Europe in which many of the communist countries in Europe collapsed and undertook transitions to capitalism. And in 1989, there was an attempted color revolution, which failed in China. This chart simply depicts the growth of GDP in a number of these transition countries from 1989. 1989 is equal to 100. Of the East European countries, the one that did best was Poland. It reached, by 2019, an index of 251.7. But Poland received huge sums of cohesion fund support from the European Union. Of these countries, the one that did second best was actually Belarus, which did not adopt a neoliberal path. If however, you look at Ukraine, you find that it, in 2019, right before the major impact of the current conflict, but obviously reflecting in part the conflict that started in 2014, stood at just 56.8% of where it was in 1989. That represents a catastrophic economic collapse as a result of the path of transition that was adopted in that country. If one looks at China, I record the Chinese index. The Chinese index, starting at 100 in 1989, in 2019 was 1,480. I want you to just think about those two numbers. You can compare Poland, 251.7; [Ukraine], 56.8; China, 1,480. So in a sense, this particular neoliberal path led to an economic catastrophe. It also led to a demographic catastrophe because the country had 51.3 million people in 1989, 1993. It had dropped to about 41 million by 2014. Today it is probably about 31 million. About 5.5 million refugees are in [Russia], another 4.5 million in the European Union. Its population has collapsed because deaths exceed births. So it has very little prospect of seeing sustained population growth in the years to come. So in a sense, I just wanted to document these economic and demographic aspects of a catastrophe that has led to this tragedy. RADHIKA DESAI: That really is very important. What we are seeing now in the context of the war is that these policies are actually being further enhanced, including by the fact that the Zelensky government has used the excuse of the war to ban all opposition, which means that the opposition to these policies cannot be voiced, essentially. And of course, what you are also saying about the demographic collapse, both before and then during the war, with so many refugees in Russia and elsewhere, I think it also shows that, the irony of the fact is that everyone who says stand up for Ukraine and we are going to defend Ukraine is actually contributing to the systematic destruction of Ukraine. This is one of the ironies of the present situation. Another thing about the sort of political economy of all this that really strikes me as extremely, I mean, scandalously hypocritical, shockingly hypocritical, is that all the arms that are being sent, especially by the United States, but also by other countries, they are always portrayed as, we are giving Ukraine arms. None of these arms are being given. The United States and other countries are selling these arms. And if Ukraine cannot pay, as it indeed cannot, they are running up a tab. At the end of this war, whatever entity that survives to which the name Ukraine can be stuck will be saddled with this bill. And I don’t think all the money that they will confiscate from this Russian oligarch or that Russian oligarch, Central Bank reserves and whatnot, will come anywhere near to paying for this. And so essentially, whoever the people who remain in Ukraine, will be working very hard to pay off this debt. And again, it is a debt, remember, that has been incurred for a completely illegitimate purpose. Ukraine was not very prosperous, but it would have retained what little 56.8% of its 1989 prosperity. It would have retained that substantially and maybe even done better had they signed the Minsk agreements. But the West, by egging Ukraine on not to sign the Minsk agreements, has essentially created this situation. And what’s more, Western corporations, financial, agribusiness and all sorts are basically already profiting from it. They were profiting, as Mick, you pointed out, already before this conflict began, through all the color revolutions and the implementation of neoliberal policies and so on, which goes back certainly to 2014 and much earlier than that as well. But also in the context of the present war, while the war is going on, while the country is at war, Western corporations are benefiting by buying up productive assets and essentially exploiting Ukrainian labor essentially with a labor legislation that is totally loaded in favor of big corporations. MICHAEL HUDSON: Well, the question is, what is Ukraine going to be for all of this? When you talk about the neoliberalism, there’s no way that this neoliberal program can be applied to Donetsk or to Luhansk or to Odessa, if that’s taken over. So what we’re talking about is a kind of rough state of Ukraine in which it’s possible even Luhansk may be turned over to Poland. It’s going to be carved up. So the argument is going to be: What is the Ukraine that is going to pay these debts? And certainly any agreements that the proxy government has made and any debts that they’ve run into can be repudiated on the grounds of odious debts. Now obviously if the United States imposes a puppet government, a client oligarchy, they’re not going to raise the issue of odious debts. As you just pointed out, the political system is such that labor has no representation there. So you would have a Ukraine that’s lost half of its population that’s living abroad now and there’s nothing to go back to for it. And much of the population is in the Russian speakers. So there’s going to be literally something that is not really a country. You can think of it as an economic entity that somehow controls the raw materials we’ve mentioned, the land that’s not poisoned by uranium bullets and made radioactive. You’re talking about a kind of, not really a country. Even the definition of how to put in the new laws is going to have to await a settlement of the political boundaries that I don’t see happening within the foreseeable future. RADHIKA DESAI: So absolutely. I mean, basically what we are all ending up saying is that the war has simply been the occasion for further acceleration of neoliberal transformation of Ukraine, that’s what the West is getting. Meanwhile, of course, ordinary Ukrainians, many of them may be even quite idealistic, are being signed up to go and fight and die for a cause which is not even the cause of their liberation, but a cause of the destruction of their country. I mean, this is the horrific situation in Ukraine. Maybe if we are done with Ukraine, we can, Mick, did you want to add anything more about Ukraine? MICK DUNFORD: I mean, no, the only thing I would have added is that, I mean, if you look at Mariupol, I mean, there’s already quite a significant process of reconstruction of housing, with people being provided with new accommodation. There’ve been quite major investments in transport infrastructure. There’ve been attempts to address the problems of water supply of the Crimea. So I suspect that those parts of Ukraine that have become parts of the Russian Federation may well see very substantial public investment in order to try to, well, so much has been destroyed, to actually restore the infrastructure and to start to reestablish public services and maybe to get some of these economic activities working again to provide people with livelihoods. But obviously that will involve massive financial investments and very careful planning. RADHIKA DESAI: Absolutely, and that’s a good segue into our next topic, which is Russia.So, I would say, what are the most general things you can say about the situation in Russia? Well, recall that when the conflict began, President Biden claimed that he was going to impose such sanctions that were going to, what was, how did he put it? That we were going to reduce the ruble to rubble and that we were going to set back the Russian economy, massively destroy the Russian economy. Instead, what we’ve seen is that the Russian economy has actually proved very resilient. And in fact, in many ways, the sanctions have been boomeranging, causing more harm to the imposers of the sanctions, whether it’s the European Union or the US itself, particularly the dollar system and so on, instead of hurting Russia. So Russia has proved resilient against sanctions. And this story itself also goes back to 2014, because in 2014, as people may recall, a first batch of sanctions were imposed on Russia. And in response to those sanctions, the Russian government did undertake a number of initiatives to essentially sanctions-proof its economy. And one of the big success stories of that sanction-proofing was in fact, the Russian agricultural sector, which in fact has been, has proven to be a success story. And Russia is today a major exporter, not only of grain and food products and so on, but it also exports fertilizers, as we saw in an earlier phase of the conflict, when there was a great deal of concern about the disruption of supplies of fertilizer from Russia. And Russia has also, over the last year or so, demonstrated a capacity for keeping up production. One of the other things that occurs to me is that, in the West, with all the weapons being supplied and sold to Ukraine, the stockpiles have been depleted, whereas Russia has demonstrated a capacity to continue manufacturing weapons and essentially to win wars in Russia. So in that sense, and last point I’d like to make is that all of this has been done in a context where, although the government has stepped up its level of state intervention in order to create a more productive economy, become more of a developmental state, there are many in Russia who argue that not enough has been done on this front and more can be done. The central banks policies, the Russian central banks policies could be more anti-neoliberal than they are. The government could also essentially mobilize the economy on a war footing. And actually, instead of how, for Russia, the IMF predicted that the Russian economy would be set back by about 12 to 14%. And in the end, in 2022, it was set back by a mere 2%. But many people would argue, Sergei Glazyev is one of them, who says, actually, if you mobilize the economy, you would not only not have a setback of a mere 2%, which is certainly something to celebrate, but actually have a Russian economic boom, which could still be possible. MICHAEL HUDSON: Well, what Russia wants to do is to turn what is going to be a victory militarily in Ukraine into an overall new economic order. That’s what both Putin and Lavrov have talked about. And they’ve also pointed out that economic and political resolutions of the Ukraine conflict go together. So, Russia at the very outset is going to ask Ukraine and the United States to admit that the fake massacre in [Bucha] and other accusations of war crimes were faked. And Russia is going to, I would hope, make its own list of Ukrainian, American, and British war crimes against Ukraine, including now-depleted uranium, and present its own bill for money that is owed, which probably will be much more. There will be a whole argument about who started the war. Did the war start in 2014 with the coup d’etat? Or did it start with the buildup of Ukrainian [forces] to attack Luhansk and Donetsk just before February of last year? Or did it just start with Russia coming in as every American official document says, unprovoked? Well, the war crimes trial is going to be run by the Russians, probably with other Global South, world majority countries, China and others. And the objective is going to be to restructure not only NATO-Ukraine, but NATO-China and US relations with the global majority altogether. And what Russia realizes is that whatever comes out of this, whatever peace agreement is negotiated can only be established on the battlefield. That’s why Russia cannot afford to lose the war. And why in the New York Times, Mr. Friedman comes out and says, Russia has now expanded right to the tip of NATO. It’s Russia that’s expanding to NATO instead of NATO expanding out to Russia. So I think what Russia is going to come out with is its own Monroe Doctrine. And it’s going to say, keep out of the Black Sea and keep also out of the Northern Pacific. It can coordinate this with China, keeping foreign ships out of the China Straits. The Ukraine war is going to set a whole model for what’s happening in Taiwan, in China, and all over the world, far outside of Ukraine. And the United States essentially has seized the holdings of Russian oligarchs. And we’ve talked about seizing Russia’s reserves. And these holdings of Russian oligarchs were bought with the money that they paid the privatized companies to US and foreign borrowers. So Russia can economically respond by nullifying all foreign holdings of Russian stocks that are held by US holders and NATO holders. Say, — Wait a minute, you’ve not only stolen from Ukraine, you’ve stolen in Russia. Let’s have a global settlement of all this. — You did to Russia first what you did to Ukraine. We’re going to cancel all stocks and bonds owed to US and NATO holders. Simply nullify them to reverse the sell-off of the Russian industry. And that could be a model for the same thing to be done to Ukraine in calculating the damages and reparations that America, Britain, and Germany owe to Ukraine. MICK DUNFORD: Yes, I mean, Michael spoke about a new economic order. I think it’s quite interesting to ask why, when from the 1990s, Russia put forward proposals for economic integration of Eurasia from Lisbon to Vladivostok, when it spoke about indivisible security, when it expected that the verbal and written commitments made to Gorbachev concerning the non-expansion of NATO would be respected, and we now learn from Jeffrey Sachs that NATO started to plan the inclusion, even of Ukraine in 1991, 1992, which is astonishing. But in a sense, these constructive proposals were repudiated by the United States and also by the European Union. An important question one needs to ask is why. I mean, obviously there are many reasons and there are complicated explanations, but clearly what this conflict has done is, it’s disrupted the Belts and Road Initiative, it’s divided Russia and Germany. It obviously is presumably intended to prevent the emergence of a significant Eurasian land power that could challenge the leadership of the United States. In the case of the EU, the EU is only interested in economic integration on its terms, which means, which it says respect its values, but what it means by its values are a political order in which it’s easy to interfere externally, and an economic order in which all resources are essentially available to sale to everyone and anyone, which tends to deny less-developed parts of the world the prospects of engaging in a form of catch-up development. I think it’s in the light of that bitter experience that Russia’s formulated a new foreign policy, and that new foreign policy is extremely interesting because it involves on the one hand, a reorientation of Russia towards the East, the establishment of closer relationships with East Asia, with Southeast Asia, with India. But it also involves the redefinition of Russia as a “civilization state”. I mean, for a long time, since Peter the Great, Russia in a sense modeled itself on the West, and I think it’s the malfeasance of the West has actually persuaded it that there has to be another way forward. And in a sense, this notion of a civilization state is a notion that’s also used in relation to China, you could use it in relation to India, in relation to the countries of the Islamic world. And the thing that’s quite interesting about it is if you actually say, look, you look at East Asia, until 1894, East Asia was at peace for 300 years. If you just look at China, it was at peace for 500 years. These countries did not engage in forms of external expansion and colonialism. So in a sense, there’s a profound difference in the kind of civilization or values of these East Asian civilizations and Western civilization in which capitalism emerged, imperialism and colonialism. And in a sense, that’s associated with a radically different conception of the international order that I think Russia has now come to in its close relationship with China, and especially in terms of the way in which it’s defined its new foreign policy. And that, in a sense, is a hope that we might all, in the years ahead, come to live in a more peaceful world in which we’re not constantly faced with a succession of wars as we have been basically in the last 500 years, since the rise of Western colonialism and imperialism. RADHIKA DESAI: No, that’s exactly the word. The word you ended with is exactly what I was going to talk about, because it is about imperialism. You said Jeffrey Sachs noted that the Americans were planning as early as 1990, 1991 to integrate Ukraine into NATO, et cetera. The reason for that is that essentially what has ruled the world, what has determined how the different parts of the world relate to each other for the last couple of hundred years has been Western imperialism. Why do we have Western imperialism? Because of Western capitalism. What is the purpose of Western imperialism? To constantly open up more and more parts of the world so that Western corporations based in the West could have access to markets, to investment opportunities and profit opportunities and cheap labor and cheap materials. Russia has always been seen as a big prize for the West. Essentially, the Anglo-American interest, so to speak, the so-called liberal and the most aggressively imperialist interest of the West has always looked upon Russia as being too big and therefore something that should be broken down. And this is also important. It’s also important to talk about this because Western imperialism is often ignored while the Russian empire or the Chinese empire, and we are always being told that these countries are being imperialist. But as you rightly pointed out, these civilizations have lived peacefully and they have been used to living peacefully for centuries. Whereas what you have seen with the onset of Western capitalism is nothing but endless war. And the purpose of these wars is exactly this. So I think that, and I also like to make one, I mean, I completely agree with you that, of course, since Peter the Great and Catherine the Great, Russia did look to the West. But the purpose of looking to the West was not in fact to model itself on the West, but rather to essentially partner with the West to create Russian prosperity. But because the West is imperialist, it is precisely this prosperity that was not possible in close relation with the West. That is why the pinnacle of Russian productive achievement was under the Soviet Union when it was not in fact connected with the West. So in that sense, I would say that what Russia has realized now, and this was very clear in my last visit to Russia, two quick reminiscences. Number one, we attended a major economic conference and even like two or three years ago, that conference would have been dominated by neoliberal intellectuals. This time around, the overwhelming majority of the speakers were decidedly anti-neoliberal. There were a couple of neoliberals, but they were sort of one or two in a sea of general consensus about creating a developmental state in Russia, having closer relations with China, and moving away from the West. So that’s number one. Number two, another conference I attended, began by the chair. Again, this took place in the home of neoliberalism in Russia which is the Higher School of Economics, which was set up after 1991 precisely to be a sort of beehive for neoliberal thinking. This is where the session began by the chair, essentially the first speaker, essentially saying that when this war ends, Russia will no longer turn to the West. That chapter is finished. Russia is looking to the East. And the session ended with the chair saying, the fact of the matter is, Russia does not want to become closer to the West. The West is boring. The East is where everything is happening. So in that sense, yes, the Washington consensus has now been universally rejected and the longstanding question of whether Russia is European or Eurasian has been decisively settled. So in this sense, I would say that there are many trends essentially moving in an anti-neoliberal direction. There is room for more and I think Russia can come out of this as a much more productive society, provided it manages to not just build resilience against sanctions, but actually learn how a mixed — The graph showed that in the period since 1989, China has essentially increased its GDP by almost 15 times. Other countries like Russia can do it too. Russia has a lot of potential, but it needs to have the right policies. And I think this is the direction in which the present situation is pushing Russia. And of course, as both of you pointed out, this is creating a, we sometimes call it a multipolar world. It’s certainly dividing the world away from the West and creating new relationships between countries, particularly the closeness between Russia and China is very important here. MICHAEL HUDSON: Well, the Ukrainian and Russian situation in many ways has inverted the whole traditional drive of imperialism. You and I have spoken for decades about imperialism being economic. And even when Karl Marx talked about British expansion into India, he gave a speech before the chartists saying, — Well, at least English imperialism is going to break down the backwardness of India and other countries. And it’s going to introduce capitalism. And that’ll be the first step toward socialism in these countries. This is not what is occurring in Ukraine or in the neoliberal breakup of Russia. And in fact, you can look at Ukraine and Russia in the last 30 years and say, the whole geopolitical theory of economic priority, the idea that economics drives politics, doesn’t seem to be the case today. Neither industry nor labor is benefiting. You’re seeing Germany already agreeing to subsidize the high gas and oil prices to support buying its liquid national gas from the United States. It’s six times the price that Russia was charging. That’s not economic. You have German industry unable to stop the dismantling of German industry by dismantling the energy trade and the food trade with Russia that was what gave German industry its competitive advantage. That’s now gone. And that’s irreversible. Not because of anything that President Putin is saying, we’re turning eastward. But because the US demands to turn Europe into a client oligarchies has made it irreversible. If the German government supports industry by saying, — Okay, we’re going to give money to the industry so it can depend entirely on the United States for materials we used to import from Russia, then, given the fact that we have to balance our budget according to the EU rules, we’re going to have to cut back social spending. — Especially now that we have to vastly increase our arms spending to replace all of the old obsolete arms that we’ve sent to Ukraine with brand-new U.S. arms, there really isn’t going to be any opportunity for a social democratic economic program in Germany. Well, it’s hard to say how economic self-interest justifies this inversion, this reversal of European policy, because it’s led to America’s destruction of German industry. And not only that, but by destroying German industry, you’ve destroyed the demand for skilled labor. Are we going to see German labor emigrating just like it has from the Baltic states, 20 percent loss in population from Latvia, Estonia, and Lithuania? But there’s another thing that also Europe has lost by this. And when Russia and China are turning away from Europe, they’re not turning away from the Europe that was going social democratic, from the Europe that actually held out ideals in times past, but from the fact that Europe is no longer social democratic. It’s lost its former socialist labor policy. Germany’s Die Linke Party has broken up over the Ukraine war, and the United States political meddling has turned Europe’s social democratic and labor parties into neoliberal proxies, the Tony Blairism of German politics and French politics and all over Europe. So the result is that not only a client political oligarchy, but also a client political labor force. There’s no labor movement in Europe to oppose what’s happening here. What if economics governed European policy? Well, after 1991, Europe hoped at least to gain economic dominance over Central Europe, Russia, and, as you pointed out, Ukraine. But now it’s losing Eurasia. Annalena Baerbock says that any kind of trade is a risk. And if you trade with Russia or China, she said, then you’re taking the risk that they can do to Europe what America does to the rest of the world. They can cut you off with sanctions and disrupt your economy by refusing to export to you. And Europe can only be safe if it doesn’t export, import anything that it needs from China or Russia or the rest of the global majority. Only the United States can be depended upon to help Europe develop, just as it helped Germany develop by blowing up the Nord Stream pipelines and restructuring its energy trade. So this is the craziness of what Germany’s foreign minister herself is saying. I don’t know how you can ever say that this is an economic explanation of things. The fact is, it’s ethnic and racist hatred of Russia. It’s Nazism. It’s not social democracy. Europe has now embraced Nazism, and I think this is best symbolized over the weekend by the Zelenskys meeting with the Pope wearing two Nazi symbols on his shirt, just to make it very clear, hey, maybe we can reestablish the papal Nazi pact of the 1930s and the red line and everything. So Europe has lost its profitable investment future with Russia, and now it seems China too, and it’s completely tied itself to the United States. How do you explain that economically in terms of self-interest? You can’t. RADHIKA DESAI: Mick, we’re still discussing Russia, right? MICHAEL HUDSON: Well, it’s Europe too. MICK DUNFORD: I started to talk about Europe. Michael just talked about the way in which some of the decisions, the extraordinary decisions made by the political leaders of European countries, and the ways in which the complete absence, it seems, of any strategic autonomy in Europe has led to actions that make a bad situation worse. They make a bad situation worse in the sense that they’ve disrupted relationships with Russia, especially energy relationships, food relationships, and also de-risking generates serious risks where Europe is very, very dependent upon a whole range of intermediate goods that are actually produced in China and supplied to European industry by China. European industries, and indeed all the G7 industries, face serious challenges in any case which are to some extent linked to the fact that after the economic crisis in the 1970s, neoliberalism was in a sense adopted as a solution. It was adopted as a solution in the sense when you saw this offshoring of industry, you did indeed see increases in the profitability of companies that offshored. But if you actually look at the productivity growth of the G7 countries, this is the average productivity growth, labor productivity, hourly productivity, you can see that it has basically steadily declined. So in a sense, the economic performance of the G7, which includes a number of major European countries and of course the United States, Canada, and so on, has progressively declined. And it’s declined because of a decline in productive investment, which partly reflects profitability considerations and the relative profitability of investments in financial activities and a whole series of speculative activities linked to real estate and to stock markets and so on. So the first challenge that Europe already faces is in a sense the challenge of overcoming that relative decline in productivity. But in seeking to confront that challenge by acting in the way in which it has in the last few years and in a sense becoming a kind of part of the world that is almost completely dominated by the United States and by its interests, Europe has done itself considerable damage. I think the other thing that’s very striking about what is happening as far as Europe is concerned is that because of the way in which the world order is changing, the kind of resources available for the former colonial powers are more diminished. So in that situation, the United States is seeking to seize a much larger share of these resources for itself by requiring Europe, for example, to purchase expensive US energy rather than Russian energy through new measures which are designed to perhaps encourage the relocation of European industries in the United States. So in a sense, what you see is a kind of inter-imperial rivalry between Europe and the United States, with the United States exploiting its dominant position in order to secure a greater volume of resources for itself. RADHIKA DESAI: Absolutely, Mick. You use the term inter-imperial rivalry, but I would say that essentially going back to even the 19th century and certainly in the 20th century, the United States has always wanted to essentially contain or roll back European imperialisms in order to open up the world economy to itself. That has always been its goal. It’s continuing to attempt this, even though, of course, it is farther away from realization than ever before. The rest of the world economy is turning away from it. We’re basically now on to discussing Europe. And I want to say a couple of things about that. But I did want to say one final thing about Russia before we leave that topic entirely. And that is that, basically what is happening now can be explained by what happened to post-communist Russia. Essentially Russia was plunged into economic chaos and retardation in the 1990s under shock therapy. And in the 2000s, under Putin’s leadership, you know, Putin managed to stabilize Russia to a considerable extent. But already then it was very clear that if the West had its way, this is what would happen to Russia, what happened to Russia in the 1990s. And in the course of the period over the next two decades, what the Putin government tried to do is to try to say to the West that, — Look, we would like to have good relations with you, but not on those terms. You have to accept our own interests and naturally economic interests, security interests and so on. And that possibility of essentially trying to have a more balanced relationship with the West has been destroyed. The West has basically refused it. It has continued to expand NATO. So now this decisive reorientation of Russia, the realization that the West no longer has anything to offer Russia that is valuable. This is, you know, this has that history. Coming to Europe, to me, the headline in terms of discussing what’s happening in Europe is, are they crazy? Why are they undertaking such a suicidal policy where their industrial base is being destroyed, as Michael, you pointed out. And also the industrial base is being destroyed now quite actively with the destruction of the Nord Stream pipeline, the cutting off of the most sensible source of energy for Europe, which is energy from Russia. And then making moreover Europe reliant on energy from the United States, which not only is more expensive, so creating economic problems, but also setting Europe back from its climate goals because imported LNG, LNG shipped from the United States to Europe will have a carbon footprint which is 8 to 10 times higher than natural gas being supplied by pipeline from Russia. So in all of these ways, the Europeans seem to be intent on a degree of self destruction that I think is amazing. And I still don’t fully understand what animates it. But I can certainly know two things. Number one, there is considerable public discontent. And number two, there is also a presumed, I mean, I think there is a fair degree of discontent in the elite classes because the industrialists’ interests are being destroyed as well. So what is going to happen in Europe is an open question. Certainly we can see the Europeans, they may have gone along with, or at least they may have appeared to go along with the United States with imposing sanctions and so on. But if you look closely at the sanctions, they’re also designed to minimize the impact on Europe. And the fact of the matter is, Europe’s reliance on Russian energy may have decreased, but Russian energy is still being pumped to Europe even as we speak. But in terms of extending this hostility that is now being directed from Europe to Russia, we can see that the Europeans are certainly hesitating and looking at that. So there is that dimension. We will have to see how long this unity that the West has proclaimed, the unity they have found over the conflict over Ukraine, how long it will last and how long it will be before the economic hurt that is being inflicted on Europe will essentially produce some kind of pushback. MICHAEL HUDSON: Well, Radhika, you asked the question, are they crazy? Well, in a way, yes, they are in the sense that you and I each have gone to the Rosa Luxemburg Foundation meetings in Berlin, and I’ve spent quite a bit of time in East Germany. They were traumatized by the Soviet occupation there, so traumatized that it’s almost an unthinking opposition to anything that Russia does. And it’s this anti-Russia feeling that America has been able to fan and encourage that has led the Germans to say, — Yes, we’re willing to sacrifice our industry. We saw what happened under Russia. Now let’s turn to the United States. Not realizing that what the United States is doing is going to be equally bad as what happened in East Germany. They were tapping Angela Merkel’s phones. There’s still wiretapping. My main source of Russian information is Johnson’s Russia List. Johnson just went to France and Germany to take a vacation two weeks ago and said that he was surprised to find that you can’t get any access to RT or Russian news on the internet. Everything’s blocked. There’s total thought control in Europe. This again is a total inversion of everything that was supposed to be democratic. And this is pushed to the really insane point that when Baerbock says, — Anything we import from Russia or China can potentially be used for the military. — If you import Russian food, that could be used to feed Russian soldiers to fight in Ukraine. And so that food is military. We can’t rely on for national security purposes on that. — We’ve got to follow the Dutch and not permit the exportation of ultraviolet scanning machinery to information technology chips. We’ve got to really break off all trade. Well, as you know, when so much trade is already with Russia and China and Eurasia, having a sharp cutoff is going to mean a prolonged depression there. And there’s no indication that a European depression is going to lead to a left-wing solution. If the U.S. has its way, it will lead to a 1930 Nazi-type solution, just as the United States has promoted in Ukraine and in the other countries that it’s taken forward. So Europe may end up looking like a Latin American dictatorship, like Chile under Pinochet. MICK DUNFORD: One also needs to recognize that in some respects, the structure of the economies of Europe, you know, have some parallels with the structure of the economies of North America. There are economies with very high GDPs, but actually their GDP enormously overstates their real wealth in many ways, in part because the GDP includes all sorts of imputations. It includes a whole series of immaterial services, you know, that basically derive from intangible assets that are associated with what copyright, patent, trademarks, intellectual property rights and the control of supply chains. So a significant amount of European wealth in a sense derives also from those sorts of sources. This control over IP, for example, is associated with excessive markups, high service payments. It prevents the diffusion of technologies, of products that could make considerable contributions to the improvement of human livelihoods throughout the world because they remain so expensive. In fact, we know that what in a sense drives development is the rapid diffusion, adoption, repetition of investments. But this system, you know, prevents it. But this system is one which generates large rents, you know, for economically advanced countries and associated with these rents are a lot of interests that are not connected with manufacturing industry and maybe that seem prepared to sacrifice it and to sacrifice the people who work in it in order to preserve some alternative kind of future. To me, that world is scarcely viable outside of a kind of colonial and imperial world order. And in that sense, I agree absolutely with what you’re saying about the naivety and apparent stupidity, gross stupidity of many of the leaders of European countries. RADHIKA DESAI: No, exactly. And you make a very important point, Mick. The GDP of many Western countries, particularly the United States, is vastly exaggerated for the reasons you state. And also because finance in particular constitutes such a large part of this. And essentially, what is finance? Finance is actually not production. Finance only involves the transfer of wealth from some to others. So that in a certain sense, the very thing which is harming the US economy, which is creating inequality, is actually counted as economic wealth. And of course, the making of financial profits only benefits a small number of people to enjoy the labor of other people for next to nothing. I mean, that’s essentially what it is. I also want to say one other thing, which is, obviously, one of the implications of what all of us have been saying is that it is important — today, you showed the labor productivity graph. What would be required to turn that around? What would be required to increase labor productivity in European countries, Western countries more generally? It would be some kind of industrial policy. It would be a set of policies which are totally the opposite of neoliberalism, monetary policies, fiscal policies, industrial policies, everything the opposite of neoliberalism. But after 40 years of applying neoliberalism, it is a moot question whether these countries are ever going to be in a position to be able to implement serious industrial policy. The very structure of these societies, the relationship between states and capitalist classes has changed to such an extent. So increasingly, I’ve been noting that both in the United States and in Europe, industrial policy is being revived as a topic of discussion. Everybody’s saying we need industrial policy. But if you look closely, if you read between the lines, what is passing for industrial policy is essentially a policy which is neoliberalism, which is to say, giving more and more subsidies to big corporations. So the Germans under the rubric of industrial policy are essentially discussing whether they should give subsidies to IBM or to some German manufacturers or what have you. But that’s all it is. And that’s not industrial policy. It’s just the continuation of neoliberalism. Why? Because neoliberalism, for all the talk of free markets and free trade, has ever been only about governments favoring big corporations by giving them all sorts of goodies, cheap credit, privatizing assets at fire sale prices so these companies get ever bigger, giving them subsidies in the name of R&D, and of course, providing all sorts of other services. So really it seems as though the road out of all this for Europe is also going to be very difficult, even if there arise forces that are determined to seek to attempt that. MICHAEL HUDSON: What you’ve described as neoliberalism is exactly what Mick has called a rentier policy. And a rentier policy pretends to be economic growth, but it’s really overhead. RADHIKA DESAI: Absolutely. So we will bring this ninth Geopolitical Economy Hour to an end. And see you next time. We will continue this discussion then. Bye-bye.

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Economist Michael Hudson explains the inflation crisis and US Federal Reserve’s “austerity program to reduce wages” and boost unemployment. He warns a “long depression” is coming, due to the new cold war on Russia and China. Economist Michael Hudson explains the inflation crisis and the US Federal Reserve’s “austerity program to reduce wages.” Western so-called economics experts are openly calling to boost unemployment. Hudson warns a “long depression” is coming, in which the poor will suffer so the rich can get richer, in order to advance Washington’s new cold war on Russia and China. BENJAMIN NORTON: Hey, everyone, this is Ben Norton, and you are watching or listening to the Multipolarista podcast. I am always privileged to be joined by one of my favorite guests, Michael Hudson, one of the greatest economists living today. We’re going to be talking about the inflation crisis. This is a crisis around the world, but especially in the United States, where inflation has been at over 8%. And it has caused a lot of political problems. It’s very likely going to cause the defeat, among other factors, of the Democrats in the mid-term elections in November. And we’ve seen that the response of the US government and top economists in the United States is basically to blame inflation on wages, on low levels of unemployment and on working people. We’ve seen that the chair of the Federal Reserve, Jerome Powell, has said that inflation is being caused by wages supposedly being too high. We’ve also seen that the top economist and former Clinton administration official Larry Summers has claimed that the solution to inflation is increasing unemployment, potentially up to 10%. So today I’m joined by economist Michael Hudson, who has been calling out this kind of neoliberal snake oil economics for many years. And Professor Hudson has an article he just published that we’re going to talk about today. You can find this at his website, which is michael-hudson.com. It’s titled “The Fed’s Austerity Program to Reduce Wages.” and I’m going to let Professor Hudson summarize the main points of his article. Professor Hudson, as always, it’s a pleasure having you. Can you respond to the decision by the Federal Reserve to increase interest rates by 0.75%? It doesn’t sound like a lot – it’s less than 1% – but this was the largest rate hike since 1994. And now we’ve already seen reports that there’s going to be a depression. The Fed chair is blaming this on wages. Can you respond to the position of the Fed and the inflation crisis in the US right now. MICHAEL HUDSON: For the Fed, the only two things that it can do is, number one, raise the discount rate, the interest rate; and number two, spend $9 trillion buying stocks, and bonds, and real estate mortgages to increase real estate prices, and to increase the amount of wealth that the wealthiest 10% of the population has. To the wealthiest 10%, especially the 1%, it’s not only inflation that’s a problem of wages; every problem that America has is the problem of the working class earning too much money. And if you’re an employer, that’s the problem: you want to increase your profits. And if you look at the short term, your profits go up the more that you can squeeze labor down. And the way to squeeze labor down is to increase what Marx called the reserve army of the unemployed. You need unemployment in order to prevent labor from getting most of the value of what it produces, so that the employers can get the value, and pay that to the banks and the financial managers that have taken over corporate industry in the United States. You mentioned that while the Fed blames the inflation it on labor, that’s not President Biden’s view; Biden keeps calling it the Putin inflation. And of course, what he really means is that the sanctions that America has placed on Russia have created a shortage of oil, gas, energy, and food exports. So really we’re in the Biden inflation. And the Biden inflation that America is experiencing is the result basically of America’s military policy, its foreign policy, and above all, the Democratic Party’s support of the oil industry, which is the most powerful sector in the United States and which is guiding most of the sanctions against Russia; and the national security state that bases America’s power on its ability to export oil, or control the oil trade of all the countries, and to export agricultural products. So what we’re in the middle of right now isn’t simply a domestic issue of wage earners wanting higher salaries – which they’re not particularly getting; certainly the minimum wage has not been increased – but you have to put this in the context of the whole cold war that’s going on. The whole US and NATO confrontation of Russia has been a godsend, as you and I have spoken before, for the oil industry and the farm exporters. And the result is that the US dollar is rising against the euro, against sterling, and against Global South currencies. Well, in principle a rising dollar should make the price of imports low. So something else is at work. And what’s at work, of course, is the fact that the oil industry is a monopoly, that most of the prices that have been going up are basically the result of a monopolization, in the case of food, by the marketing firms, like Cargill and Archer Daniels Midland, that buy most of the crops from the farmers. The irony is that while food prices, next to oil prices, are the major factor that is soaring, farmers are getting less and less for their crops. And yet farmers’ costs are going up – up for fertilizer, up for energy, up for other inputs – so that you’re having enormous profits for Archer Daniels Midland and the food monopolies, of the distributors, and enormous, enormous gains for the oil industry, and also of course for the military-industrial complex. So if you look at what’s happening in the overall world economic system, you can see that this inflation is being engineered. And the beneficiaries of this inflation certainly have not been the wage earners, by any stretch of the imagination. But the crisis that the Biden policy has created is being blamed on the wage earners instead of on the Biden administration’s foreign policy and the basically the US-NATO war to isolate Russia, China, India, Iran, and Eurasia generally. BENJAMIN NORTON: Professor Hudson, I want to talk about the increase in interest rates by the Fed. There has been a lot of attention to this, although, again, it’s 0.75%, which is not that big. But it’s of course going to have an outsize impact on the economy. In your article, again, this is your column at michael-hudson.com, “The Fed’s Austerity Program to Reduce Wages,” you talk about the Fed’s “junk economics,” and you say that the idea behind raising interest rates by 0.75% is that: raising interest rates will cure inflation by deterring borrowing to spend on the basic needs that make up the Consumer Price Index and its related GDP deflator. But banks do not finance much consumption, except for credit card debt, which is now less than student loans and automobile loans. Banks lend almost entirely to buy real estate, stocks and bonds, not goods and services. So you argue that one of the effects of this is that it’s actually going to roll back homeownership in the United States. You note that the rate of homeownership has been falling since 2008. So can you expand on those arguments? What will be the impact of the increase of the interest rates by the Fed? MICHAEL HUDSON: Well, in order to get an economics degree which is needed to work at the Fed or at the Council of Economic Advisors, you have to take economics courses in the universities, and all of the textbooks say just what you quoted me as saying they say. The pretense is that banks actually play a productive role in society, by providing the money for factories to buy machinery, and build plants, and do research and development, and to hire labor; and that somehow the money that banks create is all lent out for industrial economy, and that that will enable companies to make more money that they’ll spend on labor; and of course, as they spend more money on labor, that supports to bid prices up as the reserve army of the unemployed is depleted. But that’s all a fiction. The textbooks don’t want to say that banks don’t play a productive role like that at all. And the corporations don’t do what the textbooks say. If you look at the Federal Reserve balance sheet and statistics that it publishes every month, you’ll see that 80% of bank loans in the United States are mortgage loans to commercial real estate and mostly for home real estate. And of course the home mortgage loans have been nothing, like under 1% for the last 14 years, since 2008. Only the banks and the large borrowers, the financial sector, have been able to borrow at these low rates. Homeowners all along have had to pay very high rates, just under 4%, and now it’s going above 4%, heading to 5%. Well, here is the situation that the Federal Reserve has created. Suppose that you’re a family right now going out to buy a home, and you find out that in order to borrow the money to buy the home – because if the average home in America costs $600,000 or $700,000, people haven’t saved that much; the only way you can buy a home is to take out a mortgage. Well, you have a choice: you can either rent a home, or you can borrow the money to buy a home. And traditionally, for a century, the carrying charge for financing a home with the mortgage has been about the equivalent of paying a rent. The advantage is, of course, that you get to own the home when it’s over. Well, now let’s look at what’s happening right now. All of a sudden, the carrying charge of mortgages have gone way, way up. The banks are making an enormous gap. They can borrow at just around 1%, and they lend out at 4.5%. They get a windfall gain of the markup they have in mortgages, lending to prospective homeowners. And of course, the homeowners don’t have enough money to be able to pay the higher interest charged on the mortgages that they take out. So they are not able to buy as expensive a home as they wanted before. But they’ve been a declining part of the population. At the time Obama took office, over 68% of Americans owned their own home. Obama started the great wave of evictions, of 10 million Americans who lived in homes, essentially to throw them out of their homes, especially the victims of the junk mortgages, especially the lower income and racial minorities who were redlined and had to become the main victims of the mortgages. America’s homeownership rate is now under 61%. What has happened? You’ve had huge private capital firms come into the market thinking, wait a minute, we can now buy these properties and rent them out. And we can buy them for all cash, unlike homeowners, we’re multibillionaires, we Blackstone, BlackRock. You have these multibillion-dollar funds, and they say, well, we can’t make much money buying bonds or buying stocks that yield what they do today, now that the Federal Reserve has ground down interest rates. What we can do is make money as landlords. And so they’ve shifted, they’ve reversed the whole shift away from the 19th-century landlordism to an economy based on financialization, and the wealthy classes making money on finance, to go back to making money as landlords. And so they are buying up these homes that American homeowners can’t afford to buy. Because when you raise the mortgage rate, that doesn’t affect a billionaire at all. Because the billionaire firm doesn’t have to borrow money to buy the home. They have the billion dollars of their own money, of pension fund money, of speculative money, of the money of the 1% and the 10% to spend. So what you’re having by increasing the interest rates is squeezing homeowners out of the market and turning the American economy into a landlord-ridden rental economy, instead of a homeowners economy. That’s the effect. And it’s a windfall for the private capital firms that are now seeing that are making money as landlords, the old fashioned way, it worked for 800 years under feudalism. It’s coming back in style. BENJAMIN NORTON: Professor Hudson, you point out in this article at your website that more than 50% of the value of U.S. real estate already is held by mortgage bankers. And of course, that percentage is increasing and increasing. Now, you, Professor Hudson, have argued a point that I haven’t seen many other people make, although it’s an obvious, correct point, which is that there has actually been a lot of inflation in the United States in the past several years, but that inflation was in the FIRE sector: finance, insurance, and real estate. We see that with the constant increase in real estate prices; they go up every single year; rent goes up every single year. The difference now is that there’s also a significant increase in the Consumer Price Index. And there is an interesting study published by the Economic Policy Institute, which is, you know, a center-left think tank, affiliated with the labor movement; they’re not radicals, they’re progressives. And they did a very good study. And they found – this was published this April – they found that corporate profits are responsible for around 54% of the increase of prices in the non-financial corporate sector, as opposed to unit labor costs only being responsible for around an 8% increase. So they showed, scientifically, that over half of the increase of prices in the non-financial corporate sector, that is in the Consumer Price Index, over half of that inflation is because of corporate profits. Of course, that’s not the way it’s discussed in mainstream media. That’s not the way the Fed is discussing it all. We see Larry Summers saying that we need to increase unemployment. Larry Summers, of course, was the treasury secretary for Bill Clinton. He’s saying that the U.S. has to increase unemployment; the solution to inflation is increasing unemployment. Even though these studies show that over half of inflation in the Consumer Price Index is because of corporate profits. I’m wondering if you can comment on why so many economists, including people as revered as Larry Summers, refuse to acknowledge that reality. MICHAEL HUDSON: Most economists need to get employment, and in order to be employed, you have to give a picture of the economy that reflects how well your employer helped society at large. You’re not allowed to say that your employer is acting in ways that are purely predatory. You’re not allowed to say that the employer does not earn an income. You talked about corporate profits and the classical economists. If you were a free-market economist like Adam Smith, or David Ricardo, or John Stuart Mill – these are monopoly rents. So what you call corporate profits are way above normal corporate rates of return, normal profits. They’re economic rents from monopoly. And that’s because about 10 or 15 years ago, the United States stopped imposing its anti-monopoly laws. It has essentially let monopolies concentrate markets, concentrate power, and charge whatever they want. And so once you’ve dismantled the whole legal framework that was put in place from the 1890s, from the Sherman Antitrust Act, down through the early 20th century, the New Deal, once you dismantle all of this state control, saying – essentially what Larry Summers says is, we’re for a free market. A “free market” is one in which companies can charge whatever they want to charge for things; a free market is one without government regulation; a free market is one without government; a free market is a weak enough government so that it cannot protect the wage earners; it cannot protect voters. A “democracy” is a country where the bulk of the population, the wage earners, have no ability to affect economic policy in their own interests. A “free market” is one where, instead of the government being the planner, Wall Street is the planner, on behalf of the large industries that are basically being financialized. So you’ve had a transformation of the concept of what a free market is, a dismantling of government regulation, a dismantling of anti-monopoly regulation, and essentially the class war is back in business. That’s what the Biden administration is all about. And quite frankly, it’s what the Democratic Party is all about, even more than the Republican Party. The Republican Party can advocate pro-business policies and pro-financial policies, but the Democratic Party is in charge of dismantling the legacy of protection of the economy that had been put in place for a century. BENJAMIN NORTON: Yeah, and this is an article in Fortune that was originally based on an article in Bloomberg: “5 years at 6% unemployment or 1 year at 10%: That’s what Larry Summers says we’ll need to defeat inflation.” That’s how simple it is, you know, just increase unemployment, and then inflation will magically go away! Now, I also wanted to get your response, Professor Hudson, to these comments that you highlighted in a panel that was organized by the International Manifesto Group – a great organization, people can find it here, their channel here at YouTube. And they held a conference on inflation. And you were one of several speakers. And you highlighted these comments that were made by the Fed chair, Jerome Powell. And this is according to the official transcript from The Wall Street Journal. So this is not from some lefty, socialist website. Here’s the official transcript of a May 4 press conference given by the Fed chief, Jerome Powell. In this press conference, he said, discussing inflation, he said, in order to get inflation down, he’s talking about things that can be done “to get wages down, and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially.” So this is another proposal. Larry Summers says 6% unemployment for five years, or 10% unemployment for one year. The Fed chair, Jerome Powell, says the solution is “to get wages down.” I’m wondering if you can respond to that as well. MICHAEL HUDSON: Well, the important thing to realize is that President Biden re-appointed Jerome Powell. President Biden is a Republican. The Democratic Party is basically the right wing of the Republican Party, the pro-financial, the pro-Wall Street wing of the Republican Party. Why on earth, if the Democrats were different from the Republicans, why would would Biden re-appoint an anti-labor Republican, as head of the Federal Reserve, instead of someone that would actually try to spur employment? Imagine, here’s a party that is trying to be elected on a program of, “Elect us, and we will create a depression and we will lower wages.” That is the Democrat Party slogan. And it’s a winning slogan, because elections are won by campaign contributions. The slogan is, “We will lower wages by bringing you depression,” is a tsunami of contributions to the Democratic Party, by Wall Street, by the monopolists, by all the beneficiaries of this policy. So that’s why the Supreme Court ruling against abortions the other day is a gift to the Democrats, because it distracts attention from their identity politics of breaking America into all sorts of identities, every identity you can think of, except being a wage earner. The wage earners are called deplorables, basically. And that’s how the donor class thinks of them, as sort of unfortunate overhead. You need to employ them, but it really it’s unfortunate that they like to live as well as they do, because the better they live, the less money that you will end up with. So I think that this issue of the inflation, and what really causes it, really should be what elections are all about. This should be the economic core of this November’s election campaign and the 2024 election campaign. And the Democrats are leading the fight to lower wages. And you remember that when President Obama was elected, he promised to increase the minimum wage? As soon as he got in, he said the one thing we cannot do is raise the minimum wage. And he had also promised to back card check. He said, the one thing we must not do is increase labor unionization with card check, because if you unionize labor, they’re going to ask for better wages and better working conditions. So you have the Democratic Party taking about as hard a right-wing position as sort of Chicago School monetarism, saying the solution to any any problem at all is just lower wages and somehow you’ll be more competitive, whereas the American economy is already rendered uncompetitive, not because wages are so high, but because, as you mentioned before, the FIRE sector, the finance, insurance, and real estate sector is so high. Rents and home ownership, having a home is too expensive to be competitive with foreign labor. Having to pay 18% of GDP on medical care, privatized medical care, prices American labor out of the market. All of the debt service that America has paid is pricing America out of the market. So the problem is not that wages are too high. The problem is that the overhead that labor has to pay in order to survive, for rent, for medical care, for student loans, for car loans, to have a car to drive to work, for gas to drive to work, to buy the monopoly prices that you need in order to survive – all of these are too high. None of this even appears in economic textbooks that you need to get a good mark on, in order to get an economics degree, in order to be suitably pliable to be hired by the Federal Reserve, or the Council of Economic Advisers, or by corporations that use economists basically as public relations spokesmen. So that’s the mess we’re in. BENJAMIN NORTON: Professor Hudson, in your article at your website, michael-hudson.com, you have an important section about the quantitative easing policies. We were talking about how there has been inflation in the past decade, but then inflation was largely in the FIRE sector, pushing up, artificially inflating the prices of real estate and stocks. You note that: While home ownership rates plunged for the population at large, the Fed’s “Quantitative Easing” increased its subsidy of Wall Street’s financial securities from $1 trillion to $8.2 trillion – of which the largest gain has been in packaged home mortgages. This has kept housing prices from falling and becoming more affordable for home buyers. And you, of course, note that “the Fed’s support of asset prices saved many insolvent banks – the very largest ones – from going under.” I had you on to discuss, in late 2019, before the Covid pandemic hit, we know that the Fed had this emergency bailout where it gave trillions of dollars in emergency repo loans to the biggest banks to prevent them from from crashing, trying to save the economy. I do want to talk about this as well, because sometimes this is used by right-wingers who portray Biden hilariously as a socialist. You were just talking about how the Democrats have a deeply neoliberal, right-wing economic program. But of course, there is this rhetoric that we see from Republicans and conservatives claiming that Biden is a socialist. They claim that the reason there is inflation is because Biden is just printing money and giving money to people. Of course, that’s not at all what’s happening. What has happened is that the Fed has printed trillions of dollars and given that to stockholders, to big corporations, and to banks. And this is a point that I saw highlighted in that panel I mentioned, the conference on inflation that was organized by the International Manifesto Group. A colleague of yours, a brilliant political economist, Radhika Desai, she invited everyone to go to the Fed website and look at the Fed balance sheet. And this is the Fed balance sheet from federalreserve.gov. This is the Board of Governors of the Federal Reserve System website. And it is pretty shocking to see this graph, which shows the total assets of the U.S. Federal Reserve. Back in 2008, the Federal Reserve had around $900 billion in assets. Now it’s at nearly $9 trillion in assets. And we can see, after the financial crash, or during the financial crash, it increased to around $2 trillion. And then around 2014, it increased to around $4.5 trillion. And then especially in late 2019 and 2020, it skyrocketed from around $4 trillion up to $7 trillion. And since then, it has continued skyrocketing to $9 trillion in assets. Where did all of that money go? And what was the impact on the economy, of course? MICHAEL HUDSON: Well, the impact on the economy has been to vastly increase the wealth of the wealthiest 1% of Americans who own most of the stocks and bonds. Sheila Bair, the former head of the Federal Deposit Insurance Corporation, pointed out that a lot of this $8 trillion is spent to buy junk bonds. Here’s the problem. The problem really began with President Obama. He inherited a system where you had the largest wave of commercial bank fraud in American history. As my colleague Bill Black at the University of Missouri at Kansas City has pointed out, everybody knew that there was a bank fraud on. The newspapers referred to junk mortgages and “NINJA” borrowers: “no income, no jobs, no assets.” So banks had written mortgages way above the actual value of homes, especially to racial and ethnic minorities, without any ability of the borrowers to actually pay. And then these banks had packaged these mortgages, and sold them to hapless pension funds, and other institutional investors and to the European banks that are always very naive about how honest American banks are. You had this whole accumulation of what the 19th century called fictitious capital. Mortgages for property that wasn’t worth anywhere near as much as the mortgage is for. So if the mortgage was defaulted, if homeowners had jingle mail – in other words, you just mail the keys back to the bank and say, ok, take the house, I find I can buy a house now at half the price that Citibank or one of these other banks lent out. Well, normally you’d have a crash of prices back to realistic levels, so that the value of mortgages actually reflected the value of property, or the value of junk bonds issued by a corporation reflected the actual earning power of the corporation to pay interest on the junk bonds. So by the time Obama took over, the whole economy was largely fictitious capital. Well, Obama came in and he said, my campaign donors are on Wall Street. He called in the Wall Street bankers and he said, I’m the guy standing between you and the crowd with the pitchforks, the people who voted for me. But don’t worry, I’m on your side. He said, I’m going to have the Federal Reserve create the largest amount of credit in human history. And it’s all going to go to you. It’s going to go to the 1% of the population. It’s not going to go into the economy. It’s not going to build infrastructure. It’s not going into wages. It’s not going to reduce the price of homes and make them more affordable to Americans. It’s going to keep the price of these junk bonds so high that they don’t crash back to non-fictitious values. It’s going to keep the stock market so high that it’s not going to go down. It’s going to create the largest bond market boom in history. The boom went from high interest rates to low interest rates, meaning a gigantic rise in the price of bonds that actually pay interest that are more than 0.1%. So there was a huge bond market boom, a huge stock market, a tripling of stock market prices. And if you are a member of the group that owns 72% of American stocks, I think that’s 10% of the population, you have gotten much, much richer. But if you’re a member of the 90% of the population, you have had to go further and further into debt just in order to survive, just in order to pay for medical care, student loans, and your daily living expenses out of your salary. So if American wages were at a decent level, American families would not be pushed more and more into debt. The reason the personal debt has gone up in the United States is because families can’t get by on what they earn. So obviously, if they can’t get by on what they earn, and they have to borrow to get by, they are not responsible for causing the inflation. They’re being squeezed. And the job of economists, and of Democratic Party and Republican politicians, is to distract attention from the fact that they’re being squeezed and blame the victim, and saying, you’re doing it to yourself by just wanting more money, you’re actually creating the inflation that is squeezing you. When actually it’s the banks, and the government’s non-enforcement of the monopoly policy, and the government support of Wall Street that is responsible for what is happening. BENJAMIN NORTON: Very, very well said. Professor Hudson, I should have highlighted another part of this graph here. This is, again, this is at the Federal Reserve Board website. It’s even more revealing when you look at the selected assets of the Fed, and you see that all of these assets basically are securities, securities held outright by the Fed. We see that around 2008, the Fed had less than $500 billion in securities. And you have this policy of quantitative easing. And since then, basically all of the increase has been in securities. Of the roughly $9 trillion in assets the Fed holds, about about $8.5 trillion is in securities. I’m wondering if you can compare this to central banks in other countries. We’ve seen, for instance, that the Western sanctions on Russia were aimed at trying to destroy the Russian economy. President Biden claimed they were trying to make the ruble into rubble. In fact, the ruble is significantly stronger now than it was before the sanctions. To such a degree that the Russian government and Russian national bank are actually trying to decrease the value of the ruble, because they think it’s a little overvalued; it makes it a little harder to be competitive. So how does this policy of the US Fed having $8.5 trillion worth of securities compare to the policies of other central banks? You have experience working with the Chinese government as an advisor. Do other governments’ central banks have this policy? And and that $8.5 trillion in securities, what are those securities? Even from the perspective of these neoliberal economics textbooks that you were talking about, that people are taught in universities, this seems to me to be totally insane. I don’t see how there is even an academic, neoliberal textbook explanation for this policy. MICHAEL HUDSON: Very few people realize the difference between a central bank and the national treasury. The national treasury is what used to perform all of the policies that central banks now do. The national treasury would be in charge of issuing money and spending it. Central banks were broken off in America in 1913 from the Treasury in order to shift control of the money supply and credit away from Washington to New York. That was very explicit. The original Federal Reserve didn’t even permit a Treasury official to be on the board of directors. So the job of a central bank is to represent the interest of the commercial banks. And as we just pointed out, the interest of the commercial banks is to produce their product: debt. And they create their product against existing assets, mainly real estate, but also stocks and bonds. So the job of the central bank here is to support the financial sector of the economy, and that sector that holds wealth in the form of stocks, bonds, and loans, and especially bank bonds that make their money off real estate credit. Same thing in Europe, with Europe’s central bank. Europe is going into a real squeeze now, and has been going into a squeeze ever since you had the Greek crisis. In Europe, because right-wing monetarist designed the euro, part of the eurozone rule is you cannot run a budget deficit, a national budget deficit of more than 3% of gross domestic product. Well, that’s not very much. That means that you can’t have a real Keynesian policy in Europe to pull the economy out of depression. That means that if you’re a country like Italy right now, and you have a real financial squeeze there, a corporate squeeze, a labor squeeze, the government cannot essentially rescue either Italian industry or Italian labor. However, the European central bank can, by the way that it creates credit, by central bank deposits, the European central bank can vastly increase the price of European stocks, bonds, and packaged mortgages. So the European central bank is very much like the commercial bank. China is completely different, because, unlike the West, China treats money and credit as a public utility, not as a private monopoly. And as a public utility, China’s central bank will say, what are we going to want to create money for? Well, we’re going to want to create money to build factories; we’re going to want to create money so that real estate developers can build cities, or sometimes overbuild cities. We can create money to actually spend in the economy for something tangible, for goods and services. The Chinese central bank does not create money to increase stock market prices or bond prices. It doesn’t create money to support a financial class, because the Communist Party of China doesn’t want a financial class to exist; it wants an industrial class to exist; it wants an industrial labor force to exist, but not a rentier class. So a central bank in a Western rentier economy basically seeks to create credit to inflate the cost of living for homebuyers and for anyone who uses credit or needs credit, and to enable corporations to be financialized, and to shift their management away from making profits by investing in plant and equipment and employing labor to produce more, to making money by financial engineering. In the last 15 years, over 90% of corporate earnings in the United States have been spent on stock buybacks and on dividend payouts. Only 8% of corporate earnings have been spent on new investment, and plants, and equipment, and hiring. And so of course you have had the economy deindustrialized. It’s this idea that you can make money financially without an industrial base, without a manufacturing base; you can make money without actually producing more or doing anything productive, simply by having a central bank increase the price of the stocks, and bonds, and the loans made by the wealthiest 10%. And of course, ultimately, that doesn’t work, because at a certain point the whole thing collapses from within, and there’s no industrial base. And of course, when that happens, America will find out, wait a minute, if we close down the economy, we’re still reliant on China and Asia to produce our manufacturers, and to provide us with raw materials, and to do everything that we need. We’re really not doing anything but acting as a world – well, people used to say parasite – as a world rentier, as getting something for nothing, as a kind of financial colonialism. So America you could look at as a colonial power that is a colonial power not by military occupation, but simply by financial maneuvering, by the dollar standard. And that’s what’s being unwound today as a result of Biden’s new cold war. BENJAMIN NORTON: Professor Hudson, you criticized the strategy of simply trying to increase the interest rates to bring down inflation, noting that it’s going to lead to a further decline in homeownership in the United States. It’s going to hurt working people. I think that’s a very valid criticism. I’m curious, though, what your take is on the response of the Russian central bank to the Western sanctions. We saw that the chair of the Russian central bank, Elvira Nabiullina, she – actually this is someone who is not even necessarily really condemned a lot by Western economists; she is pretty well respected by even, you know, Western neoliberal economists. And she did manage to deal with the sanctions very well. She imposed capital controls immediately. She closed the Russian stock market. And also, in a controversial move, she raised the interest rates from around 9% up to 20%, for a few months. And then after that, dropped the rates. MICHAEL HUDSON: A few days, not a few months. That was very short. And now she has moved the interest rates way down. BENJAMIN NORTON: Back to 9%. MICHAEL HUDSON: She was criticized for not moving them further down. BENJAMIN NORTON: Yeah, well go ahead. I’m just curious. So she immediately raised it to 20%, and then has dropped the interest rates since then. I’m curious what you think about that policy. Yeah, go ahead. MICHAEL HUDSON: There is very little that a central banker can do when the West has declared a war, basically, a war on a country that is completely isolated. The response has come from President Putin and from Foreign Secretary Lavrov. And they pointed out, well, how is Russia going to going to trade and get what it needs. And this is what the recent meetings of the BRICS are all about. Russia realizes that the world is now broken into two halves. America and NATO have separated the West. Basically you have a white people’s confederation against all the rest of the world. And the West has said, we’re isolating ourselves from you totally. And we think you can’t get along without us. Well, look at the humor of this. Russia, China, Iran, India, Indonesia, and other countries are saying, hah, you say we we can’t get along without you? Who is providing your manufacturers? Who is providing your raw materials? Who is providing your oil and gas? Who is providing your agriculture, and the helium, the titanium, the nickel? So they realize that the world is breaking in two, and Eurasia, where most of the world’s population is concentrated, is going to go its own way. The problem is, how do you really go your own way? You need a means of payment. You need to create a whole international system that is an alternative to the Western international system. You need your own International Monetary Fund to provide credit, so that the these Eurasian countries and their allies in the Global South can deal with each other. You need a World Bank that, instead of lending money to promote U.S. policies and U.S. investments, will promote mutual gains and self-sufficiency among the countries. So already, every day in the last few weeks, you have had meetings with the Russians about this, who said, ok, we’re going to create a mutual trading area, starting among the BRICS: Brazil, Russia, India, China, and South Africa. And how are we going to pay? We can’t pay in dollars, because if we have money in a dollar bank, or a euro bank in Europe, they can just grab the money, like they grab Venezuela’s money. They can just say, we’re taking all your money because, essentially, we don’t want you to exist as an alternative to the finance capital world that we are creating. So essentially, Russia, China, and these other countries are saying, ok, we’re going to create our own international bank. And how are we going to fund it? Well, every member of the bank will contribute, say, a billion dollars, or some amount of their own currency, and this will be our backing. We can also use gold as a means of settlement, as was long used among countries. And this bank can create its own special drawing rights, its own bank order, is what Keynes called it. It can create its own credit. Well, the problem is that, if you have Brazil, for instance, or Argentina, joining this group, or Ecuador, that sells almost all of its bananas to Russia, how is it going to get by? Well, if there is a BRICS group or a Shanghai Cooperation Organization bank, obviously the Western governments are not going to accept this. So Russia realizes that as a result of Biden’s Cold War Two, there is going to be a continued rise in energy prices. You think gasoline prices are not high now? They’re going up. You think food prices are not high now? They’re going up more. And Europe is especially the case, because Europe now cannot buy Russian gas to make the fertilizer to make its own crops grow. So you’re going to have a number of countries in the Global South, from Latin America to Africa, being squeezed and wanting to trade with the Eurasian group. And the problem is Russia says, all right, we know that you can’t afford to pay. We’re glad to give you credit, but we don’t want to give you credit that you’re going to simply use the money you have to pay your dollar debts that are coming due. Because one of the effects that I didn’t mention of the Federal Reserve raising interest rates is there is a huge flow of capital from Europe and England into the United States, so that if you’re a billionaire, where are you going to put your savings? You want the highest interest rates you want. And if the United States raises interest rates, the billionaires are going to move their money out of England, out of the euro, and the euro is going back down against the dollar. It’s almost down to a dollar a euro. The British pound is heading downwards, towards one pound per dollar. This increase in the dollar’s exchange rate is also rising against the currencies of Brazil, Argentina, the African countries, all the other countries. So how are they going to pay this summer, and this fall, for their food, for their oil and gas, and for the higher cost of servicing their dollar debts? Well, for Eurasia, they’re going to say, we want to help you buy our exports – Russia is now a major grain exporter, and obviously also an oil exporter – saying we want to supply you and give you the credit for this, but you’re really going to have to make a decision. Are you going to join the U.S.-NATO bloc, or are you going to join the Eurasian bloc? Are you going to join the White People’s Club or the Eurasian Club? And it really comes down to that. And that’s what is fracturing the world in these two halves. Europe is caught in the middle, and its economies are going to be torn apart. Employment is going to go down there. And I don’t see wages going up very much in Europe. You’re going to have a political crisis in Europe. But also you’ll have an international diplomatic crisis over how are you going to restructure world trade, and investment, and debt. There will be two different financial philosophies. And that’s what the new cold war is all about. The philosophy of US-sponsored finance capitalism, of making money financially, without industrialization, and with trying to lower wages and reduce the labor force to a very highly indebted workforce living on the margin. Or you’ll have the Eurasian philosophy of using the economic surplus to increase productivity, to build infrastructure, to create the kind of society that America seemed to be growing in the late 19th century but has now rejected. So all of this is ultimately not simply a problem of interest rates and central bank policy; it really goes beyond central banks to what kind of a social and economic system are you going to have. And the key to any social and economic system is how you treat money and credit. Is money and credit going to be a public utility, or will it be a private monopoly run for the financial interests and the 1%, instead of a public utility run for the 99%? That’s what the new cold war is going to be all about. And that’s what international diplomacy week after week is trying to settle. BENJAMIN NORTON: Very, very well said. And I really agree about this increasing kind of bipolar order, where the US-led imperialist system is telling the world they have to pick a side. You know, as George W. Bush said, you’re either with us or you’re against us; you’re with us or you’re with the terrorists. That’s what Biden is saying to the world. And we see the West has drawn this iron curtain around Russia. And now they’re threatening to do the same around China. Now, of course, the difference is that China has the largest economy in the world, according to a PPP measurement. It’s even larger than the US economy. I don’t know how they can try to sanction the Chinese economy, considering China is the central factory of the world. But this is related to a question I had for you, Professor Hudson, and this is from a super chat question from Manoj Payardha, and it’s about how Chinese banks say they’re not ready yet to develop an alternative to the SWIFT. He asked, how will the Third World pay Russia for resources? And we’ve seen, maybe you can talk about the measures being implemented. India has this rupee-ruble system that they’ve created. But I want to highlight an article that was published in Global Times. This is a major Chinese newspaper, and this is from April. And it quotes the former head of China’s central bank, who was speaking at a global finance forum in Beijing this April. And basically he said, we need to prepare to replace Swift. He said the West’s adoption of a financial nuclear option of using SWIFT to sanction Russia is a wake up call for China’s financial development. And he said, “We must get prepared.” So it seems that they’re not yet prepared. But this is something that you’ve been talking about for years. Or maybe you disagree and maybe you think they already are prepared with the SWIFT alternative? MICHAEL HUDSON: Well they’re already using an alternative system. If they weren’t using an alternative system – Russia is adopting part of the Chinese system for this – they wouldn’t be able to have banks communicate with each other. So, yes, they already have a rudimentary system. They’re making it a better system that can also be immune from U.S. computer espionage and interference. So yes, of course there’s already a system. But I want to pick up on what you said about Biden, how Biden characterizes things. Biden characterizes the war of the West against Eurasia as between democracy and autocracy. By “democracy,” he means a free market run by Wall Street; he means an oligarchy. But what does he mean by autocracy? What he means by autocracy, when he calls China an autocracy, an “autocracy” is a government strong enough to prevent an oligarchy from taking power, and taking control of the government for its own interests, and reducing the rest of the economy to debt peonage. An “autocracy” is a country with public regulation against monopolies, instead of an oligarchic free market. An “autocracy” uses money and credit, essentially, to help economies grow. And when debts cannot be paid in China, if a factory or a real estate company cannot pay debts, China does not simply say, ok, you’re bankrupt, you’re going to have to be sold; anybody can buy you; the Americans can buy you. Instead, the Chinese say, well, you can’t pay the debts; we don’t want to tear down your factory; we don’t want your factory to be turned and gentrified into luxury housing. We’re going to write down the debt. And that’s what China has done again and again. And it’s done that with foreign countries that couldn’t pay the debt. When a debt that China has come due for China’s development of a port, or roads, or infrastructure, it says, well, we understand that you can pay; we will delay payment; we will have a moratorium on your payment. We’re not here to bankrupt you. For the Americans, to the international funds, they’re saying, well, we are here to bankrupt you. And now if we lend you, we the IMF, lends you money to avoid a currency devaluation, the term is you’re going to have to privatize your infrastructure; you’re going to have to sell off your public utilities, your electric system, your roads, your land to private buyers, mainly from the United States. So you have a “democracy” supporting bankruptcy, foreclosure, financialization, and privatization, and low wages by a permanent depression, a permanent depression to keep down wages. Or you have “autocracy,” seeking to protect the interests of labor by supporting a living wage, to increase living standards as a precondition for increasing productivity, for building up infrastructure. You have these two diametrically economic systems. And, again, that’s why there’s a cold war on right now. BENJAMIN NORTON: And there’s another super chat question here, Professor Hudson. You mentioned the International Monetary Fund, the IMF. We have talked about that many times. This is from Sam Owen. He asked, why do countries continue to accept bad IMF loans when they have such a poor track record? Is it just the US government meddling in the national politics? Are there cases of good IMF loans? MICHAEL HUDSON: Well, what is a country? When you say a country to most people, people think, ok, let’s talk about Brazil; let’s talk about all the people in Brazil; you have a picture in the mind of the Amazon; you have a big city with a lot of people in it. But the country, in terms of the IMF, is a group of maybe the 15 wealthiest families in Brazil, that own most of the money, and they are quite happy to borrow from the IMF, because they say, right now there’s a chance that Lula may become president instead of the neo-fascist Bolsonaro. And if Lula comes in, then he is going to support labor policies, and he may stop us from tearing down the Amazon. So let’s move our money out of the country. Well, normally this would push the exchange rate of the cruzeiro (real) down. So the IMF is going to make a loan to Brazil to support the cruzeiro (real), so that the wealthy 1% of Brazil can move their money into dollars, into euros, into foreign currency and offshore bank incentives, and load Brazil down with debt, so that then when there is an election, and if Lula is elected, the IMF is going to say, well, we don’t really like your policies, and if you pursue a pro-labor, socialist policy, then there’s going to be a capital flight. And we’re insisting that you pay all the money that you borrowed from the West right back now. Well, that’s going to lead Lula either to sit there, follow the IMF direction, and let the IMF run the economy, instead of his own government, or just say, we’re not going to pay the foreign debt. Well, until now, no country has been in a strong enough position not to pay the foreign debt. But for the first time, now that you have the Eurasian group – we’ll call it BRICS, but it’s really Eurasia, along with the Southern groups that are joining, the Global South – for the first time, they can say, we can’t afford to stay in the West anymore. We cannot afford to submit the economy to the IMF demands for privatization. We cannot submit to the IMF rules that we have to fight against labor, that we have to pass laws banning labor unions, that we have to fight against laborers’ wage, like Western democracies insist on. We have to go with the Chinese “autocracy,” which we call socialism. And of course, when America accuses China being an “autocracy,” autocracy is the American word for socialism. They don’t want to use that word. So we’re back in Orwellian double-think. So the question is what, will the Global South countries do when they cannot afford to buy energy and food this summer, without an IMF loan? Are they going to say, ok, we can only survive by joining the break from the West and joining the Eurasian group? That is what the big world fracture is all about. And I described this global fracture already in 1978. I wrote a book, “Global Fracture,” explaining just exactly how all of this was going to happen. And at that time, you had Indonesia, you had Sukarno taking the lead, the non-aligned nations, India, Indonesia, were trying to create an alternative to the financialized, American-centered world order. But none of these countries had a critical mass sufficient to go their own way. Well, now that America has isolated Russia, China, India, Iran, Turkey, all these countries, now it has created a critical mass that is able to go its own way. And the question is, now you have like a gravitational pull, and will this Eurasian mass attract Latin America and Africa to its own group, away from the United States? And where is that going to leave the United States and Europe? BENJAMIN NORTON: And we saw one of the clearest examples yet of this bipolar division of the world between, you know, the West and the rest, as they say, with this ridiculous meeting that was just held of the G7. Of course, the G7 are the white, Western countries. And then they’ll throw in U.S.-occupied Japan in there, to pretend they’re a little more diverse. But we saw that the G7 just held a summit, and basically the entire summit was about how can we contain China? How can we expand the new cold war on Russia into a new cold war on China? And here’s a report in BBC: “G7 summit: Leaders detail $600bn plan to rival China’s Belt and Road initiative.” Now, I got a chuckle out of this. The idea that the US government is going to build infrastructure in the Global South, I mean, it’s pretty laughable. It’s also absurd considering that China’s Belt and Road Initiative, which involves over half of the countries on Earth, is estimated at many trillions of dollars in infrastructure projects. So the US and its allies think that they can challenge that with $600 billion in public-private partnerships. I should stress, of course, what they announced is going to be a mixture of so-called public initiative and then contracts for private corporations. So it’s yet another giveaway to the private sector, in the name of building infrastructure. But I’m wondering if if you can comment on the G7 summit that just was held. MICHAEL HUDSON: Well, nothing really came out of it. They all said that they could not agree on any more sanctions against Russia, because they’re already hurting enough. India, in particular, stood up and said, look, there’s no way that we’re going to join the sanctions against Russia, because it’s one of our major trading partners. And by the way, we’re getting a huge benefit from importing Russian oil, and you’re getting a huge benefit by getting this oil from us at a markup. So the G7 could not get any agreement on what to do. It is already at a stalemate. And this is only June. Imagine the stalemate it’s going to be in September. Well, next week, President Biden is going to Saudi Arabia and saying, you know, we’re willing to kill maybe 10 million more of your enemies; we’re willing to help Wahhabi Sunni groups kill more of the Iranian Shiites, and sabotage Iraq and Syria. We’ll help you back al-Qaeda again, if you will lower your oil prices so that we can squeeze Russia more. So that’s really the question that Saudi Arabia will have. America will send give it more cluster bombs to use against Yemen.  And the question is, is Saudi Arabia going to say, ok, we’re going to earn maybe $10 billion less a month, or however much they’re making, just to make you happy, and so that that you will kill more Shiites who support Iran? Or are they going to realize that if they throw in their lot with the United States, all of a sudden they’ll be under attack from Iran, Russia, Syria, and they’ll be sitting ducks? So what are they going to do? And I don’t see any way that Biden can actually succeed in getting Saudi Arabia to voluntarily earn less on its oil prices. Maybe Biden can say it’s only for a year, only for one or two years. But as other countries know, when America says only for a year or two, it really means forever. And if you don’t continue, then somehow they have a regime replacement, or a regime change and a color revolution. So Biden keeps trying to get foreign countries to join the West against Eurasia, but there is Saudi Arabia sitting right in the middle of it. And all that Europe can do is watch and wonder how it’s going to get by without without energy and without much food. BENJAMIN NORTON: Yeah, in fact, Venezuela’s President Maduro just confirmed that the Biden administration has sent another delegation basically begging Venezuela to try to work out some deal because, of course, the U.S. and the EU have boycotts of Russian energy. So it’s really funny to me that, after years of demonizing Venezuela, portraying it as a dictatorship and all of this, the U.S. had to decide, well, the war in Venezuela is not as important as the war on Russia right now; so we’re going to temporarily pause our war on Venezuela to stick the knife deeper into Russia. But on the on the subject of the the G7 meeting, this was the hilarious comment made by the European Commission President Ursula von der Leyen, in an article in Reuters titled “Europe Must Give Developing Nations Alternative to Chinese Funds.” So echoing the same perspective that we hear from Biden, U.S. government officials constantly say that the US needs to challenge China in the Global South. So Europe pledged €300 billion – however, once again, important asterisk – “in private and public funds over five years to fund infrastructure in developing countries.” So once again, we see another neoliberal private-public partnership. It’s going to be another public giveaway to private corporations. And “she said that this is part of the G7’s drive to counter China’s multitrillion-dollar Belt and Road project.” Now, this is really just tying everything together that we have been talking about today, Professor Hudson – in your article “The Fed’s Austerity Program to Reduce Wages,” you conclude the article noting that the depression that people in the United States are on the verge of facing because of these neoliberal policies – telling workers in the U.S. that they need to decrease their wages and be unemployed in order to stop inflation – you point out that: Biden’s military and State Department officers warn that the fight against Russia is just the first step in their war against China’s non-neoliberal economy, and may last twenty years. That is a long depression. But as Madeline Albright would say, they think that the price is “worth it.” And you talk about the new cold war against the socialist economy in China and the state-led economy in Russia. So you predict not only a depression is coming. We have seen that in mainstream media outlets. Larry Summers said, you know, a depression could be coming for a few years. But you say, no, not only is a depression coming; it’s going to be a long depression. We could be seeing 20 years. And basically the U.S. government and other Western leaders, as we see Ursula von der Leyen from the EU, they’re basically telling their populations, tighten your belts; we have decades of depression coming, because we have collectively decided, as Western leadership, that we are going to force the world through a long depression economically, or at least forced the West through a long economic depression, in order to try to halt the rise of China and Russia. They’re basically telling their populations, suck it up, tighten your belts for decades, because in the end, the price is worth it in order to prevent the collapse of our empires. MICHAEL HUDSON: That’s right. When they’re talking about private-public initiatives, they’re talking about Pentagon capitalism. That means the government will give trillions of dollars to private firms and ask them to build infrastructure. And if they build a port or a road in a Global South country, they will operate this at a profit, and it will be an enormously expensive infrastructure, because to make financial money off this infrastructure, you have to price it at the cost of production, which is Pentagon capitalism, hyper inflated prices; you have to pay management fees; you have to pay profits; you have to pay interest rates. As opposed to the Chinese way of funding as equity. The Western mode of funding is all debt leverage. China takes as collateral for the infrastructure that it pays, an equity ownership in the port or whatever infrastructure in the Belt and Road that it’s building. So you have the difference between equity ownership, debt-free ownership, where if it can afford to pay, fine; if it doesn’t make an income, there are no dividends to pay. Or you have the debt leverage that is intended that the government cannot pay it, so that the government that will be the co-signer for the debt for all of this infrastructure will somehow be obliged to tax its whole population to pay the enormous super-profits, the enormous monopoly rents, the enormous debt charges of von der Leyen’s Margaret Thatcher plan. Von der Leyen thinks that she can do to Europe and to America what Margaret Thatcher did to England. And if she does, then then America and Europe deserve it. BENJAMIN NORTON: And Professor Hudson, as we start wrapping up here, I know you have to go pretty soon, just a few short questions here at the end. I’m wondering if what we’re also seeing is not only this fundamental crisis in the Western neoliberal, financialized economies, but it’s also this bubble that has burst, or at least this phase that is over. At least this is my reading, I’m curious if you agree. In the 1990s, the peak of, you know, the so-called golden age of neoliberalism; we had Bill Clinton riding this wave, and it was the “end of history,” in Francis Fukuyama’s nonsense prediction and all that. How much of that was not only based on this exorbitant privilege, as the French call it, of the dictatorship of the US dollar – we talked about that based on your book “Super Imperialism,” how the US was given this massive global free lunch economically because of dollar hegemony – but how much of it was not just that, but also the fact that in the 1990s and the first decade of the 2000s, the US and Western Europe had access to very cheap consumer goods from Asia and very cheap energy from Russia? To me, it seems like those two factors are some of the most important reasons why this golden age of neoliberalism in the ’90s and early 2000s was even possible. It was on the back of low-paid Asian workers, and based on this idea that Russia would permanently be, what Obama called it: a gas station. Well, we’ve seen that, one, East Asian economies have lifted themselves up of poverty, especially China has ended extreme poverty and raised median wages significantly. And now, of course, the West has sanctioned itself against buying Russian energy, massively increasing the cost of energy around the world. So do you think that that bubble, or that brief moment of the end of history, the golden age of neoliberalism, that can never come back? Because unless the West can succeed in overthrowing the Russian government and imposing a new puppet like Yeltsin, and overthrowing the Chinese government, it seems like that that the golden in the 1990s is never going to come back. MICHAEL HUDSON: Well, you’ve left out the key element of the golden age: that is military force, and the willingness to assassinate any foreign leader that does not want to go along with US policy. BENJAMIN NORTON: Of course. MICHAEL HUDSON: You’re neglecting what America did to [Salvador Allende]; you’re neglecting how America took over Brazil; America’s meddling and control, and in Europe, the wholesale bribery and manipulation of Europe’s political system, to put in charge of the [German] Green Party a pro-war leadership, an anti-environmental leadership, to put in charge of every socialist party of Europe right-wingers, neoliberals. Every European socialist and labor party turned neoliberal largely by American maneuvering and meddling in their foreign policy. So it’s that meddling that was intended to prevent any alternative economic philosophy from existing to rival neoliberalism. So that when you talk about the end of history, what is the end of history? It means the end of change. It means stop; there will be no reform; there will be no change in the neoliberal system that we have locked in. And of course, the only way that you can really end history is by what Biden is threatening: atomic war to blow up the world. That is the neoliberal end of history. And it’s the only way that the neoliberals can really stop history. Apart from that, all they can try to do is to prevent any change that is adverse to locking in the neoliberal order. So the “end of history” is a declaration of war against any country that wants to go its own way. Any country that wants to build up its own economy as a way that will keep the benefits of its economic growth in its own country, instead of letting it go to the global financial class centered in the United States and Britain. So we’re talking about, neoliberalism was always a belligerent, implicitly military policy, and that’s exactly what you’re seeing in the proxy war of US and NATO in Ukraine today. BENJAMIN NORTON: Yeah, very well said. That’s the other key ingredient: overthrowing any government that is a challenge, that shows there is an alternative, to try to prove the maxim that “there is no alternative.” MICHAEL HUDSON: Yes. BENJAMIN NORTON: Here’s an interesting comment from Christopher Dobbie. He points out that in Australia, the average age for their first homeowner was 27 in 2001; now it’s 35, and increasing more and more by the year. Now, in the last few minutes here, Professor Hudson, here’s another brief question that I got from someone over at patreon.com/multipolarista – people can go and support this show. One of my patrons asked this question: who who is hurt most by the Fed or other central banks raising interest rates? People, average consumers, or companies? And obviously, you talked earlier about how the US Federal Reserve is different from other central banks, but it’s kind of an open question. Who is hurt more by raising interest rates? MICHAEL HUDSON: Well, companies are certainly hurt because it means that any possibility of getting productive credit is raised. But they’re also benefited, because if interest rates raised go up high enough, then it will not pay corporate raiders to borrow money to take over and raid companies and empty them out, like they did in the 1980s. So everything cuts both ways. Raising the interest rates have given commercial banks an excuse to raise the interest charges on credit card loans and mortgage debts. So raising interest rates, to the banks, have enabled them to actually increase their margin of monopoly profits on the credit that they extend. And that certainly hurts people who are reliant on bank credit, either for mortgages or for consumer debt, or for any kind of loans that they want to take out. Basically, raising interest rates hurts debtors and benefits creditors. And benefiting creditors very rarely helps the economy at large, because the creditors are always really the 1%; the debtors are the 99%. And if you think of economies, when you say, how does an economy benefit, you realize that, well, if the economy is 1% creditors and 99% debtors, you are dealing with a bifurcation there. And you have to realize that the creditors usually occupy the government, and they claim we are the country. And the 99% are not very visible. Democracy can only be afforded if they population’s voting has no effect at all on the government, that it’s only symbolic. You can vote exactly which oligarch you want to rule your country. Ever since Rome that was the case, and it’s the case today. Is there really any difference between the Republicans and Democrats in terms of their policy? When you the same central bank bureaucracy, the same State Department blob, the same military-industrial complex, the same Wall Street control, what does democracy mean in a situation like that? The only way that you can have what democracy aims at is to have a government strong enough to check the financial interests, to check the 1%, acting on behalf of the 99%. And that’s what socialism is. BENJAMIN NORTON: Very well said. Here is another brief question from patreon.com/multipolarista – people can become a patron and help support the show over there. This question, Professor Hudson, is about the proposal of an excess profits tax as an alternative to try to contain inflation. What do you think about the proposal of an excess profits tax? MICHAEL HUDSON: Well, only the little people make profits. If you’re a billionaire, you don’t want to make a profit; you want to essentially take all of your return in the form of capital gains. That’s where your money is. And the way you avoid making a profit is you establish an offshore bank or creditor, and you pay out all of your profits in the form of interest, which an expense. You expense all of what used to be, what really is, income. And you show no profits at all. I don’t think Amazon has ever made a profit. You have huge, the biggest corporations, with all the capital gains, have no profits. Tesla is a gigantic stock market presence, and it doesn’t make a profit. So the key is capital gains, is financial gains, stock market gains, gains in real estate prices, unearned income. That’s what the free lunch is. You want to prevent profits being paid out in the form of interest. So I would vastly increase profits, by saying you cannot deduct interest as a business expense. It’s not a business expense. It’s a predatory parasitic expense. So you’re going to have to declare all of this as profit, and pay interest on it. Pricing your output from a foreign offshore banking center, so that you don’t seem to make any profit, like Apple does, pretending to make all its money in Ireland, you can’t do that anymore. You’re going to have to pay a real return. So the accounting profession has made profits essentially tax free. So the pretense of making money by taxing profits avoids talking about capital gains and all of fictitiously low profits that are simply pretended not to be profit, like interest, depreciation, amortization, offshore earnings, management fees. All of these should be counted as profits, and taxed as such as they were, I’d say back at the Eisenhower administration levels. BENJAMIN NORTON: And finally, the last question here, Professor Hudson, someone asked about the U.S. government pressuring countries in Africa not to buy Russian wheat. And the U.S. is, of course, claiming that this wheat is supposedly stolen from Ukraine. This article, this headline at Newsweek, it summarizes pretty well: “U.S. Warns Starving African Nations to Not Buy Grain Stolen by Russia.” Again, that “stolen” is alleged by the U.S. But you actually have a really good column about this over at your website, which again is michael-hudson.com: “Is US/NATO (with WEF help) pushing for a Global South famine?” I know this could be a long point of discussion; it could be the entire interview. And I know you have to go soon. But just concluding here, I’m wondering if you could comment. The United Nations itself has warned that there could be a famine, especially in Global South nations. What do you think the role of these neoliberal policies and Western sanctions are in fueling that potential crisis? MICHAEL HUDSON: Well, the wealthiest families in the world used to go every year, now they go every few years, to Davos, to Klaus Schwab’s Davos World Economic Forum. And they say, the world is overpopulated; we need about 2 billion human beings to starve, preferably in the next year or two. So it’s as if the wealthy families have got together and say, how can we thin out the population that really we, the 1%, don’t need? And in all of their policies, it is as if they’ve decided to follow the World Economic Forum and deliberately shrink the world population, especially in Africa and Latin America. Remember, these are white people at the World Economic Forum, and that is their idea of how to retain equilibrium. They’re always talking about “equilibrium,” and equilibrium is going to be for countries that cannot afford to grow their own food, because they have put their money into plantation crops and cotton to sell to the West, instead of feeding themselves – they’re just going to have to starve to contribute to world “equilibrium.” BENJAMIN NORTON: And while we’re on the subject of the World Economic Forum, I guess I should just briefly add – we’ve talked about this a little bit, but I just feel remiss not mentioning it – it’s interesting to see how right-wingers have seized on the World Economic Forum and begun criticizing it a lot. Obviously, it’s worth criticizing. It’s a horrible neoliberal institution that represents the Western capitalist class. But we’ve even seen, you know, Glenn Beck, the right-winger, former Fox News host, he published a book about the Great Reset and the World Economic Forum. I’m just wondering really quickly if you could respond to the idea that the World Economic Forum is like some “socialist” organization. Obviously, it’s the exact opposite. But what do you say to these conservatives who have a right-wing critique of the World Economic Forum, and think it’s like secretly socialist, and Biden is a socialist. MICHAEL HUDSON: They look at any government or managerial power as socialist, not drawing the distinction between socialism and oligarchy. The question is government power can be either right-wing or left-wing, and to say that any government power is socialist is just degrading the word. However, as I mentioned before, almost all of the European “socialist” parties are neoliberal. Tony Blair was the head of something that called itself the British Labour Party. Gordon Brown was the head of the British Labour Party. You can’t be more neoliberal and oligarchic than that. And that’s why Margaret Thatcher said her greatest success was creating Tony Blair. You have the same thing in France; the French “socialists” are on the right-wing of the spectrum. The Greek “socialist” party, on the right-wing of the spectrum. You have “socialist” parties around the world being neoliberalized. So what does the word socialism mean? You want to go beyond labels into the essence. And the question is, in whose interest is the government going to be run for? Will it be run for the 1% or the 99%? And the right wing wants to say, well, the 1% can be socialist, because they’re taking over the government and that’s the big government, and we’re against it. Well, the right-wing is taking over the government, but it’s not really what the world meant by socialism a century ago. BENJAMIN NORTON: Yeah, very well said. I just always laugh when I see these right-wing critiques of the World Economic Forum. I mean, the World Economic Forum is the embodiment of capitalism. It is the group of the elite capitalists who get together to talk about how they can exploit the working class and help monopolize the global economy on behalf of Western capital. So with that said, there still are many questions, but I know you have to go, and we’re already at an hour and a half. I do want to thank everyone who joined. We’re at 1200 viewers right now, so it has been a really good response. Professor Hudson, you’re very popular. You should do your own YouTube channel. Maybe we can talk about that, because every time I have you on, it’s always an amazing response that I get. And hopefully we can do this again more in future. Aside from people going to your website, michael-hudson.com, is there anything else that you want to plug before we conclude? MICHAEL HUDSON: Well, the book that I just wrote, “The Destiny of Civilization,” is all about what we’ve been talking about. It’s about the world’s split between neoliberalism and socialism. So that was just published and is available on Amazon. And I have two more books that are coming out very shortly. BENJAMIN NORTON: Yeah, for people who are interested, I did an interview with Professor Hudson here at Multipolarista a few weeks ago about his new book, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.” And of course, anyone who wants to support this show, you can go to patreon.com/multipolarista. And as always, this will be available as a podcast, if you want to listen to the interview again. I’m certainly going to listen to this discussion again. You can find that anywhere there are podcasts. Professor Hudson, it’s always a real pleasure. Thanks so much for joining me. MICHAEL HUDSON: I enjoyed the discussion. BENJAMIN NORTON: And like I said earlier at the beginning, for me, I truly think it’s always a privilege, because I do think you’re one of the greatest living economists. So I always feel very privileged to have the opportunity to pick your brain about all of these questions. And I want to thank everyone who commented, who watched, and who listened. I will see you all next time.

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capitalism, China, Geopolitical Economy Hour, Michael Hudson, Mick Dunford, neoliberalism, Radhika Desai, Russia, socialism, Ukraine

An analysis of how China is building a global economic alternative, while the US-led neoliberal financial order decays. To analyze how China is building a global alternative as the US-led neoliberal financial order decays, political economists Radhika Desai and Michael Hudson are joined by economic geographer Mick Dunford. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to the 10th Geopolitical Economy Hour, the fortnightly show in which we discuss the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And as last time, we have once again with us today, Professor Mick Dunford, professor emeritus at Sussex University and visiting scholar at the Chinese Academy of Sciences. Mick is based in Beijing and his work focuses on world development, especially in Eurasia and China. And as you know from the last episode, Mick is here to help us discuss the political and geopolitical economy of the conflict over Ukraine. Last time we discussed the political and geopolitical economy of the conflict vis-a-vis Ukraine, Russia, and Europe. And in this episode, we would like to discuss the same thing, but in relation to the United States, China, and the rest of the world. So I’ll maybe just start us off on the US by essentially pointing out that, when people do take a critical view of what’s going on and look at the economic aspects of the war, the main thing they focus on is the arms industry and the profits being made by the arms industry. And there’s absolutely no doubt in my mind that American arms manufacturers, the military-industrial complex in the United States, is absolutely jubilant over this war. They are making profits hand over fist. Not only are arms orders going to increase as a direct result of the conflict with the United States supplying arms to Ukraine and then seeking to replenish its stock of arms. So that was already happening. And in the last US budget, as you saw, the military budget was massively increased, because in addition to the conflict over Ukraine, it is generally believed, or it was the grounds were given, that in fact, we can now expect ever greater conflict, ever greater security, uncertainty, and therefore more money needs to be spent on arms. So there’s absolutely no doubt that this is what’s going on. And there’s also absolutely no doubt that the sort of industries that we were talking about in the last episode, industries that rely on the enforcement of intellectual property rights, etc., are also happy about the conflict over Ukraine, because it’s really about imposing Western and US imperialism on the rest of the world, which includes, of course, the enforcement of intellectual property rights. So they are happy. But it is also very clear that there are sections of US business that are not particularly happy about the conflict that relied on trade, both certainly with China, but also with Russia. And they look at the prospect of breaking these relations with increasing apprehension. So there are divisions within the United States as well. MICHAEL HUDSON: Well, we ended the last episode by talking about how neoliberalism is basically a rentier economy. And the point that you just raised Radhika is, if the US is a neoliberal rentier economy, and if Europe is following the US lead, how on earth can the West expect to keep pace with Eurasia and the global majority that is now trying to industrialize and raise its own living standards, and in fact is forced to industrialize and raise its own living standards by the US sanctioning of their economy, which is forcing them to go it alone? Well, a lot of pacifists and opponents of the Ukraine war in the United States, like Medea Benjamin, have said that — Well, there’s really nothing to worry about China. We don’t have to be an enemy of China because other countries are bound to grow. And of course, the United States will lose its relative position as other countries begin to grow also. — And we can have a happily growing world economy together and American absolute power and absolute economic strength can continue to increase. We don’t need war. Well, I think, Radhika, you’re in our position as, yes, they do need war, absolutely, because the United States is declining in absolute terms, because what it calls GDP is largely financial services. As we’ve said before on this show, when banks increase their late fees to credit card holders, and late fees are now over a trillion dollars, more than credit card companies get in interest, all that is added to GDP. When American real estate prices have been going up in the last few months of the year, the homeowners’ imputed value of their homes, if they were to rent their homes to themselves, has been going up, increasing GDP. That’s 7% of GDP. So what we call GDP here is really a rentier economy that is polarizing between the finance, insurance, and real estate (FIRE) sector and the rest of the economy. Well, the fact is that the US actually cannot catch up with the productivity that Mick’s chart has shown with China and Russia, because we’ve reached the limit to the growth. And the limit to the US growth right now is not yet environmental, is not yet global warming. When there is hurricane damage, all that rebuilding is considered an increase in GDP. It’s not environmental pollution. It’s debt pollution. It’s the fact that the economy is so highly indebted that the wage earners cannot afford to increase their consumption as long as they’ve had to increase their mortgage debt, their credit card debt, and their auto debt. The US has reached the limit of its ability to grow without essentially doing a mixed economy and a debt write-down. And somehow you’ve got to free the economy from the rentier sector, from the savers, that their savings are the debts of the 99%. And you have the US and NATO increase in military spending, forcing cutbacks in social programs in order to get the balanced budget that the Republicans are advocating and that President Biden has long advocated. So what you’re having is the US simply is not growing, and the only way that it can somehow survive by letting the 1% increase its wealth at the rate at which it’s accustomed to is what you mentioned, Radhika, intellectual property. By monopolizing information technology, by monopolizing pharmaceuticals, by monopolizing technologies and military industrial weapons and charging huge economic rents, far in excess of the value of the cost of production, in order to get a free lunch. The only way that the United States can grow is by increasing the free lunch, and that means economic shrinkage for the economy as a whole. That’s what really underlies the splitting of the world that we’re seeing that is just beginning with the Ukraine fighting. MICK DUNFORD: Okay, I mean, Radhika mentioned the important point that the military-industrial complex accounts for a significant share of the US economy, and emphasized the way it generates profits for US capital. But it’s also quite important to note that the products of the military-industrial complex do not enter into subsequent accumulation in the way in which other capital goods do, nor do they enter into workers’ consumption. So in a sense, there’s a way in which a vast military-industrial complex is devoting a huge volume of resources to activities that do not contribute significantly to human welfare. The point I want to make, however, is that this US global role requires a huge volume of resources. And the US essentially spends much more than it earns – much, much more than it earns. Now, this is a [graph] that just depicts the balance of payments of the Five Eyes. So the United States, but also Great Britain, figure prominently in shaping these numbers [along with Australia, Canada, and New Zealand]. And what’s very, very striking, first of all, is that these countries have very substantial trade deficits in real commodities. So they are very dependent upon real goods manufactured in other parts of the world, a sustained, large trade deficit. At present, they generally have surpluses in services, because, in part, of the role of the US dollar and of other European currencies in the international financial system, and the way in which insurance and all sorts of other activities are connected with that role. But of course, there are roles that depend on the continuing role of the dollar in the international system. But really, to offset this gap between what these countries can sell abroad by way of goods and services and their own imports of goods and services, they require a large net inflow of financial resources. And these financial resources derive from a number of different sources. They derive in part from the fact that the United States produces dollars and other countries have to hold dollars in order to finance their international trade activities. So they do not use these dollars in order to purchase goods in return from the United States, for example. They also arise because surplus countries use their surpluses to purchase US Treasury bills at very low rates of interest. So that provides the US with a debt privilege that no other country in the world possesses. Extraordinarily, Alan Greenspan said “the United States can pay any debt it has because we can always print money”. The US also imposes or seeks to impose a kind of opening up of markets, privatization, so that it can use dollars to acquire assets throughout the world to generate income streams that can offset its trade deficit. So in a sense it benefits enormously from a post-Bretton Woods system, which effectively allows the United States to behave as if it has a credit card with no repayment date and no limit on what it spends. But it is a world which is changing. And I think it’s a change that poses an enormous challenge for the United States. RADHIKA DESAI: Right. So, first of all, Mick, this is absolutely critical. And of course, as you likely know, these privileges that you have rightly pointed to, which the US has hitherto enjoyed, are also in danger of disappearing with the process of de-dollarization, something that Michael and I have explored in great detail over four programs. But this is an absolutely critical point that needs to be made, is that in the context of the war, I mean, this is the thing: One of the ironies of this war, which I noted almost at the beginning, is that when the only means you have to achieve such a certain goal – in the US case to keep its position in the world, to keep the dollar the world’s money, et cetera – when the only means you have to achieve these goals are the very means that are actually going to undermine the achievement of these goals, you have a serious problem. That’s the situation that the United States is in. So absolutely, I completely agree with that. I should also add, of course, that this debt ceiling drama is really quite interesting, and we don’t know how it will be resolved. But the two things about it that I think worth noting, number one, the very fact that this drama is occurring at all, underlines the deep political divisions in the United States, which are the result exactly of following the policies that the US has followed, the neoliberal policies, the financialization policies that it has followed over the last many decades. This has resulted in a level of political dysfunction, which we are witness to today. That’s the first point. In a certain sense this political division may become economically quite meaningful at some point. Secondly, I’d like to say that no matter how this death ceiling drama is resolved, Alan Greenspan’s idea that somehow the United States can continue to issue debt until kingdom come is completely wrong. The fact of the matter is that the treasury market, the market for treasuries is already in trouble. The treasury market is not as liquid as it used to be. That is to say that the treasuries being issued by the United States government in order to finance its debt, do not find as many willing buyers as in the past, which is why the Federal Reserve has to keep buying treasuries at a great rate of knots. That is why its balance sheet has swelled to the extent that it has. And if the United States does – you know, one of the ideas to break this debt ceiling knot, to cut the Gordian knot here, has been that the United States can simply issue a whole lot of money – this is going to lead to a further rapid acceleration of the de-dollarization process, which is in fact then going to land the US into a lot of trouble. The US is already suffering from inflation, which is already a mark of the fact that its imperial power is declining. Because, at the end of the day, why is the US suffering from inflation? Because its ability to compel the rest of the world to sell goods and services to it for nothing is declining. That’s why inflation has returned to the United States. So in these ways, I mean, the points you make about financialization and the kind of economy the US has are very important. The solution to that, as Michael and I have observed at various occasions in this, because it’s such an important truth that it needs underlining, the solution to that will have to be a fundamental root-and-branch reform of the financial system, to reorient it away from predation and speculation, which is what it does today, towards productive investment, something it has really not done in decades, if that. So a complete transformation of what we can also call bank-industry relations. But I want to also shift, I want to also add another point, which I think is a very important one, which is, I’m sure I’m not the only one who said this. The United States has never seen a war it doesn’t like, because the United States has over the last many decades, in fact, the United States has become as dominant as it has in the world, essentially by exploiting wars between other powers. In the Second World War, in the First World War, the United States economy expanded massively while the economies of other countries were being destroyed, essentially because the United States was keeping those wars going by supplying arms and materiel to all sides, basically. So the United States has always benefited from wars, and it is continuing to benefit from wars. And that is partly why the era of American dominance that we have witnessed over the past many decades has been an era of unending wars. MICHAEL HUDSON: We’ve spent quite a few shows talking about the US balance of payments and what is America’s foreign debt. This is a topic that’s not taught in economics courses or political courses, and it’s one of the most confusing topics to most people. How did America run up this foreign debt, and why do other countries keep their savings in the United States? Well, until the last two years, China, Saudi Arabia, and other countries held very strong savings in the United States, because after all, it’s an open capital market, and because they needed the US dollars in order to pay for the oil that they bought, for the copper. The US dollar was how all of the world’s commodity markets worked, from oil, to raw materials, to manufacturers. Well, one result, the United States just basically committed suicide for the US dollar standard by grabbing, first of all, Venezuela’s gold, saying Venezuela didn’t elect the president we want; we appointed them to please give all of the gold in the Bank of England to Mr. [Juan] Guaidó. And secondly, the grabbing of Russia’s foreign exchange in Europe and America, anywhere from $30 billion to $300 billion. So now the US is not a safe country. But more importantly, why on earth would anybody hold US dollars to pay for oil if Saudi Arabia now pays for its Russian oil in rubles, and Saudi Arabia now pays for its imports from China with a Chinese RMB? Now that world trade is multipolarizing, now that countries are paying for their trade and investment with each other in their own currencies, there is no need for the dollar. So yes, the United States can print all of the dollars it wants, but it can’t produce the goods and services, which is the whole reason that people hold dollars. The US debt is so much larger than the amount to pay that the United States is technically insolvent. The United States as a whole is just like Silicon Valley Bank and the banks that have just gone under. There’s no way that the United States can or has any intention of paying the foreign debt. The United States, following Greenspan, says —We are never going to redeem our debt. You can hold your money here, but just like a Ponzi scheme, and just like Silicon Valley Bank, you can all think of this dollar holding as being worth something, until you actually try to sell it. — You try to sell it, then you’re going to find out that it’s all the savings that you’ve accumulated since 1945, since World War II ended 75 years ago. All of this is fictitious capital. And you’re just waking up to the fact of reality economics. Other countries are finally realizing this. By splitting the world financially, this is the lever, like cutting a diamond. This is the key split that is basically splitting the whole world economy on financial terms. This is the one topic that you cannot discuss in the major media here, and you cannot even raise in economics courses in the United States, because the answer is so terrifying to advocates of US hegemony. MICK DUNFORD: I wonder about the speech that [US National Security Advisor Jake] Sullivan gave [in April], when he said that globalization, privatization, deregulation, trade liberalization had failed, he said, because a non-market economy – namely China, he calls it a non-market economy – was part of the “liberal international order”. He said the idea that markets lead growth is wrong. He said there was an overemphasis on finance. He said that the real industry, real sector was hollowed out. He said that there was a decline in public investment. He said that the policy of spend first failed. He said that trickle-down failed. He spoke about some process through which the erosion of the working class eroded the middle class. And then of course he advocates blockading China. But it, in a sense, represents a quite considerable sort of reversal within the United States. And I wonder how Radhika and Michael see this speech. I mean, it’s also of course important to ask just how much support it actually has amongst elites in the United States and the political class. RADHIKA DESAI: Yeah, I mean this is a very important question. And I’ve argued in my [book] Capitalism, Coronavirus and War: A Geopolitical Economy, which came out just at the end of last year, because this sort of talk was already beginning to happen at the time I was writing it. And so I’ve dealt with this matter. So here’s my position. Essentially, obviously, the mounting contradictions of neoliberalism inevitably mean that people will be talking about what’s wrong with it and so on. And certainly this talk is going on. So there are two possibilities. Number one,  just because neoliberalism is failing doesn’t mean that they’re going to give it up, because neoliberalism has never been about markets; it has always been about favoring the corporate capitalist classes. And the nature of the US state is not going to change overnight. So what’s going to happen is that, the first option is that people will say these sorts of things: we have to do finance differently. You know, Mariana Mazzucato says we have to do capitalism differently. So they will find a way of doing corporate capitalism differently. And so they will say we have to do a little bit more of this and a little bit less of that, or even a lot more of this and a lot less of that. But in reality, the underlying structure will not change. The corporate capital will continue to be favored in a different way, in new forms, because the old forms no longer work. The old forms have led to financial crises and so on. So that’s the first option. But there is also, thanks to the very divisions that have been created, the political divisions that have been created by neoliberalism, there is also another option, which is that someone like Trump, Trump himself might come back to power. And then we are going to see a much more authoritarian version, much more – I mean, this other version, option number one, is dystopian enough, but an even more dystopian option will be seen. So I think those are the two options. I mean, unless there is some kind of a radical revolution, you are not going to displace the corporate capital that has the reins of the US state in its hands, and that drives that. So I think that corporate capital is either going to drive the US state to destruction, or it may be replaced by something even worse. So that’s what I think. But Michael, please respond to Mick’s question. MICHAEL HUDSON: I’m in agreement with what both of you said. Neoliberalism really, in trickle-down theory, has been amazingly successful in polarizing the economy. The aim of the 1% is to have all of the economic surplus, leaving nothing for the rest. Just as the aim of neoliberal foreign policy is to get the whole world surplus in one country, and leave nothing for the rest. That’s the implicit dynamic. The trick, and what makes academic economics fictitious economics, and more like science fiction than like science, is the pretense that somehow benefiting the 1% benefits the 99%. Unless you realize that rent income, monopoly rent, land rent, natural resource rent, is a transfer payment that has nothing to do with earned income – we’re back to the classical economics of Adam Smith, Ricardo, John Stuart Mill, and Marx – then you’re not going to realize that what seems to be a growing economy is an economy that is shrinking as a result of all of the economic surplus being sucked upward, not by profits, but by rent-seeking, by monopoly rents, by exploitation of almost a pre-capitalist form. So we are dealing with the fact that you don’t have the kind of industrial capitalism in America or Europe that you had in the 19th century. You have a regression to a kind of neo-feudal, rentier economy of inherited privilege, and oligarchy, not democracy. And we’ve talked enough about that in earlier programs that all we have to do is remind [our audience] that this is the context for what we’re talking about with Ukraine and Russia, and the US and China, and the rest of the world today. RADHIKA DESAI: No, and you know, so to sum up on this question, I forgot to add one other thing, which is that, of course, as we’ve already talked about before in the last episode, there’s increasing talk about industrial policy on both sides of the Atlantic. But given the neoliberal orientation of these governments, that is to say the corporate orientation of these governments, essentially what will be labeled industrial policy will be stuck onto a new raft of programs and policies through which states are going to provide support to big corporations, including massive subsidies. But I also, before we go on to talk about China, I also wanted to make a couple of other points about the United States in the context of this war. One is that you always read these statistics about the astronomical sums that the United States spends on its military. You know, it’s more than the next X number of states combined. And all of these things are true. But what’s remarkable is that after all this spending, what has the United States got to show for it? It’s got to show for it a series of military failures: Korea, Vietnam, all the 21st century wars, you name it. And I think that the war in Ukraine, which is of course a proxy war, the United States is not fighting it itself because, quite frankly, I don’t think the American public has the stomach to fight wars anymore. And this is going to be a major issue in the election. But nevertheless, even the United States is also going to face defeat in this war. The whole optics are being managed around the so-called spring offensive in such a way that the United States can at some point say, okay, we’ve done all we can; the Ukrainians have done all we can, but this war cannot be won. And they will shift their attention elsewhere, especially given that an election campaign is coming and Biden is not very popular, nor is the war very popular. More and more Americans are asking: Why are we spending all this money on wars when we have so much need at home? So that’s really an important thing to watch for is how the war will play out in this campaign. MICHAEL HUDSON: I can’t add anything to that. RADHIKA DESAI: Yeah, that’s good. I just wanted to make sure that I wasn’t sort of jumping onto the next one. Why don’t actually, I ask Mick, you are our resident China expert. So why don’t you start us off on China? MICK DUNFORD: Okay, I’ll just say something more generally about China, first of all. I mean, the first thing I would say is that in 2017, China entered a new era. That era was actually foreshadowed by what started to happen around the turn of the millennium. So China has in a sense embarked on a new phase in its development and its transition, if you like, to socialism. So this new phase follows two very broad ones. It follows a turbulent phase of socialist construction after 1949, which occurred in the context of United States embargoes, in the context subsequently of a conflict with the Soviet Union, and in a context of acute capital shortage. And of course as a country that came from behind, China had to address its capital shortage, not in the way in which the imperial and colonial countries had done so, basically by appropriating resources from other parts of the world, but it had to generate those resources internally, or initially, of course, with the help of Soviet loans and Soviet industrial assistance. Then, after the rapprochement with the United States, which of course occurred in order to increasingly isolate the Soviet Union, China embarked on a path that actually it planned before 1949, but it was unable to follow that path simply because of the way in which it was isolated by the actions of the United States and the Western world. So it entered on a path; it called it reform and opening up. And that occurred in a context of neoliberal globalization. Its roots in China lay in the early 1970s. As soon as the embargo started to be lifted, Mao Zedong, Zhou Enlai, started to acquire loans abroad in order to finance industries producing consumer goods along coastal areas. That then led to this phase of reform and opening up in which China managed its integration into the global order, generating these extraordinary rates of growth. The thing that I would emphasize, first of all, is that it was driven by sustained high rates of capital accumulation right the way through. Of course, it fluctuated a lot in the first 30 years, but you’ve got sustained high rates of capital formation. I would say you should describe China as a sort of planned, rational, socialist state – which uses, after reform and opening up, market instruments. A planned, rational state because it basically sets social and economic objectives that are essentially designed to progressively improve the living standards of all the Chinese people. And then it acts in order to achieve these goals that it has set itself. I think that it’s important to say that, throughout this set of phases, what you see are a whole succession of successive waves of reform and transformation of economic structures and of institutions. And all of these changes are basically designed to address crises and contradictions that emerge in the course of its development. What’s interesting is that in a sense, an attempt to avoid the dynastic cycle, the rise and fall of dynasties. In other words, you address the contradictions at each stage through processes of reform, which enable you to move forward progressively on a path whose endpoint is socialism, communism. But that lies a very, very long way into the future. The important thing about this new era, as far as China’s concerned, is that basically, it’s mapping out a new development path. And it’s a development path that will differ very significantly from the Western path. It explicitly argues that this path differs from that that is being pursued by the West. It’s a path that is people-centered and not capital-centered. There’s one profound difference between a socialist country and a capitalist country. In a sense, politics, right, including China’s whole process democracy, is in a sense in command and sets the objectives and targets. And it’s basically directed at improving the quality of lives of all the Chinese people. But one way of trying to capture it is to say that there’s a whole series of new concepts that are being talked about. So this kind of notion of dual circulation, in which the domestic and overseas sectors reinforce each other, but where the domestic mark is the sort of mainstay of economic growth. The emphasis, I mean, really since 2013, has been on high-quality development rather than on rapid growth. On scientific and technological innovation, technological upgrading, developing the technologies of the next industrial revolution and then trying to ensure that those technologies diffuse rapidly in order to improve the livelihoods of people. It’s sustainable green development. I mean, anyone who lives in China will have seen already extraordinary improvements in the quality of the environment. Really, really quite remarkable. So the idea is green development, rural revitalization, a world in which perhaps a relatively large share of the population continues to live and work in the countryside. It involves spiritual civilization, which is a response to the consequences of liberalization, of consumerism, of selfishness. So, I mean, this is quite interesting because Wang Huning, who’s one of the current leadership wrote a book after he visited America in the 1980s called America Against America, in which he actually identified the way in which trends in American society were leading in the direction of isolation, fragmentation, disintegration. And in a sense, this concern with spiritual civilization is really concerned to guarantee and ensure sort of social cohesion. It involves concern with strategic security and stability and very important common prosperity. So this notion of common prosperity is, in a sense, one of the key drivers of Chinese development. So in a sense, it’s mapping out a kind of development trajectory that differs very, very radically from the development trajectory of countries that embarked on neoliberal paths. And then, I mean, we can talk more about that when we talk about the world, but at the same time, it’s trying to contribute to the emergence of a new world order, you know, a global civilization, with shared prosperity in the world. So I think what is important to me is it’s setting out a kind of model for the creation of a rather different kind of world as well as for a different kind of China. And when you look at all the problems in other countries it’s, in a sense, a very positive vision. But it reflects this capacity to set social and economic goals. RADHIKA DESAI: Yeah, I’m very glad you started it off this way, because what you’ve done is you sort of laid the foundation for a picture that is becoming increasingly clear, in which, of course, for the West and for, obviously, for obvious reasons, for Ukraine, this is a huge and deep crisis. But the fact of the matter is, as far as China is concerned, for the war, the conflict over Ukraine is really a small part of a much larger picture, which is largely composed of its peaceful rise, of its anti-imperialism. I’d also like to emphasize something that you said and slightly elaborate on it. You said China had to overcome its lack of capital, thanks to imperialism. So I would say in order to understand the development of China and also understand what every Third World country faces today, you have to understand that the development process in these countries will have to be very different from the West. Why? Because number one, Western development itself set them back in the first place, thanks to imperialism, colonialism, et cetera, so that they had to start from a much worse place to begin with. Number two, they have to complete the process. They have to undertake the process of development without having the luxury of imperialism. I think you, as you rightly said, that you cannot source your capital from elsewhere. You cannot plunder India in order to finance the industrialisation of Europe and the United States and the settler colonies and so on. You can’t do that. So you have to generate your own capital in order to do that. And you have to generate all your resources to do that. And number three, you have to do it against the unremitting resistance of the imperialist powers. In all of these ways, the development of China is very, very different and it’s bound to be very different. And I’ll come back to that when we come back to talking about the rest of the world as well. But for the rest, I just want to say a couple of things. Number one, I think that the West really dreams that it’s going to be able to drive a wedge between China and Russia. But I think China understands, no matter what criticisms it may have of Russia’s actions privately, but China understands that the Western aggression is primarily responsible for this war and there’s absolutely no way that giving into it is going to benefit anybody. So this is the real source of China’s support for Russia. It’s not being partial to Russia. It just understands things in a much bigger way. So China can be expected to continue supporting Russia. And of course, the fact that it now has a cheap source of energy is not going to go amiss at all. But I think between them, I think China is, of course, in the lead, but they are pioneering a new world order, which is essentially about a model of development, which is absolutely a model of development which is absolutely the opposite of neoliberalism. So yeah, I’ll just say that for now and leave it there because I’m sure Michael has lots to say as well. MICHAEL HUDSON: Well, what’s unique about what China’s doing internationally is it’s made no attempt at all to proselytize its economic system. What is its economic model? It’s interesting you’ve used that term. It hasn’t said it. It doesn’t say, we have an economic model that’s an alternative to neoliberalism. Here is how we are redesigning our national income accounts to show what we’re doing, as Soviet Russia had a different set of national income accounts. It’s not really explaining a different economic doctrine to what is taught in the United States schools. And in fact, Chinese students are sent to the United States to study economics. And once they return to China, I’m told they’re given priority over Chinese students. And there really isn’t any economic teaching of a model even within China. And a few weeks ago, President Xi’s speech at the Party Congress talked all about what the overall aims were, world peace, a growing economy, the aims that Mick has mentioned. But there was no analytic content of: — How are we going to get there? What is our tax policy going to be? How are we going to finance the local government budgets that are now financed by selling off land to real estate developers? — How are we going to handle our land issue, the financial issue? What are the virtues of what we’ve done is keeping money as a public utility in the hands of government, not privatizing it, not turning money into a financial commodity. — How do we avoid turning land into a financial commodity? How do we avoid turning labor into a commodity, but treat the objective as raising labor? There’s been no kind of economic model to teach an alternative. And in fact, there’s very little discussion in China of the history of economic thought apart from Marx. So I don’t think that if we’re talking about where is all this going to end, I don’t think there can be a multilateral order without some kind of a explicit economic doctrine that finds its counterpart in a mirroring set of institutions built along socialist lines as alternative to the World Bank, to the International Monetary Fund. We’ve mentioned the International Criminal Court. We’ve mentioned basically a whole different United Nations with: What are economic rights of countries? What are the kinds of growth that we want to do? This is what’s basic. I won’t talk about China’s foreign policy yet. I’ll throw it back to you guys, but it’s unique that China hasn’t spelled out what it’s going to do. The only thing that we have that China might say is: Well, how are we going to respond to the sanctions? It said that if Ms. Baerbock’s projected sanctions on Chinese trade are imposed, there will be retaliation, but it hasn’t said anything about how it’s going to retaliate and what are the principles of retaliation against America’s economic war against China. For instance, it could impose sanctions on European countries that are importing U.S. products that could be used for the war of Ukraine. Suppose that China were to mirror the U.S. sanctions policy, starting with tanks and missiles or oil and gas, food. Imagine if China and Russia, backed by the global majority, somehow could mirror American sanctions and say, — Okay, you’re not going to trade with us except for key things that you want. We’re not going to trade with you. We’re going to go it alone. Well, if China, Russia, and the global majority go it alone, which is where we’re moving towards, what are the principles going to be to create economic institutions like their own trade organization, their own central bank, to finance all this? There’s been no discussion of this and not even a proselytizing of economic ideology that ultimately is the framework for all of this alternative. MICK DUNFORD: I think I would just emphasize this idea that certain goals are set. For example, you might set a goal concerned with rural regeneration. That means that certain resources are mobilized. It’s an attempt, if you like, to mobilize the human, financial, and material resources of particular localities in order to generate income streams that improves the living standards, quality of life in different places. Some of these things generate certain vulnerabilities. You can illustrate it by looking at what particular things have happened in particular places. A particular locality with a traditional culture had resources from government to rebuild people’s homes, adding on guest rooms, and then this village then becomes a place which is used for seminars and workshops. It generates an income stream through acting as a kind of a center for visitors. In that context, you see quite significant increases in local income. It’s mobilizing the environment, it’s mobilizing the infrastructural assets that have been put in in order to enable people to establish sustainable livelihoods. In some cases, it confronts difficulties because, for example, in the pandemic, it had enormous negative impact upon travel of all kinds and so negatively impacted the incomes of people who are involved in that kind of project. You see these things going on at a grassroots level all over China. In relation to the industrial issues, we’re talking about restrictions on semiconductors. Of course, China is launching a whole series of major industrial policies that are basically designed to develop these capabilities, to ensure that China is able to develop these capabilities and does not find itself in a situation again where it cannot acquire what it needs because someone refuses to sell it to them. I don’t see it through economic theory. I see it through an attempt to achieve certain kinds of targets and then developing projects, mobilizing resources for those projects, and then evaluating how they work. If they work well in one place, you might copy those ideas in other places. It works in a very different way from many of the things that you actually see in the Western world. I’m not sure how one would easily theorize it. If I were to talk about the whole of China’s experience, I’d probably not do it in terms of those transitions to a market economy. Actually, I think what happened there was that you saw a very significant decentralization of initiative in a situation in which the central government lacked resources for a whole series of reasons, in part because it had to repay debts. It decided to let local initiative rip, in a way, which is what happened with the household responsibility system or with the establishment of township and village enterprises and so on. RADHIKA DESAI: What you say, Mick, is very interesting. I never thought we would end up discussing this, but this is very interesting. Let me say two things very quickly. Number one, I think Mick, you’re absolutely right. I think what the Chinese have done right from the beginning is that they have actually been, essentially, like you say, how do you prevent this cycle of the rise and fall of dynasties? How does the party remain in power? It remains in power by addressing concrete problems as they emerge concretely with whatever resources that may be available at that time. In that sense, there is not a model to be proselytized about. China has also been extremely careful internationally, partly because it wishes to distance itself on this matter anyway from the Soviet experience. It says, — We are not exporting any model. There is no Chinese model, et cetera. I think that there is also a point to that. But there is another side to it, which is if you think about it, what is the purpose of neoclassical economics? What is the purpose of all this economic theory? It is the purpose of the dominant trend in economics is actually to get countries to open themselves up to the West. The purpose of economic theory is actually imperialism. So in that sense, of course, China is not going to produce any direct counterpart to that because China does not intend to be imperialist. And I would say that a lot of people also point out that the abstractness of the theories of neoclassical economics are contrasted with the concreteness of the theories, such as that of the developmental state, which is different in different parts of the world, which have been very concretely based on the particular situation and the resources at hand, whether it is a developmental state in Japan or South Korea or elsewhere. So in that sense, I do not think that there is going to be a model. And having said that, I think that the thing is that the critique of neoclassical economics and the critique of the Western model and of Western imperialism is certainly sharpening in China as we speak, I think. MICHAEL HUDSON: Well, there may not be a model, but there should be economic concepts. To me, the main concept is economic rent, the distinction between earned and unearned income. There has to be a model of international payments. It’s obvious, as we’ve spoken about before, that some countries are going to end up with claims on other countries. China, how will China be remunerated for the expense of its Belt and Road Initiative? How will all this be settled? There has to be some kind of accounting system for all of this. An accounting system basically uses economic categories. And so we don’t need a whole model of the economy, but we do need some basic concepts that are the building blocks of China’s pragmatic experimentation that it’s following. MICK DUNFORD: There are economic concepts that you can use. I mean, in relation to this idea of common prosperity they talk about the role of the primary, the secondary and the tertiary distribution of income. And the idea is that in a socialist country, everyone should contribute, everyone should work. So this kind of primary distribution of income, the income that you derive from the work that you do, plays a very, very fundamental role. But of course, at present, there’s a lot of development of a whole series of services, which obviously are financed in part through contributions, but in part also through taxation, in terms of health, education and so on. Then you’ve also got mechanisms, these so-called tertiary distribution, that’s what they call a situation where, for example, companies undertake socially useful initiatives in other parts of China, or where you have cooperation between local governments in one part of China, which are expected to actually mount projects in other parts of China. And if you like, places that have become relatively rich help those places that have not become relatively rich. So those concepts are used and I mean, you were talking about the international side in terms of the international side, obviously they have balance of payments accounts so they examine the balance of payments. When they built Belt and Road projects involving investment finance, that involves interest, it involves repayment arrangements and so on, usually on terms that are less onerous than those of international, if they have a multinational, of the multilateral banks, and also of Western financial resources. When they opened up, their capital account was not opened. So I mean, these categories do play a role. And the non-opening of the capital account had a very great deal to do with China’s development path, because it actually had impacts on the exchange rate, and therefore on the competitiveness of Chinese exports. You can use economic concepts to discuss some of these things, but there’s nothing equivalent to the kind of neoclassical theory of markets that you can apply to the Chinese case. I know that it’s taught in China as well as in the United States and in Europe, but I tend to see things much more in kind of a more practical way of moving moving things forward in terms of moving up the value chain, improving people’s livelihoods, improving the quality of the environment, improving air quality, all sorts of things of that kind they’re very, very concrete many things are trying to achieve are very, very concrete. RADHIKA DESAI: That’s I mean, in a certain sense, that makes sense. Because after all, what is socialism, it’s use-value production. Use-values are very concrete, they are not abstract, as value is, or what was often called exchange-value. I just call it value. But anyway, maybe we should, we’ve been going for nearly a little over 50 minutes now. And so I think we should transition to our last topic, which is what’s going on in the rest of the world. And I have to say, compared with the optimism that existed in the much of the 2010s, we talk about rising multi polarity and rising BRICS, and so on, the rest of the world is not doing as well as China. And I think that at the same time, I think that another thing is very clear, which is that if the rest of the world wants to do better, say, for example, President Lula in Brazil, then he is going to have to implement policies that are make a clean break with the Washington consensus, with neoliberalism, and at least learn from China. There is no model, there’s no Chinese model, but sort of learn about how the Chinese essentially created development in their context and take tips for that, because essentially, the rest of the world is actually suffering from obviously high prices. Many countries are facing a debt crisis. There’s also a lot of political uncertainty in many parts of the world, thanks to the current war, the destabilization of existing arrangements. But I think underlying all this is the decline of the West, whose chief cause is neoliberalism. I think if the rest of the world is to learn anything from this and climb out of the crisis and build a better economic model, etc, it will have to be in some kind of anti-neoliberal kind of socialist or quasi socialist manner. And here, I have to say that, one, I’m originally from India, I study India, and I have to say for the last several years, things have looked very depressing with the present government in power, which is really a fascist government in power, making nonsense of the rule of law, allowing its goons to prosecute whoever it likes, and making an absolute mess of the economy. Indian economic growth has been actually extremely weak, even though the government has cooked up statistics to show that it is somehow good. But just a day or two ago, there was a really bright light in this rather dim scenario. And that was that in the Indian state of Karnataka, there was an election, which the Congress won, and it won the election by promising a people-centered set of policies. And I think if the Congress and other opposition parties can understand what this means and stick to it, I think that it will be able to bring India out of this mess. Of course, in Brazil, we have President Lula, but South Africa is also not in a very good state, it is in a state of perpetual economic crisis. But I think in the context of the decline of the West, the awful consequences of the neoliberal model, and the rise of China, I think that the world should be able to learn from this contrasting fate of the West and China. MICHAEL HUDSON: Well, what’s blocking the rest of the world from moving away from neoliberalism? Lula last week proposed that China, Argentina and Brazil should have a common currency? Well, how can you have an alternative to the dollar or a common currency when you have an immense dollar debt? What’s blocking other countries right now from creating an alternative that is more of mixed economy with a public sector dominant and ending rentiers is the fact that this dollar debt is forcing these countries to submit to the International Monetary Fund, which is the neoliberal hammer, forcing privatization, forcing anti-labor policies, all the things that we’ve described before. And the only way that other countries can pursue an alternative to the trap that they’re in, the only way they can escape from this trap is to repudiate the dollar debt and say, — Look, we’ve been led into a trap that has financially killed as many people as a military occupation. Just like President Putin had said that more Russians died as a result of the privatizations of neoliberal policies of the 1990s than died in World War II, you can say that the Third World finance is how the neoliberals are locking other countries into the U.S.-centered diplomacy. And the only way that countries can break from this U.S.-centered diplomacy and the sanctions and the U.S. control of the world coordinating organizations is to create a new set of coordinating organizations, which requires really withdrawing ultimately from what you call Western civilization. And I agree with you. It’s a civilizational problem. So this is the basic fight for what will the next millennium look like. And it can’t be done without an explicit break. There’s a Chinese proverb, “Whoever tries to go two roads at once will get a broken hip joint.” Well, that’s the problem that they face. You can go beyond just the U.S. and China and say, what about Syria and the U.S. presence in the Near East right now that the U.S. is holding? It’s been told to leave Iraq, and it hasn’t left Iraq. The U.S. military presence over the rest of the world is doing everything it can to prevent other countries from following the alternative. And it’s in fact militarized neoliberalism. That’s really the problem that we have today. And Mr. Blinken said just last week that there is a kind of just and durable peace, but it can’t ratify what Russia has done, that America will fight not only against Russia and China until everything, all of the Russian assimilations of Crimea, of Luhansk and Donetsk are all reversed and things go back to the way they were before. That’s the neoliberal dream, going back to the way it was before to prevent any change going forward. That really is the final statement of neoliberalism. There cannot be any escape. There is no alternative. There cannot be any escape from dollar diplomacy and the world institutions that we control. That’s what the rest of the world is facing. MICK DUNFORD: I think I want to just present a more positive view about some of the things that I mean, I realize, I agree absolutely. I mean, that is a problem, especially ever since the 1980s, especially. I mean, it’s a trap, which many countries have simply not managed to escape. And it’s a trap that’s extremely difficult to escape. But this is simply a chart that looks at the share of world output of agricultural products, of manufacturing goods, of energy, raw materials. And then it also gives a share of GDP and the share of the population. So the share of the GDP is in black. So you can see that’s relatively low. But these are the so-called BRI countries. And you can see that they account for 60% of the world population. But if you look at their contribution to the world production of energy of the kind of materials, raw materials that are needed, if you look at their contribution to the production of manufacturers, if you look at their contribution to the production of food, you see a sustained increase. If you look at the BRICS, you get a similar story. If you look at the SCO, the Shanghai Cooperation Organization, you get a similar story. If you look at RESAP, you see a similar story. There are deep difficulties, not least because of the conflict in Ukraine, but also because of the deepening debt crisis, because of the impact of the conflict in Ukraine on the availability of energy, on the availability of food especially, of course, in emerging countries. So there are serious, serious difficulties. And yet some parts of the world are making progress. That should be a message of hope beyond the neoliberal order dominated by the collective West. The parts of the world that colonized the rest of the world largely after a series of Chinese inventions like watertight compartments in ships, gun powders, magnetic compass, printing. They arrive in Europe, and Europe uses those Chinese inventions to put guns on ships and dominate the world. I think there is also a vision of a different type of world system centered around a series of civilization states. And while there are enormous challenges I think, if you look at what’s going on in the world, you can see stories that offer us a certain amount of hope. Many of these are associated with what is happening in Asia and Russia is orientating itself towards Asia and will also make an enormous contribution to the development of what will hopefully, beyond these disasters through which we’re living, what will hopefully start to look like a better world. So I think we need this kind of positive vision of a way forward as well as identifying the problems of crises that we confront. That’s one of the reasons why I spoke about China in the way I did, because it’s an attempt to move in the direction of collective prosperity, in other words, because it’s only an upper middle income country at the moment. It may be the largest economy in the world, but it’s a middle income country. And so there’s a long way to go in improving the livelihoods of Chinese people, and indeed, of course, of people in other parts of the world. So that’s one of the things I would want to say. RADHIKA DESAI: Well maybe if it’s okay with you, we should draw this to a close now, because we’re kind of nearly done. So let me just then bring this to a close by saying that a mixed graph that he just showed, also tells us why the neoliberal system and the dollar system have to be rejected. Because the difference between the value or the fact that the GDP is very low, but their actual production is very high, is very simple. The dollar system relies on systematically undervaluing the currencies, and therefore the labor and the products of the rest of the world, which is why you see this discrepancy between how much is produced and what the GDP is. So I think that also, so as far as the rest of the world is concerned, what we are saying is that the road for the rest of the world is very clear. It is away from the West, towards China, Asia, away from the Washington consensus, towards whatever locally adaptable forms of socialism are possible. That’s the way in which things have to go. And one of the things that the neoliberal West has also done, by the way, is, which is going to affect the rest of the world very badly, and the rest of the world needs to take an initiative to deal with it, is that, of course, in the present context, the war has become an excuse to essentially abandon all efforts to reach any climate goals. And again, China is an example of how to deal with emissions and generally ecological issues. So meanwhile, global warming is reaching a point where it is seriously affecting labor as well as agricultural productivity in many parts of the world. So the urgency of moving away from the West and from Western neoliberalism and Western imperialism has never been greater. So I think with that, I’d just like to thank you all for listening. Thanks to Mick Dunford for joining us on this amazing show, which Mick’s contribution made so excellent, I think. And of course, thanks as usual to Paul Graham, our videographer. So thank you again and see you next time. Bye bye.

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China, debt, IMF, India, International Monetary Fund, Japan, neoliberalism, Sri Lanka, World Bank

Sri Lanka owes 81% of its external debt to US and European financial institutions and Western allies Japan and India. China owns just 10%. But Washington blames imaginary “Chinese debt traps” for the nation’s crisis, as it considers a 17th IMF structural adjustment program. (Se puede leer este informe en español aquí.) Facing a deep economic crisis and bankruptcy, Sri Lanka was rocked by large protests this July, which led to the resignation of the government. Numerous Western political leaders and media outlets blamed this uprising on a supposed Chinese “debt trap,” echoing a deceptive narrative that has been thoroughly debunked by mainstream academics. In reality, the vast majority of the South Asian nation’s foreign debt is owed to the West. Sri Lanka has a history of struggling with Western debt burdens, having gone through 16 “economic stabilization programs” with the Washington-dominated International Monetary Fund (IMF). These structural adjustment programs clearly have not worked, given Sri Lanka’s economy has been managed by the IMF for many of the decades since it achieved independence from British colonialism in 1948. As of 2021, a staggering 81% of Sri Lanka’s foreign debt was owned by US and European financial institutions, as well as Western allies Japan and India. This pales in comparison to the mere 10% owed to Beijing. According to official statistics from Sri Lanka’s Department of External Resources, as of the end of April 2021, the plurality of its foreign debt is owned by Western vulture funds and banks, which have nearly half, at 47%. The top holders of the Sri Lankan government’s debt, in the form of international sovereign bonds (ISBs), are the following firms: The Asian Development Bank and World Bank, which are thoroughly dominated by the United States, own 13% and 9% of Sri Lanka’s foreign debt, respectively. Washington’s hegemony over the World Bank is well known, and the US government is the only World Bank Group shareholder with veto power. Less known is that the Asian Development Bank (ADB) is, too, largely a vehicle of US soft power. Neoconservative DC-based think tank the Center for Strategic and International Studies (CSIS), which is funded by Western governments, affectionately described the ADB as a “strategic asset for the United States,” and a crucial challenger to the much newer, Chinese-led Asian Infrastructure Investment Bank. “The United States, through its membership in the ADB and with its Indo-Pacific Strategy, seeks to compete with China as a security and economic partner of choice in the region,” boasted CSIS. Another country that has significant influence over the ADB is Japan, which similarly owns 10% of Sri Lanka’s foreign debt. An additional 2% of Sri Lanka’s foreign debt was owed to India as of April 2021, although that number has steadily increased since. In early 2022, India was in fact the top lender to Sri Lanka, with New Delhi disbursing 550% more credit than Beijing between January and April. Both Japan and India are key Western allies, and members of Washington’s anti-China military alliance in the region, the Quad. Together, these Western firms and their allies Japan and India own 81% of Sri Lanka’s foreign debt – more than three-quarters of its international obligations. By contrast, China owns just one-tenth of Sri Lanka’s foreign debt. The overwhelming Western role in indebting Sri Lanka is made evident by a graph published by the country’s Department of External Resources, showing the foreign commitments by currency: As of the end of 2019, less than 5% of Sri Lanka’s foreign debt was denominated in China’s currency the yuan (CNY). On the other hand, nearly two-thirds, 64.6%, was owed in US dollars, along with an additional 14.4% in IMF special drawing rights (SDR) and more than 10% in the Japanese yen (JPY). Western media reporting on the economic crisis in Sri Lanka, however, ignores these facts, giving the strong, and deeply misleading, impression that the chaos is in large part because of Beijing. This July, Sri Lanka’s government was forced to resign, after hundreds of thousands of protesters stormed public buildings, setting some on fire, while also occupying the homes of the country’s leaders. The protests were driven by skyrocketing rates of inflation, as well as rampant corruption and widespread shortages of fuel, food, and medicine – a product of the country’s inability to pay for imports. In May, Sri Lanka defaulted on its debt. In June, it tried to negotiate another structural adjustment program with the US-dominated International Monetary Fund (IMF). This would have been Sri Lanka’s 17th IMF bailout, but the talks ended without a deal. By July, Sri Lankan Prime Minister Ranil Wickremesinghe publicly admitted that his government was “bankrupt.” Sri Lankan President Gotabaya Rajapaksa, who spent a significant part of his life working in the United States, entered office in 2019 and immediately imposed a series of neoliberal economic policies, which included cutting taxes on corporations. These neoliberal policies decreased government revenue. And the precarious economic situation was only exacerbated by the impact of the Covid-19 pandemic. Facing an out-of-control 39.1% inflation rate in May, the Sri Lankan government did a 180 and suddenly raised taxes again, further contributing to popular discontent, which broke out in a social explosion in July. While 81% of Sri Lanka’s foreign debt is owned by Western financial institutions, Japan, and India, major corporate media outlets sought to blame China for the country’s bankruptcy and subsequent protests. The Wall Street Journal pointed the finger at Beijing in a deeply misleading article titled “China’s Lending Comes Under Fire as Sri Lankan Debt Crisis Deepens.” The newspaper noted that the crisis “opens a window for India to push back against Chinese influence in the Indian Ocean region.” US media giant the Associated Press also tried to scapegoat China, and its deceptive news wire was republished by outlets across the world, from ABC News to Saudi Arabia’s Al Arabiya. Many corporate media outlets in India, including the New Indian Express, Business Standard, India Today, The Print, as well as Japan’s media conglomerate Nikkei published similarly fallacious reports. US government propaganda outlet Voice of America, which is closely linked to the CIA, employed the same spurious tactics in an article in April titled “China’s Global Image Under Strain as Sri Lanka Faces Debt Trap.” VOA accused Beijing of “pursuing a kind of ‘debt-trap diplomacy’ meant to bring economically weak countries to their knees, dependent on China for support.” China's Global Image Under Strain as Sri Lanka Faces Debt Traphttps://t.co/gqWbe5PGdz — Voice of America (@VOANews) April 26, 2022 On social media, the Western propaganda narrative surrounding the July protests in Sri Lanka was even more detached from reality. A veteran of the Central Intelligence Agency (CIA), Defense Intelligence Agency (DIA), and National Security Agency (NSA), Derek J. Grossman, portrayed the unrest as an anti-China uprising. “China’s window of opportunity to one day control Sri Lanka probably just closed,” he tweeted on July 9, as the government announced it was resigning. After working for US spy agencies, Grossman is today an analyst at the Pentagon’s main think tank, the RAND Corporation, where he has pushed a hawkish line against Beijing. China’s window of opportunity to one day control Sri Lanka probably just closed. pic.twitter.com/WOLIb3SUTf — Derek J. Grossman (@DerekJGrossman) July 9, 2022 China has funded several large infrastructure projects in Sri Lanka, building an international airport, hospitals, a convention center, a sports stadium, and most controversially a port in the southern coastal town of Hambantota. The UK government’s BBC sent a reporter to Sri Lanka to investigate these accusations of supposed “Chinese debt traps.” But after speaking to locals, he reluctantly came to the conclusion that the narrative is false. “The truth is that many independent experts say that we should be wary of the Chinese debt trap narrative, and we’ve found quite a lot of evidence here in Sri Lanka which contradicts it,” BBC host Ben Chu acknowledged. He explained, “The Hambantota port, well, that was instigated by the Sri Lankans, not by the Chinese. And it can’t currently be used by Chinese military naval vessels, and actually there’s some pretty formidable barriers to that happening.” “A lot of the projects we’ve been seeing, well, they feel more like white elephants than they do Chinese global strategic assets,” Chu added. In our latest film from Sri Lanka, which faces financial collapse as the global Big Squeeze bites, Ben Chu examines the effect that Chinese loans and investment are having on the country:#Newsnight https://t.co/GBFZ1ItP0G — BBC Newsnight (@BBCNewsnight) June 22, 2022 The British state media outlet interviewed the director of Port City Colombo’s economic commission, Saliya Wickramasuriya, who emphasized, “The Chinese government is not involved in setting the rules and regulations, so from that standpoint the government of Sri Lanka is in control, and it’s up to the government of Sri Lanka’s wish to flavor the city, the development of the city, in the way it wants to.” “It is accurate to say that infrastructure development has boomed under Chinese investment, Chinese debt sometimes, but those are things that we’ve actually needed for a long, long time,” Wickramasuriya added. Chu clarified that, “Importantly, it’s not debt but equity the Chinese own here.” “So is the debt trap not all it seems?” he asked. Mainstream Western academics have similarly investigated the claims of “Chinese debt traps,” and come to the conclusion that they do not exist. Even a professor at Johns Hopkins University’s School of Advanced International Studies, which is notorious for its revolving door with the US government and close links to spy agencies, acknowledged that “the Chinese ‘debt trap’ is a myth.” Writing in 2021 in the de facto mouthpiece of the DC political establishment, The Atlantic magazine, scholar Deborah Brautigam stated clearly that the debt-trap narrative is “a lie, and a powerful one.” “Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota,” Brautigam said in the article, which was co-authored by Meg Rithmire, a professor at the stridently anti-socialist Harvard Business School. The Chinese "debt-trap" narrative is a false one which wrongfully portrays both Beijing and the developing countries it deals with, Deborah Brautigam and Meg Rithmire write: https://t.co/FagExsdeNT — The Atlantic (@TheAtlantic) February 7, 2021 Brautigam published her findings in a 2020 article for Johns Hopkins’ China Africa Research Initiative, titled “Debt Relief with Chinese Characteristics,” along with fellow researchers Kevin Acker and Yufan Huang. They investigated Chinese loans in Sri Lanka, Iraq, Zimbabwe, Ethiopia, Angola, and the Republic of Congo, and “found no ‘asset seizures’ and, despite contract clauses requiring arbitration, no evidence of the use of courts to enforce payments, or application of penalty interest rates.” They discovered that Beijing cancelled more than $3.4 billion and restructured or refinanced roughly $15 billion of debt in Africa between 2000 and 2019. At least 26 individual loans to African nations were renegotiated. Western critics have attacked Beijing, claiming there is a lack of transparency surrounding its loans. Brautigam explained that “Chinese lenders prefer to address restructuring quietly, on a bilateral basis, tailoring programs to each situation.” The researchers noted that China puts an “emphasis on ‘development sustainability’ (looking at the future contribution of the project) rather than ‘debt sustainability’ (looking at the current state of the economy) as the basis of project lending decisions.” “Moreover, despite critics’ worries that China could seize its borrower’s assets, we do not see China attempting to take advantage of countries in debt distress,” they added. “There were no ‘asset seizures’ in the 16 restructuring cases that we found,” the scholars continued. “We have not yet seen cases in Africa where Chinese banks or companies have sued sovereign governments or exercised the option for international arbitration standard in Chinese loan contracts.”

Write an article about: BRICS or NATO? G20 or G77? Summits debate rapidly changing world order. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

BRICS, China, G20, G77, Geopolitical Economy Hour, Michael Hudson, NATO, Pepe Escobar, Radhika Desai, Russia

Political economists Radhika Desai and Michael Hudson are joined by geopolitical analyst Pepe Escobar to discuss the rapidly changing world order at a time of summits of BRICS, G20, and G77 and the UN General Assembly. In their program Geopolitical Economy Hour, hosts Radhika Desai and Michael Hudson are joined by geopolitical analyst Pepe Escobar to discuss the rapidly changing world order at a time of summits of BRICS, G20, and G77 and the UN General Assembly. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to the 17th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And today we are joined once again by the incomparable Pepe Escobar. Welcome back, Pepe. PEPE ESCOBAR: Hi, everybody. Great pleasure to be with you both. RADHIKA DESAI: Great. So Pepe and Michael and I are going to discuss the apparently unending series of summits and read their tea leaves to see what they tell us about how the world is changing. And that summitry has been pretty exhausting. There was the fateful NATO summit in July, where much to his chagrin, President Zelensky failed to get even a timetable to get into NATO after having prostrated his country before NATO and having long ago so faithfully let NATO into Ukraine. And then there was the BRICS summit in Johannesburg in August, where the organization defied pessimistic predictions and admitted six new members. This was followed by the G20 in Delhi, hosted by Prime Minister Narendra Modi. President Putin attended the BRICS meeting virtually, but both he and President Xi, who had attended the BRICS meeting personally, did not go to the G20. They left their foreign minister and prime minister to do so. However, then President Putin hosted the vitally important meeting of the Eastern Economic Forum that has been held annually since 2015 to showcase Russia’s own pivot to Asia, which was, of course, a friendly one, unlike Obama’s pivot to Asia, whose purpose was to, of course, escalate tensions with China. At that summit, which barely rated any coverage in the Western media, President Putin not only underlined the absolute priority of Russia’s own Far East and its development, but also Russia’s relation with other Far Eastern economies, which are increasingly, of course, the dynamic center of the world economy, as we have been talking over so many shows. And President Putin also announced that Russia was planning to follow its already spectacular development of hypersonic weapons, which had already caused a Sputnik moment in Washington, D.C., with new weapons, apparently, we are told, based on hitherto unused physical principles, using laser technology, ultrasonic technology, radio frequency, and whatnot. So this will apparently also, according to President Putin, yield new principles of action in war. After this eventful Eastern Economic Forum came the G77 plus China meeting in Havana, where China has restated its commitment to the development of the majority of humankind as the principle that should govern international relations. And of course, now, at the moment, the world is watching as the United Nations has its regular annual meeting in New York, where thanks to his waning popularity, both at home as well as abroad, President Biden seems to be wanting to propose democratic reforms for the United Nations, including the expansion of the United Nations Security Council. Now, the reason these summits have been so hectic and have felt like such a whirlwind of events is simply because each of them has been marking time with the accelerated tempo of change on the international plane, that is to say, the rapid shifts in the world order. And these are the changes that we want to examine in this conversation today. So Pepe, I thought maybe it would be really great if you started this off because you were at the Eastern Economic Forum and that’s one of the least talked about of these summits. So why don’t you start us off by telling us what your takeaway was from that? PEPE ESCOBAR: To be frank, Radhika and Michael, I should not be here now. I should be in Kamchatka Peninsula, you know, or the Sakhalin Islands. When I was at the airport flying back to Moscow, I was desperate because I was looking at my options and I said, oh, my God, everything is there. Blagoveshchensk, which is the border of Russia and China in the Amur, the Altai Mountains, the Kamchatka Peninsula, the Sakhalin Islands, Buryatia. And I said, oh, my God, I have to fly back seven time zones to go back to Moscow and work. OK, I want to drop everything and stay here, especially because one of the days of the summit, I spent the whole afternoon going to all the stands of the different provinces, and talking to the representatives over there. They had very, very good businessmen, startups, official representatives. So you can go to the Buryatia stand and in one hour you will know everything about Buryatia and you have an invitation to go to Buryatia to see the development of the province. When I visited the Tatarstan stand, they gave me an official investor’s guide in Tatarstan, which I’m going to start distributing to everybody, including you guys. You know why? Because the summit of the BRICS next year is going to be in Kazan, which is in Tatarstan. So when you see all that live in front of you and you talk to the people from the provinces and you see how it’s this public-private partnership in terms of sustainable development, you know, these gigantic islands, you know, three million square kilometers or so, then it starts dawning on you that, well, this is Asia-Pacific on the move, really. And the even more outstanding factor is that, for instance, for Japanese, for Koreans, for other Asians, when they arrive in Vladivostok, they say, ah, this is the European capital of Asia. In their minds, Vladivostok is Europe. But the minute I arrived in Vladivostok, I said, no, I am in Asia. Well, I lived in Asia since the 90s, the mid-90s. So for me, Vladivostok was like if I was in a Chinese city or somewhere in Southeast Asia, of course, a slightly different climate. You see Koreans, Japanese, the locals over there, and you feel that you are in Asia. And the first restaurant where I had breakfast was the Singapura restaurant. And I thought I was in Singapore eating Singaporean food. You know, but it’s fascinating to see the contrast. And of course, to see in practice what Putin said in the beginning and at the end of his address to the plenary session of the Eastern Economic Summit. The Far East is going to be the strategic priority of Russia until the end of the century. So this means this is extremely serious. This pivot to the East, in fact, started in 2012. Before 2012, Vladivostok was a little bit left, you know, was a backwater, in fact. Then what did they do? They built those outstanding suspension bridges. So now the circulation, different areas of Vladivostok is much easier. The city started to expand. They built an absolutely outstanding federal university. We had the summit at the campus of the university. I was comparing it to universities in Europe, and it’s a joke. If you compare to anything in France, in Germany, in the UK, or in Italy, compared to this federal university, the dormitories, you know, the green expenses in front of a bay, you know, departments, hyper well-staffed, lots of funds. And it’s literally seven time zones east of Moscow. So you are really deep into Asia, in Russian Asia, in Asia-Pacific. And if anybody mentions the term called Indo-Pacific, nobody will know what it means, because it means absolutely nothing. These are the people who actually live in Asia-Pacific. And in terms of all the provinces in the east, east of the Urals, southern Siberia, and the far, far east, like, for instance, the Kamchatka Peninsula or Buryatia, which is closer to Europe, it’s amazing that the pace of development and the pace of innovation is outstanding. I was talking, for instance, with Chinese scholars. There was a huge Chinese delegation and some excellent scholars, like Wang Wen from Renmin University in China. And for them, it’s a completely different Chinese perspective in terms of, this is great, this is fantastic, but they need infrastructure badly. Wang Wen said that at least 10 times in his different panels. And it’s true. And then I was checking with the locals. They said, ah, he’s absolutely right. Do you know that between Vladivostok here and Khabarovsk, which is the second most important city in the far east, there’s not a highway? And, you know, the road absolutely sucks. And this is something that Chinese can build in six months, easy. On the other hand, we have already an expanding Vladivostok Airport. You know, they’re going to build airports in all these other areas as well. There are even a small airport in the Kamchatka Peninsula, literally under the volcano, reminding us of Malcolm Lowry. And you can see how all these development projects are in sync. And of course, the Chinese, when they look all around, they said, yes, we’re going to invest here big, big time. In fact, Putin’s address, which was very detailed in numbers, especially in numbers and in terms of actual investment, the Chinese were looking around and said, OK, now we’re going to come in full force. And when I was talking to Wang Wenda, among others, he said, yes, from now on, expect an avalanche of Chinese investment in the whole far east. And then right in the middle of all this frantic action, we got the train kept a rolling episode of our friend, Kim Jong-un. And the day that we knew that the train had left Pyongyang and it was actually crossing the border. Many of you maybe don’t know that the border between Russia and North Korea is only 140 kilometers away from Vladivostok. So it’s literally around the corner. So everybody at the front literally stopped and said, wow, Kim Jong-un is coming here. No, in fact, a little more drama. He went to another city and then he went to other parts of Primorsky Krai and he came back to Vladivostok and he visited the federal university when we had all left. So obviously there was a security element to all that, right? But the fact, the timing of Kim Jong-un arriving at Primorsky Krai, this whole region and Putin also in his speech saying that, yes, the relations in North Korea are very, very important. And basically hinting that the geoeconomic integration of North Korea to the larger, greater Eurasia partnership now is on. And in terms of timing and in terms of a mega announcement, it couldn’t go bigger than that. Because on one side, we have that absolutely ridiculous summit with Biden and his South Korean and Japanese vassals. And on the other side, we have a de facto geoeconomic, geopolitical and military, I wouldn’t say alliance, but let’s say entente cordiale as the French would detail between China, Russia and the DPRK. And in one of the columns that I wrote about it, in fact, the second one that I wrote for Sputnik was published by Sputnik early this week. I tell the backstory of how Putin ended up seducing Kim Jong-un. Because I don’t know if many of you remember, immediately the first two years of Xi Jinping, there was an enormous animosity between Kim Jong-un and Xi Jinping. And the Chinese didn’t know how to control their ally. Let’s put it this way. Guess who was the middleman? And guess who ended up having this diplomatic coup, which is strategic coup as well, that lasted, I would say, practically 10 years or so? Putin, once again. And it took him 10 years to get Kim’s trust, to bring Kim closer to Xi, and to bring this triad to become a geoeconomic and geopolitical reality. So imagine all that happening seven time zones east of Moscow. And you can imagine how the Western media treated it, all that. It didn’t exist. To start with, Michael and Radhika, there were no Westerners at this forum. I was probably one of the very, very, very few. And my French friends, one of them hosts a show on RT, he told me, look, I found four French people here. And that’s it. And nobody else, no Germans, no Americans, no Canadians, nobody. No Westerners at all. And it’s one of the most important gatherings of this millennium, I would say. Setting the tone for this strategic pivoting by Russia to the Far East, and this geoeconomic and geopolitical union with North Korea. So this is the very, very short story of what happened in Vladivostok, guys. RADHIKA DESAI: Oh, that is absolutely fascinating. And I just wanted to say, you know, you said that in the Western press, the summit between President Putin and Kim Jong-un was largely ignored. But I noted that at least one story referred to the Russia’s alliances on the one hand with countries like Iran, and on the other hand with countries like North Korea as an alliance of essentially dictators. PEPE ESCOBAR: Dictators. RADHIKA DESAI: Exactly. So, you know, there’s always a way of portraying this in a negative light, you know. But by the way, I completely agree with you. Not only are you seeing that, of course, I mean, East Asia has been essentially a far more dynamic hub of the world economy for a long time. And of course, today, in many ways, it represents a far more weighty part of the world economy. Because if you just take GDP figures, in any case, it is catching up to Western countries. But if you factor in the fact that, you know, much of the GDP that is generated in the Western countries is actually not manufacturing or production of any sort. It’s merely the smoke and mirrors of financial GDP. Actually, this is the dynamic center of the world’s productive economy. DPRK is a central part of this productive economy. It’s astonishing, you know, when you look at pictures of where Korea was when the after, you know, at the end of the war, with hardly a building standing. I mean, it is said that American pilots towards the end of the war were complaining that they had nothing left to bomb because they had already been given orders that buildings above, you know, I don’t know, a couple of dozen feet of height should be bombed. PEPE ESCOBAR: Pyongyang was completely destroyed. RADHIKA DESAI: It was destroyed. And now you see the ability of the Koreans to produce what they are producing to more or less run the economy in the way that and defend themselves. I think it’s really amazing. And I think that Putin, if it is indeed, as you say, President Putin, who has made, you know, brought North Korea sort of back into the full membership of this very productively dynamic part of the world. I have to say that the United States attempts to try to, you know, create essentially to perpetuate the vassalage of Japan and South Korea is probably not going to work very well. The fact of the matter is that already we know that Japan throughout this Korean conflict has continued to maintain energy cooperation with Russia. And we know also that South Korea, although it may not have as much investment with Russia, South Korea will be extremely inconvenienced if tensions with China rise, which they will rise because President Biden has nowhere else to take it. So, you know, for all these reasons, I think your observations are spot on. And I wish I could have been there as well, because I have no doubt that it’s. And of course, the other part of the Eastern Economic Forum is that it’s also about developing the east of Russia. So in a certain sense, actually, you know, this is kind of like Russia’s own version of a BRI, because the Belt and Road Initiative for China is about developing, of course, infrastructure and so on in the world as a whole. But it is also about developing China’s less developed west. And this is about Russia developing its less developed east. PEPE ESCOBAR: Just one thing. If you allow me two minutes, Radhika and Michael. Very, very important. There were extremely important delegations from all over Asia at the forum. For instance, there was Laos, Vietnam, the Philippines and Myanmar. They had very, very important delegations and they were intervening some of the major panels as well. Indians, very important Indian delegation. Chinese, obviously. So major players from Southeast Asia were there. And this points to another diplomatic success by the Russians, which is they’re getting relationship between the Eurasian Economic Union and ASEAN closer and closer. So soon we’re going to have even more free trade agreements between the EAEU and ASEAN. They already have with Vietnam, for instance. They have with Myanmar. Soon they may have, next year, they could have it with Indonesia. There were Indonesians in Vladivostok as well. So this was very, very important. And to see the Asians together with the Russians discussing economic integration, this is something almost cannot even be commented in the West because they don’t even know what it means. RADHIKA DESAI: Absolutely. And in fact, that reminds me of something else, which is that, you know, back in the spring, I was at a conference at the Higher Economics School, which was originally Moscow’s most neoliberal university. PEPE ESCOBAR: Higher School of Economics. They are fantastic. RADHIKA DESAI: Oh, yes. And HSE. And the fact of the matter is that at this conference, prominent Russian intellectuals like Dmitry Trenin, who had been the head of the Carnegie Endowment in Moscow, Sergei Karaganov, who is one of the founders of the Valdai Club. These were the people who were saying that, you know, the days when Russia looked to ally with the West are over. Russia will never return. They are over. Russia will never return to those days. And then towards the end, Karaganov even said, whoever in any case, whoever wants to ally with the West, it’s boring. The real excitement is in Asia. So in that sense, I think that, you know, absolutely. I think that this is and this new world majority that is forming, the Russians have decided to call the grouping that they are part of, which is basically everybody other than the West and perhaps and Japan. This grouping, you know, the West, Japan, Singapore, South Korea, etc. This grouping they call the world majority. And certainly one of the things we’ve been seeing in all these summits is the onward march of the world majority. And the second thing is that, you know, I said earlier that the United States is going to find it very difficult to keep this group, its own alliances together. It’s been trying to woo India away from this alliance on the grounds that India is a democracy. But with the recent developments where Canada has accused India of essentially assassinating a Canadian citizen on Canadian soil, I think that this pretends that this is an alliance of democracies is not going to, you know, stand up to much scrutiny. PEPE ESCOBAR: Stand up, yeah. RADHIKA DESAI: So, yeah, Michael, did you want to add anything? MICHAEL HUDSON: Well, my thought is really on how Europe’s economies are falling apart, not on and you’re talking about how the rest of the world is building up. So obviously, the implication is that Europe is being left out. And Annalena Baerbock, I guess, Baerbock said just last week, if you trade with Russia, it’s dependency. If you trade on their oil, if you trade with America, it’s not dependency. That’s freedom. And we have to avoid trade, not trade with the people who, as Pepe said, autocrats, everybody who’s not trying to overthrow and interrupt with this prospect is called an autocrat. Because what that means is that the public sector is taking a major role in all of this infrastructure. It’s not, it’s not being privatized in this road that Pepe mentioned from Vladivostok. If they build it, it’s not going to be a toll road, probably not like New Jersey. PEPE ESCOBAR: Not a toll road, exactly. MICHAEL HUDSON: That’ll be financed by American capital that will all be, be paid very rapidly. So we’re dealing really not only with a geographic split, but with a split of economic structures, a mixed public-private economy, not like the Western public-private partnership, which you socialize the losses and privatize the profits, but something where the aim is really not to make a profit, but to make the overall economy grow. That’s the basic principle in all this. And the only thing I can say now that you’re talking about how the West has ignored what you’re doing, there’s a reciprocal ignorance there. By the East, yesterday, the United Nations opened, and actually I watched the 6:30 News, and the 6:30 News had a split screen. On the one hand, there was Ukraine’s President, Yelensky, giving a speech, and on the other was a stock footage of the General Assembly, everybody there, everybody in their seats, and it was the boring speech. But then when it was off, I thought, well, that’s only two minutes. Let me look at the internet and see what happened. And they actually had a picture of the General Assembly while Yelensky was speaking, and it was almost entirely empty. The global majority had walked out, except I think there was an African delegation who were talking among themselves and laughing while Yelensky was speaking. So you have really two different worlds, and they don’t seem to be mixing, except for the extent that the United States can try to come in and slow down the whole process and try to prevent the clock from moving. RADHIKA DESAI: Well, absolutely. I mean, one of the things that we are going to see is already you are beginning to see protests in Europe emerging against the kind of economic devastation that the war is causing. Poland is now threatening to stop backing Ukraine. So at the European level, the sort of unity that the United States keeps trumpeting is going to break down. But the funny thing is that I think we are going to watch kind of really an odd sort of unfolding, because it’s more and more become clear to me that President Biden, since he’s running for re-election, and God only knows why he’s running for re-election, because this seems to be increasingly unlikely that he will win, but nevertheless, since he’s running for re-election, the last thing he wants in the world is for him to have to declare that he was defeated in Ukraine. So that is why they will keep funding the war in Ukraine. They’ll keep saying, you know, we stand by Ukraine, et cetera, for domestic political reasons, even though essentially, as far as I can tell, the West has lost in Ukraine, but they’ll keep up the pretense that they might yet win until after the election, which means that for the next year and a bit, this is what we are going to see, you know, coming from the United States. But that is precisely the time period in which both the elites and the ordinary people of Europe may begin to say, OK, the cost is too great. You know, we’ve got to stop this war and so on. MICHAEL HUDSON: Yeah, I do want to say something about Europe then. You can see what the effect of the war is on the sanctions against Germany. What was happening before the war, before 2022, was Germany was supporting the euro’s exchange rate, and it was German industrial exports. And what it was doing, it was producing these industrial goods by importing gas and energy from Europe, and it was paying for them by exporting automobiles and industrial products. So Germany and the EU balance of payments with Russia was essentially they weren’t running a deficit. They was all in balance. And the euro was stabilized because there wasn’t outward pressure. But now that the sanctions have become what you call the Ukraine war is really the U.S.-NATO war, the U.S. war against NATO to absorb it into the U.S. economy. So look at what’s happening now. Not only is Europe being told to increase, to replenish all of the arms that have been destroyed, and that’s about 2 percent of GDP, Europe will now have to spend about 3 percent of its GDP on replenishing the arms, not from Russia or China, but from the United States. That means not only will the budget deficit not permit any more domestic spending to help pull Europe out of the depression, but it’s going to be a balance of payments outflow to the United States while Europe and especially Germany buy U.S. gas and other, as well as arms from the United States. Well, what this means is that there’s no reciprocity there. The United States is not going to do what Russia did and turn around and buy German and other European industrial exports because the United States is protectionist. So it’s going to be a one-way payment instead of a balanced trade from the euro to the United States. And I did an interview with a German press yesterday, and the belief now is that the euro is going to go down right through the dollar to 90 cents, maybe 85 cents in the next few years. Now, imagine what this is going to do. The euro’s balance of payments deficit is going to raise prices because prices are set internationally for all raw materials, for imports. It’s going to make the cost of living higher. Well, the government, Baerbock said she doesn’t care what the voters say. She has to make the world safe for democracy, which means autocracy and the old pre-Orwellian, double speak. And this means there’s already large scale unemployment there. Germany is going to end up looking like Latvia and Estonia. Where are the German workers going to move? They can’t move to the United States because that would be competing with American labor. And the United States has set up its barriers. Is it going to move to Russia, China, Kazakhstan? Who knows what it’s going to do? But the United States has lost Europe. And as you say, Asia has turned its back on Europe. Europe has nothing to offer except subservience to the United States. So you can just see that this whole part of the world that was the center has now fallen off. Fallen off the edge. It’s the contrast of your perfect diagnostic, Michael. You explained the European malaise in five minutes. And when you compare to what they are discussing in China, in Asia, in Southeast Asia and in Vladivostok for that matter, for instance, there were panels in Vladivostok about relationship between BRICS and the Eurasian Economic Union. There’s a more or less a consensus that sooner or later they have to get sit at the same table and start discussing among others a new payment settlement system. In one of the panels that I had the honor to be part of, there were only heavyweights, in fact, including one of the best Russian economists, Andrei Klepash. He works for VAB Bank. There was people from the Duma as well. Sergei Glazyev intervened online. His deputy, his number two, Dmitry Mityaev was also part of the panel. And of course, Klepash came up with a very wonderful definition. He says that a currency by definition has to be liquid and stable like vodka. So at the moment, we’re not there yet in terms of the new Eurasia currency, which is being debated, especially here. It’s one of the key debates everywhere. But I have a question for both of you, because this question came up in Vladivostok. And it’s a little bit of a rage here as well, which involves the Bank of International Settlements and the IMF. Nothing can be done by the BRICS as long as the IMF continues to dictate, as Michael explains very well all over the world, the terms of their collaboration with the Global South. Considering the fact that all the central banks of the BRICS countries are part of the Bank of International Settlements. I know that you can explain this in one or two minutes, and I’m sure the audience will be very, very interested. And also an extra problem. The fact that the new development bank, the BRICS Bank, basically, essentially, as Glazyev has been saying all the time, it’s still dollarized. And how are they going to escape from the fact that they are dollarized? This is something that if I have the chance, a question that I’d like to pose in China next month. But for the moment, the discussion here is raging about all this. MICHAEL HUDSON: There’s a real problem. And last time we talked, I said, well, before there’s a formal currency which needs governments all to get together, they’re going to have to hold each other’s currency for a while with currency swaps. But the Financial Times just had a very interesting article yesterday about Russian sales of oil to India. Russia’s been selling its oil to Europe by way of India. And the Europeans pretend that this is not sanctioned oil because it’s Indian oil from, as we all know, India’s vast oil well reserves. It turns out that India pays Russia in its own currency that is unconvertible; their blocked currency. Just like the German blocked marks of the 1920s. The Indian rupees that have paid Russia can only be spent on imports from India. And this is not a free market in currency. This is not stable. What on earth is Russia going to do with this huge mass of rupees that can only be spend on Indian exports. This is something that cannot last a long time. And the United States, recently in visiting India, has jumped on this and said, look, this is all going to end. You’d better throw in your lot with us and block the Belt and Road. Remember, you’re fighting China up near Tibet in the Himalayas. You really have to join NATO, basically. And so that is the subterranean, that’s the pressure. And the United States, having mounted a coup in Pakistan last year, is saying the same thing to Pakistan. Don’t let the Chinese pipeline go through Pakistan. What you want is for the oil to be from a port to a ship to a railroad to a port to a ship back to another railroad. I mean, this crazy line that the United States has tried to get as an alternative to the Belt and Road. This is the issue that the United States is trying to do, to interrupt this whole continuity. And that’s going to be the political fight that I think unfolds during the next 12 months. RADHIKA DESAI: You know, that’s really an interesting point, and I want to come back to that. But first, let me just answer Pepe’s original question, because you see, Pepe, the two institutions that you mentioned are quite different, right? So the Bank of International Settlements is essentially like an international club of central banks, which is fine. I mean, you know, it cannot impose anything. The IMF, on the other hand, can only impose its writ to the extent that countries borrow from it. And it’s really interesting to look at history from this point of view. You know, there were throughout the 1980s and 1990s, there were numerous complaints about the way in which the IMF treats third world countries, developing countries. And in those days, there was a debt crisis pervaded the third world. So you got to see that. And of course, these complaints were mounting. But then when people saw the manner in which the IMF intervened in South Korea after the 1997-1998 East Asian financial crisis. PEPE ESCOBAR: I was there, I saw it firsthand. Exactly. RADHIKA DESAI: So please add to this. But let me just say when people saw the way in which the IMF intervened in Korea, treating it as though it was just another third world country, essentially creating an opportunity for American corporations to buy Korean firms at knockdown prices and such like things, people really realized how bad it is. And in fact, since that time, the IMF portfolio began to shrink. They had fewer and fewer people, countries were borrowing from it. And the other thing as well is that once the United States at that time started, its low interest rate policy in order to try to keep the housing bubble going and so on, this low interest rate policy sent a lot of capital searching for returns abroad so that private lending to third world countries increased. So, you know, people were not, you know, countries were not borrowing. So the IMF had almost become irrelevant until then the 2008 crisis happened and then it got more borrowers. But to this day, the IMF is not really very popular among third world governments. So I would say that in order to escape from the clutches of the IMF, the important thing is for countries to create alternative sources of finance. China is taking a lead in this. But I would say that we are still at that liminal phase where this is not sufficient to replace the IMF. But I think that BRICS countries should probably be thinking hard about, on the one hand, decreasing the need to borrow, particularly the need to borrow in dollars. And then secondly, to the extent possible, to increase the available capital for lending in other currencies. MICHAEL HUDSON: The IMF is basically a war lender in two senses. Its biggest client recently was Ukraine, of course, but now Pakistan, too. Pakistan made a deal with the United States last month. The IMF promised to give it a loan to buy American arms. So the IMF has now become the major funder of countries purchasing American arms. It’s a branch of the American military-industrial complex. And of course, the other war is class war of the 1% of the dictators in Argentina and other countries against the 99% in their country. And the IMF has supported capital flight from these countries. Now, the problem that the BRICS have is not simply avoiding the IMF. How on earth can they afford to make their public investment in infrastructure and roads and the things we’ve been talking about if they have to pay the existing backlog of foreign dollarized debt that has been run up under IMF sponsorship, saying this is all how the economy works? It’s not how the economy works. The IMF has sponsored junk economics and the identical balance of payment theory that bankrupted Germany and Europe in the 1920s. The idea that you can pay any amount of foreign debt if you just pay your labor less. And the idea of the BRICS countries is to raise living standards. For one thing, if you raise living standards, labor is more productive. If you pay for their education, you feed them well, you keep them in good health, they’re going to be more productive. The opposite of what the IMF says. So if you’re going to have a philosophy that’s the opposite of the old neocolonialist financial imperialism, you have to make the BRICS break from the West, not only trading among yourselves. but saying, we’re going to have a moratorium on foreign debt. The moratorium may last forever, just like in 1931, the Bank for International Settlements organized a moratorium on German reparations and inter-ally debt because they said, if these debts are paid, you will have chronic depression throughout Europe and the United States. So the debts couldn’t be paid. You need a new 1931 today. And the BRICS countries, BRICS Plus, can say, we were given bad advice and we weren’t in control because the leaders of our countries who signed these promissory notes were installed by US interference and meddling in our economy. And just as Central Africa is freeing itself from the legacy of French colonialism and taking its own natural resources under its control, we’re taking our resources under our control. Forget the debts. You can bring it up all you want in future decades, but we’re not going to pay for now because we can’t pay. And we’re not going to sacrifice our lives and our economies for the legacy of colonialism, which would simply maintain the whole purpose of colonialism, which is control and extracting the economic surplus from the global majority. PEPE ESCOBAR: If you allow me, one minute, very briefly for both of you. We still have an enormous practical problem, which is something that was not really discussed during the BRICS summit. And in Vladivostok, some of the economists alluded to it, but we didn’t have time to get into detail. The fact, how are we going to de-dollarize the BRICS bank, the new development bank? This is something that Dilma Rousseff, former Brazilian president, now president of the NDB, she said that a few months ago, and she said that during the BRICS summit. Ah, our goal is to have 30% of our loans bypassing the dollar in the next few years. But this is completely nuts. It should be like 70% or 80% now. And you’re going to wait for 30% next year or in two years. So this means that it’s still a completely dollarized bank. What to do, Radhika and Michael? RADHIKA DESAI: Well, let me start. So I would say that the key thing that we have to understand is that the new development bank is not where we should look if we are looking at the processes of de-dollarization. I agree that it remains within the spell of the IMF and the World Bank and so on. I think to look for de-dollarization, I think we need to look at really the China-centered institutions. There is the Asian Infrastructure Investment Bank. There is all the Chinese, major Chinese banks are lending across, around the world internationally. And I think that’s where we have to look, not necessarily at the new development bank, which is small by comparison to this. It represents the, so, you know, these processes, you know, we are all in a certain sense, I think when we are talking about de-dollarization and these alternatives, if we talk about it in terms of BRICS, I think we’re doing two things that are wrong. Number one, we are overestimating the cooperation between them. The BRICS still includes India, for example, and Brazil and South Africa, whose commitment to a anti-dollar world is actually not as firm as you might imagine. So, I think that this is going to be a drag. However, as you rightly pointed out, the fact that China and Russia are now in very close alliance. Recently, this was further underlined by, you know, China essentially standing by Russia in a number of different ways. So, I would say that this is the alliance we have to look at. That is the main driver. I think the other countries, you know, particularly say, take a country like India that I know most about. I think other countries are going to, you know, if we had, for example, a progressive government in New Delhi, I think the process will accelerate much more. You know, just as in Brazil’s case, under Bolsonaro, things were kind of slow vis-a-vis the BRICS. But now that Lula is back, you know, we will have probably an acceleration. But, you know, it’s going to be a long process that economies will have to be transformed and so on. Right. So, in that sense, I think we have to look at towards China in particular. But I think also that the other thing we have to be prepared for, because this is what Michael and I have been talking about for a long time, which is that there are two elements to the de-dollarization process. One is the availability of alternatives, but the other is the internal contradictions of the dollar system itself. And I think that it’s quite possible that the internal contradictions of the dollar system might reach a critical point, may reach the implosion point before the rest of the world is prepared with the alternatives on the scale that they are necessary, which is why we keep harping about the internal contradictions of the dollar system. But Michael, I know you want to come in. So go ahead. MICHAEL HUDSON: No, you said the important point. We’re having instability all over and all the countries can do is remove themselves from the instability. And the problem is not using the dollars. It’s paying the dollar debt. It’s what they’re paying for in dollars. These dollars are not going to be used for trade. Most dollars by the global majority are made to pay debt. And the debt was taken on by their ruling class. Instead of taxing the ruling class, they’ve dismantled government. They’ve privatized their infrastructure. The IMF and the World Bank and the U.S. have pushed them into a neoliberal policy of selling off their infrastructure, of doing the exact opposite of what Pepe described China and Russia doing now, building in public infrastructure and providing it at as low a cost as possible to lower the cost of living, to lower the cost of doing business and make economies more competitive. So if you’re going to have a conflict between two economic systems, you don’t want to keep paying the legacy of the old economic system that led you into debt in the first place. So if you don’t de-dollarize the debt, you have a problem. If you only use dollars for trading, well, you could use that for balance of payments deficits with the United States. But what did the United States have to sell other countries? It’s nothing. The U.S. can only export arms now and grain and still food. But the global majority now is doing what Russia is doing. It’s growing its own food to become independent of reliance on America’s ability to turn off the spigots and weaponize trade. The United States accuses the BRICS in Russia of potentially weaponizing trade, but only the United States has weaponized its trade. No other country has done that. It’s what you call, psychotherapists call, projection. So they need to broaden the discussion and quite explicitly say, we’re talking about the use of currency, not primarily to pay for trade, but to pay debts. And most debts are the product of neocolonialism in the past. And we’re breaking from neocolonialism and its legacy. And you can treat these as odious debts. That is what will have to become the focus of these discussions. PEPE ESCOBAR: May I have one quick question for both of you? The last one, maybe? Would it be possible for the, not only for the BRICS, but for the global majority to use a system that is called mBridge, which is being used at the moment by the Thais and the Emirates, for instance? It’s very, very interesting. The Thais are buying oil from the Emirates. So they use a blockchain. RADHIKA DESAI: Sorry, from whom are they buying oil? From whom are the Thais buying oil? PEPE ESCOBAR: The Emirates. So it’s very interesting. It’s a blockchain mechanism. The Thais, they pay with an E-Baht. And the Emirates, they receive an E-Dirham. It’s fantastic. It’s a blockchain. Do you think that this could be applied all over for transactions among the global majority as a whole? Could that be the way towards an alternative payment system on a global scale? MICHAEL HUDSON: That’s exactly what happened in the 1930s and 1940s, in the 50s. And when I first went to work at Chase Manhattan Bank for balance of payments, block currencies were still being used into the early 60s. That’s exactly how the world solved the problem after the German reparations and inter-ally debt crisis. So yes, that’s the natural evolution that it’ll take. Somehow people have left out of account this whole discussion. All of these things in the economic principles were discussed in the 20s, and Keynes completely demolished the right-wing doctrine, the Von Mises doctrine that the IMF has been producing today. So I think what’s needed is to reintroduce these discussions of how the problem was resolved in the 20s and 30s. That’s what my textbook on Trade, Development and Foreign Debt is all about. It’s the history of this international financial discussion. RADHIKA DESAI: But I think, Michael, you’re speaking of something else, right? You referred to blocked currencies. MICHAEL HUDSON: Yes, and these were blocked currencies. The United States accused Germany of having accordion marks, marks that could only be spent on buying German accordions. I mean, you can block them down to very great detail. And more and more countries, especially Latin America, were developing it. And when you’d look at the IMF international financial statistics that came out every month, a big publication, you’d have the exchange rate of trade, investment, you’d have the different exchange rates all listed. RADHIKA DESAI: I think what you’re referring to is the ‘bloc currency’ in the sense of currencies that circulated in a regional bloc. For example, there was the sterling bloc, there would have been a mark bloc, etc., etc. MICHAEL HUDSON: No, they could only be used to buy particular things in this country. In other words, any country could buy, America could sell its German marks to Argentina, they could buy its accordions from Germany. No, no, no. Okay, so there were currencies that were essentially earmarked for buying only certain products. That’s fine. But I think that, Pepe, your question was really about blockchain currency, and electronic currencies. PEPE ESCOBAR: Yes. RADHIKA DESAI: And I think that the answer to that is, I mean, it’s a really interesting question. First of all, there’s a lot of confusion around the terms that are used. So when people talk about digital currencies, they assume that everybody’s talking about Bitcoin and such things. Bitcoin is not a currency, Bitcoin is an asset. So we were going to leave that aside, right? Now, however, it is also true that many central banks are talking about introducing e-currencies. And there’s all this discussion around central bank digital currencies. And that is, of course, being opposed by the private sector, particularly in the United States, but elsewhere as well, by private banking and financial interest. Because, of course, the moment you have a central bank digital currency, you will eliminate the need for private banking. Because essentially, everybody will have an account with the central bank, and the central bank can centralize lending and repayments and all these sorts of things. So there is a huge private sector. And of course, all of this is being couched in terms of, how, my goodness, you’re going to let the state have access to all your information, etc. But of course, at the moment, private corporations have access to all our information and nobody says. So but to come back to the repayment systems, international payment systems and the use of e-currencies, I would say that from my understanding, this will make it easier. So, you know, if the Thais and the Emirates want to trade with one another, of course, the payment is a lot easier if you use these digital currencies and so on. And to some extent, yeah, so you can do that. And you can also decentralize the use of the incoming resources and all these sorts of things. However, this will not solve the problem that Michael was referring to earlier when he said that, you know, Russia is sitting on piles of rupees that it doesn’t know what to do with. So the solution to that problem really is that, you know, in the process of de-dollarization, in the process of essentially moving away from the junk economics of the Western world, what all countries are going to have to do is really to focus on developing their economy, including, if necessary, by essentially socializing them, introducing higher and higher elements of socialism in it and essentially controlling the prerogatives of private capital. So because if this is not done, then you will not solve the problem of imbalances. The imbalances ultimately occur because, you know, countries don’t have enough to, you know, competitive exports. So how are you going to acquire competitive exports? How can India do that? Only by essentially pursuing development in the only way that is successful, namely state-directed development in which private capital is subordinated to the needs of the economy as a whole, etc., etc. And I think that all of that is going to take a bit of time. It’s not going to happen overnight. And every so often, you know, like Argentina has elected a government just after being admitted into the BRICS. Argentina has elected the government that promises to dollarize its economy. So these hiccups will happen. But I would say that the broader push of history is away from the West and away from capitalism and towards the forms of economic forms we’re talking about. I think maybe we should just have one last round of final remarks because we’re nearly up to an hour. So maybe, Pepe, we’ll start with you. PEPE ESCOBAR: Wow. Well, my head is still in Vladivostok and the Far East. And next month I’ll be back in Asia. So I’m doing a loop at the moment, which is quite instructive. It’s Russia, the Far East, and then next month I’ll be in Southeast Asia and hopefully China as well, and finishing Hong Kong, where I used to live. And after these three months, you have a pretty good idea of how this part of the planet is moving and interacting. And especially, don’t forget, next month is the Belt and Road Summit in Beijing. So this means they’re going to launch Belt and Road 2.0. They’re going to probably announce some projects and announce that some important projects are going to be finished soon, which is something that the West doesn’t understand. The Belt and Road is an open work of art or trade or connectivity. This is something inadmissible for Western thinking, binary Western thinking. It’s open. It’s subject to improvements, a la Deng Xiaoping, you know, crossing the river while feeling the stones. You can change a project or you can improve a project or you can even drop a project or you can bring more local workers instead of more Chinese workers. And the Chinese are learning to do this. Since the Belt and Road was announced 10 years ago, first in Astana and then in Jakarta, they are refining the process. And I’m very, very worried personally about the China-Pakistan economic corridor after what happened after the coup against Imran Khan, after the fact that the IMF is running the country again, and considering the fact that this dynasty in power is one of the worst in the history of the whole of Southeast Asia. In fact, these people, they are gangsters, the absolute gangsters and comprador elites, a classic comprador elites. But maybe next month we will know what the Chinese are telling these people in power at the moment in terms of safeguarding what they promised in terms of joining the China-Pakistan economic corridor. The fact that China wants to expand the corridor to Afghanistan as well, this has already started and this depends on good relations between Pakistan and Afghanistan. The fact that China is building railways in the northern neighbors of Pakistan and some of these railways involve Pakistan, like the railway from Pakistan to Uzbekistan, very, very important. So the Pakistani government, whatever that is, even run by gangsters, they have to honor all these commitments. And especially from the point of view of the liaison between Xinjiang in Western China and Gwadar in the Arabian Sea, this for China is a matter of national security. So this will imply that the Karakoram Highway will continue to be upgraded, just like they upgraded the northern part. They will upgrade the southern part as well, all the way to Islamabad. And of course, like what Michael referred in the beginning, building that famous pipeline from Xinjiang to Gwadar port in the Arabian Ocean. So for the Chinese, this is absolutely essential. They will do it even if it takes 10 years. They have the technology to do it, they have the time to do it, they have the financing, but they need a stable government, which is something that you can never ask for in Pakistan. Unfortunately. I love Pakistan. I worked in Pakistan on and off for many years. I have an emotional attachment to the country, but we all know it’s a basket case. It’s an ungovernable entity, right? And with all the clashes of the many nationalities inside, the fact that the Baluchis, if they’re not respected, they will continue to harass Chinese engineers and Chinese envoys in Baluchistan and all that. And there’s nothing that Islamabad can do about it. So this is something that next month maybe we can have a much better idea of how the Chinese are going to manage their absolutely intractable ally, especially considering that the usual suspects are absolutely dying to cut off the China-Pakistan economic corridor, which is the flagship project of Belt and Road. MICHAEL HUDSON: Well, I think you’ve pointed to Pakistan correctly as the line of the future. Fifty years ago, I sat in on Defense Department meetings saying that Balochistan was going to be where they break up the whole India opposition. This was the – Herman Kahn had a whole presentation on Balochistan is the area that is the most prone to be broken up. Regarding the big points that we’ve made, the problem is really going to be the Belt and Road is going to – somebody’s going to have to pay for it, and it’s going to be mainly China. What are the recipient countries? How are they going to handle the economic liability for it? If they’re going to – their governments are going to own it, they will have to be running up a debt in one way or another to China. Otherwise, China will say, well, we’ll build the roads, but then we’re going to get – we’re going to be repaid by the tariffs on the traffic along the road. All of this – the idea of the Belt and Road is to raise the prosperity of the regions that it goes through. That’s what railroads do. They raise the value of property all along the railroad line. They raise the value of the countries that the railroads and the transportation go through. So the countries that are the recipients of the Belt and Road will get richer. The problem is how do you bridge the liability that they take today, what they owe for this investment, and how they will repay in the long-term future? Maybe it will be an equity-debt relationship. Maybe it will be an option for them to then, once they get rich enough, to repay China on some terms. Will this entail interest rates? How will the interest – BRICS debts differ from the kind of debts that the United States imposed on third-world countries in the past? How do they avoid the kind of neoliberal debt imperialism that the West has done and use that to actually finance positive capital formation, positive direct investment without impoverishing countries, and especially without impoverishing labor and turning it into the class war that the IMF and the World Bank and the U.S. economic philosophy and all of the Nobel Prizes that say, this is how you get rich, impoverish labor and squeeze more out. How do you get an alternative to what the Western countries call economics? RADHIKA DESAI: Those are absolutely really big questions, and probably, Michael, we should have a program on that. MICHAEL HUDSON: All of our programs are on that. RADHIKA DESAI: No, seriously, on the specific question of debt and debt to third-world countries, I think this is really quite an interesting point. We should definitely have that, and maybe Pepe will have you back when you’ve gone and you’ve done your loop. But let me just end by saying that we began by talking about summits, and the UN summit is ongoing. And a lot of the commentary around the current UN summit, where I think only President Biden out of the permanent five members is actually attending the UN General Assembly meeting and so on. So in this context, people are saying, has the United Nations become irrelevant? Is it that all these other institutions are being created, the BRICS and G20 and so on? Maybe they are more relevant. And I guess the way to answer that question is that the United Nations itself was a product of a very critical moment in the history of imperialism. But imperialism had just suffered a huge crisis, two world wars, the Great Depression, impending decolonization. And very importantly, the crisis was only resolved thanks to the critical aid of the Soviet Union and Chinese forces. So in that sense, I think it was formed on the principles of equal sovereignty, non-interference, non-aggression, all of these. And of course, since that time, the United States has wished to essentially backtrack on this. It has done a great deal to undermine the United Nations. The rest of the world have been asking for a reform of the United Nations in a variety of ways and the various institutions, the World Bank, the IMF and so on. But it is the refusal of the United States that is rendering these institutions irrelevant, if anything. And unfortunately, other countries will have to build some kind of alternatives. So as long as the US and US-led drive to continue the zombie life of imperialism continues, this will remain the case. We hope, of course, that this will not be for very long. And hopefully, the forces that we are talking about, the forces of China, the BRICS and the rest of the world, the world majority will soon prevail. So maybe on that note, we can draw our discussion to a close. So thanks very much again for joining us, Pepe. We’ll have you back soon. And Michael and I will see you all in a couple of weeks. Definitely. PEPE ESCOBAR: Fantastic. Thank you. RADHIKA DESAI: Thank you. Bye.

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Political economists Radhika Desai and Michael Hudson are joined by Beijing-based scholar Mick Dunford to discuss what is actually happening in China’s economy, explaining its technological development and transition toward a new industrial revolution. Political economists Radhika Desai and Michael Hudson are joined by Beijing-based scholar Mick Dunford to discuss what is actually happening in China’s economy, explaining its technological development and transition toward a new industrial revolution. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to the 24th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai. MICHAEL HUDSON: I’m Michael Hudson. RADHIKA DESAI: And working behind the scenes to bring you our show every fortnight are our host, Ben Norton; our videographer, Paul Graham; and our transcriber, Zach Weiser. And with us today we have, once again, Professor Mick Dunford, professor emeritus of geography at Sussex University and now working at the Chinese Academy of Sciences, keeping a close watch, among other things, on China’s economy. So welcome, Mick. MICK DUNFORD:  Thank you very much. RADHIKA DESAI: So, China’s economy is what we’re going to talk about today. Where is it at after decades of breakneck growth, after executing the greatest industrial revolution ever? Where is it headed? Trying to understand this is not easy. The disinformation that is fake news and even what I often call fake scholarship that distorts the view that any honest person may be trying to take on China’s economy is simply overwhelming. It’s absolutely wall-to-wall propaganda, no matter which Western publication or website you open. If we are to believe the Western press and the leading scholarly lights of the West, who are the major generators of the Western discourse on China, we are at peak China. That is to say, they claim that China has reached a point, reached the highest point, that is, that it ever can. And from here on, it’s only going to be downhill, more or less rapidly. They say that China has, in recent years, inflated a huge property bubble to compensate for the West’s inability to keep up imports. And this bubble is about to burst. And when it does, it will subject China to a 1980s and 1990s Japan-style long-term deflation or secular stagnation. They have even invented a word to talk about this: “Japanification”. We are told that the Japanification of China’s economy is impending. They say that the U.S.’s trade and technology wars are hitting China where it hurts the most, at its export and its reliance on inward foreign investment. They are saying that China has grown only by stealing technology. And now that the U.S. is making it harder for it to do so, its technological development can only stall. They are saying that China followed disastrous COVID-19 policies, leading to mass death, draconian lockdowns, and economic disaster. They are saying that China over-invests, and its growth will not pick up unless China now permits higher consumption levels. They are saying that China has a serious unemployment crisis, that the CPC, the Communist Party of China, is losing legitimacy, because it is failing to deliver ever-higher living standards. And they are saying that Xi Jinping’s authoritarian leadership is ensuring that the private sector will stall, and with it, so will China’s growth. All this, they say, before even beginning to talk about China’s foreign policy. And there, of course, lie another long litany of alleged disasters and misdemeanors that China is responsible for, beginning with debt-trap diplomacy and China’s allegedly voracious appetite for the world’s resources. The only reason why Western experts ever stress the strength of China’s economy is when they want to argue that the West must redouble its efforts to contain China and to stall its rise. So today, we’re going to take a closer look at China’s economy, and in doing so, we’re going to bust a lot of these myths. We’re going to show you that, sadly, for the purveyors of the fake news and fake scholarship about China, no amount of their huffing and puffing has been able to blow down China’s house, because, like the good, the smart little pig, China is actually building its house with bricks. So, we have a number of topics to discuss in this show. Here they are: 1.    Characterising China’s Economy: Capitalist? Socialist? 2.    Growth Story 3.    Covid Response 4.    The Alleged Debt and Property Bubble? And Japanification? 5.    Restricted Consumption? Stagnant living standards? 6.    Exports in the China Story 7.    China’s new growth strategy 8.    China’s foreign policy So, these are the topics that we hope to discuss. We want to begin by talking about how to characterize China’s economy. Is it capitalist? Is it socialist? Then we will do the most important and primary basic thing, we will look at the growth story with some statistics. We will then look at China’s Covid response. We will look at the alleged debt and property bubble and whether China is being Japanified. Then we will look at the issue of whether China is overinvesting and neglecting consumption and living standards, etc. How reliant is China on exports? What is China’s growth strategy? And what is China’s foreign policy? And are those myths about it true? So, this is what we hope to discuss. So, Mick, why don’t you start us off with your thoughts on exactly how to characterize China’s economy? MICK DUNFORD: Ok, the way I would characterize China is as a planned rational state. I mean, right the way through, it has maintained a system of national five-year planning, and it also produces longer-term plans. But it’s a planned rational state that uses market instruments. China has a very large state sector. And of course, some people have claimed that this state sector is, in a sense, an impediment to growth. And we’ve seen a resurrection of this idea, guo jin min tui (国进民退), which is used to refer to the idea that the state sector is advancing and the private sector is retreating. It’s a very, very strange concept, in fact, because the third word is min (民), and min refers to people. So, what they are actually, in a sense, saying – these ideas were invented by neoliberal economists in 2002 – the private sector is equated with the people, which I find absolutely astonishing. But, I mean, the country does have a very significant public sector. What I find striking is that one can actually turn it around and say, what is it that these Western economists seem to think China should do? And they seem to think that China should privatize all assets into the hands of domestic and foreign capitalists. It should remove capital controls. It should open the door to foreign finance capital. It should transfer governance to liberal capitalist political parties that are actually controlled by capital. I think one of the most fundamental features of the China system is actually that it’s the state that controls capital, rather than capital that controls the state. And it’s, in fact, this aspect of the Chinese model, and in particular, the rule of the Communist Party of China that has basically transformed China from what was, effectively one of the poorest countries in the world into one of its largest industrial powers. So, in a way, it’s a planned rational state in which the CPC has played an absolutely fundamental role. And without it, I mean, China would never have established the national sovereignty that permitted it to choose a path that suited its conditions and to radically transform the lives and livelihoods of its people. RADHIKA DESAI: Michael, do you want to [speak]? MICHAEL HUDSON: The question is, what is the state? There are two aspects of the state with China. One is public infrastructure. And the purpose of China’s public infrastructure is to lower the cost of doing business because infrastructure is a monopoly. That’s what really upsets the American investors. They wanted to buy the phone system, the transportation system, so that they could benefit from charging monopoly rents, just like under Ronald Reagan and Margaret Thatcher. The most important sector that China’s treated in the public is money creation and banks. Americans hope that American banks would come over and they would be making all the loans in China and benefiting from China’s growth and turning it into interest. And instead, the government’s doing that. And the government is deciding what to lend to. And there’s a third aspect of what people think of when they say state. That’s a centralized economy, centralized planning, Soviet style. China is one of the least centralized economies in the world because the central government has left the localities to go their own way. That’s part of the Hundred Flowers Bloom. Let’s see how each locality is going to maneuver on a pragmatic, ad hoc basis. Well, the pragmatic ad hoc basis meant how are localities, villages, and small towns going to finance their budgets? Well, they financed it by real estate sales, and that’s going to be what we’re discussing later. But once you realize that the state sector is so different from what a state sector is in America, centralized planning and the control of Wall Street for financial purposes, finance capitalism, hyper-centralized planning, you realize that China is the antithesis of what the usual view is. RADHIKA DESAI: Absolutely. And I’d just like to add a few points, which dovetail very nicely with what both of you have said. The fact of the matter is that this was also true of the Soviet Union and the Eastern European countries when they were still ruled by communist parties. We generally refer to them as socialist or communist, but in reality, they themselves never claimed to be socialist or communist. They only said they were building socialism, especially in a country that was as poor as China was in 1949. The leadership of the Communist Party of China has always understood that there has to be a long period of transition in which there will be a complex set of compromises that will have to be made in order to steer the economy in the direction of socialism, in order to build socialism. So, from its beginnings, the revolutionary state in China was a multi-class state and a multi-party state. People don’t realize very often that while the Communist Party of China is the overwhelmingly most powerful party in China, there are other parties that exist as well, which reflect the originally multi-class character of China. Now, it’s true that since 1978, the government has loosened much of its control over the economy. But the important thing here is that the Communist Party retains control of the Chinese state. The way I like to put it is, yes, there are lots of capitalists in China. Yes, those capitalists are very powerful. They are at the head of some of the biggest corporations in the world, and they are quite influential within the Communist Party. But what makes China meaningfully socialist or meaningfully treading the path to socialism, let’s put it that way, is the fact that ultimately the reins of power are held in the hands of the Communist Party of China leadership, which owes its legitimacy to the people of China. So, the reigns of power, the reigns of state power are not held by the capitalists; they are held by the Communist Party leadership. So, in that sense, I would say that China is meaningfully socialist. Although, as Mick pointed out, there is a fairly large private sector in China, but so too is the state sector very large. And the extent of state ownership means that even though the private sector is very large, the state retains control over the overall pace and pattern of growth and development in the country. And I just add one final thing here, which is going to become quite important as we discuss the various other points, and that is that the financial sector in China remains very heavily controlled by the state. China has capital controls, China practices a fair degree of financial repression, and China’s financial system is geared to providing money for long-term investments that improve the productive capacities of the economy and the material welfare of the people. And this is completely different from the kind of financial sector we have today. So, Mick or Michael, did you want to add anything? MICK DUNFORD: Just to reiterate, I mean, the point is, the government sets strategic targets that relate to raising the quality of the life of all the Chinese people. And it has strategic autonomy, which gives China the opportunity or the possibility of actually choosing its own development path. And I think that’s something that very strikingly marks China out from other parts of the Global South that have had much greater difficulty, in a sense, in accelerating their growth, partly because of debt and their subordination to the Washington financial institutions. So I think that is critically important, the role of sovereignty and autonomy in enabling China to make choices that suited its conditions, and at the same time making choices that are driven by a long-term strategic goal to transform the quality of the lives of all Chinese people. MICHAEL HUDSON: I want to put in one word about sovereignty. You put your finger on it. That’s really what makes it different. What makes other countries lose their sovereignty is when they let go, how are they going to finance their investment? If they let foreign banks come in to finance their investment, if they let American and European banks come in, what do they do? They fund a real estate bubble, a different kind of a real estate bubble. They fund takeover loans. They fund privatization. Banks don’t make loans for new investment. China makes great money to finance new tangible investment. Banks make money so you can buy a public utility or a railroad and then just load it down with debt, and you can borrow and borrow and use the money that you borrow to pay a special dividend if you’re a private capital company. Pretty soon, the country that follows this dependency on foreign credit ends up losing its sovereignty. The way in which China has protected its sovereignty is to keep money in the public domain and to create money for actual tangible capital investment, not to take your property into a property-owning rentier class, largely foreign-owned. RADHIKA DESAI: Thank you. Those are very important points. Thank you. I’d just like to add one final point on the matter of how to characterize the Chinese economy and the Chinese state. At the end of the day, it’s not just important to say that the state controls the economy, but whose state is it? The way to look at it as well is that in the United States, essentially we have a state that is controlled by the big corporations, which in our time have become exceedingly financialized corporations, so that they are directing the United States economy essentially towards ever more debt and ever less production, whereas that is not the case in China. And the question of whose state it is makes use of the word autonomy. The autonomy refers to the fact that it is not subservient to any one section of society, but seeks to achieve the welfare of society as a whole and increase its productive capacity. MICK DUNFORD: If I may just add, I think also it’s important that you pay attention to the policy-making process in China. It’s an example of what one might call substantive democracy. It delivers substantive results for the whole of the Chinese population. In that sense, it delivers improvements in the quality of the lives of all the people, and therefore, in a sense, it’s a democratic system. But it’s also a country that actually has procedures of policy-making, experimentation, design, and choice and so on that are extremely important and that have fundamental aspects of democracy about them. When Western countries characterize China as authoritarian, they’re actually fundamentally misrepresenting the character of the Chinese system and the way in which it works, because they, in a sense, merely equate democracy with a system, whereas China, of course, does have multiple political parties, but a system with competitive elections between different political parties. There are other models of democracy, and China is another model of democracy. RADHIKA DESAI: Mick, you’re absolutely right to talk about the substantive democracy. Indeed, in China, they have recently developed a new term for it. They call it a “whole process democracy”, and it really involves multiple levels of consultation with the people, going down to the most basic village and township levels, and then all the way up the chain. And I think this process does work, because the other remarkable thing about the CPC leadership is its ability to change direction pragmatically. If something does not work, then it assesses what it has attempted, why it has failed, and then it revises course. So, I think we will see several instances of this as we talk as well. Michael, you want to add something? MICHAEL HUDSON: One thing about democracy. The definition of a democracy traditionally is to prevent an oligarchy from developing. There’s only one way to prevent an oligarchy from developing as people get richer and richer, and that’s to have a strong state. The role of a strong state is to prevent an oligarchy from developing. That’s why the oligarchy in America and Europe are libertarian, meaning get rid of government, because a government is strong enough to prevent us from gouging the economy, to prevent us from taking it over. So, you need a strong central state in order to have a democracy. Americans call that socialism, and they say that’s the antithesis of democracy, which means a state that is loyal to the United States and follows U.S. policy and lets the U.S. banks financialize the economy. So, just to clarify the definitions here. RADHIKA DESAI: Very, very true, Michael. But let’s not go, I mean, maybe we should do a separate show on political theory of the state, because that’s equally important. But for now, let’s look at our next topic. We hope, of course, that everybody understands how we characterize China’s state. But now, let’s look at China’s GDP growth. So, here you have a chart, and we have several charts on this matter, but we’ll take them one by one and comment on them: So, here we have a chart showing the annual rate of GDP growth from 1980 to 2028. Of course, post-2023 are their projections, which are shown by the dotted lines. And I’ve only taken a few selected countries from the Our World in Data website, and anybody can go there and look at this data, by the way. So, you can see China and then a handful of the most important Western countries. And you can see that going back to 1980, essentially China’s growth rate, which is here, the top red line here, has absolutely been massively higher on practically any year than the other countries. In fact, you see I left Russia in here. I should probably have taken it out. It’s a bit of a distraction, because here you see Russia’s growth rate massively bouncing up from the late 90s financial crisis. But let’s leave that aside. All the other major countries, which you see here, they are all showing considerably lower growth. So, the United States here is this orangish line. And essentially, they’re all showing much lower growth. And more recently as well, this is the Covid-19 pandemic. And you can see that China, again, like all the other countries, it experienced a fairly sharp decline in the growth rate, but it still remained positive, unlike all the other countries. And it remains substantially above that of the rest of the economies that constantly are telling China how to improve its economic policy. So, that’s what I want to say about this chart. But Mick, go ahead. MICK DUNFORD: Can you show that table that I sent? RADHIKA DESAI: Yeah, sure. Yes, here we go: MICK DUNFORD: These are more recent growth rates for China, for the world, and for the G7. And I mean, first of all, they show absolutely clearly that China’s growth rate is still a long way in excess of the average growth rates of all G7 countries, many of which have actually performed abysmally. I mean, Germany is now in recession, it declined 0.3% per year this year. I mean, Italy has had extremely low rates of growth, France, Germany, the United Kingdom, Japan, all had extremely low rates of growth. China last year achieved a growth rate of 5.2%. It itself expects to grow at 5% next year. The IMF forecast 4.6%. Even that 4.6% target is quite close to the average growth rate that China needs to achieve to meet its 2035 target. It has a 2035 target of doubling its GDP, its 2020 GDP by 2035. I think that that goal is perfectly realizable. And in that sense, I strongly disagree with people who argue that China has in a sense peaked. But I do find it, really quite astonishing, that Western countries, whose economies have performed extremely poorly, feel in a position to lecture China about how it should address what is said to be an unsatisfactory rate of growth. That’s the first point I want to make. I just want to say something else, if I may. When we talk about, I mean, China’s growth has slowed. And, there’s no doubt that in terms of people’s everyday lives, there are many difficulties. And I just want to quote something. At New Year, Xi Jinping gave a speech. I wanted to cite his actual words. He recognised that in these years, China faces what he called the tests of the winds and rains. And then he said, when I see people rising to the occasion, reaching out to each other in adversity, meeting challenges head on and overcoming difficulties, I am deeply moved. So, the leadership and all Chinese people are well aware that there are many, many difficulties and challenges confronted, because China is actually undergoing a major structural transformation about which we shall speak later. But China is also in the short term undertaking a lot of important actions that are actually designed to cope with some of the real difficulties that people confront. So, if you listen to Li Qiang’s government work report, he addressed the problem of short-term employment generation. And there are proposals for 12 million new urban jobs to increase employment, especially for college graduates and other young people, because for young people, the unemployment rate, including college students, is in the region of 21 percent. Urban unemployment is 5 percent. So, there are issues to do with the generation of employment. Government expenditure this year will target a whole series of strategic issues, but also livelihoods. So, affordable housing, youth unemployment, job security, insurance, pensions, preschool education, the living conditions in older communities. So, I’m just saying that, in the current context, difficult economic situation and a particularly turbulent global situation. I mean, China, as every other country in the world, faces challenges, and it is in many ways directly addressing them in very important ways. RADHIKA DESAI: Great. Thanks, Mick. Michael, do you want to add anything? MICHAEL HUDSON: No, I think that’s it. The question is, what is the GDP that is growing? There are a number of ways of looking at GDP. And when I went to school 60 years ago, economists usually thought of GDP as something industrial. They’d look at energy production. They’d look at railway cargo transportation. If you look at the industrial component of what most economists used to look at, electricity is the power for industry, electricity is productivity growth for labor. If you look at these, what is the component of GDP, you realize that these differences in Mick’s charts are even wider than what he showed, because the American GDP, very largely interest, overdraft fees of credit card companies, as we’ve said, is providing a financial service. 7% of American GDP is the increase in homeowners’ view of what their rental value of their property is. That’s 7%. Now, I doubt that China includes a measure like this in its GDP. But if it did, with all of its rise in real estate prices, its GDP would be even higher in a reality-based basis. So real GDP, as we think of it, and the public thinks of it, is something useful and productive. Actually, China’s doing a much more efficient job in minimizing the kind of financial and rentier overhead that you have in the United States. RADHIKA DESAI: Exactly, Michael. What I was going to point out as well is that these figures of U.S. GDP growth and the absolute level of U.S. GDP are heavily financialized. The financial sector, which actually is not a force for good in general in the U.S. economy, it is out of which the indebtedness comes, out of which the productive weakening comes. The growth of the financial sector is counted as GDP in the United States and massively inflates U.S. GDP, which would not be as high as this. And this is particularly important given that President Biden, for example, is congratulating himself now for having the strongest economy in the world or the Western world or whatever it is. Well, that’s what the U.S.’s boast is based on. And China does not do that, nor does it have the kind of financial sector which creates, which destroys the productive economy. Rather, as we were saying, it has the kind of financial sector that supports it. So, just another general point I want to make. We were talking about this chart: This shows from 1980 to 2028, and the projections remain, by the way, even from conservative sources, that China’s growth is going to remain higher than the rest of the world, particularly the Western countries, for a long time to come. And I also decided to show you this chart: This is the chart of growth, which is just a more focused version of the previous one, which shows growth rates from 2008 to 2028. So 2008 is when we had what Michael and I call the North Atlantic Financial Crisis. And since then, what we’ve seen is, yes, of course, all countries have seen a sort of a reduction in their growth rate, and certainly China has. But even since then, you can see that China’s growth remains high and stable. So, that’s another thing that we wanted to show. And this is a chart showing the rise of per capita GDP: That is to say, you can have a higher GDP, but if your population is expanding, then to what extent is per capita GDP rising? So, you can see here that, again, even in terms of per capita GDP, and this only again goes to 2021, but in terms of per capita GDP, China has remained head and shoulders above all the major Western countries. And this bounce here that you see in the case of the US and the UK here, it is only a dead cat bounce from the absolute depths to which their economies had sunk during Covid, and so they came to some sort of normalcy. Mick, you may want to say something about this chart, because you sent it to me. So, please go ahead: MICK DUNFORD: It’s correct, of course, that China’s growth slowed. Now, in 2013, China entered what is called the New Era. At that time, China decided that its growth rate should slow. It chose slower growth. It spoke of 6 or 7 percent per year, and it more or less achieved that, until the Covid pandemic. So, China chose slower growth for very particular reasons, and I think in this discussion, we shall come to some of these reasons later on. But in a sense, what they want is what they call high-quality growth. And what China is seeking to do is undertake a profound structural transformation of its economy, establishing new growth drivers by directing finance towards high-productivity sectors and directing finance towards the use of digital and green technologies in order to transform its traditional industries. So, in a sense, it’s undergoing a profound process of structural transformation. And I mean, if you, for example, look at Li Qiang’s speech, the major tasks include invigorating China through science and education, so to strengthen the education, science and technology system, to improve the capabilities of the workforce, or promote innovation, industrial investment and skills, and another, striving to modernize the industrial system and accelerate the development of new productive forces, bearing in mind that we’re on the verge of a new industrial revolution. But these are very important issues, fundamentally important issues. RADHIKA DESAI: And I would say just, and I know we’ll talk about it at greater length later on, but it is really important to bear in mind that really, when the world stands at the cusp of being able to exploit new technologies like quantum computing or nanotechnology or artificial intelligence or what have you, a relatively centralized decision-making process about how to allocate resources, for what purposes, for what social benefits, etc., is likely to prove far superior, that is to say, China’s method is likely to prove far superior than the Western tactic of leaving private corporate capital in charge of the process. And just to give you a couple of instances of this, the fact that private corporate capital is in charge of the development of digital technologies is already creating all sorts of social harms in our Western societies, whether it is harms to children’s mental health or even adults’ mental health, to political division that the algorithms sow and so on. And also, it is leading to a situation where even these mega-corporations, these giant corporations, actually do not have the resources to invest, the scale of resources that will be needed to invest. So, for example, you hear in the Financial Times that Sam Altman is looking for people to invest in his artificial intelligence ventures, which will require trillions of dollars, and he cannot find private investors for it. So, this is really quite interesting. Okay, so if we’re done with the growth rate story, oh, and I just want to say one other thing about this, which is, this is a GDP per capita in purchasing power parity, and China, in the space of a few decades, essentially, has experienced the biggest spurt in per capita well-being, etc., which includes important achievements like eliminating extreme poverty. The Communist Party has brought China to essentially per capita GDP in purchasing power terms of next to nothing in 1980 to about $20,000 per annum in 2020. This is really quite an important achievement. And to do this for a country of 5 to 10 million people would be laudable, but to do this for a country of 1.3 billion people is a massive, historic achievement, and I think that’s something to remember. MICK DUNFORD: I just, if you just go back for one minute, I mean, I absolutely agree with what you’ve just said, Radhika. I’ll just make a comment about this chart. It’s because we were probably going to speak about Japanification: It basically shows that the GDP per capita of Japan, and indeed of Germany, closed in on the United States, and actually Germany overtook it in the 1980s. But after that point in time, I mean, after the revaluation of their two respective currencies, and after the, the bubble, the stock market and property market bubble in Japan, you saw stagnation set in. And there’s a question as to whether that will happen with China. But I mean, I think that one thing that’s striking in this diagram is that China is still at a much lower level of GDP per capita than Japan, or indeed Germany was at that time. And those economies, because, they were at the technological frontier to some extent, had to innovate, move into new technologies. China, because there is still a technological gap, has enormous opportunities to accelerate its growth in a way in which, well, Japan failed because it chose not to take up opportunities, and it gave up semiconductors manufacture. But China has enormous opportunities, and that’s one reason why we must anticipate China’s growth as continuing. RADHIKA DESAI: Absolutely. Thank you, Mick. Okay, so if we’re done with the growth story, let’s go to our next topic, which is what happened in China under Covid-19. Now, of course, there is just so much dispute about and controversy around Covid and Covid strategies, etc. So we don’t want to get into all of them, but I just want to emphasize two things. We’ve already looked at the growth figures, we looked at the growth figures around Covid: So you can see here that in 2020, all economies had a big dip thanks to Covid in their economies, but China is alone among the major economies to have remained in positive growth territory, and to have, of course, remained much higher than the rest of the other major world economies. So essentially, China, whatever China did, it did not sacrifice growth. Now, this is very ironical, because in the Western countries, we were told that we need to, in order to continue growing, we need to, so in order to preserve livelihoods, which was the euphemism for preserving the profits of big corporations, in order to preserve livelihoods, we may have to sacrifice some lives. And the Western economies went through an absolutely excruciating process of lockdown here, and opening there, and lockdown again, and opening again, and so on. But all of this had devastating impacts on Western economies, whereas China prioritized the preservation of life above all. And it imposed a lockdown knowing that, okay, even if we are going to develop vaccines, and remember, China developed its own vaccines, and effectively inoculated over 70 percent of the population by the time they began reopening. China prioritized the saving of lives, and it was accused of essentially creating world shortages by shutting down its economy, etc. But in reality, China’s strategy, which focused before the availability of vaccines, on essentially physical distancing, isolation, etc., as was necessary, but China managed to do it in a way as to keep up a relatively robust growth rate, and very importantly, lose very few lives. This is a chart, again from Our World In Data, of cumulative Covid-19 deaths per million of population: So here we have all these countries, the United States and United Kingdom are these top two lines, Germany, Canada, Japan, even though we are told that East Asian economies did well because they had experience with SARS, etc., even then, compared to China, which is down here with a cumulative Covid death rate per million of about 149 or something people dying per million, and these numbers are over 3,000, almost 4,000 per million at this point in the United States and the UK, and then you have these other economies. So China actually managed to avoid the worst of Covid, both in terms of lives and in terms of livelihood, and it did so because it did not compromise the saving of lives. Does anyone else want to add anything? Mick? You were there. MICK DUNFORD: Well, I mean, obviously, there were difficulties for some people in some places at some times. I was here right through it. All I can say is the impact personally on me was extremely limited. It was a very effective system for protecting life. And if you lived in some places, then in fact the impact on your life, apart from having frequent nucleic acid tests and so on and ensuring that your health code was up to date, the impact on one’s life was relatively limited. But in some places, obviously, in Wuhan at the outset, in Shanghai later on, the impact was very considerable. But I think it’s an indication of the importance of a kind of collectivism, and the priority given to the protection of human life. And as you said, it is quite striking that actually through it, China’s economy actually kept ticking over. And of course, China produces so many important intermediate goods that obviously it was also very important in providing things that were needed in many, many other parts of the world. It also shared its drugs, its vaccines, which is really quite different, in a sense, from the conduct of the United States. And to some extent, the Western pharmaceutical companies. RADHIKA DESAI: Absolutely. Michael, go ahead. MICHAEL HUDSON: In the United States, that would be considered a failure of policy. The United States used Covid as an opportunity to kill. For instance, the governor of New York, Cuomo, took the Covid patients and he moved them into all of the assisted living and old people’s homes. And that had a great increase in productivity. It resulted in enormous death rates for the elderly. That helped save New York’s pension plan system. It helped save other pension plans. It helped save Social Security because the dead people were no longer what America called “the dead weight”. The American policy was to indeed infect as many people over the age of 65 as you could. And that helped balance state, local budgets, pension plan budgets. The increase in the death rate is now the official policy of the Center for Disease Control in the United States. They say do not wear masks. They’ve blocked any kind of mask wearing. They’ve done everything they could to prevent the use of HIPAA filters or airborne disease. The Disease Control Center says that Covid is not an airborne disease. Therefore, do not protect yourself. Well, the result is many children have been getting Covid and that weakens their resistance system. And they’re getting measles and all sorts of other things. And all of that is greatly increasing GDP in America. The health care costs of America’s destructive policy. I think Marx made a joke about this in Capital. He said when more people get sick, the doctors and the economic output goes up. Are you really going to consider sickness and destruction and fires rebuilding and cleanup costs? Are you going to count all of this there? RADHIKA DESAI: But the irony is Michael, even with all of that, America’s GDP plunged so deeply down. Well, I think we should move on to the next topic, but I will just say one thing. It is generally said that China is in a panic, the Chinese government reversed its draconian Covid policies because there were popular protests, and blah blah and so on. I would not agree with that. Certainly, there were some popular protests. It also seems as though at least some of them were being pushed by the National Endowment for Democracy with the typical color revolution style. They have one symbol that symbolizes it. So, they decided to put up blank pieces of paper, etc. So, there’s no doubt that there was some of this going on. And as Mick said, undoubtedly, there were local difficulties in many places. But what becomes very clear is that China decided to lift Covid restrictions towards the end of 2022 only after it has satisfied itself that the risk. And I should also add one thing. It was under pressure to lift these restrictions a great deal because the fact was that the rest of the world was not following China’s footsteps apart from a handful of other countries. And they were socialist countries. They were not following China’s footsteps. So, it’s very hard to be the only country that’s doing it. But nevertheless, despite all those pressures, China had a very deliberate policy. It lifted Covid restrictions after assuring itself that enough of the population had been vaccinated, as to achieve something close to herd immunity. And these figures of deaths per million demonstrate that China’s bet proved right, and China continues to monitor the situation. Covid hasn’t gone away. And so, in all of these ways, I think that it’s important for us to understand that China’s policy has actually been above all about protecting people’s lives. MICK DUNFORD: Just from my recollection, the demonstrations of which you spoke, where the slogans were written in English, I wonder who they were talking to, were on the 1st of December. China had, on the 11th of November, already announced the steps of, in a sense, removing restrictions. And then they were finalized in early December. So, the change was already underway. RADHIKA DESAI: Exactly. Great. So, I think we are at almost, I think, 50 minutes or so. So, let’s do the next topic, which is the property bubble. And then we will stop this episode and we will do a part two of this episode, and do the other four topics that remain in part two. So, Mick, do you want to start us off about the property bubble and the alleged Japanification, impending Japanification of China’s economy? MICK DUNFORD: Okay. Well, if you want, you can just show the chart: Basically, you can see that throughout this period, Chinese house prices have risen quite substantially. You know, in a sense, the story started, with housing reform, after 1988, when China moved from a welfare to a commodity system. And then, in 1998, it actually privatized Danwei housing, and it adopted the view that housing should be provided, as a commodity by developers. And in 2003, that course of action was confirmed. And from that point in time, one saw very, very substantial growth in the number of developers, many of which, the overwhelming majority of which were private developers. So, in a sense, they moved towards a fundamentally market system. And they very quickly had to make certain adjustments because they found that while the quality of housing and the amount of housing space per person was going up, these developers were orienting their houses towards more affluent groups. So, there was an under-provision of housing for middle-income groups and for low-income groups. And so, there were progressively, you saw over the years, increasing attention paid to the provision of low-cost housing and of low-cost rented housing. And in fact, in the current five-year plan, 25% of all housing is meant to be basically low-cost housing. So, the important point is that this problem emerged in a system that was liberalized, actually, I mean, in line with recommendations that were made in 1993 by the World Bank. So, in other words, it’s an example of a liberalized, predominantly market-led, private-led system, in which these difficulties and these problems have emerged. So, that’s the first thing I want to say. And I mean, obviously, to address housing needs, China has had, over the course of time, to considerably move back in the direction of providing low-cost housing in order to meet the housing needs of the Chinese people. But basically, in August 2020, the government got very, very deeply concerned about, on the one hand, increasing house prices and, on the other hand, the explosion of borrowing and the fact that the liabilities of many of these developers substantially exceeded their assets. And of course, the other line on that chart is a line indicating house prices in the United States. And of course, it was the crash of prices in the subprime market that, in a sense, precipitated the financial crisis. So, China, in the first place, is absolutely determined that it should not confront that kind of problem that was generated by the liberalized housing system in the United States. So, I mean, that’s the first thing I basically want to say. If you want, I can say something about the case of Evergrande. But basically, what China did in 2020 was it introduced what it called Three Red Lines, which were basically designed to reduce financial risks. But it had a number of consequences because it, to some extent, deflated the housing market. Housing prices started to fall. Some of these developers found themselves in a situation where their liabilities substantially exceeded their assets. There was a decline in housing investment. But to some extent, I think this is a part of a deliberate goal of basically diverting capital towards, as I said earlier, high productivity activities and away from activities, especially the speculative side of the housing market. So, I’ll just say that for the moment, but I can come back and say something about Evergrande, if you wish, in a few minutes. RADHIKA DESAI: Okay, great. Michael, do you want to add anything? MICHAEL HUDSON: Well, what I’d like to know as the background for this is what is the, how much of this housing is owner-occupied and how much is rental housing? That’s one question. The other question is how much is the ratio of housing costs to personal income? In America, it’s over 40% of personal income for housing. What’s the ratio in China? I’d want to know the debt-equity ratio. How much debt, on the average, for different income groups? Debt relative to the value of housing. In America, for the real estate sector as a whole, debt is, the banker owns more of the house than the nominal house owner, whose equity ratio for the whole economy is under 50%. These are the depth dimensions that I’d want to ask for these charts, if you know anything about them. RADHIKA DESAI: Okay, thanks for that. And so, I just want to add one thing, which is that, this graph actually really says it all, and in some ways implicitly answers Michael’s questions: Because the blue line, which shows the United States property prices, you can see that they reached a certain peak at 150% of the value of its 2010 values in 2008. Then it went down to below the level of 2010. But U.S. monetary policy, Federal Reserve policy, its continuing deregulated financial sector, the easy money policy that was applied in a big way with zero interest rate policies, with quantitative easing, etc., etc., has simply led to a new property boom, where the prices of property prices have reached a peak, which is even higher than that of 2007-8, which was such a disaster. And this was all made possible precisely by the, by increasing housing debt, etc. Whereas in China, a big driver of the housing boom has actually been that people are investing their savings in it. So, by logically, it means that the extent of a debt in the housing market will be comparatively lower. The entities that are indebted are actually the developers. And that’s a very different kind of problem than, than the, than the owners being indebted. So that’s the main thing I want to say. And Mick, you wanted to come back about, about Evergrande, so please do. And then remember also that we want to talk about this chart in particular, and deal with the question of Japanification: So, please go ahead, Mick. Let’s talk about that. MICK DUNFORD: Okay, well, I mean, as Radhika just said, the problem is, the indebtedness of developers, and the existence of debts that considerably exceed the value of their assets. And the way in which this situation has come about, and I mean, as I said, the Chinese government, in a sense, wants to address the financial risks associated with that situation, and did so by introducing these so-called Three Red Lines. It also is interested in reducing house prices, and it’s also interested in redirecting finance towards productivity-increasing activities. So, Evergrande is an enormous real estate giant. It has debt of 300 billion dollars. It has 20 billion of overseas debt, and its assets, according to its accounts at the end of the last quarter of last year, are 242 billion. And 90 percent of those assets are in mainland China. So, its liability asset ratio was 84.7 percent, and the Three Red Lines set a limit of 70, 70 percent. So, it’s substantially in excess of the red line. In 2021, it defaulted. And then, in January this year, it was told to liquidate after international creditors and the company failed to agree on a restructuring plan. In September, by the way, last year, its chair, Su Jiayin, was placed under mandatory measures, on suspicion of unspecified crimes. Basically, it was a Hong Kong court that called in the liquidators. And the reason was that, in a way, outside China, Evergrande looked as a massively profitable distressed debt trade opportunity. There were 19 billion in defaulted offshore bonds with very substantial assets and, initially, a view that the Chinese government might prop up the property market. So, large numbers of U.S. and European hedge funds basically piled into the debt, and they expected quite large payouts. But it seems as if this negotiation was, to some extent, controlled by a Guangdong risk management committee. And the authorities, basically, were very, very reluctant to allow offshore claimants to secure onshore revenues and onshore assets. And, in fact, to stop the misuse of funds, I think about 10 Chinese local provinces actually took control of pre-sales revenues. They put it into custodial accounts, and the idea was that this money should basically—the priority is to ensure that the houses of people who’ve paid deposits on houses are actually built, and people who’ve undertaken work in building houses, are basically paid. So, that, then saw the value of these offshore bonds collapse very rapidly, indeed. And I think that, to some extent, explains the concerns of the international financial market about the difficulties of this particular case. But I think, it’s clear that China intends, basically, to deflate this sector and to put an end to this speculative housing market as much as it possibly can, and to direct capital, towards productivity increasing, essentially, the industrial sector. And we shall talk about this direction of finance later on. MICHAEL HUDSON: Evergrande debt, and other real estate debt, is to domestic Chinese banks and lenders. Certainly, many Chinese home buyers did not borrow internationally. So, I want to find out how much the domestic Chinese banking system, or near banking system — not the Bank of China itself, but the near banks intermediaries who lent — to what extent have the banks given guarantees for the loans for Evergrande and others? I understand that there are some guarantees domestically, and if the banks have to pay them, the banks will go under, just as occurring here in New York City. Do you have any information on that? MICK DUNFORD: No, I don’t really have any information, except, I mean, some of the literature that I’ve read suggests that these creditors, bondholders and also other creditors, basically shareholders, are going to take a very, very major haircut. RADHIKA DESAI: Exactly. I think that this is the key, that there will be an imposition of haircuts on the rich and the powerful, not just subjecting ordinary people to repossession of their homes, which they should have access to. So, as Mick has already said, the Chinese government is doing everything possible to make sure that the ordinary buyers who have bought these houses do not lose out, which is the opposite of what was done in trying to resolve the housing and credit bubble in the United States. So, I just want to say a couple of things. I mean, the Chinese government is quite aware, as Mick pointed out, the whole thing has begun by, this whole property bubble is in good part a product of the fact that when relations between China and the West were much better, China accepted some World Bank advice, and this is partly a result of that and the kind of deregulation that the World Bank had suggested. But very clearly, now relations between China and the West are not good. In fact, they’re anything but good. China is unlikely, once bitten, twice shy, to accept such bad advice again, even if they were good. And now that they’re not good, there will be, and China is clearly looking at distinctively pragmatic, socialistic ways out. And you see in the new address to the NPC by the Premier [Li Qiang], that social housing has become a major priority, not building houses for private ownership, but rather building houses which will be kept in the public sector and rented out at affordable rates. And I think this is really an important thing, really the way to go. And finally, I would say that, the property bubble in Japan and the property bubble in the United States were bound to have very different consequences, partly because, well, for two reasons, mainly. Number one, the nature of their financial systems were very different. In the case of Japan, the financial system was being transformed from one that resembles China’s financial system to something that resembles much more the US financial system. And Japan has continued this transformation and has suffered as a result. I would say in short, really, Japan has paid the price of keeping its economy capitalist. So in many ways is the United States. And the second reason, of course, is that, funnily enough, one of the effects of the Plaza Accord was that, by the time the Plaza Accord came around, Japan was no longer interested in buying US treasuries. And as a result, the United States essentially restricted its access to US markets in a much bigger way. And so, essentially, Japan lost those export markets. And it did not do what China is able to do. It perhaps could not do what China is able to do, being a capitalist country, which is massively reorient the stimulus for production away from exports and towards the domestic market, including the market for investment. So I think that we are, maybe this is the cue at which we can talk about Japanification. So maybe you can start us off by commenting on this chart, and then Michael and I can jump in as well: MICK DUNFORD: Ok, the blue line, of course, is the flow of loans to different sectors. So the blue line is the flow of loans to the real estate sector. MICHAEL HUDSON: Only the Bank of China or by? MICK DUNFORD:  All the banks. You can see from 2016, the share going to real estate has diminished very significantly, whereas, where it says industrial MLT, that’s medium and long term loans for industrial investment, you can see a very, very strong, steady increase in the share of loans going to industrial investment. In agriculture, it declines. And then also, that has actually increased since 2016. So this is a directing of investment towards manufacturing and towards the industrial sector of the economy. So why is that? Well, I think the first thing one can say is that, in the past, basically, the growth drivers of the Chinese economy were, to some extent, export manufactures. But China was predominantly involved in processing activities, employing very unskilled labor and associated with very low levels of labor productivity. So one of China’s goals is to significantly, basically, strengthen, upgrade the quality of these traditional industries, to make them digital, to make them green, and to radically increase productivity through a large-scale investment wave. And then, secondly, we’re on the verge of a new industrial revolution, which Radhika has spoken about. So the aim in this case is, basically, to divert investment towards the industries that are associated with the next industrial revolution. The other main growth drivers in the past, alongside this export sector, were obviously real estate, which, I mean, if you look at GDP by expenditure, was accounting probably with household appliances and furniture and household goods and so on, about 26, 27 percent of the economy. But it’s a sector that’s associated with relatively low productivity, and of course, it was associated with very substantial speculation and generated very considerable financial instability. So, as Radhika said, there will be, in dealing with this financial crisis, basically an underwriting of existing, of obligations to existing home buyers, and in the future, an attempt to establish a more sustainable housing market. The other area of the economy was basically this sort of platform economy. But this platform economy was associated with very, very strong tendencies towards monopoly, and in the, about four or five years ago, a series of measures were adopted, basically, to restrict, some aspects of this platform economy, and other areas, like private tutoring, which was generating large disparities in the educational system, and is associated with the fact, that the cost of raising children in China is extremely high. I mean, it’s the second highest in the world after South Korea, actually. So, these growth drivers, these old growth drivers, are basically seen as not offering potential to sustain the growth of the Chinese economy into the years ahead, and so there’s this attempt to look for new growth drivers. And basically, for that reason, you’ve seen this redirection of investment. And I think one can distinguish that, from what happened to Japan, because basically, in Japan, industrial investment did not increase, largely, I think, because the profitability of investment was not sufficiently high. And also Japan, in a sense, adopted a neoliberal program. It didn’t implement industrial policies. Whereas China is seeking to undertake this transformation, basically, through, it’s a kind of supply-side restructuring, driven by industrial policy, and driven by financial policies, providing strategic funding for industrial transformation. Then linking that also to the transformation of education, to try to ensure that the output of the education system, in terms of skill profiles, and so on, corresponds much, much more closely with the profile of work and employment, with much more emphasis upon STEM, in the context of this new industrial revolution, radically raising productivity, and by radically raising productivity, you increase income, and ultimately, you’ll increase consumption, and so on. So I think that the Japanification course is not one that China will follow, that China will actually address this need to innovate and transform its industrial system, in order to, in a sense, address the problems that are associated with the earlier drivers of Chinese development. MICHAEL HUDSON: We probably need a whole other program to talk about the difference in structure. Real estate is the largest sector of every economy, and China is so different from Japan. The Ginza district in Japan, right around the palace, that small district, was larger than all of the real estate value in California. So, we’re dealing with a huge debt finance explosion there, and then you have the largest collapse of property prices in Japan, everywhere, anywhere in the world. In a way, what you’ve described brings us back to what we were talking about at the beginning of the show, about China’s structure. The effect of the real estate slowdown and falling in prices has a disastrous effect on localities, small villages and towns in China, who are dependent on real estate sales as funding their budget. So, the real estate crash in China, if we’re talking about what policy is China going to take, how is it going to solve the problem of local budgets without solving it by creating a booming real estate market for towns to sell off their property to developers, and developers to make a profit selling off a property to private buyers, mainly. I assume they’re not just selling it to the government to make a profit. I think there’s a lot of structure that I’d like to know. I don’t know what it is now, but it’s so different from what you have everywhere else. I think that really is what I hope will be the focus of our show, the geopolitics of different real estate structures and the real estate tax that goes with it. RADHIKA DESAI: That’s a really interesting question, and much of that we will be discussing in the second part of this show, which we’ll be recording in a week or so, I think. But let me maybe then just bring this to a conclusion by simply agreeing with what both of you have said, which is that China has a very good chance, in fact, very likely, China is not going to follow the Japanification model because, as Michael is emphasizing, the structure of China’s economy and the imperatives generated by that structure are very different. To name just one, if something is not profitable in a capitalist economy, it will not get done. Whereas in the case of the Chinese economy, the Chinese government can always say, well, if it’s necessary, we’ll do it even if it isn’t profitable, because it is necessary for the welfare of the people or the productive capacity of the economy, etc. So, profitability just does not play the role of a brake in the same way as it does in capitalist societies. Secondly, the role of the state, both in terms of initiating new projects and taking responsibility for new projects, and we can already see in the current NPC and the discussions there that the role of the state is already once again expanding again in China, and it can continue to do so. And I think that’s a very good thing. And remember also that, Mick, you emphasized in the case of when you were discussing one of the graphs, that the per capita GDP of China today is considerably lower than what it was in Japan, even in the late 80s and early 90s. And that means that, number one, domestic consumption can be a big stimulus for further economic expansion. And secondly, of course, the industrial opportunities, the opportunities for a new industrial revolution are many, and China in particular, because of the important state role in the Chinese economy, the centrality of the state role in the Chinese economy, and the aim of the Chinese economy and the Chinese economy’s managers to develop China’s productive capacity in whatever way that works, not necessarily through private ownership. These elements are actually going to ensure that China will exploit the opportunities of the new technologies much more effectively and execute a transition to the next industrial revolution much more successfully, and that will be an important road to avoiding what’s called Japanification. MICK DUNFORD: You know, I think the difference is that Japan, I thought, in the 1980s was at the technological frontier, and China is not. But just, what Michael was referring to is the fact that in China, local government revenue came to depend to a very considerable extent on what is called land revenue. You know, basically all land is state-owned, is either state-owned or owned by the rural collectives. But what happened was that if land was converted for use for urbanization, was converted for use for urbanization, for housing, then basically the local government could in effect sell leases, 90-year leases, or depending on the activity, different lengths of lease. They could sell these leases to developers. And then that revenue was used by local government to fund infrastructure. To some extent that model has come up against limits. And I think, the issue Michael raised really concerns how in future will local government be funded, and will there be a reform in the system of taxation? Will a property tax be introduced in order to generate government revenue rather than relying upon this land tax? Because of course that did encourage local government to allocate that land to people who are going to build housing for upper-income groups, because the implications for land value were under that situation, they would actually be higher rather than providing that land to construct housing for low income groups. So, this issue of land revenue is one that has to be addressed basically by someone who’s an expert in public finance. MICHAEL HUDSON: That should be what we talk about in the next show, I think. RADHIKA DESAI: Great. So I think that we should bring this part of the show, the first part of this show to an end. And let me just do that by going back to our list of topics. So just to conclude, we managed to cover the first four, although the question of Japanification and the alleged property bubble will resonate into all the rest of the topics, certainly the question of consumption, exports and China’s new growth strategy. So we will return to it. But in the next [Geopolitical Economy] Hour, we will be talking about these topics, restricted consumption, exports, new growth strategy, and of course, China’s foreign economic policy. So thanks very much both. Thanks to all the listeners. And we look forward to seeing you in another week or two. Thank you and goodbye.

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de-dollarization, dollar, economics, Geopolitical Economy Hour, Michael Hudson, Radhika Desai

Economists Radhika Desai and Michael Hudson explain the end of the British empire’s sterling area with the rise of the US dollar system, its central role in imperialism, and why it ultimately failed. In this episode of their program Geopolitical Economy Hour, economists Radhika Desai and Michael Hudson explain the end of the British empire’s sterling area with the rise of the US dollar system, its central role in imperialism, and why it ultimately failed to accomplish Washington’s hegemonic goals. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello everyone. Welcome to the fourth Geopolitical Economy Hour, our fortnightly show on the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: Today we are continuing our discussion of de-dollarization. As many of you know we have structured our discussion around some ten questions, and last time we dealt with the first five. What is money? What is the relation between money and debt? Is money a commodity? What is the theory of how the dollar serves as world money? And then because this theory so much relies on the sterling system we discussed the sterling system. What is it? What was this real basis not gold but actually empire etcetera. And then we decided that in this show we will discuss the next five questions which are, how did the sterling system end? What really happened between the world wars? something on which Michael has written an enormous amount and he knows a great deal. Then we will discuss the dollar system between 1945 and 1971 which is the year when the dollar’s gold link was broken. How did the dollar system actually function during this time? Because we are always told that this was the time when everything was hunky-dory and the dollar system was fine until 1971; but the reality is quite different. And then we are told that after the dollar’s gold link was broken, that this was not somehow some kind of a great disaster. On the contrary, the United States kind of pulled a fast one on the rest of the world and managed to get the dollar to function as the world’s money without the burden of linking it to gold. Is that really the case? What really went on? And then we finally come to the crisis of today. What are the main dimensions? What are the forms that de-dollarization takes? I should say Michael and I were discussing exactly how far we are going to get to this, since we have an hour, and we have a lot to discuss. It’s possible that we go through all of this, but it’s quite possible that we will get to question three or question four and then have to leave the rest for the next show. Having said that, let me dive straight into the question of how the sterling system ended. As we discussed last time, the sterling system was naturalized and portrayed as if it could have lasted forever. Basically making the world believe that it is perfectly natural and okay for the currency of one country to serve as the world’s money. And of course its functioning was attributed to gold. And we saw last time that this was not so. And it’s important to clarify this, because people still hanker after a gold standard, and in reality you have to understand that while gold was the benchmark of the value of sterling, it was not what make the system tick. What made the system tick were the surpluses as I showed in the map that I showed last time. Essentially the fact that Britain had a large empire meant that surpluses, as you see in the map, flowed from Britain’s non-settler colonies — principally British India but also some other countries — as you see in the blue arrows, all this flowed towards Britain. These flows were based on Britain essentially charging these colonies for the privilege of being ruled by Britain, [and] Britain appropriating the gold and foreign exchange value of the huge export services that these colonies ran through the rest of the world and so on. So these surpluses were centered in Britain and then they were recycled into the famous capital exports which essentially financed the industrialization of Europe at this time, of North America, of southern Africa, and also of course the Antipodes Australia and New Zealand. So essentially this is where the distinction between the settler and non-settler colonies becomes very important. We also pointed out that, even though Britain sat on top of the largest empire the world has ever known, the fact of the matter was that this was also a period during which other countries were emerging to challenge Britain’s power. Germany linked its currency to gold, not in order to subordinate itself to some sort of gold standard, but rather to make its own currency attractive to the rest of the world, in order that it may increase the market for German goods and increase, generally speaking, Germany’s power over large parts of the world. The United States also waited until 1913 but finally got around to creating the Federal Reserve system, and this was another way of essentially asserting its own priorities and so on. So in this context as Marcello De Cecco, whose famous book Money and Empire is really worth the read, pointed out it’s very important for us not to take what he called a Ricardian interpretation of the sterling system, but to take a Listian one. He’s referring, of course, to David Ricardo (1772 – 1823) the famous 19th century political economist who was a great partisan of free trade and the idea that the world economy was simply a homogeneous whole united by markets and so on. And De Cecco is referring to Friedrich List (1789 – 1846) who, on the contrary — and Michael and I would agree much more with List — portray the world order as a world order composed of national economies. And these national economies were often in competition, struggle, and conflict with one another. And in this context the industrialization of other major powers to challenge Britain’s industrial dominance was bound to destabilize the sterling system and indeed did. And of course it also relied on the fact that Britain’s industrial classes and industrial capitalist classes would accept a regime that was actually quite harmful to that interest. And there was quite a lot of disturbance on that front as well, where they were basically questioning the priorities of the city of London and the workings of the gold sterling system. And finally it rested on working class acquiescence: the idea that Britain could periodically inflict upon its own economy severe recessions in order to maintain the value of sterling and severe recessions meant, of course, heavy unemployment and working class people were getting more and more organized and opposing [the policies]. So for all of these reasons, the sterling system was actually weakening in the period [up to 1914 and the] outbreak of the First World War. One should add here that, while this really got going only after the First World War, there was also the beginning of nationalist restiveness in the colonies which would also threaten to take away the basis of the sterling system. So all of this was happening and after the First World War of course the British Empire was drastically weakened and a stable return to the gold standard on the part of sterling was simply not possible. So, this is the story of how the sterling system ended, and after the sterling system ended, and during and after the First World War there were a number of really important shenanigans on the part of the United States in particular vis-a-vis Britain that Michael will now talk about, because really our second question is exactly what happened between the world wars. And Michael, also please feel free to add anything else about the end of the sterling system that you would like to. MICHAEL HUDSON: Well most of our discussion from here on end is going to be about intergovernmental finance and what WWI did was for the first time it changed the whole rules of how allies and other countries settled all of the balances and the mutual aid that had built up during the war. After earlier wars, like the Napoleonic Wars, it was normal for allies to say, “Well okay we’ll forgive the debts, we’re all fighting the same fight, we’ll start again.” Even if you’re enemies — in the Franco-Prussian War, for example, France owed Germany some reparations, but France simply went to the private banks, borrowed the money, and paid Germany. So, the whole connections between the world monetary systems were basically private sector finance. All this changed when the United States said, “Well during the war of course we’re not going to charge you for the tanks and all the aid we gave you during the war, but we didn’t enter the war when you British did and French did, so you’re still going to have to pay us all the debts that you ran out when we were a neutral country, before we entered the war.” These debts were enormous, and the Allies didn’t know what to do. They didn’t want to be impolite to the United States so they said, “All right, we’re going to make Germany, the loser, pay reparations. That will enable us to pay you the inter-ally debts.” So the Allies, with American agreement, said Germany has to pay the money that we’ve charged them for the debts that they didn’t expect to have to pay after WWI. Well the result was very rapidly a crisis. Germany was stripped of its steel making regions, it was stripped of its assets, it was left almost unable to pay, but burdened with enormous reparations that it couldn’t possibly pay, and the result was a collapse. Germany tried to pay by simply throwing marks — its currency, the German mark — onto the foreign exchange market, and the foreign exchange rate would plunge. When a foreign exchange rate goes down — just as a what happened in the Third World and after World War II — the price of imports goes up. If the price of everything Germany needed — oil, steel, machinery was all denominated in dollars — the price of imports went up, and as a result the German Reichsbank had to create more money to finance the transactions of people and businesses at the higher prices. Now, this is the exact opposite of what you’re told by today’s monetary theorists. Today’s monetary theorists say, “Well governments run a deficit, and that puts money into the economy, and that causes a trade deficit, and that leads to foreign borrowing.” Just the reverse. Germany only created money at home because its international currency was falling. So, immediately, [and] for the balance of the 1920s — after 1921 there was a huge debate over: should Germany have to pay reparations, and should the Allies have to pay international debts. Now this argument is very important because the arguments put forth in the 1920s were the identical arguments that the IMF would put forth after WWII. And the 1920s bankruptcy of Europe was a dress rehearsal for how the IMF has bankrupted Third World countries and the Global South countries. There were two sides to the argument, as I’ve discussed in my book Trade, Development, and Foreign Debt, [in which] I go over these arguments. On the one hand you had the people who not only hate Germany but, even more than they hated Germany, they hated labor. Bertil Ohlin in the United States, and Jacques Rueff in France, said that any country could pay any amount of foreign debt simply by taxing the country domestically and lowering the price of labor — lowering the wages. You could squeeze enough out if you just squeeze labor enough, and that would somehow create — whatever you took away from the domestic economy in marks could be paid right over to the Allies. Well, Keynes and, in the American economy, Harold Moulton said, “This is nonsense. Solving the budgetary problem — raising a budget surplus — does not help the transfer problem. Germany was able to tax its labor and its industry in mark, but how did it pay in dollars? It can’t tax them in dollars because Germany used the the mark system. The question is, how on earth can Germany translate this economic surplus, that it squeezes out of labor and industry, to pay foreign countries?” Well, that’s exactly the same problem that occurred in Argentina and in other countries after WWII. Keynes pointed out, saying, “Well the country is going to have to export, but that means that the only way Germany can pay is by having other countries buy its exports. But as soon as the German mark begin to go down, as it tried to pay its foreign debt — and foreign debt is the main factor that pushed down the third world exchange rates in the 1960s, 70s, and 80s — is this happened, America immediately raised its tariffs and it passed a law in 1921 against countries selling and depreciated currencies. So the United States said, “Well Germany has to pay the Allies [so the Allies can] pay us, but we’re not going to buy German exports to provide the dollars. We’re not going to give the rest of the world dollars at all. It will have to pay us in dollars without any way of earning them.” Well obviously this wouldn’t work. The question is: What did happen? In practice, the United States said, “Well, we’ll settle it the old-fashioned way, by having the private sector balance matters by having the Federal Reserve lower interest rates” in the 1920s —just like today’s quantitative easing — and the lower interest rates would make it profitable for American investors to buy the bonds of German municipalities, and to buy up Germany companies. So the American investors would buy German municipal bonds and lend to German companies — or buy German companies — Germany would take these dollars and pay the Allies, the Allies would pay the United States, and there would be a circular flow, and everything would balance. Meanwhile, England still had problems paying the United States, and the Bank of England came to the United States and said, “You’ve got to keep your interest rates really low so that people will lend to England too, because we need to get money so we won’t be strapped.” So the United States — the Federal Reserve — flooded the economy with money. A lot of this money was used for the stock market boom. And the stock market boom finally collapsed in 1929 because it was all funded on credit. People were using this credit to buy stocks on margin. And just as in subsequent financial bubbles, they are created by borrowing money to buy stocks on margin, and they are all basically debt-financed bubbles, and that’s what happened. Finally there was a collapse in 1929. Countries moved into depression, 1929, 1930. Finally in 1931 the governments got together and declared a moratorium on foreign debt, on inter-Ally debt, on German reparations. They declared a moratorium. The United States [said], “Well, we won’t ask for money now, but we may ask for European money later. If Europe ever gets prosperous, we’re going to ask for the money, and we’re still going to make it pay. But for the time being, we understand, we forced you into depression.” Roosevelt came to office and he immediately devalued the dollar and blocked gold sales and said, “Well, we’re not going to be tied by gold anymore. We’re going to basically nationalize the gold stock.” Keynes wrote, in England, “Roosevelt is magnificently right. Of course you don’t want gold to limit what any country does.” So America and the rest of the world go free. They still didn’t recover from the depression until WWII. And WWII, of course, changed matters. And I think Radhika has a few things to say about that. RADHIKA DESAI: Yeah, thanks Michael, that’s really excellent. As you were speaking, I remembered a few things that I felt I should really add to what you were saying. So first of all, I just wanted to say that, in your Super Imperialism, you make a really important point that is worth quoting, so that’s what I’m going to do. What Michael was discussing, about the US’s refusal to essentially agree that the aid that it had given to the Allies during the First World War should just be treated as a grant and the US should not demand repayments. The way in which this set off the financial merry-go-round of the British demanding reparations from Germany, and then the whole US supplying — so essentially what it did is that Germany had to pay reparations to Britain, Britain and France had to pay debt repayments to the United States. And the United States, having made it next to impossible for Germany to earn much through exports, then essentially forced the private sector to lend to German municipalities. So there was this financial merry-go-round which eventually collapsed, as Michael says, with the 1929 crash. But in the beginning of this, Michael says in Super Imperialism, that it would be false to say that the United States provoked WWII. It is true, however, that no act, by whatever nation, contributed more to the genesis of WWII than the intolerable and insupportable burden which the United States deliberately imposed on its allies of WWI, and, through them, on Germany. So I think this is a really valuable important point and it also will connect up with the other points we will be making about how essentially the United States has, over the last century and a half, or certainly over the last century, mastered the technique of profiting from wars that it often — that it can instigate or otherwise encourage, thousands of miles away. And I think this has been very important. And also, Michael, you said that the United States was keeping rates low in order to essentially force the private sector to finance — to essentially lend money to Germany. But it was also the case that the US at this time, although it really wanted to make the dollar the world’s money because sterling was no longer capable of doing so, it found that it could not do so quite so easily. And for a time it was countenancing some sort of “dollar-sterling condominium” so to speak, a joint dollar-sterling system. And in the interest of pursuing this, the US was also keeping interest rates low during the early and mid 1920s in order to essentially encourage Britain to go back onto gold after the interval after the First World War. And finally a really important point which is very critically important, partly because there are so many people that think that somehow a gold standard would solve everything. It’s important to remember that a gold standard has typically been quite deflationary, because essentially, as we said early on, capitalism and money have a strange sort of relationship, because capital can only be accumulated in money. Therefore, capitalists want money to retain its value. So what capitalists need from money in order to retain its value is to restrict its supply, because that is the only way capitalist states know how to make money retain its value. But at the same time, in order for money to facilitate the expansion of capitalism, in order to facilitate ever-wider accumulation, you need money to be in good supply, so a deflationary monetary order is a bad thing. So capitalists essentially want to have their cake and eat it too, and they can’t have both at the same time, so they are always in this problem. Gold has typically been deflationary because it is an artificial way of restricting the supply of money in order that money will retain its value, because it does not have any rational way of deciding on investment priorities and so on, so it can only do it in this fashion. Now, yes, I do have some other things to say, which are relevant to this second question, which is, what happened in the interwar period. The final thing, in addition to what Michael is saying — the final thing that happened is Keynes’s Bretton Woods proposal. That is to say, Keynes, in order to — In the interwar period, there was a great depression, international trade and payment systems had collapsed, there was a lot of uncertainty, currencies were very volatile against one another. And this was not making recovery any easier. So there was a big conference, as it became clear that the Allies were going to win the war, especially after 1943 and Stalingrad, it became clear that the war would be won by the Allies, it was only a matter of time. So then, post-war planning, planning for the post-war period began in earnest. A large part of this planning took place at the New Hampshire resort called Bretton Woods. And out of that have come the post-Second World War systems of international economic governance, which include the United Nations, it includes the World Bank, the International Monetary Fund. And, given that the effort to try to create an International Trade Organization failed, they had to accept a stopgap arrangement that was the General Agreements on Tariffs and Trade which after 1995 became the World Trade Organization. So, in order to understand — it is very important from our point of view to understand the proposals Keynes made at Bretton Woods So you see here in this diagram, basically Keynes arrived at Bretton Woods as the head of the British delegation. Britain had between the two wars experienced what can only be described as the steepest decline in the power and status that a country has ever known. Because in 1914, Britain sat on top of the biggest empire the world had ever known, and the biggest creditor to the world. And in the course of the next thirty-odd years, Britain declined from these positions. Its industry was increasingly uncompetitive, its financial hold on the world and monetary hold on the world had declined. Its colonies were getting restive and decolonization was impending. So Keynes arrived at Bretton Woods with a set of proposals that would make it possible for a much weakened country, like Britain, to still try and pursue policies that were beneficial to British people and the British economy. He was very aware, and he knew, by the way, better than practically anyone how the gold-sterling system worked, because his first book Indian Currency and Finance had been about nothing but that. So he knew that the time in which those arrangements could have worked was past, and new arrangements were needed. He was very aware, also, that not only was Britain no longer the head honcho in the world system, but that there was now a greater dispersion of productive power and financial power around the world. So he came to Bretton Woods with an original set of proposals, and I underline “original” because over the course of much negotiation they tended to be whittled down, and many people think that the post-war system that we got in the end was a result of Keynes’s proposals, but in fact it was the result of Keynes’s eventual defeat. But the reason it’s very important to understand what he proposed is that it gives us the framework of thinking which allows us to see what’s wrong with the post-war system. So basically he proposed that there should be a multilaterally-created, new currency. He said, for want of a better name, I’m going to call it “bancor” — and that’s what you see at the bottom of the screen there with the green little dot. And the value of bancor, Keynes said, would rely on that of thirty commodities — thirty of the most heavily traded primary commodities. Remember last time we discussed that primary commodities are critically important because primary commodities go into the production of everything else. So whether it is oil, or iron ore, or copper, or what have you, wheat, et cetera, these primary commodities go into the production of everything else. Every economy needs these and therefore the prices of these are critically important for any economy. So [bancor] would be based not on gold — gold was one of the thirty commodities — but on these thirty primary commodities. Bancor would be issued by an organization which you see in the center there called the International Clearing Union (ICU). And bancor would not be used as domestic currency. You and I wouldn’t use it to buy a restaurant meal or a bar of chocolate. Only central banks could use it in order to settle imbalances. So say between two countries, if one country exported $50 worth of goods to another country, and that country exported $70 worth of goods to the first country, then the imbalance is not $50 + $70 ($130), the imbalance is only $20 ($70 – $50). Those were the imbalances that bancor would be used to settle. And the other important thing about bancor is that countries could buy bancor, but they could not sell bancor. So they would need to buy bancor in order to settle their imbalances, but once having done so they could not sell it, so that meant that — the idea was that countries were to be discouraged from accumulating too much bancor, and the way they could use it to buy other things, and settle their accounts with their each other, their imbalances with each other, but they could not use it to, say, make an investment in a foreign country or what have you. So they could buy bancor but they could not sell bancor [back to the ICU]. All of this — there were a couple of other things that are important about this. Number one, this system would only function in a system of capital controls. The idea was that you cannot manage your economy, for example, for full employment, for high levels of activity, unless you were able to control the inflow and outflow of funds. And this is very important, because, you know, in more recent times, particularly after the 1980s and 1990s when so many countries lifted capital controls, we have been asked to become used to the idea that not having capital controls, having free capital flows, is totally natural and desirable. But this is actually not the case. We are told that, for example, there is a so-called “holy trinity.” That is, you can have a stable currency, an independent monetary policy, and free capital flows. [But really], you can’t have all three things at the same time. You have to choose one of them. Most people say you have to, essentially, choose either one or the other, but keep free capital flows open. In reality, that is the thing that can most easily go, because all countries need a stable currency and an independent foreign policy. So it’s very important to know that capital controls are very critically important. And also, countries lift capital controls — not because it’s beneficial for you or me and ordinary people. They lift capital controls so that rich people can easily take money into and out of economies. And it is entirely so that they can take their money wherever they want; they can escape taxes; they can look for more lucrative opportunities. But it does not help us. And the final element that Keynes proposed in his Bretton Woods system, was creditor adjustment. That is to say, that if you have a trade imbalance they would not persist. That is different from the system we have today when some countries have persistent trade surpluses and other countries have persistent trade deficits and similarly also some countries are persistently exporting capital, other countries are persistently importing capital, leading to the accumulation of large imbalances. All these sorts of balances would be settled, moreover, not just by imposing adjustment on the weaker part, on the trade deficit countries and the capital deficit countries — or, that is to say, to make them tighten their belts and to make them export more and so on. It would also be imposed on the stronger part, by making countries export less and import more in the case of trade imbalances. Creditor adjustment was also critically important. That is to say, if you are exporting too much, of either goods or capital, you will have to reduce your export surplus, either by importing more, or exporting less, take your choice. This was regarded by Keynes as important, and he actually made it a part of the structure of the system by essentially pointing out that, since you could not sell bancor, and you can only accumulate bancor, what was the point of accumulating something that you could only use to settle imbalances? So that was the main thing. And secondly, you could not accumulate bancor beyond a certain point. If you did, then it would essentially be hived off to finance development in various parts of the world that needed it. So this was the structure of the system that Keynes brought to Bretton Woods. And it was nixed, essentially, by the United States, who would not accept that any other such multilateral currency could be the world’s money because it wanted the dollar to be the world’s money. I’ve spoken a lot, so I should give Michael a chance to come in and add anything he wants on this matter. MICHAEL HUDSON: Well, what I want to add is the reason that Keynes made these proposals. What was he trying to avoid? Well, he was trying to avoid the fact that England was broke. In order to understand it, you have to understand how America’s strategy, throughout WWII, was to look at England as its main potential post-war rival. In 1942, when the Allies won their first major victory, at El Alamein, Churchill gave his famous speech, saying, “This is not the beginning of the end, but the end of the beginning.” [“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” – ed.] Just what is that “beginning”? The beginning was really shaped in Lend-Lease. When America joined the war, it had a discussion, “How are we going to supply the Allies with armaments? We can’t have inter-ally debts like there were before. We are going to have to negotiate some means of payment. England can’t pay money right now, but what it can pay is, giving up its empire. It can end the Sterling Area. It can agree to become a satellite of the United States and essentially force itself into a depression and bankruptcy after WWII as the price of our giving it support.” Well that basically was Lend-Lease. Radhika reminded me yesterday that the wikipedia [page] on Lend-Lease says, “The aid was given for free on the basis that such help was essential for the defense of the United States.” If you look at my Super Imperialism, it has a whole chapter on Lend-Lease, describing the negotiations that occurred, back and forth. What the United States Congress insisted was the price of Lend-Lease. There were a number of prices. The first was that — when there was going to be peace, England would give up its system of Imperial Preference. That is what Radhika was discussing before, as how did England create an empire of dependent colonies. Imperial Preference meant that England would give trade favoritism — tariff favoritism — to its colonies, to members of its empires. This was very important, because during WWII, India, Egypt, Argentina, and other raw materials suppliers, built up enormous savings in income that they got. They sold their grain, mining materials, all sorts of things, to the Allies. And the Allies paid them, and they built up enormous international balances. British colonies had ten billion dollars of balances they’d saved during the war. Not only was there Imperial Preference, but these balances were blocked. England’s colonies said, “You can use these Sterling Area balances to pay other Sterling Area countries, namely, us, in England.” The whole idea was that, England’s hope was that, after WWII, all these balances that its colonies had built up would be spent on [England’s] exports, and that would enable [England] to have full employment instead of the mass unemployment that led to strikes. So the United States basically — this was the beginning of America’s “rules-based order.” The rules-based order means — it’s a double standard. “We have one set of rules [for us], one set for others.” England had to agree to abolish the Imperial Preference system and let the countries spend their ten billion dollars anywhere — meaning, on the United States as well. But the United States did not promise to lower its tariffs and enable these countries to earn money from the United States. Only England was supposed to do this. You’ll remember what Henry Kissinger said: “It’s dangerous to be an enemy of the United States, but it’s fatal to be an ally.” England was an ally and it suffered a fatality. So you could say that Lend-Lease was America’s victory over the Allies even while WWII was going on. Principally against England, because England was viewed almost with as much worry as America was worried about socialism. Just as the socialist economies had their capital controls and their price subsidy, so England seemed to America to be a planned economy to the extent that it wanted its own economy to grow — its own labor force to be employed, instead of the American labor force. So Britain had to agree to a “free market” that ended Imperial Preference. It also had to agree not to devalue sterling to make its exports more important. England — when Lend-Lease gave way to — soon as the war ended, within a week, it happened very quickly, because of the atom bomb on Japan — England had hoped that the war would last a year longer so that it would have a chance to settle things more in its favor. But all of a sudden it was broke, it needed money, and America said of course, “Now that there’s not a war anymore, we don’t have to give you any support, but we will give you a loan, but you have to agree not to devalue sterling until 1949. You have to hold sterling at such a high price that nobody can afford to buy your exports.” And [the US] said, “There’s one great advantage that we know Mr. Churchill will love. Without exports, you’ll have mass unemployment. Without mass unemployment, you’ll have low wage rates. You will win the war against labor, and we’ll win the war against you.” That was basically the deal that was made, and basically it was foreign policy agencies. The United States — if you look at the debates during Lend-Lease and the British loan, Congress said, “Well, you know, they say that they need money. But if they really need money they have plenty of assets. Let them sell Shell Oil to the United States. Let Mr. and Mrs. Astor put their wealth up on the block. They have plenty of things they can give us.” In other words, they treated Britain as a dress rehearsal for how the International Monetary Fund (IMF) was going to treat Third World countries after the 1950s. You have to pay a foreign creditor, sell off all of your assets, sell off your public domain, your mining rights, your public infrastructure. That basically is what the United States insisted that Britain do. And by [Britain] agreeing to all of this economic surrender, the United States went to the rest of Europe and said, “Well we’ve got Britain to agree with this. This is a fait accompli. Either you join us, or you don’t. Either you’re with us, or without.” You didn’t need George W. Bush to say that. That was the policy that America went to Europe with. England has always, ever since, acted as America’s proxy; as America’s battering ram. It will sell out, and then give a model for America to impose on other countries. So essentially the IMF, when it was being structured, was to enforce this system. Well what Keynes said — the reason that he put forth this idea of the bancor, that Radhika described, is he described, “Creditor countries have moral obligation that we want to make into a legal obligation, to enable the debtors to pay them. You can’t say you’re a creditor making a loan if you prevent the countries from paying the loan.” Keynes said that the key element in his proposal for the International Monetary Fund was the “scarce currency” clause. That countries would borrow this special IMF currency, the bancor — they would accumulate it. But if a country would run a sustained surplus for more than seven years — and we know what country he meant, the United States — then the surplus would be wiped out, because it was so large that it would be unpayable. This logic is exactly the logic that Keynes applied in the reparations debate in the 1920s, when he said, “Look what happened. When reparations couldn’t be paid, finally the world saw reality and they canceled the reparation debts‚ the inter-ally debts. My system with the bancor is designed to write that into law.” “That if a country” like the United States — [Keynes] didn’t [actually] mention any country — “is a chronic surplus country, and other countries will be chronic debtors, at a certain point this imbalance will be wiped out. That’s the way that we’re going to create market balance. We will create a marketplace that has the rules to prevent the market from transferring all the wealth of the world into the creditor countries and bankrupting debtor countries and forcing depression on them.” Well the United States said, “That’s what we want! We want the IMF to enforce depression on the rest of the world, because then we can ask Argentina and Chile and Latin America and Asia to do just what England did. You owe us the money — sell off your public infrastructure. Sell off your oil rights. Sell off your mineral rights.” And essentially if you look at the debate over Keynes’s proposals and what British politicians in the House of Lords wrote, you see this all spelled out. The House of Lords warned that this would happen. The advocates, fighting against workers, the main anti-worker party, was of course the Labour Party. And the Labour Party said, “We’ve got to agree with the Americans. Even though it will be mass unemployment, well, they’re Americans.” The Conservatives fought against bankrupting labor. The Labour Party, even before Tony Blair, advocated fighting against Keynes’s proposals and wanted abject surrender to the United States. And basically, that’s what happened. The task of the IMF turned out to be a replay of Lend-Lease agreements, and the British loan of 1945— it’s to lend to the Third World export countries. Its prime directive was to promote dependence there. But I’ll get to the 1950s after Radhika makes the transition from what Keyenes did to what happened after WWII. RADHIKA DESAI: Thanks Michael. Again, really very interesting, and it just makes me think of several things that I thought I should really mention here. Not only is the wikipedia entry wrong, that somehow this Lend-Lease was essentially free aid. As you point out, the big price that had to be paid was essentially the surrender of national sovereignty. Essentially agreeing to do what the United States wanted you to do on important policy issues. But there’s also something further. Actually, countries like the UK were very aware of what the US was doing, and that the end game that the US was looking for was essentially to be a creditor which could then dictate, if not repayment, then essentially dictate policies. And in order to avoid being in that situation, for a large part of the Lend-Lease, Britain essentially tried to sell assets as much as possible, whatever it could, in order to pay for it anyway. So actually it was both monetarily paid for, in the bulk of the instances, and it was also paid for in terms of surrendering policy. And very critical policy. I mean, if you could buy policies like these, they are cheap, actually. And secondly, this discussion is very important from the point of view of today, because as some of you may know, the idea of Lend-Lease has been dusted off and put into practice once again, vis-a-vis Ukraine. And we’ll probably be discussing this in a later show, because we intend to do one on the political economy and the geopolitical economy of the Ukraine war. But it’s important to say that, again, most people think that the aid that’s being given to Ukraine, and the Lend-Lease, and so on, is free. It isn’t. The United States is running a tab. At the end of this war, whenever that may be, Ukraine, or whatever entity is the successor to Ukraine, because it will be as likely as not a much diminished entity, will be saddled with a big bill. And if it can’t pay, all the better, because the United States will be able to dictate policy. So one way or the other, the people — not only are they destroying Ukraine right now, but they are going to be squeezing it further. I should also add one other thing. The United States, because it essentially demanded that the UK not devalue for a period of time — until 1949, et cetera — also ended up — it did that, and it also ended up enlisting the colonies of Britain in its own favor. Because essentially the colonies did not want to purchase things with overvalued sterling, and they said, “Why can’t we use our sterling balances, because they are our sterling balances?” Remember this is also the time when these colonies are becoming one by one independent, and they said, “Why can’t we use this to buy American goods?” Because of course at that time, with much of the productive capacity of the world destroyed around the world, the United States was the only major economy left standing, and the only major economy capable of exporting the things that the colonies might want. And then, finally, Michael has pointed out this whole point about austerity, this whole point about how essentially exclusively debtor adjustment — which is the opposite of what Keynes wanted. Keynes wanted creditor adjustment — to have exclusively debtor adjustment means you are making the weaker party even further weaker by making them tighten their belt by making them consume less by imposing recessions on them, et cetera. And from this point of view, again, remember, this is not the only way to pay off your debt. There are actually two very different ways of paying off debt. And I think it’s important to remember them as we try to assess these arrangements. One is, yes, you restrict your consumption — you say, okay, if I owe you x amount of dollars, I’m going to restrict my consumption, I’m going to not eat, I’m going to not heat my house, and I’m going to repay the debt. Some people can do so with minor difficulties, for others it will be too great a difficulty, and for societies creating generalized misery by paying debts these ways and also inflicting misery on those least able to bear it, like working people, the poor, et cetera. But there is another way of paying debt, which is to increase your capacity to pay. So you invest in that society and its productive capacity. Or, if you are talking about an individual, you say, “Okay, I want to take on further debt for now, I’m going to train myself as this or that, increase my capacity to earn, and then I will pay off the debt.” This is a very different way and Keynes wanted to institute this way of repaying debt, in his ideas about an International Clearing Union and the dollar and so on. So that it does not inflict such misery. But the United States wanted the opposite. And so now, let us come slowly to the third question, about the dollar system between 1945 and 1971, which is when the dollar’s gold link was broken. How exactly did it work? So essentially, before we get there, it’s important to remember a couple of things. One of them, as I discussed in my Geopolitical Economy, the United States could see that the sterling system was weakening already in the early part of the twentieth century. And, throughout the period that we have just been talking about — the two world wars, the Great Depression, et cetera — the United States basically calculated its policy actions in a way as to try to realize the possibility that the dollar would replace sterling as the world’s money. Essentially the United States saw itself as the country that would replace the United Kingdom. Of course the US knew that it was never going to be able to acquire an empire the size that Britain had, but it would essentially try to say, “Forget about that, but we will try to make the dollar the world’s currency.” The problem with this was of course that the sterling system relied on empire. If you [didn’t] have an empire, you were going to have a pretty tough time. You were going to have to engage in some pretty shady shenanigans in order to make the dollar the world’s money. But this desire on the part of the US has been there all along. The United States has always been an expansionary society. And if you read critical historians and writers on the US like Charles and Mary Beard or, more recently, William Appleman Williams or Andrew Bacevich, and so on. All of these people emphasized that the United States was always expansionary. It justified that by saying that, “We are always producing more than we can consume, and we are creating more capital than we can employ. We need the whole world to be open to us.” So ideas of Manifest Destiny, the Frontier Thesis, the Monroe Doctrine — all of these ideas justified US expansionism. And as I said, by the early twentieth century the US had actually made this general expansionism of its history very focused on making the dollar the world’s money. And one more preliminary point, before we look at how the dollar system operated. Michael discussed monetary imperialism, and that is really quite important. Because when you look at ideas — last time we mentioned hegemony stability theory — hegemony stability theory is not really a theory, it’s really an [ideological] discourse justifying the dollar’s world role. And so it tends to not be particularly consistent. So sometimes you see that hegemony is — they talk about hegemony as though it were productive superiority. The most competitive country is the leading country of the world. And other times they talk about the country whose currency the world accepts. But these are two quite different things. And it’s interesting from one point of view, because we have already seen that running the sterling system actually affected the British productive economy adversely. Because it required a financial system that was the opposite of what an expanding, productive economy requires. It was the absolute opposite of that. Therefore it is not surprising that Britain’s monetary imperialism — that is to say, the gold-sterling system — coincided with the period when Britain was losing manufacturing superiority rather rapidly to other countries. As we’ll discuss — probably in the last show, when we discuss the last two questions — we will show that the United States’s attempt to emulate this, it’s the second phase of it which became reliant very much on certain types of financialization — that also has coincided with the rapid decline of US competitiveness. That is to say, all the people who are talking up the dollar and saying the dollar is naturally the world’s money, are not just hiding from people the cost the rest of the world pays, they are also hiding from you that American workers — US workers, even US small business people — are paying for this crazy system. Already this monetary imperialism was a sign of expanding multipolarity, because it showed that Britain no longer had productive dominance. it would exercise monetary dominance to some extent thanks to its empire. But this was also limited by time. Now, essentially, like I said before, the United States left the world with no choice but to accept the dollar as the world’s currency by simply nixing all alternative plans. Simply saying that the world could not come to any multilateral agreement, it was not going to cooperate. So we are told, however, by [advocates of] hegemony stability theory, that the dollar system functioned perfectly fine up until 1971 and then there was some little (unintelligible) difficulty and the dollar’s gold link had to be broken. And in any case it was a masterstroke. But nevertheless, all the people who talk about US hegemony tend to think that the post-Second World War period up to 1971 was a period of dollar hegemony and American or US hegemony. But if we actually look at the reality of the period from 1945 to 1971, we see the opposite. What we see is an extremely tumultuous couple of decades and a half. So essentially the story can be compressed into the following. First of all, without an empire, the dollar could not export capital to the rest of the world. It did a little bit after the Marshall Plan, but the Marshall Plan itself is totally hyped up. It was not really necessary for European recovery which was largely done under its own steam. And what’s more, the Marshall Plan credit that was given to Europe also came with multiple strings attached, including strings that made this aid not particularly helpful to Europe. But nevertheless the US could not export much capital. So essentially what the US started doing was eventually — when this period of export of capital was over — essentially it started supplying the world with liquidity by running deficits. So this is the opposite — Britain was the creditor nation of the world when it ran this gold-sterling system, and it could do that thanks to her empire. Without an empire, the US could only run the dollar system by running deficits, by becoming increasingly indebted to the world. In the 1940s, actually, we had a special period in which the United States — thanks to the devastation of the rest of the world’s economy, and the great boost that the war gave to the US economy — was running huge export surpluses. And because when you are running an export surplus the world has to pay you dollars, rather than you making dollars available to the rest of the world. There was a general condition of dollar shortage. The Marshall Plan was not really able to alleviate this dollar shortage. And of course as a consequence, European economies, rather than opening themselves up to free trade, naturally chose to protect themselves as much as possible, because they had to manage the relations between their economies and the rest of the world carefully in order to conserve scarce foreign exchange. So this was the situation. The dollar system was there, there was no alternative, but it wasn’t working particularly well either. And certainly not contributing to the world’s recovery. In fact, the only proposal of Keynes that actually survived the US’s nixing of Keynes’s proposal was capital controls. The US had to accept that, unless European countries practiced capital controls — that is, managed the inflow and outflow of money from their economies and into their economies — there would be such a lot of economic devastation, and this could only increase the attractiveness of communism in western Europe. And this was to be avoided at all costs, so the United States accepted capital controls. Capital controls was what made it possible for all these European economies to organize their recoveries with a lot of state involvement, a lot of state ownership, et cetera. But they allowed them to organize this. So, they did manage to do it, and by 1958 they were sufficiently recovered to be able to finally make the currencies convertible. And of course with convertible currencies of these countries, they could also use each other’s currency in their trade. And almost overnight what had been a dollar shortage turned into a dollar glut. Nobody wanted dollars, since their were European currencies of far stronger economies that were becoming convertible. Remember, the bulk of the growth of the post-Second World War period took place in the recovering economies. So essentially there was a dollar glut. And also around this time, you also began to see the first post-war declines in US exports. Eventually these declines in exports would become trade deficits, but we can discuss that another time. And also around this time, the famous Belgian economist Robert Triffin proposed there was something inherently wrong about supplying the world with liquidity via deficits. At that time, remember, these deficits were not due to trade deficits but because of the US’s military spending abroad in the Korean War and later the Vietnam War. So [Triffin] said that these sorts of deficits — basically he proposed that there was a dilemma here. Because the more liquidity you supply via the deficits, the greater the deficits. That may mean greater liquidity, but the size of the deficit made the dollar less attractive. And the Triffin dilemma essentially operated throughout this period. Essentially, the major trading partners of the United States, rather than accepting dollars, said, “No, the dollar is convertible into gold, so we want gold instead.” So within a very, very short period, between 1958 and 1961, the Europeans had drained so much gold out of the United States that the United States could no longer back the dollar with gold on its own. So a gold pool had to be created, pooling the gold of all the countries involved, in order to back the dollar. And the countries involved only did so because they thought this would give them a place at the table when eventually this crazy system came to an end and they could negotiate a better system. And even while the United States kept trying to talk as though there was no problem, saying, “We have lots of assets abroad, there’s nothing to worry about, we are not living beyond our means.” Nevertheless they may be talking in this way, but they were walking in a very different way. Because they were taking a number of measures trying to reduce the payment deficits by removing tax incentives for outgoing FDI [foreign direct investment], trying to keep money within the United States by imposing a tax on interest earned elsewhere. Increasing domestic military procurement, et cetera.. There is a whole long list, I won’t go into that. But a number of efforts were made in order to curb US deficits. Things did not improve, and by 1967 they were so bad that the domestic convertibility of the dollar into gold had to be ended. The same year the French withdrew from the gold pool, saying, “This simply is not making sense.” The United States kept the game going by basically requiring the rest of the world to not demand gold but eventually by 1971 (the slide should say 1971) there was a run on the dollar and the Nixon administration had to end convertibility. So if you look at this series of events, you would not believe that the dollar was the world’s money in any kind of stable fashion. So that is the story. Michael, perhaps you want to add something. MICHAEL HUDSON: I want to add a quantitative backing of all of this. in 1945, the United States had its gold reserves — its gold reserves had all been flowing to the United States in the 1930s, and during the war. It was “flight capital”. People were afraid to hold their gold in Europe because they thought Germany was going to attack. So most of the gold was in the United States in 1945. If America had really wanted to create a system of balance, it would have done what you described, it would have helped other countries actually invest to develop. What you describe as the “nightmare” for the United States, that other countries would invest to develop, and wouldn’t need to be dependent on the United States. Between 1945 and 1950, the United States raised its gold holdings from 20 billion to almost 25 billion. 75% of the world’s monetary gold stock was held in the United States. And that was what you called the “dollar shortage.” Other countries, without having enough dollars, they were forced to do what England called Stop-Go. Whenever England would begin to recover — its business would expand, workers would be employed — they’d have to import their grain, they’d have to import their food, they’d have to import other things. Pound sterling would go into deficit. England would have to raise its interest rates in order to borrow the money to finance the deficit — to keep the exchange rate of sterling stable. And this rising interest rate would cause it to fall back into depression. That was Stop-Go. Which mainly meant, stop stop stop whenever you begin to become solvent. Everybody was complaining by 1950. The United States solved the problem in a way that nobody had expected. The Korean War — from the time America entered the Korean War in 1950/51, every single year its balance of payments moved into chronic deficit that got deeper and deeper until 1971 when it was forced off gold. The entire balance of payments deficit was equal to, year after year, to America’s military spending abroad. When I left Chase Manhattan Bank, I was employed by Arthur Anderson to do an analysis of the US balance of payments. I produced the charts and the statistics — they are repeated in Super Imperialism — to show the entire deficit was indeed U.S. foreign military spending. At that time, Mr. John McNamara, the Secretary of Defense, telephoned Arthur Anderson and said, if they supply [Michael’s] report, [Arthur Anderson] would never get another contract with the US government. So my boss Mr. Barsanti came in and apologized to me and said that they couldn’t publish it. Their art department had made very nice charts and he gave them to me. And I went to New York University’s business school and I published it, all these statistics, and a monograph summarized in Super Imperialism. The Federal Reserve, then, thought, “How are we going to cope with this?” They didn’t want to attack me obviously, so they attacked all the publications of NYU’s business school. They said that the fact that I found the Vietnam War responsible for the deficit and military spending doesn’t give confidence in NYU’s editorial decision. But then one of my students, at The New School where I was teaching international finance and trade, worked for the Federal Reserve and showed me their internal memos saying, “Yes this is true, we can’t let it get out.” All of this discussion about international balance and fairness, as if all the balance of payments deficits were international trade, ignored two things. They ignored, number one, military spending that was the key to the deficit, and that actually has been since the thirteenth century. War forces countries into deficit. War forces countries to borrow. That was why the Catholic Church, the papacy in the thirteenth century, legitimized interest-bearing debt to finance the wars — the crusades and the wars it was fighting. So this is a constant throughout history. It doesn’t appear in any of the “free trade” economic models. It’s as if governments don’t exist. And the other thing that doesn’t exist in this, saying that balance of payments equilibrium is all trade — they then say that all trade is a result of labor asking for [higher] wages. And the way to run a deficit is to institute a class war against labor. You want to fight the labor unions, you want to lower wage levels to enable countries to have achieved balance. Well what they mean by “balance” is obviously to finance this US-centered, military order, because the dollars that countries who are accumulating — when they weren’t asking for gold — were loans to the US Treasury by buying Treasury Bills that financed not only the domestic budget deficit — that was largely military — but also the balance of payments deficit. So the entire stability between 1951 and 1971, for 20 years, was provided by military spending as the United States put military bases all over the rest of the world. So what achieved balance was military — the military deficit. Not trade adjustment. Not investment adjustment. All of this is left out. Trade theory does not have room for the gunboats. And if you look at the balance of payments for the last 800 years, it’s all about the gunboats. That’s the amazing thing. And what we’re focusing on is the politics. International exchange rates and relations are not a function of “free market” arrangements. They are a function of intergovernmental debt — not so much private [debt] — and military spending. And governments paying their foreign currency by selling off their infrastructure. I want to make one final comment. When Radhika says that “stability is achieved by investing,” I said that was the US nightmare. That nightmare was imposed — the iron hand was the World Bank. There is a reason it’s usually led by defense department and military heads. The prime directive of the World Bank is, “No country should compete with major products that the United States exports — above all, grain. The one thing that the World Bank has opposed is other countries growing their own food grain. From the very beginning, it’s fought against land reform, against land redistribution. It’s said, “We will make loans for export facilities, for roads and ports. You can export plantation crops from huge latifundia. You must not grow your own grain. You must depend on the United States. That’s the free market. You must not have government investment.” And yet, the World Bank publishes country missions for every member country. Every single mission report has recommended that the first thing they need is domestic currency for agricultural extension – for marketing, seed development, rural education. In other words, for all these things that the United States has done under its Agricultural Adjustment Act (1933) that Roosevelt sponsored. That helped American agricultural productivity in the 1930s and 1940s grow faster than any industry in world history had grown. Farm productivity. That’s exactly what America looked at as its nightmare if Argentina — if Latin America and Africa would grow their own grain The idea of dollar dependency was based on the United States using the market to prevent other countries from investing to become independent of reliance on the dollar and on products that are exported by the United States, primarily oil and grain. RADHIKA DESAI: This is fascinating, Michael. And I should say, we are probably over an hour, so we should stop this for today and we will take up the last two questions, that is to say, Was there really a Bretoon WOods II — that is to say, things just simply carry on as normal after 1971. And, this will become a prelude to understanding the contradictions of the system after 1971 will help us to understand the current possibility of the demise of the dollar as the world’s money. But before closing let me just say that, as part of this story, Michael’s absolutely right.The United States is really afraid of the rest of the world developing, growing, et cetera. But the fact is, it has not been able to prevent it, which is one of the fundamental reasons for the current crisis. So the United States — what it wants to have, and what it can have, the difference between the two has grown wider and wider. And this is partly why we see increasingly desperate military actions of the United States. So in the story we have to tell, first the Europeans essentially check out of the dollar system by creating European monetary integration. And later on, other countries — today, even the oil-importing countries, the OPEC countries, which for a while were persuaded to hold vast quantities of US currency, they are also checking out. The Chinese, Russians, Japanese — everybody is increasingly wary of holding dollars. So this is the story we will tell. And even the IMF and the World Bank. They have been loyal servants of the United States in imposing austerity on the rest of the world, as much as possible. But by the early twenty-first century, you also see that the rest of the world, having been bitten several times, were now quite shy of the IMF. And the IMF and the World Bank loan portfolios actually shrank, and remained so until after the 2008 financial crisis. What the US wants, and what it can have — the distance between these two things, as I say, we will show how this expanded in our next program, which will definitely be the last one we will do on de-dollarization. And then we will move on to other topics. Michael and I were thinking we would do one on the political and geopolitical economy of the Ukraine, the conflict over Ukraine. So thanks very much. Thanks to Paul Graham, who is behind the scenes, recording all this and being our wonderful videographer. And thanks again to Ben again for hosting our show. See you in a couple of weeks.

Write an article about: Capitalism, Coronavirus and War: A Geopolitical Economy, by Radhika Desai. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

capitalism, Radhika Desai

Economist Radhika Desai discusses her book “Capitalism, Coronavirus and War: A Geopolitical Economy”. A free PDF copy is available, in addition to a video series and podcast. Economist Radhika Desai has produced a series based on her 2023 book “Capitalism, Coronavirus and War A Geopolitical Economy”. Desai is a professor in the Department of Political Studies at the University of Manitoba and director of the Geopolitical Economy Research Group. Her book can be downloaded for free here. This book has been made Open Access, under a Creative Commons license, thanks to the support of libraries working with Knowledge Unlatched.

Write an article about: Why does the US support Israel? A geopolitical analysis with economist Michael Hudson. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Benjamin Netanyahu, Iran, Israel, Michael Hudson, Middle East, oil, Saudi Arabia, West Asia

A geopolitical analysis of why the United States so strongly supports Israel: Economist Michael Hudson discusses with journalist Ben Norton. Why does the United States so strongly support Israel? Geopolitical Economy Report editor Ben Norton interviewed economist Michael Hudson to explore the reasons why Israel is such an important part of U.S. foreign policy and Washington’s attempt to dominate not only the region of the Middle East, but the entire world. Israel is an extension of U.S. geopolitical power in one of the most critically important regions of the world. In fact, it was current U.S. President Joe Biden, back in 1986, when he was a senator, who famously said that, if Israel didn’t exist, the United States would have to invent it: If we look at the Middle East, I think it’s about time we stop, those of us who support, as most of us do, Israel in this body, for apologizing for our support for Israel. There is no apology to be made. None. It is the best $3 billion investment we make. Were there not an Israel, the United States of America would have to invent an Israel to protect her interest in the region; the United States would have to go out and invent an Israel. I am with my colleagues who are on the floor of the Foreign Relations Committee, and we worry at length about NATO; and we worry about the eastern flank of NATO, Greece and Turkey, and how important it is. They pale by comparison… They pale by comparison in terms of the benefit that accrues to the United States of America. It goes without saying that the so-called Middle East, or a better term is West Asia, has some of the world’s largest reserves of oil and gas, and the entire world’s economic infrastructure relies heavily on fossil fuels. The planet is gradually moving toward new energy sources, which is needed to fight climate change, but fossil fuels are still absolutely critical to the global economy. And Washington’s goal has been to make sure that it can maintain steady prices in global oil and gas markets. But this is about something much bigger than just oil and gas. The U.S. military’s stated policy since the 1990s, since the end of the Cold War and the overthrow of the Soviet Union, is to try to maintain control over every region of the world. This was stated clearly in 1992 in the so-called Wolfowitz Doctrine. The U.S. National Security Council wrote: [The United States’] goal is to preclude any hostile power from dominating a region critical to our interests, and also thereby to strengthen the barriers against the reemergence of a global threat to the interests of the U.S. and our allies. These regions include Europe, East Asia, the Middle East/Persian Gulf, and Latin America. Consolidated, nondemocratic control of the resources of such a critical region could generate a significant threat to our security. Then, in 2004, the U.S. government published its National Military Strategy, in which Washington stressed that its goal was “Full Spectrum Dominance – the ability to control any situation or defeat any adversary across the range of military operations”. Historically, when it came to West Asia, the U.S. relied on a so-called “twin pillar” strategy. The west pillar was Saudi Arabia, and the east pillar was Iran. Until the 1979 revolution, Iran was governed by a shah, a dictatorial monarch who was backed by the United States and served U.S. interests in the region. However, following the 1979 revolution, the U.S. lost one of the pillars of its twin pillar strategy, and Israel became increasingly important for the United States to maintain control over this crucially strategic region. Many of the world’s top oil and gas producers are located in West Asia. Furthermore, some of the most important trading routes on Earth go through this region. It would be difficult to overstate how important Egypt’s Suez Canal is. It connects trade transiting from West Asia going into Europe, from the Red Sea into the Mediterranean. Around 30% of all of the world’s shipping containers pass through the Suez Canal. That represents around 12% of the total global trade of all goods. Then, directly south of the Suez Canal, where the Red Sea enters the Arabian Sea, there is a crucial geostrategic choke point known as the Bab al-Mandab Strait, off the coast of Yemen. There, more than 6 million barrels of oil pass through every single day. Historically, the United States has tried to dominate this region in order to maintain control of energy supplies and ensure these global trade routes that the globalized capitalist system is built on. As U.S. influence in the region has weakened in an increasingly multipolar world, Israel has become even more important for the United States to try to exercise hegemony in the region. One can see this clearly in the discussions over oil prices in OPEC, the Organization of the Petroleum Exporting Countries, which has essentially been expanded to OPEC+ to include Russia. Today, Saudi Arabia and Washington’s archenemy, Russia, play a key role in determining global oil prices. Historically, Saudi Arabia was a loyal U.S. proxy, but Riyadh has increasingly pursued a more non-aligned foreign policy. And a very big reason for that is that China is now the biggest trading partner of many of the countries in the region. For a decade, China has been the largest importer of oil and gas from the Persian Gulf, whereas U.S. oil imports peaked in 2005. Due to massive expansion of production and the shale boom in the 2010s, the United States established itself as one of the top three oil producers on Earth, reducing its need for crude from Persian Gulf. Meanwhile, through its global infrastructure project, the Belt and Road Initiative (BRI), China is moving the center of world trade back to Asia. And the “road” in BRI is a reference to the New Silk Road. Can you guess which region is crucial in the New Silk Road and the BRI? Of course, it’s the Middle East – or, again, a better name is West Asia, and that term actually much better explains the geostrategic importance of this region, because it connects Asia to Europe. This explains why the United States has been so desperate to try to challenge the Belt and Road with its own attempts to build new trade routes. In particular, the U.S. seeks to make a trade route going from India into the Persian Gulf, and then up through Israel. So in all of these projects, Israel plays an important role, as an extension of U.S. imperial power in one of the most important regions of the world. That is why Biden said back in 1986 that if Israel didn’t exist, the U.S. would have to invent it. That is also why Biden repeated this in a White House meeting with Israel’s President Isaac Herzog on October 27, 2022: We’re also going to discuss the ironclad commitment – and this is, I’ll say this 5000 times in my career – the ironclad commitment the United States has to Israel, based on our principles, our ideas, our values; they’re the same values. And I have often said, Mr. President [Herzog], if there were not an Israel, we would have to invent one. And even as recently as October 18, 2023, Biden again repeated the same thing in a speech he made in Israel: “I have long said, if Israel didn’t exist, we’d have to invent it”. In that speech in 2023, Biden traveled to Israel in order to support the country as it was carrying out a brutal bombing campaign in Gaza, and ethnically cleansing Palestinians as part of what legal experts around the world have referred to as a “textbook case of genocide”. Top United Nations experts have warned that the Palestinian people are in danger of genocide by Israel. And the United States has steadfastly been supporting Israel, because, as Joe Biden said, Israel is an extension of U.S. imperial power in West Asia, and if it didn’t exist, Washington would have to invent it. Below follows a transcript of the interview that Geopolitical Economy Report editor Ben Norton conducted with economist Michael Hudson, author of many books, including Super Imperialism: The Economic Strategy of American Empire. BEN NORTON: Michael, thanks for joining me today. We are speaking on November 9, and the latest death toll in the war in Gaza is that Israel has killed more than 10,000 Palestinians. The United Nations has referred to Gaza as a “graveyard for children”. More than 4,000 children have been killed. About 40% of the casualties are children. And the United States has continued to support Israel, not only diplomatically and politically, not only by, for instance, vetoing resolutions in the U.N. Security Council that call for a ceasefire, but furthermore, the U.S. has been sending billions of dollars to Israel. Not only the $3.8 billion that the U.S. always gives to Israel every year in military aid, but additionally, tens of billions of dollars more. So I am wondering if you could provide your analysis of why you think the U.S. is investing so many resources in supporting Israel while it is clearly committing war crimes. MICHAEL HUDSON: Well, certainly it is supporting Israel, but it’s not supporting Israel because this is an altruistic act. To the United States, Israel is its landed aircraft carrier in the Near East. Israel is the takeoff point for America to control the Near East. And from the very time there was talk of creating an Israel, it was always that Israel was going to be an outpost, first of England, then of Russia, then of the United States in the Near East. And I can give you an anecdote. Netanyahu’s main national security advisor for the last few years has been Uzi Arad. I worked at the Hudson Institute for about five years, 1972 to ‘76. And I worked very closely with Uzi there. Uzi and I made two trips to Korea and Japan to talk about international finance. So we had a good chance to get to know each other. And on one trip, we stopped over from New York to San Francisco. And in San Francisco, there was a party or a gathering for people to meet us. And one of the U.S. generals came over and slapped Uzi on the back and said, you’re our landed aircraft carrier over there. We love you. Well, I could see Uzi feeling, tightening up and getting very embarrassed and didn’t really have anything to say. But the United States has always viewed Israel as just our foreign military base, not Israel. So of course, it wants to secure this military base. But when England first passed the act saying there should be in Israel the Balfour Declaration, it was because Britain wanted to control the Near East and its oil supplies. When Israel was formed in the United Nations, the first country to recognize it was Stalin and Russia, who thought that Russians were going to have a major influence over Israel. And then after that, of course, when Truman came in, the military immediately saw that America was replacing England as the chief of the Near East. And that was even after the fight, the overthrow of the Mossadegh government in Iran in 1953. So from the United States, it’s not Israel’s wagging the American tail, just the opposite. You mentioned that America is supporting Israel. I don’t think America is supporting Israel at all, nor do most Israelis, nor do most Democrats. America is supporting Netanyahu. It’s supporting Likud, not Israel. The majority of Israelis, certainly the non-religious Israelis, the core population of Israel since its founding, is opposing Likud and its policies. And so what really is happening is that to the United States, Netanyahu is the Israeli version of Zelensky in the Ukraine. And the advantage of having such an unpleasant, opportunist, and corrupt person as Netanyahu, who is under indictment for his bribery and corruption, is precisely that all of the attention now of the whole world that is so appalled by the attacks going on in Gaza, they’re not blaming the United States. They’re blaming Israel. They’re blaming Netanyahu and Israel for it, when it’s the United States that has been sending plane load after plane load of bombs, of guns. There are 22,000 machine guns, automatic guns, that are banned for sale in the United States that America is sending for the settlers to use on the West Bank. So there’s a pretense of good cop, bad cop. You have Mr. Blinken telling Netanyahu, when you bomb hospitals, make sure you do it according to the rules of war. And when you kill 100,000 Gaza children, make sure it’s all legal and in the war. And when you talk about ethnic cleansing and driving a population out, make sure that it’s all done legal. Well, of course, it’s not the rules of war, and there are war crimes being committed, but the United States is pretending to tell Netanyahu and the Israeli government, use smaller bombs. Be more gentle when you bomb the children in the hospital, when actually this is all for show. The United States is trying to say, well, we’re only there to give help to an ally. The whole world has noticed that the U.S. now has two aircraft carriers in the Mediterranean, right off the Near Eastern shore, and it has an atomic submarine near the Persian Gulf. Why are they there? President Biden and Congress say we are not going to have American troops fighting Hamas in Gaza. We’re not going to get involved. Well, if the troops are not going to get involved, why are they there? Well, we know what the American planes are doing. Yesterday, they bombed yet another airport and a fuel depot in Syria. They’re bombing Syria. And it’s very clear that they’re there not to protect Israel, but to fight Iran. Again and again, every American newspaper, when it talks about Hamas, it says Hamas is acting on behalf of Iran. When it talks about Hezbollah, and is there going to be an intervention from Lebanon against northern Israel, they say Hezbollah are the Iranian puppets. Any time they talk about any Near Eastern leader, it’s really that all these leaders are puppets of Iran, just like in Ukraine and Central Europe, they talk about Hungary and other countries as all being puppets of Putin in Russia. Their focus, really – America isn’t trying to fight to protect Ukraine. It’s fighting for the last Ukrainian to be exhausted in what they’d hoped would be depleting Russia’s military. Well, it hasn’t worked. Well, the same thing in Israel. If the United States is pushing Israel and Netanyahu to escalate, escalate, escalate, to do something that at a point is going to lead Nasrallah to finally say, okay, we can’t take it anymore. We’re coming in and helping rescue the Gazians and especially rescue the West Bank, where just as much fighting is taking place. We’re going to come in. And that’s when the United States will then feel free to move not only against Lebanon, but all the way via Syria, Iraq, to Iran. What we’re seeing in Gaza and the West Bank today is only the catalyst, the trigger for the fact that the neocons say we are never going to have a better chance than we have right now to conquer Iran. So this is the point for the showdown, that if America is to control Near Eastern oil, and by controlling Near Eastern oil, by bringing it under the US control, it can control the energy imports of much of the world. And therefore, this gives American diplomats the power to cut off oil and gas and to sanction any country that tries to go multipolar, any country that tries to resist US unipolar control. BEN NORTON: Yeah, Michael, I think you’re really hitting such an important point, which is how this is one of the most geostrategic regions of the world, especially when it comes to hydrocarbons. The entire global economy is still very heavily reliant on oil and gas, and especially considering the US is not part of OPEC, and especially now considering that OPEC has really expanded essentially to OPEC+ and now includes Russia. That means that Saudi Arabia and Russia essentially can help control global oil prices. And we’ve seen this really, in fact, in the United States in the past few years with the rise of consumer price inflation. We saw that the Biden administration was concerned about gas prices, in particular in the lead up to the midterm elections. And the Biden administration has been releasing a lot of oil from the strategic oil reserves of the United States. And we can also see these kinds of statements in particular when we go back and look at the Bush administration. There are numerous people involved in the Bush administration and the so-called “War on Terror” who openly talked about how important it was for Washington to dominate this region. And I’m really thinking of, in 2007, when the top US general and NATO commander Wesley Clark famously disclosed that the Bush administration had made plans to overthrow seven countries in five years. And those were countries in North Africa and West Asia. Specifically, he revealed in an interview with journalist Amy Goodman on Democracy Now that Washington’s plans were to overthrow the governments of Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and finally Iran: WESLEY CLARK: About 10 days after 9/11, I went through the Pentagon and I saw Secretary Rumsfeld and Deputy Secretary Wolfowitz. I went downstairs just to say hello to some of the people on the Joint Staff who used to work for me. And one of the generals called me and he said, “Sir, you’ve got to come in and talk to me a second”. I said, “Well, you’re too busy”. He said, “No, no”. He says, “We’ve made the decision; we’re going to war with Iraq”. This was on or about the 20th of September. I said, “We’re going to war with Iraq, why?” He said, “I don’t know”. He said, “I guess they don’t know what else to do”. So I said, “Well, did they find some information connecting Saddam to al-Qaeda?” He said, “No, no”. He says, “There’s nothing new that way. They’ve just made the decision to go to war with Iraq”. He said, “I guess it’s like we don’t know what to do about terrorists, but we’ve got a good military and we can take down governments”. And he said, “I guess if the only tool you have is a hammer, every problem has to look like a nail”. So I came back to see him a few weeks later, and by that time we were bombing in Afghanistan. I said, “Are we still going to war with Iraq?” And he said, “Oh, it’s worse than that”. He said, he reached over on his desk, he picked up a piece of paper, and he said, “I just got this down from upstairs”, meaning the Secretary of Defense’s office today, and he said, “This is a memo that describes how we’re going to take out seven countries in five years, starting with Iraq and then Syria, Lebanon, Libya, Somalia, Sudan, and finishing off Iran”. I said, “Is it classified?” He said, “Yes, sir”. I said, “Well, don’t show it to me”. And I saw him a year or so ago, and I said, “You remember that?” And he said, “Sorry, I didn’t show you that memo! I didn’t show it to you!” AMY GOODMAN: I’m sorry, what did you say his name was? (laughs) WESLEY CLARK: I’m not going to give you his name. (laughs) AMY GOODMAN: So go through the countries again. WESLEY CLARK: Well, starting with Iraq, then Syria and Lebanon, then Libya, then Somalia and Sudan, and then back to Iran. BEN NORTON: And since then, we of course saw the U.S. war on Iraq. We of course saw the proxy war in Syria that still goes on in many ways. The U.S. is occupying one-third of Syrian territory, including the oil rich areas. And Trump himself, President Donald Trump, boasted in a 2020 interview with Fox News host Laura Ingraham that he was leaving U.S. troops in Syria to take the oil: DONALD TRUMP: And then they say, “He left troops in Syria”. You know what I did? I left troops to take the oil. I took the oil. The only troops I have are taking the oil. They’re protecting the oil. LAURA INGRAHAM: We’re not taking the oil. We’re not taking it. DONALD TRUMP: Well, maybe we will, maybe we won’t. LAURA INGRAHAM: They’re protecting the facilities. DONALD TRUMP: I don’t know, maybe we should take it. But we have the oil. Right now, the United States has the oil. So they say, “He left troops in Syria”. No, I got rid of all of them, other than we’re protecting the oil; we have the oil. BEN NORTON: We also saw the U.S. impose sanctions on Lebanon, which contributed to hyperinflation and the destruction of the Lebanese economy. And that was largely because Hezbollah is part of the government, and the U.S. has been pressuring the Lebanese government to create a new government without Hezbollah. We also saw, of course, that NATO destroyed the Libyan state in 2011. Somalia also has a failed state. And Sudan was divided in no small part thanks to the U.S. and Israel supporting South Sudan’s separatist movement on ethno-religious lines, using religious sectarianism. So if you look at the list of countries that Wesley Clark named in 2006, the seven countries in five years, again, that was Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and finally Iran; the only country that really has been able to maintain state stability, that has not been completely devastated by the United States, is Iran. Of course, it took longer than five years, but the U.S. was pretty successful. And of course Israel has played an important role in this U.S. goal to destabilize those governments in the region. MICHAEL HUDSON: Well, let’s look and see how this was done. Remember after America was attacked on 9/11, there was a meeting at the White House, and everybody knew that the pilots were Saudi Arabians, and they knew that some of the pilots had been staying at the Saudi embassy in Los Angeles, I think, in the United States. But after 9/11, there was a cabinet meeting, and Rumsfeld said to the people there, look and find any link you can get to Iraq, forget Saudi Arabia, no problem, Iraq is the key. And he directed them to find it, and 9/11 became the excuse for attacking not Saudi Arabia, but Iraq, and going right on with it. Well, you needed a similar crisis in Libya. They said in Libya, there was some, I think, fundamentalists in the suburbs of one of the [cities], not the capital city, that were causing problems. And so you have to “protect” the innocent people from [Muammar Gadhafi], and you go in and grab all of their gold reserves, all of their money, and you take over the oil on behalf of France’s oil monopoly. Well, this is the role of the fighting in Gaza today. Netanyahu’s fight against Gaza is being used as the excuse for America moving its warships there, its submarines, and bombing, along with Israel, the Syrian airport so that the Syrians are not able to move weapons or any kind of military support either to Lebanon, to the west, or Iran, to the east. So it’s obvious that all of what we’re seeing is somehow to soften up public opinion for the fact that, well, just like we had to invade Iraq because of 9/11, we have to now finally fight and take out the oil refineries of Iran and their scientific institutes and any laboratories where they may be doing atomic research. And Iran realizes this. Last week, the Iranian press TV said that their defense minister says that if there’s any attack on Iran, whether by Israel or by anyone else, the U.S. and its foreign bases are going to be hit hard. Iran, Russia, China have all looked at the Gaza situation not as if it’s an Israeli action, but as if it’s the U.S. action. They all see exactly that it’s all about Iran, and the American press only says when it talks about Gaza or Hamas or Hezbollah or any other group, it’s always the Iranian tool so-and-so. They’re demonizing Iran in the same way that the neocons have demonized Russia to prepare for America declaring an undeclared war against Iran. And they may even declare war. Last night, on [November] 8, the Republicans had their presidential debate without Trump, and Nikki Haley said, you know, we’ve got to fight Iran, we’ve got to conquer it. And DeSantis of Florida said, yes, kill them all. He didn’t say who the them was. Was it Hamas? Was it everybody who lives in Gaza? Was it all of the Arabs in the Middle East? And we’re really seeing something very much like the Crusades here. It’s a real fight for who is going to control energy, because, again, the key, if you can control the world’s flow of energy, you can do to the whole world what the United States did to Germany last year by blowing up the Nord Stream pipelines. You can grind its industry to a halt, its chemical industry, its steelmaking industry, any of its energy-intensive industries, if countries do not agree to U.S. unipolar control. That’s why it wants to control these areas. Well, the wildcard here is Saudi Arabia. Well, in two days, I think you’re going to have the Iranian president visit Saudi Arabia, and we’re going to see what’s going to happen. But Saudi Arabia finds that while its role is key, Saudi Arabia could simply say we’re not going to export more oil until America pulls out of the Near East. But then all of Saudi Arabia’s monetary savings are invested in the U.S. The United States is holding the world hostage, not only by controlling its oil and gas and energy, but by controlling its finance. It’s like you have your money in a mafia bank or in Bankman-Fried’s cryptocurrency mutual fund. They can do whatever they want with it. So I think what would happen is it’s very unlikely that Saudi Arabia is ostensibly going to visibly break with the United States because the U.S. would hold it hostage. But I think what it would do would be what has been talked about ever since the 1960s, when similar problems came with Iran. And Iran’s ace in the hole has always been the ability to sink a ship in the Hormuz Strait, where the oil goes through a very narrow little strait, where if you sink a tanker there or a warship, it’s going to block all of the sea trade with Saudi Arabia. And that would certainly, number one, take Saudi Arabia off the hook for saying, we can’t help it. Of course, we’d love to export oil, but we can’t because the shipping lanes are all blocked because you, America, attacked Iran and they defended themselves by sinking the ship. So you can’t send your aircraft carriers and submarines to attack Iran. That’s very understandable. But the United States is causing a world crisis. Well, obviously, the United States knows that that’s going to happen because it’s been discussed literally for 50 years. Since I was at the Hudson Institute working on national security, it was being discussed what to do when Iran sinks the ship in the Strait of Hormuz. Well, the United States figures, okay, oil prices are going to go up. And if Iran fights back in this way, we then will have the power to do to the world what we did to Germany in 2022 when we cut off its oil. But in this case, we don’t take the blame. We’ll say, oh, we didn’t block the Saudi and Arab oil trade. It was that Iran that blocked it, and that’s why we’re going to bomb Iran, assuming that they can. So that, I think, is the contingency plan. And just as America had a contingency plan just like that, waiting for an opportunity, like 9-11, they needed a trigger, and Netanyahu has provided the trigger. And that’s why the United States has been backing Netanyahu. And of course, Iran says, well, we have the ability to really wipe out Israel. And in Congress, General Miley and the others have all said, well, we know that Iran could wipe out Israel. That’s why we have to attack Iran. But in attacking Iran, you send its missiles off to Israel, and again, Israel will end up being the Near Eastern equivalent of Ukraine. And that sort of is the plan, and I think a lot of Israelis see this, and they’re the ones who are worried and are opposing Netanyahu and trying to prevent him from triggering a whole set of military exchanges that Israel won’t be able to resist. And even though Iran, I’m sure they can bomb some places in Iran, but now that you have Russia, China, all supporting Iran through the Shanghai Cooperation Organization, you’re having the lines being drawn very, very clearly. So it seems that this scenario is inevitable because Mearsheimer pointed out that it’s impossible to have a negotiated solution or settlement between Israel and Palestine. He said you can’t have a two-state solution because the Palestinian state is going to be like an Indian reservation in America, all sort of cut apart and isolated, not really a state. And you can’t have a single state because a single state is a theocratic state. It’s like, again, it’s like the United States in the Wild West in the 19th century. And I think the way to put it in perspective is to realize that what we’re seeing today in the attempt to split the world is very much like, excuse me, very much like what happened in the 12th and 13th century with the Crusades. BEN NORTON: Yeah, Michael, you raise a lot of very important points there. And I know you want to talk further about the Crusades and the historical analogy. And I think you made a really good point about the US empire standing in as the new Crusaders. But before you move away from the more contemporary political discussion, I wanted to highlight two very important points that you stressed. One is not only the hydrocarbon reserves in the Middle East, which are so important for the world economy and in the US attempt to maintain control over oil and gas supplies and in particular energy costs. There’s also an election coming up in 2024, and the US is concerned about gas prices and inflation. And of course, energy inputs are a key factor in inflation. But furthermore, this region is strategic because of trade routes. Of course, the Suez Canal, according to looking at data here from the World Economic Forum, 30% of the world’s shipping container volume transits through the Suez Canal and 12% of all global trade consists of goods that pass through the Suez Canal. And we saw this in 2021 when there was this big media scandal when a US ship got stuck in the Suez Canal. And this, of course, also came at the time when the world was coming out of the pandemic and there were all these supply chain shocks. So we can see how sensitive the global economy is to even small issues in the global supply chain. And when you talk about shipping routes, we’re not only talking about the Suez Canal, we’re also talking about in the Red Sea toward the south. You also have the Bab al-Mandab. This is a very important strait off of the coast of Yemen. And in the war in Yemen, starting in 2014 and 2015, a lot of the fighting back by the U.S. in this war was in the south, off of the Bab al-Mandab, because this is such an important strait where every single day millions of barrels of oil flow through this strait. And this also reminded me, Michael, you were talking about the historical context. And if you go back to 1956, Israel invaded Egypt. And why was that? Israel invaded Egypt because Egypt’s leftist president, Nasser, nationalized the Suez Canal. And at that moment, what was very interesting is that the U.K. and France were strongly supporting Israel in this war against Egypt because they were concerned also about Nasser’s nationalization of the Suez. At that moment, the U.S. wasn’t as deeply pro-Israel as it later became. Of course, in 1967, in the Six-Day War, Israel attacked the neighboring Arab states and occupied part of Egypt, the Sinai, and then also what became Gaza. Israel occupied the Golan Heights of Syria, which remain illegally occupied Syrian territory today. And Israel occupied the West Bank, what we call the West Bank today. But another important detail about that is, after the 1967 war, Israel increasingly became much more of a U.S. ally. Whereas the first generation of Israeli leaders were much more, many of them were European, whereas the later generations of Israelis have been really American. I mean, someone like Netanyahu, he is an American. Netanyahu was raised in the United States. He went to high school in Philadelphia. He went to high school with Reggie Jackson, by the way. He spent his most formative years in the U.S. He went to college at MIT. He then worked in Boston, and he worked with many Republicans that he became friends with, like Mitt Romney, like Donald Trump. And then when he went back to Israel, he was sent to the U.S. to be a diplomat in the United States. So the new generation of Israeli leaders is much more American, essentially. And another detail you mentioned about Iran is so important, because, up until the Iranian revolution in 1979, the Iran of the Shah, the U.S.-backed monarchy, was such an important ally in the region. And in fact, Saudi Arabia and Iran were famously referred to as the twin pillars. Saudi Arabia was the west pillar and Iran was the east pillar. The U.S. used to try to dominate this region, of course, with the support of Israel as well. Well, with the Iranian Revolution in 1979, the U.S. lost that crucial east pillar, which meant that Israel became even more important from the perspective of the U.S. imperialism to maintain control over this region. So I just wanted to mention those details of the strategic importance of the trade routes, like the Bab al-Mandab Strait, like the Suez Canal, and also the fact that the Iranian Revolution fundamentally shifted U.S. policy in the region and made Israel even more important from the perspective of U.S. imperialism. And now we’re in a moment where, as you mentioned, the U.S. is even losing control over Saudi Arabia. So it’s losing both of its pillars, which is, again, why Washington is so desperate in propping up Israel, despite the fact that the entire region is completely against these settler-colonialist policies and these ethnic cleansing policies that Israel is carrying out right now, as the entire world is watching. MICHAEL HUDSON: Well, to U.S. diplomats, what you call the support of Israel is really the support of the U.S.’ ability to militarily control the rest of the Near East. It’s all about oil. America is not giving all this money to Israel because it loves Israel, but because Israel is the military base from which the United States can attack Syria, Iraq, and Iran and Lebanon. So it’s a military base. And of course, it can frame this in terms of pro-Israeli, pro-Jewish policy, but this is only for the public relations view of the State Department. If American strategy is based on energy in the Near East, then Israel is only a means to this end. It’s not the end itself. And that’s why the United States needed to have an aggressive Israeli government. You can look at Netanyahu as being, in a way, a U.S. puppet, very much like Zelensky. Their positions are identical in their reliance on the United States against the majority of their own people. So you keep talking about America’s support of Israel. It’s not supporting Israel at all. It rejects the majority of Israelis. It supports the Israeli military, not the Israeli society or the culture, have nothing to do with Judaism at all. This is pure military politics, and that’s how I’ve always heard it discussed among the military and national security people. So you want to be careful not to be taken in by the cover story. There’s one other means of control, I think, that we should mention, and that is, you’ve had in the last month or so all sorts of statements by the United States that as soon as Russia conquers the Ukraine and solidifies its control, it’s going to bring up claims against war crimes, crimes against humanity, against Russia. America is trying to use the crooked court system. The International Criminal Court is a branch of the Pentagon in the State Department, and it’s the kangaroo court. The idea is that somehow the kangaroo court can give America judgments against Putin as they’ve declared him to be arrested anywhere he goes of people who respect the kangaroo court, and they can have all sorts of sanctions against Russian property elsewhere. Well, look at how on earth are they going to justify these claims of war crimes against Russia if in the view of what’s happening between Israel and Gaza right now, and in fact, the arms and the bombs that are being used against Gaza are U.S. bombs, U.S. arms. The U.S. is fueling it all. How on earth can the United States not accuse itself of war crimes on the basis of what it’s trying to accuse Russia of? Part of the splitting of the world that you’re going to see, whether or not the United States can actually bomb Iran, is going to be a whole setup of parallel courts and an isolation, not only of the United States, but as Europe is coming in. Basically, there’s a fight for who is going to control the world right now, and that’s why I mentioned the Crusades. I want to say I’ve been writing a history of the evolution of financial policy. I’ve done two volumes already, one on the Bronze Age Near East, …and forgive them their debts, and the other on classical antiquity, The Collapse of Antiquity. I’m now working on the third volume, which covers the Crusades to World War I. It’s really all about an attempt by Rome, that had hardly any economic power at all, to take over all of the five Christian bishoprics that were made. Constantinople was really the new Rome. That was the head of Orthodox Christianity. The emperor of Constantinople was really the emperor over the whole Christian world. It was followed by Antioch, Alexandria, and finally Jerusalem. The Crusades really began, before they attacked the Near East it began in the 11th century. And Rome was finally being attacked by the Norman armies that were coming in and grabbing parts of France and had moved into Italy. So the papacy made a deal with the Norman warlords, and it said, “We will give you the divine right to rule, we will recognize you as the Christian king, and we will excommunicate all of your enemies, but you have to pledge feudal fealty, loyalty to us, and you have to let us appoint your bishops and control the churches, which control most of your land, and you have to pay us tribute”. The papacy all during the 10th century was controlled by a small group of aristocratic families around Rome that treated the papacy just as they treat the local political mayor of a city or the local administrators. The church was just sort of run by a family. It had nothing to do with Christian religion at all. It was just, this is the church property, and one of our relatives, we’re always going to have as the pope. Well, the popes didn’t have any troops in the late 11th century, and so they got the troops by making a deal with the Normans, and they decided, okay, we’re going to have an ideal, we’re going to mount the Crusades, and we’re going to rescue Jerusalem from the “infidels”, the Muslims. Well, the problem is that Jerusalem didn’t need a rescue, because all throughout the medieval world, throughout Islam, no matter what the religion of the governing classes was, there was a religious tolerance, and that continued for hundreds of years under the Ottoman Empire. There was only one group that was intolerant, and that was the Romans, that said, “We have to control all of Christianity, in order to prevent these aristocratic Italian families from taking over again”. And so they mounted the Crusades, nominally against Jerusalem, but they ended up sacking Constantinople, and two centuries later, by 1291, the Christians lost in Acre. The whole Crusade against the Near East failed. I think you can see the parallel that I’m going to be drawing. So most of the Crusades were not fought against Islam, because Islam was too strong. The Crusades were fought against other Christians. And the fight of Roman Christianity was against the original Christianity for itself, as it existed over the last 10 centuries. Well, you’re having something like that today. Just as Rome appointed the Normans as feudal rulers, William the Conqueror in Sicily, the U.S. appoints Zelensky, supports Netanyahu, supports client oligarchs in Russia, supports Latin American dictators. So you have a U.S. view of the world that is not only unipolar, but in order to have unipolar U.S. control of the world, the U.S. has to be in charge of treating any foreign state, any foreign president as a feudal serf, basically, that they owe feudal loyalty to the United States’ sponsors. And just as you had the Inquisition formed in the 12th century, really, to enforce this obedience to Rome as opposed to independent southern France, and independent Italy, and Arab science in Spain, you have today the U.S. using the National Endowment for Democracy, and all of the organizations controlled by Victoria Nuland with her cookies, to support things. Well, you’re having the whole strategy of the Roman takeover, how it was going to take over other countries, how it was going to prevent other countries from becoming independent of Rome, is almost sentence for sentence what you get in American national security reports, how to control other countries. And that’s really the fight that we’re seeing there. And against that, you’re finding the fight of other countries, the global majority. But in this case, whereas Constantinople was looted in 1204 and sort of destroyed by the Fourth Crusade, Russia, and China, and Iran and the other countries have not been looted. The only thing that the United States can do right now is it’s setting up this military plan to attack Iran. What is the role going to be of, for instance, India? The attack on Iran and on oil is at the same time an attack on the Chinese-led Belt and Road Initiative, the whole attempt to control transportation, not only oil, but transportation by the global majority for each other’s mutual growth, mutual gain, mutual trade. And the United States is trying to have an alternative plan for all of this that would run from India, essentially largely through Israel, and making a cut right across Gaza, which is one of the big problems that are being discussed now, to the Israeli control of Gaza, which would control its offshore oil and gas. So you’re having the wild cards in the U.S. plan, India, Saudi Arabia, what will it do, and Turkey, because Turkey also has an interest in this oil and gas. And if the Islamic countries decide that they’re really under attack, and this attack by the Christian West against Islam is really a fight to the death, then Turkey will join with Saudi Arabia and with all of the other countries, the Shiites, and the Sunnis, and the Alawites will join together and say, what we have in common is the Islamic religion. That is really going to be essentially the extension of America’s fight against China and Russia. So what we’re seeing, I’m going to try to summarize now, what we’re really seeing is having fought Russia to the last Ukrainian, and threatening to fight Iran to the last Israeli. The United States is trying to send arms to Taiwan to say, wouldn’t you like to fight to the last Taiwanese against China? And that’s really the U.S. strategy all over the world. It’s trying to fuel other countries to fight wars for its own control. That’s how Rome used the Norman armies to conquer southern Italy, England, and Yugoslavia. Israel, and what is in the news over the whole attacks in Gaza, is only the opening stage, the trigger for this war, just as the shooting in Sarajevo started World War I in Serbia started everything. BEN NORTON: Well, you raised so many interesting points, Michael, and I think your analysis is very fresh and unique and very insightful. I wish we had more time to go into some of these topics, but we’ve already been speaking for about an hour. So I think we’re going to wrap up here. But I do want to thank you, Michael, for joining us. And of course, we’ll be back very soon for more analysis. For people who are interested, I actually have interviewed Michael. I did an interview recently on classical antiquity, and Rome and Greece. And he has also written about the history of debt up through the creation of Christianity in his book And Forgive Them Their Debts. And now he is working on this political, economic, materialist history of the Crusades. MICHAEL HUDSON: I didn’t realize when I began the book in the 1980s, drafting it, I didn’t realize how critical the Roman papacy was, and how similar it was to the State Department, and CIA, and the blob today in its plans for world conquest. BEN NORTON: Well, I’m sure in the future we will have many opportunities to discuss that research. Of course, for people who want to get more of Michael’s very important analysis, you should check out the show that he co-hosts here with friend of the show, Radhika Desai, and that is Geopolitical Economy Hour. If you go to our website, geopoliticaleconomy.com, or if you go to our YouTube channel, you can find a playlist with all of the different episodes of Geopolitical Economy Hour. So thanks again, Michael, and we’ll definitely have you back very soon. MICHAEL HUDSON: It’s good to be here. Thank you.

Write an article about: Latin America’s plan to challenge US dollar with new currency and ‘regional financial architecture’. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

ALBA, Andrés Arauz, Argentina, Banco del Sur, Bank of the South, Bolivia, Brazil, dollar, Ecuador, Latin America, Lula da Silva, Mexico, Rafael Correa, Sucre, Sur, UNASUR, Venezuela

Advising Brazil’s President-elect Lula, Ecuadorian economist and leftist presidential candidate Andrés Arauz made a blueprint for a “new regional financial architecture” to unite Latin America, including an international currency to challenge the hegemony of the US dollar and IMF. (Se puede leer esta nota en español aquí.) The US dollar is used in the majority of international trade, and its status as the global reserve currency gives the United States an “exorbitant privilege” that underpins its geopolitical and economic dominance. Yet opposition to Washington’s hegemony is growing around the world. Institutions of Eurasian integration are proposing their own currencies and payment systems. Latin America, too, has ambitious plans to end its dependence on the US dollar. Prominent economist Andrés Arauz, a leftist leader who came close to winning Ecuador’s 2021 presidential elections, published a blueprint for a “new regional financial architecture” to unite Latin America, challenging the hegemony of the dollar and Washington-dominated institutions like the International Monetary Fund. His plan centers around creating a new regional currency for international transactions, thereby bypassing the dollar. The framework is based on a proposal made by Brazil’s President-elect Lula da Silva, who pledged before winning the October election that “we are going to create a currency in Latin America,” in order to “be freed of the dollar.” The currency is expected to be called the Sur (“south” in Spanish), and would be overseen by a newly created Banco Central del Sur (Central Bank of the South). To do all of this, Arauz has advised Lula to revive and strengthen existing institutions of regional integration like the Union of South American Nations (UNASUR) and the Banco del Sur (Bank of the South), which were undermined by US-backed coups and the rise of right-wing governments. The goal is “to harmonize the payment systems of” the countries that make up UNASUR in order “to carry out inter-bank transfers to any bank inside of the region in real time and from a cellphone,” explained Arauz. The Ecuadorian economist also insisted that Latin America should reject the US-dominated International Monetary Fund (IMF) and work with Africa to create debt relief and new economic opportunities. Both Lula and Arauz have made it clear that the Sur would not replace local currencies, like the European Union’s euro. Countries in Latin America would still have their own national currencies, so they can pursue a sovereign monetary policy. Rather, the idea is to use the Sur for bilateral trade between countries, in place of the dollar. The proposal is very popular in Latin America, given that it is the world’s most dependent region on the US dollar. The dollar was used in 96% of trade transactions between countries in the Americas from 1999-2019, according to the Federal Reserve. The creation of the Sur currency could fundamentally change this. Most trade in the Americas is dominated by the United States, which has the world’s second-largest economy (after the People’s Republic of China, when measured with purchasing power parity). The GDP of the United States is roughly $23 trillion, while that of Canada is nearly $2 trillion. It is often reported that the nominal GDP of Latin America and the Caribbean is around $5.5 trillion, according to World Bank data, and that the three largest economies in the region are Brazil ($1.6 trillion), Mexico ($1.3 trillion), and Argentina ($491 billion). But nominal GDP measurements can be misleading, and only reinforce the hegemony of the US dollar. A much more accurate measurement of GDP, purchasing power parity (PPP), takes into account the cost of living in each respective country. Adjusted accordingly with PPP measurements, the more precise estimate of the GDP of Latin America and the Caribbean is actually $11.4 trillion, with Brazil at $3.4 trillion, Mexico at $2.6 trillion, and Argentina at $1.1 trillion. This shows that the combined economies of Latin America and the Caribbean make up nearly half of the size of the US economy. The region is also very rich in natural resources, including oil, minerals, and agriculture. If Latin America could unify with its own independent financial institutions, it has enormous economic potential. Latin America’s vast economic potential has long been recognized by left-wing, anti-imperialist leaders in the region. In the 2000s, the leftist presidents of Venezuela (Hugo Chávez), Brazil (Lula da Silva), Argentina (Néstor Kirchner and Cristina Fernández de Kirchner), Bolivia (Evo Morales), Ecuador (Rafael Correa), and Paraguay (Fernando Lugo) made plans to create alternative financial institutions to challenge the US-dominated World Bank and IMF. The World Bank and IMF have a history of trapping Global South countries in unpayable odious debt, and subsequently imposing neoliberal “structural adjustment” programs that force governments to implement suffocating austerity policies that benefit US corporations. Following the vision of Venezuela’s revolutionary President Hugo Chávez, Latin America’s left-wing leaders agreed to create a bank aimed at regional unity, called the Banco del Sur (Bank of the South). Chávez, Lula, the Kirchners, Morales, and Correa met in Argentina in 2007 and signed a treaty officially creating the bank. The presidents of (Ecuador, Bolivia, Argentina, Brazil, Paraguay, and Venezuela (from left to right) meet in Argentina in 2007 to sign the treaty forming the Banco del Sur But the launch of the Banco del Sur was delayed. In 2009, the leaders of these countries met again for the Africa-South America Summit (ASA) in Venezuela, where they vowed a combined $20 billion in initial capital. These plans were never realized, however. Several leftist governments in Latin America were destabilized and overthrown in a series of brutal geopolitical attacks waged by the United States and right-wing oligarchies – namely several US-sponsored coups: a military coup in Honduras in 2009, judicial coup in Paraguay in 2012, internal coup in Ecuador in 2017, soft coups in Brazil in 2016 and 2018, and violent coup in Bolivia in 2019, as well as numerous failed coup attempts in Venezuela and Nicaragua. These US attacks and the ensuing right-wing surge also led to the sabotage of another key instrument of regional integration, the Union of South American Nations (UNASUR). While the Banco del Sur was meant to economically integrate the region, political integration was be overseen by UNASUR. UNASUR was formally created in a 2008 treaty, and officially operational by 2011. But as Washington prepared another coup attempt against Venezuela, in 2018 and 2019, the right-wing leaders of Brazil, Argentina, Colombia, Chile, Peru, and Paraguay coordinated together to withdraw from UNASUR, leaving the institution very weak. Another important regional institution created in parallel to the Banco del Sur and UNASUR was the ALBA: the Alianza Bolivariana para los Pueblos de Nuestra América (Bolivarian Alliance for the Peoples of Our America). Venezuela and Cuba formed the ALBA in 2004 as an economic alliance of left-wing governments in Latin America and the Caribbean. The ALBA created its own currency for inter-state trade in the region. Adopted in 2009, it was called the Sucre: the “Unified System for Regional Compensation.” (This acronym also referenced the South American revolutionary Antonio José de Sucre, who joined General Simón Bolívar in the anti-colonialist struggle against the Spanish empire in the early 19th century.) At its peak, the ALBA brought together Venezuela, Cuba, Nicaragua, Bolivia, Ecuador, and Honduras in a trade bloc, and they used the Sucre in more than $1 billion in bilateral trade in 2012. The symbol for the Sucre, used by the ALBA Chávez’s dream of unifying the region was undermined by his untimely death in 2013, and what followed was a devastating US economic war waged against Venezuela, including an artificial US-orchestrated commodities crash in 2014, several violent Washington-backed coup attempts, the imposition of harsh sanctions that gradually escalated into a Cuba-style embargo, and the Donald Trump’s attempt to forcibly install unelected coup leader Juan Guaidó as supposed “interim president.” Despite setbacks in the previous decade, by 2022, the left is back on the rise in Latin America. For the first time in history, the region’s seven most-populated countries are governed by left-wing leaders (Brazil, Mexico, Colombia, Argentina, Peru, Venezuela, and Chile). Colombia’s deeply pro-US right-wing governments were always a thorn in the side of the patria grande (the project of Latin American unity). But that changed with the election in June of Colombia’s first-ever left-wing president: Gustavo Petro. Recognizing the potential of this historic moment to realize true regional unity, Ecuador’s leftist leader Andrés Arauz has laid out a blueprint for not only political but also economic integration. Arauz has called for reviving both UNASUR and the Banco del Sur, and strengthening them further with a new Banco Central del Sur (Central Bank of the South). Arauz is an accomplished economist. He spent more than a decade working at Ecuador’s central bank, eventually serving as its general director. He is currently completing his PhD in financial economics. Under Ecuador’s former socialist President Rafael Correa, Arauz served as minister of knowledge and human talent. Arauz has since become a leading figure in Ecuador’s leftist Correísta movement, continuing the “Citizens’ Revolution” launched by Correa. Arauz was Correísmo’s candidate in the 2021 presidential elections. He won the first round in a landslide, but lost the second round with 47.6% of the vote compared to the 52.4% of Ecuador’s current President Guillermo Lasso, a right-wing multi-millionaire banker notorious for his corruption. Ecuador’s Andres Arauz (right) with former President Rafael Correa (left) in a campaign ad for the 2021 elections Although he is not formally in office, Arauz has served as an economic advisor for left-wing politicians in the region. Arauz is a co-founder of the Grupo de Puebla, a political forum bringing together progressive forces in Latin America. He is also a member of the council of the Progressive International. Lula da Silva, who governed Brazil from 2003 to 2010, is closely allied with both of these organizations. This makes it likely that Arauz will serve in some capacity as an advisor for the new Brazilian government. In 2020, Lula published an article at the Progressive International website, titled “For a Multipolar World.” In it, the Brazilian left-wing leader said he seeks “the creation of a multipolar world, free from unilateral hegemony and from sterile bipolar confrontation.” During his presidential campaign, at a rally in May 2022, Lula promised, “We are going to create a currency in Latin America, because we can’t keep depending on the dollar.” Lula won the October 30 presidential election and will once again become head of state of the largest country in Latin America on January 1, 2023. In response to Lula’s electoral victory, Arauz wrote a blueprint outlining steps that Brazil can take to help develop “a new regional financial architecture.” The article, published at the pan-Latin American website NODAL, is a guide that Lula can follow when he becomes president. “The goal: that on January 1, 2023, in the inauguration of Lula, the treaties are signed for the new UNASUR,” Arauz wrote. “We must put in operation the Bank of the South and sign the founding treaty of the Central Bank of the South and the Sur, the regional currency – in addition to national currencies – that President Lula proposed,” he added. “The initial step should be immediate,” Arauz stressed. The system will seek “to harmonize the payment systems of UNASUR to carry out inter-bank transfers to any bank inside of the region in real time and from a cellphone,” he explained. Arauz cautioned that these actions must be taken soon and quickly, because “the political window of opportunity is between January and September 2023, the date of primary elections in Argentina.” Argentina’s right-wing opposition, which is much more pro-US and supportive of dollar hegemony and neoliberal economics, could win these elections, throwing a wrench into the project of regional unity. Arauz warned, “We can’t give up this historic window of opportunity to the slow inertia of the foreign ministries and the backwardness of malinchismo” – a pejorative term that refers to people in Latin America who feel self-hate toward their own societies and have internalized the inferiority complex of cultural imperialism. “Progressive presidents must create an immediate channel of communication between each other,” he emphasized. “The political will is there, there is no time to lose.” If Latin America manages to create this “new regional financial architecture,” the Ecuadorian economist argued, it could “allow a breather for Argentina.” Argentina has faced a deep economic crisis, caused largely by unpayable odious debt owed to the IMF, after the previous right-wing government in Buenos Aires took the largest loan in the fund’s history. Arauz has been a vocal critic of the IMF. In his article, he said Latin America should take “collective action to retroactively nullify the illegal surcharges of the International Monetary Fund (IMF).” IMF surcharges are extra interest payments that the US-dominated financial institution imposes on borrowing countries that owe it large debts. The Bretton Woods Project noted that “civil society organisations, human rights experts and others have argued that surcharges effectively discriminate against and punish countries that are most in need of IMF assistance.” Arauz proposed that, in order to annul these IMF surcharges, “if necessary,” Latin America and Africa should propose a resolution in the United Nations General Assembly. He added that Latin America should work together with Africa to demand that the United States issue them IMF special drawing rights to help their economies. The region could then “recycle” these special drawing rights to help Argentina, Arauz said. The Ecuadorian economist also wrote that UNASUR could try to make some of the capital fleeing the region to the United States instead return to its countries of origin, by invoking article VIII.2.b of the founding articles of agreement of the IMF. Arauz offered economic advice for Brazil’s domestic affairs as well. Lula should “undo the de facto privatization of the Central Bank of Brazil that was implemented” by current far-right President Jair Bolsonaro, and “rearticulate the Central Bank of Brazil in the line of development, integration, and democracy,” he wrote. “It is very difficult to be able to meet the goals of eradicating hunger and the reindustrialization the Brazilian people need if he has a central bank permanently boycotting it,” Arauz added. He noted that Colombia’s central bank has already taken actions to oppose the proposed reforms of new left-wing President Gustavo Petro. But Arauz pointed out that “this wave of regional integration cannot remain only at the level of presidents; it should be a true integration of the peoples.” “That implies profound participation of the social movements of all of the region, but above all, immediate and tangible benefits for the citizenry,” he stressed. “It also implies giving preferential treatment to the smallest countries,” Arauz added. “The leadership of President Lula is crucial to join together the countries with distinct ideological orientations.” In the article, the Ecuadorian economist proposed another idea: creating a “massive program of student exchange,” so that “the youth of Latin American public education are able to study a semester or a year in another country in the region.” The goal should be “a million youths in student exchange in” 2023, Arauz wrote. “This will be the motor of integration.” He called for forms of cultural integration as well, proposing a regional contest inviting musicians, writers, and poets to make a hymn for UNASUR. Arauz concluded the blueprint suggesting that Lula should create a “plenipotentiary ambassador for regional integration.” The Ecuadorian leftist leader made it clear that he has major ambitions for the region. It’s not enough for Latin America only to unite, Arauz argued. It needs more representation in international institutions. “The countries of UNASUR should demand a collective position at the table of the G20, which the African Union is about to obtain,” he wrote.

Write an article about: Western sanctions failing: EU imports more Russian gas, China beats US tech war. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, gas, Huawei, LNG, oil, Russia, sanctions, SMIC

Western sanctions are backfiring: The EU is importing Russian liquified natural gas at record levels, and China is making high-tech chips despite US export restrictions. Western sanctions are backfiring: The European Union is now importing Russian liquified natural gas at record levels, and China has made high-tech breakthroughs despite US export restrictions. Washington’s and Brussels’ economic warfare is, ironically, strengthening the economic sovereignty of Beijing and Moscow while blowing back on Europe. The world is living through a new cold war: Cold War Two. And one of the main ways in which this war has been waged is through economic means. Sanctions are the principal instrument of economic warfare. When they are imposed unilaterally by a country, without the support of the United Nations, they are referred to as “unilateral coercive measures” and are illegal according to international law. One-quarter of the global population lives in countries that have been unilaterally sanctioned by the United States. The nations sanctioned by the US and Europe represent nearly one-third of global GDP. The application of sanctions by the United States and its European allies has skyrocketed in recent years. Among the countries sanctioned by the United States are two of the most powerful nations on Earth: China and Russia. China has the world’s largest economy, when you measure its GDP at purchasing power parity (PPP). Russia has the sixth-biggest economy on Earth. The biggest economies in the world by GDP (PPP), according to 2023 IMF data The US government has made it clear that its goal is to sabotage the economies of these Eurasian giants. But Washington has failed. China continues developing state-of-the-art technology, while Russia has only further solidified its role as a global commodities powerhouse, strengthening its own manufacturing sector. The failure, and even blowback, of this Western economic warfare shows that, while unilateral sanctions can do, and often do, significant damage to smaller countries with less developed economies, like Venezuela, Cuba, or Syria; for big nations with a massive industrial base, like China and Russia, their economies may effectively be “too big to sanction”. In these cases, Western sanctions do economic damage in the short term, but in the medium to the long term, the unilateral coercive measures actually help the targets by making them more economically and technologically sovereign. These huge Eurasian economies find alternatives and are no longer dependent on Western corporations; they develop their own high-tech manufacturing sectors, with more value added in the production process. In 2021, US President Joe Biden insisted he must prevent China from becoming “the leading country in the world, the wealthiest country in the world, and the most powerful country in the world; that’s not gonna happen on my watch”. Similarly, US Commerce Secretary Gina Raimondo said that Washington’s goal is to “slow down China’s rate of innovation”. In order to damage China’s economy, and particularly its tech sector, the United States has imposed many rounds of aggressive sanctions, starting first under President Donald Trump and very much continuing under Joe Biden, in a thoroughly bipartisan campaign. However, these sanctions have failed to prevent China from technologically developing; Beijing has continued taking huge strides. The Chinese firm Huawei has developed phones with advanced chip technology. The company’s Mate 60 Pro model entered the market this September, and took the world by storm. Bloomberg revealed that the Mate 60 Pro is Huawei’s first phone to use the most advanced technology produced by Beijing’s state-owned Semiconductor Manufacturing International Corporation (SMIC), a Kirin 9000s chip with a 7 nanometer processor. “Beijing is making early progress in a nationwide push to circumvent US efforts to contain its ascent”, the media outlet stated. Both SMIC and Huawei have been sanctioned by the US government. The Washington Post similarly acknowledged that “the Mate 60 Pro represents a new high-water mark in China’s technological capabilities, with an advanced chip inside that was both designed and manufactured in China despite onerous U.S. export controls intended to prevent China from making this technical jump”. The newspaper added that the phone’s “launch has sparked hushed concern in Washington that U.S. sanctions have failed to prevent China from making a key technological advance. Such a development would seem to fulfill warnings from U.S. chipmakers that sanctions wouldn’t stop China, but would spur it to redouble efforts to build alternatives to U.S. technology”. Huawei revealed the new phone when US Commerce Secretary Raimondo was visiting – a clear message of defiance against her office’s campaign of economic warfare. Russia is one of the most sanctioned countries on Earth. The United States and European Union have imposed many rounds of sanctions on the Eurasian nation over the NATO proxy war in Ukraine. President Biden made it clear that Washington’s goal with this economic warfare was to turn Russia’s currency, the ruble, into “rubble”. Biden boasted in March 2022 that one ruble was, at least briefly, worth less than one US penny. The US president declared: We are enforcing the most significant package of economic sanctions in history, and it’s causing significant damage to Russia’s economy. It has caused the Russian economy to, quite frankly, crater. The Russian ruble is now down by 50 percent since Putin announced his war. One ruble is now worth less than one American penny. One ruble is less than one American penny. And [we are] preventing Russia’s central bank from propping up the ruble and to keep its value up. They’re not going to be able to do that now. We cut Russia’s largest banks from the international financial system, and it’s crippled their ability to do business with the rest of the world. Biden did not mention that there are more than 140 million Russians living in Russia, and they use the ruble in their everyday life; they get paid their wages in rubles. By trying to destroy their currency, this Western economic warfare has not only harmed the Russian government and Vladimir Putin; it has been hurting the entire country, including more than 140 million civilians. But sanctions are not a precise instrument – despite the fact that Western governments constantly, and misleadingly, claim they are “targeted” against individuals and have supposed “humanitarian exemptions”. Sanctions are a brutal instrument of economic warfare, of collective punishment; they often do serious damage, and have major consequences for civilians living in targeted countries. In Venezuela, for instance, mainstream experts found that at least tens of thousands, and perhaps more than 100,000, civilians have died because of the illegal, unilateral sanctions imposed on the South American nation by the United States, as part of the Donald Trump administration’s coup attempt with Juan Guaidó. In the case of Russia, however, the economic sanctions have not done as much damage as the West would have hoped. Initially, the ruble did significantly depreciate against other currencies, but it soon rebounded, largely because of the rise in the price of oil and other commodities. Russia is one of the world’s biggest producers of oil, gas, fertilizers, and wheat. In fact, not only have the sanctions failed to turn the ruble into rubble and devastate the Russian economy; they have backfired on Europe, unleashing an energy crisis and contributing to high levels of inflation. In the meantime, the European Union is importing record levels of Russian liquefied natural gas (LNG). The Financial Times reported that, in the first seven months of 2023, EU members Belgium and Spain were the second- and third-largest purchasers of Russian LNG. The only other country that bought more was Russia’s closest ally: China. France and the Netherlands have also been importing significant quantities of Russian LNG. “EU imports of the super-chilled gas were up 40 per cent between January and July this year compared with the same period in 2021”, the Financial Times wrote. The newspaper added that “the EU did not import significant amounts of LNG before the war in Ukraine due to its reliance on piped gas from Russia”. What happened to that pipeline gas? Well, Europe pledged to boycott it. But furthermore, some of the most important pipelines connecting Russia to Germany, Nord Stream, were blown up in an international act of terrorism in September 2022. Who exactly sabotaged this crucial energy infrastructure is not known. But Pulitzer Pitzer-winning journalist Seymour Hersh reported that it was the US government. So now EU member states are importing Russian LNG at record levels. And ironically, they are paying even more than they had before for the cheap pipeline gas. The Financial Times reported that Europe has spent roughly €5.29 billion buying Russian LNG on the spot market from January to July 2023. The newspaper noted, “EU officials have pointed to an overall effort to phase out Russian fossil fuels by 2027, but warned that an outright ban on LNG imports risked prompting an energy crisis akin to last year when EU gas prices hit record highs of more than €300 per megawatt hour”. Russia is now the second-largest exporter of LNG to the Eurozone. The only country that sells more is the United States. In fact, due to the energy crisis in Europe and sanctions on Russia, in 2022, the United States became the largest exporter of liquefied natural gas in the world (tied with Qatar). So while Europe’s economies suffer, US corporations are benefiting. At the same time, Western ally India has been buying record amounts of Russian oil, below market value, at a neat discount, then refining that crude and selling it to Europe with a fat markup. So India is handsomely profiting from selling Russian oil to Europe, because Europe refuses to buy the Russian crude directly due to its sanctions. This suicidal sanctions policy has fueled an energy crisis in Europe, pushing economies into recession and causing de-industrialization at breakneck speed. Average working people have shouldered the burden of this economic pain. The real wages of workers in the Eurozone fell by 6.5% from 2020 until 2022.

Write an article about: After Ukraine, US readies ‘transnational kill chain’ for Taiwan proxy war. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, Link 16, Russia, Taiwan, Ukraine

Washington approved the dangerous sale of the Link 16 communications system to Taiwan. This is the final link of what the US military calls a “transnational coalition kill chain” against China, and signals a commitment to kinetic war. In many traditions, when you paint or sculpt a Buddha, the eyes are the very last to be painted. It’s only after the eyes have been completed that the sculpture is fully alive and empowered. The United States has approved a $75 million weapons package to Taiwan province, involving the sale of the Link 16 communications system. The acquisition of Link 16 is analogous to “painting the eyes on the Buddha”: a last touch, it makes Taiwan’s military systems and weapons platforms live and far-seeing. It confers deadly powers, or more prosaically, in the words of the US military, it completes Taiwan as the final, lethal link of what the US Naval Institute calls a “transnational coalition kill chain”, for war against China. What exactly is Link 16? It is a key system in the US military communications arsenal. Specifically, it’s the jam-resistant tactical data network for coordinating NATO weapons systems for joint operations in war. If this sale is completed, it signals serious, granular, and single-minded commitment to kinetic war. It would signal that the Biden administration is as serious and unwavering in its desire to provoke and wage large-scale war with China over Taiwan as it was with Russia over Ukraine, which also saw the implementation of this system. More important than any single weapons platform, this system allows the Taiwan/ROC military to integrate and coordinate all its warfighting platforms with US, NATO, Japanese, Korean, Australian militaries in combined arms warfare. Link 16 would be the deadliest piece of technology yet to be transferred, because it allows sea, air, and land forces to be coordinated with others for lethal effect. It permits, for example, strategic nuclear/stealth bombers  (US B-1B Lancers, B-2 Spirits) to coordinate with electronic warfare and surveillance platforms  (EA Growlers, Prowlers, EP-3s), fighters and bombers (F-16,F-22, F-35s) as well as conduct joint arms warfare with US, French, British carrier battle groups, Japanese SDF destroyers, and South Korean Hyun Moo missile destroyers, as well as THAAD and Patriot radars and missile batteries. It also allows coordination with low-earth orbit satellites and other Space Force assets. In other words, Link 16 supplies a brain and nervous system to the various deadly limbs and arms that the Taiwan authorities have been acquiring and preparing on the prompting of the US. It ensures interoperability and US control. It effectively prepares Taiwan to be used as the spear tip and trigger of a multinational war offensive against China. To give a shoe-on-the-other-foot analogy, this would be like China giving separatists in a US territory or state (e.g. Hawaii, Guam, Puerto Rico, Texas) not just arms and training – already a belligerent act of war, which the US is currently doing – but connecting insurgent militaries directly to the PLA’s surveillance, reconnaissance, and command/control systems. This coordinates and completes, to borrow the words of the US Naval Institute (USNI), the final link in a “transnational coalition kill chain” for war. The current US doctrine of war against China is based on distributed, dispersed, diffused, network-centric warfare to be conducted along the myriad islands of the archipelagic states encircling China in the Pacific. These are the “island chains” upon which the US has encircled and sown dragon’s teeth: tens of thousands of troops armed with mobile attack platforms and missiles. This is to be coordinated with subsurface warfare, automated/autonomous warfare, and longer-range stand-off weapons and attacks. Powerful think tanks like CSBA, CNAS, CSIS, RAND and the Pentagon have been working out the doctrine, details, logistics, and appropriations for this concept intensively for over a decade while advocating intensely for it. The sale of link 16 to Taiwan realizes and completes a key portion of this, binding the Chinese island as the keystone of this “multinational kill chain”. This doctrine of dispersion is based on a “rock-paper-scissors” concept that networked diffusion “offsets” (Chinese) precision. China’s capacity to defend itself and its littoral perimeter with precision missiles can be undermined with diffuse, distributed attacks from all across the island chains. Note that this diffusion and dispersion of attack platforms across the entire Pacific gives the lie to the claim that this is some inherently deterrent strategy to defend Taiwan island. Diffusion is clearly offensive, designed to overrun and overwhelm defenses: like Ukraine, this is not to deter war, but to enable it. This thus signals that aggressive total war against China is being prepared, in granular, lethal fashion on tactical and operational levels. On the strategic level, currently, at the CFR, CNAS, and other influential think tanks in Washington, the talk is all about “protracted warfare” with China, about pre-positioning systems and munitions for war, about ramping up to an industrial war footing for the inescapable necessity of war with China. This discussion includes preparations for a nuclear first strike on China. The US senses that the clock is running rapidly down on its power. If war is inevitable, then it is anxious to start war sooner rather than later. RAND warned in 2016 that 2025 was the outside window for the US to prevail in war with China. The “Minihan window” also hints at 2025. The “Davidson window” is 2027. The question in Washington regarding war with China is not if, but when–and how. Link 16 makes “how” easier, and brings “when” closer. The current administration has hardline Russophobes who want to continue to bleed Russia out in Ukraine. It wants protracted war with Russia. It firmly believes it can wage ambidextrous, multi-front war. Many US officials also believe that war with Ukraine and war with China are connected. They see Russia and China as a single axis of “revisionist powers” (i.e., official enemies) conspiring against the US to undermine its so-called “rules-based order” (i.e., US hegemony). Furthermore, if the US abandons Ukraine, this could weaken the Taiwan authorities’ resolve and willingness to wage war on behalf of Washington. Earlier in the war, when Russian gains in Ukraine were uncertain, Bi-khim Louise Hsiao (Taiwan’s current vice-president elect) gloated publicly and prominently that Ukraine’s victories were a message to China, as well as proof-of-concept of an effective doctrine for waging and winning war against China. As such, the Taiwan authorities were and are a major supporter of the Ukraine proxy war. But the converse also holds true. Based on the same premise, if the US abandons and loses Ukraine, it sends a clear message to the people on Taiwan island that they will be the next to be used and abandoned; that their US-imposed war and war doctrine (light, distributed, asymmetrical combined arms warfare) for fighting China is a recipe for catastrophic loss. The US plans on using proxies for war against China: Taiwan, Korea, Japan (JAKUS), Philippines, and Australia (AUKUS). Thus it cannot signal too overtly its perfidious, unreliable, and instrumental mindset. Washington has to keep up the pretense. It cannot be seen to overtly lose in or abandon Ukraine. It needs a “decent interval”, or a plausible pretext to cut and run. Still, the US is stretched thin. For example, it is relying on Korean munitions to Ukraine, and South Korea has provided more munitions than all of the EU combined. Moreover, the US is currently at war with itself. The fracturing of its body politic can only be unified with a common war against a common enemy. Russia is not that enemy for the US. China is. The Republicans want war with China now. Eli Ratner and Elbridge Colby have been fretting for years about the need to husband weaponry, arms, and munitions in order to wage war against China. Since the outbreak of Ukraine, Ratner has been working hard to pull India into the US defense industry’s supply chain, and claims to have been successful. South Korea’s considerable military-industrial complex is being pulled into sub-contracting for US war with China. Since many of its major Chaebol corporations got their start as subcontractors for the war in Vietnam (for example, Hyundai was a subcontractor for Halliburton/Brown & Root), the Korean economy is simply reverting back to its corporate-martial roots. South Korea’s economy is currently tanking due to US-forced sanctions on China. Major Korean electronic firms have lost 60 to 80% of their profits due to US-imposed chip sanctions. Under those conditions, military manufacturing and/or subcontracting looks to be the only way forward. In this way, the US is forcing a war economy onto its vassals. Furthermore, US aid to Ukraine benefits its own arms industry. The business of the US is war. Not only do existing US arms companies gain, but also the entire tech industry and supply chain benefits, and is currently re-orienting around this. Much of the US tech industry is seeking to suckle from the government teat, now flowing copiously in preparation for war. On the other hand, the general US economy is not doing well, with massive layoffs, especially in the consumer and business tech sector. The backstop of military Keynesianism, with the integration of think-tank lobbying groups funded by the arms industry with close ties to the administration (such as CNAS, West Exec Advisors, and CSIS) ensure that war is always the closest ready-to-hand resort for tough economic times. The US is simultaneously trying to decouple supply chains, which creates opportunities for US firms (both domestically and subcontracting with US vassals). Automated, AI-enabled warfare will be a key part of this development, as will be dispersed, distributed warfare platforms using proxies such as South Korea and Japan. This fits the existing historical pattern: the history of Western technology shows that technology and machinery have always been developed first for war. Afterwards, they become tools of entertainment and distraction, and later productive tools for general industrial use. This pattern goes back to the earliest machines and inventions of the West: the crane, the pulley, the lever, were all military technologies – machines of war (used in sieges). Later they became machines of illusion and distraction (used as stage machinery in Greek theater). Only much later were they applied for general use – and exploitation – in manufacture and production. This holds true for many other technologies, including: Nuclear power obviously derives from nuclear weapons. AI, too, from its inception, was conceived for automated battle management, especially to enable second strike after human life had been destroyed. An AI war is already in the works, with US sanctions on AI-related chips and computing, along with an algorithmic race to suppress dissent and critique in the information domain. War and business are intricately related in the west, and war is the first lever pulled when the economy stagnates critically or needs a boost. The US needs to abandon its neoconservative fantasies of hegemonic global empire and retreat gently into that good night, for there to be peace. Washington needs to negotiate in good faith with Russia, and begin the process of de-escalating its proxies in Ukraine, as well as in Palestine, and the Pacific. It needs to seek win-win cooperation in a multilateral order based on international law and mutual co-existence, not its own top-down “rules-based order”. It needs to respect the One China principle, end its interference in China’s affairs, and stop preparing and provoking war with China. However, the US ruling class is unwilling to do so. And it has only a few levers left to pull. The military one is the closest and most ready to hand. As Martin Luther King Jr. said, “The US is the greatest purveyor of violence in the world”. Like a drunk at the bar after the final call – drunk with power – Washington is determined to go out with a fight. That fight could involve a nuclear first strike. Palestine has shown what it will try to get away with: brazen genocide with the whole world watching. The issue is no longer war or peace in Ukraine. Deputy Secretary of State Kurt Campbell sees Ukraine as a “unified field” of war with China. He revels in the possibility of a “magnificent symphony of death” in Asia. The coda, of course, will be a deafening fermata of silence across the entire planet. Unless we stop this insane march to war.

Write an article about: IMF warns of ‘wave of debt crises’ coming in Global South, with war, interest rate hikes, overvalued dollar. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

dollar, IMF, inflation, interest, International Monetary Fund, neoliberalism, Paul Volcker, Radhika Desai

The IMF said a “wave of debt crises” may be coming in the Global South, and “the global economy is headed for stormy waters,” due to war, rising US interest rates, and many currencies depreciating against the dollar. The International Monetary Fund (IMF) has said a “wave of debt crises” may be coming in the Global South, and “the global economy is headed for stormy waters,” as the world faces a “geopolitical realignment” that will be “permanent.” The US-dominated financial institution warned “the worst is yet to come,” as the depreciation of most currencies against the dollar and rising interest rates make it hard for both governments and companies to service their dollar-denominated debt. The IMF has a long history of trapping Global South countries in odious debt, and then forcing their governments to implement “structural adjustment” programs, which require the imposition of harsh neoliberal policies and austerity, privatizing state assets and selling them off to Western corporations. The director of the IMF’s research department, Pierre‑Olivier Gourinchas, made these newest warnings in a press briefing on October 11. Countries comprising a third of the entire global economy are expected to contract in 2022 or 2023, he prognosticated. “In short, the worst is yet to come; and for many people, 2023 will feel like a recession,” he said. Gourinchas explained that “the energy crisis, especially in Europe, is not a transitory shock. The geopolitical realignment of energy supplies in the wake of the war is both broad and permanent.” Furthermore, the rallying of the US dollar against most other currencies could fuel a global economic crisis, he warned. “The strength of the dollar is also a major challenge. The dollar is now at its strongest since the early 2000s, mostly against advanced economies but also against emerging markets,” the top IMF researcher said. He advised Global South nations to conserve “valuable foreign exchange reserves for when financial conditions really worsen,” cautioning, “as the global economy is headed for stormy waters, now is the time for emerging market policymakers to batten down the hatches.” “Too many low‑income countries are close to or are already in debt distress. Progress toward orderly debt restructuring,” he said, “is urgently needed to avert a wave of sovereign debt crises. Time may soon run out.” He acknowledged, “there is, effectively, a serious issue of debt restructuring that is needed for a number of especially low‑income countries.” With the significant appreciation of the US dollar against many currencies, someone at the press conference asked the director of the IMF’s research department, “is it necessary or possible for us to have another Plaza Accord sometime down the road?” The 1985 Plaza Accord was an agreement between the United States, Britain, France, Germany, and Japan to depreciate the dollar against their currencies. This led to an overvalued Japanese yen, fueling an asset bubble that popped in the 1990s. Japan’s economy has never really recovered from this crisis. Gourinchas responded to the question stating: The strength of the dollar is certainly putting a lot of strain on a number of countries. I mean, it works through two channels. One, it is making the price of imported goods, which often are invoiced in dollars, higher. So that is increasing inflation pressures in other countries. And then it is also tightening financial conditions. A lot of corporates or governments have dollar debt, and that becomes more expensive to service as the dollar appreciates. Explaining why the dollar is rallying so much, Gourinchas identified the “fundamental forces” as Fed interest rates and the “energy crisis.” “It is really the fact that the Federal Reserve has increased interest rates quite aggressively in 2022 so far — is expected to do more — compared to other countries,” he said. “And it is also reflecting the energy crisis, that a lot of energy importers are impoverished by the high price of energy, and that is reflected in a weaker currency for them,” he added. In the same press conference, the division chief of the IMF research department, Daniel Leigh, noted that, in Africa, “the higher interest rates, low growth means that two‑thirds of the countries in the region are facing stress or debt distress.” Leigh warned that they must “avoid the debt crisis from spreading.” The mainstream financial press has been sounding similar alarm bells. A market analyst for Reuters, John Kemp, wrote that the “risks to other economies from inflation and rising interest rates in the core have been understood by policymakers and investors for decades.” He added, “But as long as the Fed’s mandate requires it to focus exclusively on domestic inflation and employment, ignoring international spillovers, and the dollar remains the main reserve currency, rising rates in the United States will continue triggering instability elsewhere.” Multipolarista editor Ben Norton discussed the comments made in this IMF press conference with geopolitical economist Radhika Desai. She argued the global economic and political situation today is not like the “Volcker Shock” of the 1980s, when persistent stagflation in the United States led Federal Reserve chair Paul Volcker to substantially raise interest rates, resulting in a highly overvalued dollar that fueled a Third World debt crisis. “I think we are a very long way away from a 1980s-style crisis,” Desai said. “Some countries will definitely face a financial crises,” she anticipated, but “the situation is very different, and the context is very different.” In the Volcker shock, Fed interest rates went to nearly 20%, Desai pointed out, but today many economists do not expect it to surpass 5%. Desai also stressed that, despite interest rate hikes up to roughly 4% as of November 2022, the real Fed rate is still technically negative, because inflation is larger than the federal funds rate. “We are not there. And the reason for that can be summed up in a single word… financialization,” she said. “When Paul Volcker did what he did, he didn’t have to worry about the huge mountain of debt, and speculative asset markets, and so on, which were all reliant on a long regime of low interest rates,” Desai argued. She also noted that the increasing Fed interest rates in 2022 still “remain short of the peak that they reached in the early 2000s, the peak at which they burst the housing and mortgage credit bubbles.” Current Federal Reserve chair Jerome Powell knows that “he cannot take interest rates above a certain amount, because it would bring the entire [financial] house of cards crashing down,” Desai said. She explained: The Federal Reserve always uses inflation rates and unemployment rates to justify its policy decisions as though it is making policy in the interest of ordinary Americans, and even the world. But in reality, the main thing that the Federal Reserve, in a long string of chair people of the Federal Reserve, going back to at least Alan Greenspan, what they have been primarily concerned about is the vast quantity of elite wealth that rests on said house of cards. They will not bring it down, because who pays the piper calls the tune. … And we extol it [the Fed] as an “independent” central bank. In reality, it is only independent of ordinary people’s interests. It is completely dependent on the elites. And so they are not going to do anything to destabilize elite wealth. And already we are seeing the Federal Reserve basically making noises about how they cannot allow interest rates to go very high. Desai continued: There will probably be a lot of debt crises, because some countries are far more vulnerable than others. But in this context we will also see something else. We will see increasing contestations between the Western world and China, where the Western world will constantly accuse China of being responsible for the developing countries’ debt crisis. And there will be a tug of war between the Western powers in China, as to, if there is a debt crisis, who will be paid back first. So we are going to see all of these shenanigans. But underlying all of them, what we will also see is increasingly a move away, for all the countries which can do it, will try to move away from borrowing from what Michael Hudson and I have called the dollar creditocracy. Because it is precisely this dollar creditocracy which is subject to such volatility, that you cannot borrow with any security that you will be paying back only what you agreed to pay back, rather than some insane amounts, simply because the Federal Reserve decides to raise interest rates, or simply because speculators decide to leave your currency and your country and go somewhere else. So the world needs a more secure financial system. And for the last 70 years and more, the world has been prevented from having the international financial system it really needs, that would really promote development, because the United States has wanted to impose its own will and its own currency on the rest of the world.

Write an article about: Russia dropping US dollar for Chinese yuan – and fast. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, de-dollarization, dollar, economics, renminbi, Russia, trade, yuan

In response to Western sanctions, Russia’s central bank is dropping the US dollar and will buy Chinese yuan on the foreign exchange market. The yuan’s share of Moscow’s currency trading increased from 1% to 40-45% in 2022, while dollar trade halved from 80% to 40%. (Se puede leer esta nota en español aquí.) Russia has spent years trying to decrease its dependency on the US dollar. But especially since the escalation of the proxy war in Ukraine in 2022, Moscow has accelerated its drive toward de-dollarization. Western sanctions have locked Russia out of the US-dominated international financial architecture. Numerous Russian banks were disconnected from the SWIFT inter-bank messaging system. Washington and Brussels even froze a staggering $300 billion of the Russian central bank’s foreign exchange reserves. In response, Russia’s central bank has largely abandoned the US dollar and euro, and instead it plans to buy Chinese yuan on the currency market. In the span of less than a year, the yuan has quickly replaced the dollar as the most sought foreign currency in Moscow. According to the Federal Reserve, the US dollar is involved in around 80% of global trade, and the dollar makes up approximately 60% of globally disclosed official foreign reserves, as of 2021. But rising geopolitical conflict, fueled by Washington’s new cold war, has pushed Russia, China, Iran, and a growing list of countries to try to de-dollarize, or at least to diversify their foreign reserves. Reuters reported that daily “yuan-rouble trading volumes on the Moscow Exchange are already exceeding dollar-rouble trades on some days,” and noted that this trend is likely to increase in 2023. Russia has already made importers of its oil and gas pay in its currency, the ruble, in a challenge to the petrodollar. An anonymous source in Russia’s banking system told Reuters, “The central bank can currently now buy yuan,” and, “if next year budget revenues from the export of oil and gas exceed 8 trillion roubles, then the central bank will buy yuan.” Another anonymous source in the Russian government said to Reuters, “We have a lot of friendly currencies. On the exchange, the Chinese yuan is the most traded currency, it is the friendliest currency so far.” With the conflict in Ukraine and Western sanctions on Moscow shutting Russia's banks and many of its companies out of the dollar and euro payment systems, China’s yuan has swept into the country's markets, presenting an economic counterweight to the dollar https://t.co/3OsuyJqsEt pic.twitter.com/bJvcPUNvYW — Reuters (@Reuters) November 29, 2022 In a separate report, titled “The yuan’s the new dollar as Russia rides to the redback,” Reuters revealed that the yuan’s share of trading on Russia’s currency market increased from 1% to 40-45% in less than a year. At the same time, dollar trade halved from 80% to 40% of volumes on the Moscow Exchange. Russia has quickly become the world’s fourth-biggest offshore trading center for renminbi – a drastic change, considering it was not even in the top 15 at the beginning of the year. Reuters acknowledged that Moscow’s de-dollarization campaign is not new, but it accelerated in 2022. “While the yuan, or renminbi, has been making gradual inroads into Russia for years, the crawl has turned into a sprint in the past nine months as the currency has swept into the country’s markets and trade flows,” the media outlet wrote. It added, “Russia’s financial shift eastwards could boost cross-border commerce, present a growing economic counterweight to the dollar and limit Western efforts to pressure Moscow by economic means.” In a report in March, the International Monetary Fund (IMF) warned of an “erosion of dollar dominance.” The US-dominated International Monetary Fund (IMF) has warned of an “erosion of dollar dominance” Use of Chinese yuan in global central bank reserves is increasing And Western sanctions on Russia could weaken the dollar, strengthening other currencieshttps://t.co/weF255asil — Ben Norton (@BenjaminNorton) March 31, 2022 The IMF noted that the use of Chinese yuan in global central bank reserves has increased, while holdings of the US dollar declined from roughly 70% in year 2000 to less than 60% by 2021. Western sanctions on Russia have also incentivized countries around the world to create new financial systems for regional trade in other currencies – not just adversaries, but also longtime US allies such as India, Egypt, and even Saudi Arabia. In July, Russia’s President Vladimir Putin visited Iran, where the two countries signed a $40 billion energy cooperation agreement, and pledged to deepen their economic integration. Both Putin and Iran’s Supreme Leader Ali Khamenei called to challenge the dominance of the US dollar, instead proposing the use of local currencies for trade. Iran & Russia pledge to cut US dollar from global trade, strengthen China alliance Video, podcast, and sources here:https://t.co/MzXopEfBpW — Ben Norton (@BenjaminNorton) July 23, 2022

Write an article about: As millions died in Covid pandemic, bankers made a killing. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

banks, Covid-19, economics, Fed, Federal Reserve, Goldman Sachs, JPMorgan Chase, Michael Hudson, Morgan Stanley, pandemic, Wall Street

As the Covid-19 pandemic ripped through society, the US government abandoned its people—but made sure Wall Street banks enjoyed “their best period since the 2007-09 financial crisis.” Capitalists made $5 trillion More than 5.55 million people around the world have died from Covid-19. In the United States alone, at least 854,000 people have lost their lives. And the pandemic has destroyed the livelihoods of many more, bankrupting families, devastating communities. Meanwhile, billionaire oligarchs have made a killing. The 10 richest capitalists on Earth doubled their wealth during the pandemic, while the incomes of 99% of humanity decreased. And the Western financial press is practically rubbing it in our faces. Reuters published a shockingly blunt story boasting of how US banks have, well, made bank during the global health crisis. Titled “Wall Street banks eye ‘new normal’ for trading revenue,” the Reuters news wire was republished at the official website of the Nasdaq stock exchange. The article gloats, “A massive injection of cash into capital markets by the Federal Reserve led to unprecedented liquidity and trading activity through the pandemic as investors sought opportunities to cash in.” The report then chirps happily, “Banks with large trading desks such as Goldman Sachs GS.N, JPMorgan JPM.N and Morgan Stanley MS.N have been the biggest beneficiaries of market volatility, enabling traders to enjoy their best period since the 2007-09 financial crisis.” As millions around the world died in a global pandemic, big banks like Goldman Sachs, JPMorgan, and Morgan Stanley were "the biggest beneficiaries of market volatility, enabling traders to **enjoy their best period since the 2007-09 financial crisis**" Capitalism is a death cult pic.twitter.com/6aJrq0xO6D — Benjamin Norton (@BenjaminNorton) January 19, 2022 I discussed this “massive injection of cash into capital markets by the Federal Reserve” in an interview with economist Michael Hudson. The Fed quietly bailed out big banks in September 2019 with $4.5 trillion of emergency repo loans, which according to Hudson appear to have blatantly violated US law. This is in addition to the trillions more the US Treasury poured into the financial sector. The Reuters article continues, quoting Goldman Sachs’ chief executive officer, David M. Solomon, who told analysts, “None of us could have anticipated the environment that we’ve lived through over the last two years and particularly the environment this year, which was obviously a significant tailwind for our business.” Note how Goldman Sachs’ CEO wasn’t saying the bank couldn’t have anticipated the millions of deaths; rather, he was saying Wall Street couldn’t have anticipated enjoying its highest profits since the financial crash 14 years ago. Solomon wasn’t alone. JPMorgan Chase CFO Jeremy Barnum noted that 2020 and 2021, the peak of the pandemic, were “record years.” The Reuters report quoted an analyst at the investment banking and asset management firm JMP Securities, Devin Ryan, who said, “The bar from 2020 and 2021 is quite high.” The attitudes of the bankers cited in the piece make it clear: capitalism is a death cult. While millions of people died in a historic global pandemic, capitalist oligarchs orchestrated a massive upward transfer of wealth. “The world’s ten richest men more than doubled their fortunes from $700 billion to $1.5 trillion —at a rate of $15,000 per second or $1.3 billion a day— during the first two years of a pandemic that has seen the incomes of 99 percent of humanity fall and over 160 million more people forced into poverty,” Oxfam reported. Capitalist oligarchs made have made $5 trillion during the pandemic, “the biggest surge in billionaire wealth since records began,” Oxfam said. The humanitarian organization calculated that inequality contributes to the death of at least 21,000 people every day — one person every four seconds. While the right wing has hysterically warned of “Covid authoritarianism” and an impending “biomedical state” supposedly on the horizon, the reality is that the United States is already largely the libertarian dystopia that the Koch Brothers and their fellow capitalist oligarch brethren have dreamt of (and invested a whole lot of money in creating). The ruling ideology of the United States is every man for himself, dog eat dog. This is reflected so clearly in the US government’s response to the largest global health crisis in a century. This laissez-faire strategy has been bipartisan. Under both Donald Trump and Joe Biden, the US federal government has essentially done nothing substantive, leaving each state to decide its own fate. The Biden White House made that clear, telling people they’re on their own. And the US Department of Health and Human Services has told hospitals that, as of February 2, they no longer even have to report daily Covid-19 deaths to the federal government. 850,000 people in the US have died from Covid-19, and in a few months it's likely to surpass 1 million. So what is the US government's strategy to stop those deaths? Simple: tell hospitals they can stop reporting Covid deaths. Don't want to reach 1M? Just stop counting! Murica! https://t.co/qRltNp9Eih — Benjamin Norton (@BenjaminNorton) January 15, 2022 Biden claimed he would reverse Trump’s inaction, but his administration has just sat by as 2,000 to 3,000 North Americans perish per day due to Covid-19. On January 18, 2022 alone, 2,990 people in the US died of the virus. The disastrous consequences of this libertarian approach are clear for the world to see: at least 854,000 Covid-19 deaths in the United States, according to official statistics. This is a breathtaking level of human loss — surpassed only by the barbarism of Jair Bolsonaro’s far-right regime in Brazil, which has overseen 622,000 Covid-19 deaths in a population of 213 million. (If Brazil had implemented the same policies, or lack thereof, with the population of the United States, 335 million, it would have 978,000 Covid-19 deaths.) Meanwhile, in the mainland People’s Republic of China, with a population of 1.4 billion, there have been fewer than 5,000 deaths. In 2021, there were just two Covid-19 deaths in mainland China. Two. If the United States had the same population of China, we would be talking about 3.6 million dead from Covid-19. But then again, China’s biggest banks are state owned — and it is the Chinese government that controls the financial sector, not the banks that control the state, like they do in the United States. So it’s difficult for elites in China to make a killing like bankers do in the US “democracy.” To someone who lives under U.S. capitalism, a medical system that can successfully curb a pandemic like COVID-19 may seem like fantasy. What did the people, government, and Communist Party of China do to accomplish this incredible result?https://t.co/ohtnJyCygu — Party for Socialism and Liberation (@pslweb) January 7, 2022

Write an article about: US ‘neo-imperialist’ dollar scheme explained by economist Yanis Varoufakis. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

capitalism, dollar, imperialism, neoliberalism, Yanis Varoufakis

Greece’s former Finance Minister Yanis Varoufakis explains the US system of “neo-imperialism” based on the dollar, an “IOU issued by the hegemon”, which finances a huge trade deficit by letting foreign capitalists “extract colossal surplus value from their workers and then stash it away in America’s rentier economy”. Economist and former Greek Finance Minister Yanis Varoufakis said in a speech this January that the United States is leading a “new, audacious imperialism”, which he calls “neo-imperialism”. “Neo-imperialism’s highest form” is “globalization, financialized capitalist globalization”, Varoufakis added, stressing that this system is based on the dominance of the US dollar. When President Richard Nixon ended the convertibility of the dollar into gold in 1971, it became merely an “IOU issued by the hegemon”, Varoufakis explained. This dollar “IOU” financed the United States’ huge trade deficit by letting foreign capitalists “extract colossal surplus value from their workers and then stash it away in America’s rentier economy”. The US trade deficit became a “huge vacuum cleaner” that “was sucking into America the net exports of Germany, Japan, and China, Varoufakis continued. But deficit countries in the Global South “had to borrow from Wall Street to import medicines, energy, and the raw materials necessary to produce their own exports for earning the dollars with which to repay Wall Street”. When Global South countries could no longer pay their debts to the bondholders on Wall Street, “the West sent in the bailiffs, the International Monetary Fund”, which imposed mass privatizations and neoliberal economic policies, Varoufakis pointed out. Economist Michael Hudson first exposed this system back in 1972, in his book “Super Imperialism: The Economic Strategy of American Empire”. (Hudson published an updated, third edition in 2021.) Varoufakis provided his analysis of the US dollar hegemony scheme in a speech he delivered in Cuba in January 2023, at the “International Conference for the Balance of the World”, a meeting organized to advocate for the New International Economic Order. In his remarks, Varoufakis also condemned the new cold war, and called for a new non-aligned movement. At the same conference, a German member of parliament from Die Linke (the Left Party), Sevim Dagdelen, denounced the NATO proxy war in Ukraine and warned that European Union members states have become “servile vassals” that are “pursuing the interests of US corporations and following foreign policy instructions from Washington”. An extended excerpt from Yanis Varoufakis’ speech follows below: Why did the original Non-Aligned Movement fall prey to neo-imperialism’s highest form, which is of course globalization, financialized capitalist globalization? The short answer is because capitalists, in practice, proved better internationalists than we were. Because they understood the nature of neo-imperialism better than we did, and that’s why they won. What did they understand better than we did? They understood better than we did the new, audacious imperialism that was born in 1971, when Bretton Woods collapsed, and the United States dollar was no longer convertible to gold, prompting [President] Richard Nixon to send a message to Europeans, European governments, and the world’s capitalists, saying: “The dollar, as of today, is your problem”. And how right Nixon was. As the American – the US, I shouldn’t say American – as the US deficit skyrocketed, the world was flooded with American dollars. And the banks, the central banks outside the United States, were forced to use these American dollars, since they could not be converted to gold anymore, as the reserves with which they backed their own currency. The dollar suddenly became something like an IOU issued by the hegemon. Before long, the global financial system was backed by IOUs issued by a hegemon who decided what foreigners holding those IOUs could do or couldn’t do with the IOUs issued by the hegemon. America was now a fully fledged deficit country, with a big trade deficit. But it was nothing like any other deficit country in the world. You see, Argentina, France, India, Greece needed to borrow dollars. America didn’t need to borrow dollars to back up its currency. It didn’t need to raise interests rates in order to prevent an exodus of dollars. The exodus of dollars was the foundation of American hegemony. Capitalists in surplus countries – countries like Japan, Germany, and later of course China – saw the American trade deficit as a great savior. It was a huge vacuum cleaner, the American trade deficit, that was sucking into America the net exports of Germany, Japan, and China. And what did the Japanese, German, and later Chinese capitalists do with all these dollars that they earned? They sent them back to the United States – they couldn’t do anything else with them – to buy property in the United States, American government bonds, and a few companies that the American government allowed them to buy – not Boeing, not Microsoft, none of the crucial ones. Meanwhile, the deficit countries in the Global South, in Asia, in Latin America, they constantly agonized over a shortage of dollars, which they had to borrow from Wall Street to import medicines, energy, and the raw materials necessary to produce their own exports for earning the dollars with which to repay Wall Street. Inevitably, every now and then, as you all know, the Global South deficit nations ran out of dollars and could not repay Wall Street. That is when the West sent in the bailiffs, the International Monetary Fund, that lent the dollars on condition that the debtor government handed over the country’s land, water, ports, airports, electricity, telephone networks, even its schools and hospitals to the local [oligarchs] and to the international oligarchs, who grabbed this treasure, took rents – and what did they do with the rents? Sent them to American rentier capitalism, to invest them. Washington, comrades, had found the magic formula that no other empire had discovered before, of how to make wealthy foreigners, and wealthy governments, and poor governments, and the poor of the world finance the American government and the net imports of the American economy. A Chinese official once described to me globalization as something that was founded on a “dark deal” – that’s how the Chinese official put it to me: a dark deal. Why did he call it dark? Because it was founded on a dark, unspoken, implicit pact between America’s ruling class and foreign capitalists and rentiers. Let me put it slightly differently: Suppose you could end American hegemony today. There is a button here; you can press it and end US hegemony. Who would stop you form pressing it? OK, the US authorities, the military, the CIA, Wall Street, Silicon Valley, they would try to stop you pressing this button. But they are not alone! A crowd of non-Americans would stop you from pressing it, including German industrialists, Saudi sheiks, Greek oligarchs, European bankers, and, yes, Chinese capitalists. In other words, the supremacy of the dollar has been just as functional to the interests of US rentier capitalism as it was to German, Argentinian, Nigerian, Korean, and Chinese capitalists. Without the dollar’s and America’s global dominance, Chinese, Japanese, Korean, or German capitalists would not have been able continually to extract colossal surplus value from their workers and then stash it away in America’s rentier economy. Meanwhile, Argentinian, Greek, Russian, Ukrainian, and Indian oligarchs would not be able to loot our countries, take their public assets, liquidate them, and turn them into property rights in the United States. Yanis Varoufakis briefly served as Greek’s finance minister in 2015, when the leftist Syriza party was voted into power. Following the 2008 financial crash, Greece had been trapped in unpayable debt denominated in foreign currencies. To try to negotiate debt relief, Varoufakis led negotiations with the European Commission, European Central Bank, and International Monetary Fund (IMF), known collectively as the “Troika”. The Troika demanded brutal austerity measures and neoliberal economic reforms that Varoufakis said would make it impossible for Greece to repay the debt. He rejected the Troika’s proposal as a “New Versailles Treaty” and “coup” that amounted to a “complete annulment of national sovereignty”. He condemned it as “Greece’s Terms of Surrender” and said it would make his country into a “vassal of the Eurogroup”. Varoufakis then resigned from his position in protest. Since then, he has founded a leftist political movement, DiEM25, and party, MeRA25. He has also campaigned for the release of imprisoned WikiLeaks journalist Julian Assange. After speaking at the conference in Cuba, Varoufakis traveled to Mexico, where he met with progressive President Andrés Manuel López Obrador. “Wonderful meeting with Mexico’s inspiring President. I thanked him for his steadfast support of our campaign to Free Julian Assange. We also discussed how the New Cold War begets an urgent need for a New Non-Aligned Movement & a New International Economic Order”, Varoufakis tweeted. Wonderful meeting with Mexico’s inspiring President. I thanked him for his steadfast support of our campaign to Free Julian Assange. We also discussed how the New Cold War begets an urgent need for a New Non-Aligned Movement & a New International Economic Order pic.twitter.com/ptLcQsgWHM — Yanis Varoufakis (@yanisvaroufakis) January 31, 2023

Write an article about: BRICS bloc is adding members, planning new currency to challenge US dollar. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Brazil, BRICS, dollar, G7, India, Ma Zhaoxu, S Jaishankar, South Africa, Venezuela

Foreign ministers from BRICS (Brazil, Russia, India, China, and South Africa) met to discuss expanding the Global South-led bloc and creating a new global reserve currency to challenge the US dollar. (Se puede leer esta nota en español aquí.) The BRICS bloc of Brazil, Russia, India, China, and South Africa is expanding, as its members grow in economic and political influence. Together, the five BRICS members represent more than 40% of the global population, and their share of the world economy (when measured in purchasing power parity) is larger than that of the G7. The foreign ministers of the BRICS states met in South Africa on June 1 and 2. There, they discussed a series of issues, including plans to create a new global reserve currency to challenge the dominance of the US dollar. Also present at the meeting in South Africa was a group of top diplomats from countries described as “friends of BRICS”, including Egypt, Iran, Kazakhstan, Saudi Arabia, and the United Arab Emirates. More than 20 countries have expressed interest in joining BRICS. At least 13 nations have formally applied. South Africa’s ambassador to BRICS commented, “We are getting applications to join every day”. Prospective future members include Algeria, Argentina, Bahrain, Belarus, Egypt, Indonesia, Iran, Nigeria, Saudi Arabia, Türkiye, and the UAE. #BRICSza | Friends of #BRICS Foreign Ministers Meeting.Friday, 02 June 2023.?: Jacoline Schoonees/DIRCO@DIRCO_ZA @UbuntuRadioZA @anil_sooklal @BENNJoubert @ItamaratyGovBr @EmbassyofRussia @IndianDiplomacy @ForeignChinese pic.twitter.com/h9pk3KosmB — BRICSza (@BRICSza) June 2, 2023 In a summit of South American leaders in Brazil in May, President Lula da Silva revealed that he also supports Venezuela joining BRICS. At the June foreign ministers meeting, Bloomberg reported, “BRICS nations asked the bloc’s specially created bank to provide guidance on a how a potential new shared currency might work, including how it could shield other member countries from the impact of sanctions such as those imposed on Russia”. “The use of alternative currencies was among the prominent talking points” at the meeting, Bloomberg noted. South Africa’s foreign minister, Naledi Pandor, explained at a press conference that BRICS members want to “ensure that we do not become victims to sanctions that have secondary effects on countries that have no involvement in issues that have led to those unilateral sanctions”. #BRICSza | The BRICS Foreign Ministers’ Meeting. Minister Naledi Pandor with her counterparts. From L-R: • Vice Minister MA Zhaoxu (China)• Minister Mauro Vieira (Brazil)• Minister Sergey Lavrov (Russia)• Minister Subrahmanyam Jaishankar (India)#BRICS ?? ?? ?? ???? pic.twitter.com/8PisQGdn6K — BRICSza (@BRICSza) June 1, 2023 Reuters acknowledged that the BRICS “ministers sought to focus attention on their ambition to build up their influence in a multi-polar world”. India’s Foreign Minister S. Jaishankar, Reuters wrote, “spoke of the concentration of economic power which he said ‘leaves too many nations at the mercy of too few’, and of the need to reform global decision-making including by the United Nations Security Council”. China’s Vice Minister Ma Zhaoxu welcomed the idea of expanding BRICS. In a clear criticism aimed at the Western-dominated G7, he said that BRICS “was inclusive … in sharp contrast to some countries’ small circle, and so I believe the enlargement of BRICS will be beneficial to the BRICS countries”. Today, BRICS members make up close to one-third of global GDP, when measured with purchasing power parity (PPP), and their economic weight is steadily growing. An Emerging Market Century? The BRICS are a larger share of the Global economy than the G7. pic.twitter.com/AyEIx2TwTO — Richard Dias (@RichardDias_CFA) March 9, 2023 The share of the world economy represented by the G7 bloc of the United States, Canada, Britain, France, Germany, Italy, and Japan, on the other hand, has been gradually decreasing. In 1995, the G7 economies made up roughly 45% of global GDP (PPP), with the BRICS nations at around 16%. As of October 2022, the BRICS economies represented 31.5% of the world’s economy, against just 30.7% for the G7. China accounts for the majority of the BRICS’ substantial economic weight. According to World Bank data, the BRICS bloc had a combined GDP (PPP) of $46.62 trillion as of 2021. China made up 59% ($27.31 trillion) of the total BRICS economy, compared to 22% ($10.19 trillion) for India, 10% ($4.81 trillion) for Russia, 7% ($3.44 trillion) for Brazil, and 2% ($868.58 billion) for South Africa. However, the large share of the BRICS economy represented by China and to a lesser extent India is partially a reflection of their massive populations, with more than 1.4 billion people in each country, compared to 219 million in Brazil, 142 million in Russia, and 58 million in South Africa. When GDP (PPP) is measured per capita, Russia has the highest level in the BRICS, at roughly $33,000 as of 2021, following by China at $19,338, Brazil at $16,031, South Africa at $14,624, and India at $7,242. Beijing’s newspaper China Daily stressed how the rise of the BRICS is a significant “challenge to US dollar dominance”. “In an economic development that hasn’t received much attention in the Western media, the GDP of the BRICS nations has surpassed that of the G7. That news, coupled with plans by the BRICS (Brazil, Russia, India, China and South Africa) nations to create their own currency later this year presents a challenge to the US dollar as the world’s primary reserve currency”, China Daily wrote in April. The heads of state of BRICS members plan on meeting at a summit in August in South Africa. There are, however, reports that Pretoria may ask another country to host the meeting, because Western countries are pressuring South African officials to arrest Russian President Vladimir Putin.

Write an article about: China is ‘world’s sole manufacturing superpower’, with 35% of global output. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

CEPR, China, de-industrialization, industrialization, manufacturing, Richard Baldwin

China’s state-led economic development model and robust industrial policy has transformed it into what an influential European think tank calls “the world’s sole manufacturing superpower”, making up 35% of global gross production – more than the 9 next largest manufacturers combined. China has overseen world-historic economic growth through a government-led development model, in which state-owned enterprises control the natural monopolies and “commanding heights” of the economy, state-owned banks give favorable loans to strategic industries, and the state’s robust industrial policy helps the country move up the value chain toward higher value-added forms of production. This model, which Beijing officially refers to as a socialist market economy, has been so successful that a prominent European think tank has acknowledged that “China is now the world’s sole manufacturing superpower”. In 2020, China made up a staggering 35% of global gross manufacturing production. That is more than the combined output of the United States (12%), Japan (6%), Germany (4%), India (3%), South Korea (3%), Italy (2%), France (2%), and the United Kingdom. This is according to the research of Richard Baldwin, a professor of international economics at the IMD Business School in Lausanne, Switzerland, and the editor-in-chief of VoxEU, a publication hosted by the Europe-based Centre for Economic Policy Research, or CEPR (not to be confused with the Washington-based Center for Economic and Policy Research, which uses the same acronym). CEPR is very influential in European policy-making circles, and receives funding from France’s central bank and Finance Ministry, as well as the European Central Bank, International Monetary Fund, and numerous private banks in Europe. The think tank represents the political mainstream in the EU, and is by no means a “pro-Chinese” institution. In a January VoxEU research paper titled “China is the world’s sole manufacturing superpower“, Baldwin wrote (emphasis added): The US is the world’s sole military superpower. It spends more on its military than the ten next highest spending countries combined. China is now the world’s sole manufacturing superpower. Its production exceeds that of the nine next largest manufacturers combined. Baldwin explained that, even when output is measured at value added (that is, gross production minus the cost of intermediate goods bought to produce those manufactures), China makes up 29% of global manufacturing, compared to just 16% for the United States, 7% for Japan, 5% for Germany, 3% for South Korea, 3% for India, 2% for Italy, 2% for France, and 2% for Great Britain. Baldwin wrote (emphasis added): China’s industrialisation is unprecedented. The last time the ‘king of the manufacturing hill’ got knocked off the throne was when the US surpassed the UK just before WW1. It took the US the better part of a century to rise to the top; the China-US switch took about 15 or 20 years. China’s industrialisation, in short, defies comparison. He added that this “remarkable fact helps us to understand current US-China trade tensions”. China’s rapid industrialization through a state-led development model has coincided with the United States’ relative de-industrialization through a neoliberal economic model based on privatization, liberalization, deregulation, financialization, and unproductive speculation. Seeking to halt China’s rise, the US government has levied many rounds of unilateral sanctions and waged what Washington insiders have referred to as a “technology war” against China, imposing export restrictions in cutting-edge sectors like 5G, semiconductors, quantum computing, and artificial intelligence. Western governments have pledged to “decouple” from the Chinese economy and “derisk” strategically important industries. However, in his CEPR research paper, Baldwin emphasized that the US is much more dependent on buying Chinese manufactured goods than China is dependent on the US market to sell its exports. “In 2020, the US was about three times more exposed to Chinese manufacturing production than vice versa”, Baldwin wrote. He added that “the numbers are astounding”. Baldwin cautioned, “Politicians may wish to decouple their economies from China. These data suggest that decoupling would be difficult, slow, expensive, and disruptive – especially to G7 manufacturers”.

Write an article about: Imperialism: How the struggle of both classes and nations creates our world. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

BRICS, capitalism, colonialism, economics, Geopolitical Economy Hour, imperialism, Michael Hudson, neoliberalism, Radhika Desai

Political economists Radhika Desai and Michael Hudson explain how imperialism is a product not only of the struggle between classes but also nations. Political economists Radhika Desai and Michael Hudson explain how imperialism is a product not only of the struggle between classes but also nations, and how the framework of geopolitical economy helps us understand the international relations of the capitalist world system. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to the 16th Geopolitical Economy Hour, the fortnightly show in which we discuss the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And we are recording this show on the last day [24 August] of what may well be remembered as a historic BRICS summit, defying no end of gleeful predictions in the Western press about the BRICS’ irrelevance, disunity, mendaciousness, authoritarianism, and whatnot. The five major countries that today constitute the BRICS, despite their relative poverty, constitute a larger proportion of the world economy, measured by PPPs, that is to say purchasing power parity. And they have been able to come together and do some amazing things. The Western media, for example, has been trying to drive a wedge between China and Russia on the one hand, who are said to be eager to expand the BRICS, and India and Brazil and South Africa on the other, who are said to be reluctant to do so. But despite all the predictions about the disunity and the fracas that would ensue with China having placed the inclusion of new members of the BRICS on the agenda, the fact of the matter is that the BRICS meeting has closed today, the BRICS summit in Johannesburg has closed today with the inclusion of six new members. So that’s Saudi Arabia, the United Arab Emirates, Iran, Ethiopia, Egypt, and Argentina. Given the large number of West Asian and North African members here, we can begin to wonder what this is going to do to U.S. influence in what’s generally called the Middle East. The BRICS countries have not only admitted these new members, but they have also agreed to set down the rules and procedures by which a large number of new members will be inducted, because as you know, dozens of other countries have expressed an interest in the BRICS. So it’s quite possible that the BRICS may well become the institutional foundation of the world majority, as the global South and Russia are increasingly being called. They have done more things. The Western press has also sought to portray these countries, the BRICS countries, as little more than a bunch of autocracies or very iffy democracies. But in fact, despite such propaganda, what we’ve seen in the BRICS summit is that they have been focused on presenting a very different vision of the world order, one based on development, on people-centered development. And this has been expressed in a direct confrontation with the Western conception of the world order, which has, of course, been dressed up in the garb of human rights and democracy, but for decades has brought only poverty and exploitation to much of the world. MICHAEL HUDSON: Well, in many ways, this was a preliminary meeting just to set the stage for what’s going to come. And at this stage, I think all the BRICS can do is to make arrangements among themselves. And the easiest thing to do, as we’ve discussed before, is to trade in their own currencies and to arrange currency swaps before trying to create a new kind of bancor other means of credit financing. But the real problem is going to be the relationship between the BRICS and the West. How can they create a new international order that we’ve been discussing while they have to pay all of the neocolonial burden of their foreign dollar debt and the foreign ownership of their oil and mining rights and public utilities? How can they enforce climate cleanup costs on foreign oil and mining pollution? The current international law says that the companies have a right to sue any government for a new tax on multinational firms or new regulations. And so it means the government has to pay all of the cleanup costs, all of the external diseconomies. And essentially, they’re put into an even worse locked-in position today than they were in the colonial period. So how can they defend themselves from this kind of US-sponsored order and the regime change for countries that try to create an alternative to it? All that’s going to have to wait for the future BRICS meetings. And we really can’t even begin to discuss that now. We’ve discussed what we thought in earlier episodes of this. RADHIKA DESAI: Absolutely, Michael. I mean, the kinds of problems you’re talking about, I mean, the BRICS agenda is really a very, very big and tall one. So all we can expect at the moment is that the BRICS have only made a beginning, but a beginning they definitely have made. Like you say, you’re talking about the international monetary system and the financial arrangements. And the fact of the matter is that, again, the Western press was sort of brimming with stories about how difficult, if not impossible, it would be for the BRICS to do anything that would dent the position of the dollar. But as you know, de-dollarization is not only ongoing, but the BRICS are very aware of the need to carry it forward. And this meeting, the summit has also closed with an agreement to set up a commission to discuss exactly what steps the BRICS countries may realistically take to begin to disentangle itself as an organization, as a grouping of countries from the tentacles of the dollar system, which have proven so adverse to their interests. In addition, the BRICS countries have also put forward a peace plan for Ukraine, once again, emphasizing the need to negotiate. And this could not form a starker contrast to the West and the manner in which it has continued fueling a conflict for its own completely short-term interests and the short-term interests of their corporations. So in all of these ways, the fact of the matter is that the BRICS summit are presenting an alternative, an alternative that’s not just about the institutional arrangements and the technicalities, but it is an alternative vision of the world order. On the one side, you have imperialism and economic subordination, which is what the West is offering. And on the other side, you have a world order which is based on cooperation, on peace, and above all, on development. So as we were watching all this, Michael and I thought what we should really do is we should take a deep dive into the basics of what we are doing, into the basics of geopolitical economy, into the basics of our perspective, which in fact is very different from what is on offer in the mainstream media and even in many sections of the left, which is going to also, however, be going to also allow you to sort of see through the smoke and mirrors created by the dominant approaches. So the term geopolitical economy, as we see it, encompasses political economy, that is to say an understanding of the domestic structures of a society, economy, and polity altogether, as well as the manner in which these domestic structures determine how every country relates to other societies in a pattern of international relationships because it’s what a country is like inside that determines how it relates to countries outside. That’s why it’s important to distinguish, for example, between the foreign policies of imperialist powers, such as the United States or Britain or France, from the foreign policies of other powers, whether it’s China or even some powers, say like India or Brazil, which are not exactly socialist, but nevertheless, they do not have the same imperial background. So we see international relationships as being rooted in domestic relationships. And the term geopolitical economy is therefore not just about the international, but equally refers to the domestic, not just about nations, but also about classes. MICHAEL HUDSON: Well, the reason for all of this that Radhika and I have been discussing is that all economies today are facing similar financial problems, especially the linkage between bank credit and housing debt, problems of local financing, public financing, because states and provinces can’t create their own money and credit in the way that a national government can do. So these domestic problems interact with the international economy. And that’s what we want to focus on today. At present, that means interacting with the US-centered dollarized neoliberal economy, which is subject to rules set by the International Monetary Fund and the US State Department. And we’re going to focus on how these domestic problems interact with the way in which the global economy is structured. And that analysis is going to explain why a new international economic order is needed to prevent the global majority from having to go down the same financialized, debt-burdened economic polarization that has pushed the United States and the European economies into the post-industrial stagnation that they’re now in. RADHIKA DESAI: Absolutely. In one sense, you know, one of the things, Michael, that what you’re saying reminds me of is that we talk about the world splitting into two camps. On the one hand, the camp of the old imperialist powers, and on the other hand, the camp of the world majority. But these camps are not just essentially the same thing, just pitted against one another. On the contrary, they represent qualitatively different models of economic development. And key in this difference is, of course, that the world majority is increasingly beginning to reject the model of neoliberal, financialized capitalism. And this has been one of the key objects of our debate. So what we want to do is essentially, I suppose what we are saying about geopolitical economy is it’s really just a sound materialist and historical way of trying to understand that the world is structured into a hierarchy of nations, a hierarchy originally created with the beginnings of capitalism and the imperialism that went along with it. So how the world is structured in a hierarchy, but also how this hierarchy reflects the internal class relations of each country. So what we’re gonna do in this show is we want to set up exactly the main ways in which our perspective differs from what other people’s perspectives, the mainstream as well as certain left-wing ones. And the best way to do it was we thought of some dozen principle ways in which our perspective differs. So we thought we would just go through them, so one by one. So the first one is the way we think about things, we don’t think that some nations are irrelevant, only classes matter or what have you, or that classes don’t matter, only nations matter. We put both nation and class into a single perspective. Don’t you think so, Michael? MICHAEL HUDSON: Well, there’s been a whole shift in the way people are thinking. Back in the 1960s, when I was talking to liberals and to the left-wing and Marxists, they opposed nationalism. They were just coming out of World War II when they thought the lesson of World War II was if you have nationalism, you’re going to have rivalries and that they’re going to go to war, like Germany did and like the European countries did, England in World War I, and they thought the solution was going to be an international order where everybody will be one happy family, as if getting rid of nationalism would cure the rivalries. And what nobody really anticipated so clearly was that there has been an internationalism, but it’s been a unipolar internationalism that is leading to war, is the United States has basically declared war on the whole rest of the world with 800 military bases, interfering with one country after another. And it’s been waging war almost the entire time since 1945, or at least since 1950, maybe a few years it hasn’t been at war. So the fact is that today’s internationalism and globalization is a war economy. And the military spending by the United States has forced other countries to divert a lot of their economic surplus and government revenue towards military defense, instead of putting in place the infrastructure that they’d all been expected to do after World War II. And they’ve also become very dependent on trade in oil, in food, monopolized technology, computer chips, pharmaceuticals that are controlled by the United States as an economic weapon to replace the overt military colonialism of Europe with a financial and international investment colonialism, all that’s backed by an enormous amount of military spending. So normally we would say that what’s happened in the world is reflecting national self-interest. And that’s what everybody expected after World War II. They thought that, well, economic self-interest is going to determine the shape of the world. But what American neocons imagine is a policy that serves their self-interest turns out to have led to de-industrializing the United States economy. Because the US self-interest is to reduce its living standards, to cut back wage levels, to polarize the economy, and to define America’s self-interest as transferring as much money as possible into the wealthiest 10%. So instead of the US self-interest being the self-interest of the 99% labor, it’s a self-interest of the financial class. And that has determined the international policy that led to inviting China into the World Trade Organization to essentially use inexpensive Chinese labor as a fight against the US living standards. There is a class element in all of this. Bill Clinton started it all with his anti-labor moves and that linkage between international interest that sort of conceals the class interest. And the question for the BRICS is going to be, what is your national self-interest as it affects the class interests? RADHIKA DESAI: Michael, you’re quite right to go back to the post-second World War period because in a certain sense, what you see happening in the post-second World War period, the reason why, for example, nationalism gets such short shrift, particularly in the Western discourse, is that that’s the moment at which essentially the United States, in the interest of its own empire building, is trying to discredit nations. It’s trying to say that everybody should join in its own cosmopolitan vision of a single world order in which nation states sort of step back. They don’t intervene in economies anymore, which allows the most powerful nation state, namely the United States, push the interests of its corporations without any restriction from other countries. Of course, the United States did not get what it wanted, but the discursive discrediting of nationalism had to do very much with that. And of course, the fact that there had been two world wars in the recent past helped the case that the U.S. was trying to make. Of course, the two world wars were not just caused, they were not just caused by nation states. They were also fought by nation, those nation states were also fought by other nation states. So there were nation states on both sides. So, but nevertheless, somehow the United States tried to equate nationalism with Nazism and that sort of thing. But in reality, there was another fact of that moment in history that would not allow nations to go away. And that was the decolonization of the countries that had been colonized by the various European powers. So this decolonization essentially put a positive spin on nationalism because what these newly independent countries were going to do was they were going to essentially have left leaning, socialistic forms of development in which the state, representing the vast majority of the people, many of whom, the vast masses that had fought for independence and so on. The state representing the interests of these people would try to fashion a form of development that would serve the interests of the whole community. So it’s not just that, say, for example, that China or Vietnam became communist, but also countries like India or Mexico or Brazil or what have you were all pursuing forms of many African countries. They were consciously pursuing forms of development that was supposed to be in the interest of the vast majority of the people. So in that sense, there was both a certain type of cosmopolitanism, which was in the service of the continuation of imperialism in a new form, what Kwame Nkrumah called neocolonialism, was standing side by side with the positive interpretation of nations and nationalism. MICHAEL HUDSON: Well, the U.S. sponsored kind of internationalism really is finance capitalism. And nationalism tends to be industrial, because you want to build up your independence. You want to be self-sufficient in food. You want to be self-sufficient in basic essentials. And you need governments to take control, basically to provide the public infrastructure, the natural monopolies, communications and health care and education. You want to build up your productivity by technology, and often this requires protective tariffs and capital controls and subsidies to new capital investment, research and development. And that involves the government lowering the cost of production and the cost of living by providing basic needs. And finance is not really a class. Somehow finance is not a class in Marx’s sense, because it’s external to the economy of production and consumption. And all classes, everybody’s a saver and a debtor. All labor is financialized, just as the industry is financialized. And the infrastructure has been financialized instead of socialized, as people had expected in the 19th century. So in that sense, finance works from outside of the economy, including the international economy. And Marx explained in Volume 3, the dynamics of finance and its debt creation are mathematical and external to the dynamics of the real economy of production and consumption. So what’s unique today, and this was not anticipated in World War II, is that finance can actually replace industrial capital as the main resource allocator, the main central planner, away from government. And the problem with all this, of course, is that finance capitalism tends to minimize the role of government. So as to replace it and to shift economic planning into its own hand, Wall Street and other financial centers, and its means of control are via international financial organizations like the IMF, the World Bank, the SWIFT system, the Bank for International Settlements, and even the International Criminal Court that criminalizes any attempt to withdraw from this financial system. RADHIKA DESAI: Right, and so one of the things that, you know, in trying to talk about nations as well as classes, domestic as well as international, that we often run up against is this idea that somehow Marx thought that, you know, capitalism was inherently internationalist and sort of worldwide, cosmopolitan, shall we say, global, shall we say. And of course, socialism should be that way. So nations are to be completely, you know, they’re sort of a regressive atavistic thing which we should try to suppress as much as possible. But this, in fact, is not true. You know, what, Michael, you were saying about how it is necessary for the state to play a major role in development, Marx understood that very well. So there is this very important saying, you know, Marx is supposed to have come down in favor of free trade in the debates on Corn Laws, but it was a very conditional type of kind of endorsement of free trade because Marx thought that, you know, if free trade hastens the development of capitalism, then maybe we should have free trade. But in the same set of writings in which he endorsed free trade, he also pointed out the following. And this is where it’s a quote, “If free traders cannot understand how one nation can grow rich at the expense of another, we need not wonder. These same gentlemen also refuse to understand how one class can enrich itself at the expense of another.” So this is a very clear placing of class and nation together in the same frame. One classes exploit other classes and nations exploit other classes. So it reveals that Marx is very aware of the structures of imperialism. And equally, as we’ve talked about many times, Marx was also very aware that in order to develop, states must play a major role. They must implement tariffs to protect their infant industries from competition against which they are not yet able to stand up. They must create the credit conditions and the financial conditions for the expansion of productive enterprises and so on. So already for the development of capitalism itself, the conditions that are required so require state intervention that any notion that there is such a thing as free market capitalism, etc., goes out the window. And of course, the other thing that geopolitical economy also points out is the reason why even in capitalist countries, states always must play a central role is because capitalism is inherently contradictory and you cannot have a capitalism, you know, continue for any length of time without the state playing a major stabilizing role. So that is why with the development of capitalism, you don’t just get the development of classes, you also get the division of the world into the modern nation state system. So class exploitation occurs, but so does national exploitation, because essentially the early developers, the early capitalist developers inevitably also become imperialist because the capitalisms are contradictory. They try to subordinate other territories, which then, that subordination helps them to deal with the contradictions of their capitalism, whether it is to find outlets for excess commodities and capital or to acquire cheap labor and cheap raw materials, which capitalism needs evermore as it expands. And so finally, what this also shows is that because capitalism prompts imperialism, nationally focused development becomes the essential prerequisite of any form of development for many countries, which is why quite early in the history of capitalism, we’re looking at the early 20th century, so really about a century or a century and a half from the beginnings of industrial capitalism, you already have the appearance of the first socialist challenge to capitalism in the form of the Russian Revolution. So in that sense, these are countries that are essentially saying we cannot have subordination to to imperialist, capitalist, imperialist countries. We do not have any prospect of developing capitalism. So we are going to develop on a socialist path already. MICHAEL HUDSON: Well, if you recognize the reality of imperialism, this implies an entire different body of economic theory. And I had to begin teaching economic theory in 1969 at the New School, and I really hadn’t studied it all the way through my graduate courses because most universities found it just too silly to teach. The free trade theory assumes that everybody gains from trade and that all trade is voluntary and it’s all a choice free market and that an absence of tariffs is going to make economies more equal and more competitive. And that’s just the opposite of how the world economy actually works, because the real effect of free trade is that the dominant countries all became dominant by protecting their industry. First, Britain and then the United States and Germany in the 19th century were highly protectionist. And once they had government subsidized industry, they then told other countries, don’t do what we did. Don’t have government protection. Just buy in the cheapest place. We will give you food and industry and everything that you need much cheaper because we already have the capital in place and you don’t. And the result is that there was a polarization of the economy. I describe all of this in my book, Trade Development and Foreign Debt, which is a history of basically not only free trade theory, but how it was controverted again and again by British, German and American economists. All of that is now expurgated from the classical curriculum. And the real result of free trade is when countries are forced into a trade deficit, their currency is going to decline and then they have to go to the International Monetary Fund that comes in and it imposes austerity and specifically anti-labor policies. The IMF’s role is to aim at what Bill Clinton aimed at when he invited China into the World Trade Organization. You want to keep a pool of labor, what Marx called the reserve army of the unemployed, not in the United States, but in the non-industrialized countries that basically are kept devaluing the price of labor throughout the world. And that turns the phenomenon of U.S. centered imperialism into a global class war. RADHIKA DESAI: Right, Michael, so shall we go on to the next point we want to make, which is that we should, that geopolitical economy permits us to understand class and national exploitation together, just as we put class and nation together in the same frame, we also put class and national exploitation in the same frame. And this is exactly so. You have class exploitation within a country that produces a certain kind of class power within a country. So at the international plane, what geopolitical economy explains is that the attempt by some powerful countries to subjugate other countries creates the structures of imperialism. So you have to understand the two together and both forms of exploitation, that is to say, class exploitation and the exploitation of other nations, produce contradictions because capital essentially, contradictions mean that capital would like usually to have its cake and eat it too, to have something and its opposite. And it can’t always have that. So within a country, class exploitation produces a resistance from the working class. It produces crisis of underconsumption and overproduction. It produces crisis of falling rates of profit and all these things. And internationally as well, international exploitation also produces resistance to it, which is why you have, for example, the formations like the BRICS; or struggles for national independence, as we had in the early part of the 20th century; the Non-Aligned Movement; and today the BRICS. And all these institutions, they’re not perfect – they are far from adequate to what is needed – but they are steps in the direction of resisting imperialism and imperial exploitation, just as trade unions and political parties are steps towards resisting class exploitation. MICHAEL HUDSON: So our ongoing discussion of the BRICS and the U.S. sanctions and the U.S.-NATO war against Russia and China is all about what policies countries can take to liberate their economies and their governments from the U.S. attack. The U.S. called any government protection interference, as if the United States does not interfere. Any defense is called interference and a distortion of the market, as if the market is set by U.S. central planners on Wall Street and in the State Department to create a world in which the United States will suck all of the surplus from the rest of the world into its own economy, as if this is natural. And if you recognize that the essence of this unipolar U.S. strategy is finance, that that’s not necessarily military. Obviously, they’re going to grab the oil of Syria, grab illegally the oil of Iraq. But it’s by finance that they can operate much without the military overhead. Well, then this is why we focused on de-dollarization and what that means in practice, starting with the most obvious policy, simply avoiding the use of the dollar and pricing trade in their own currencies, making swaps. The question is, how are they going to go on to the next stage? That’s really going to be how it involves restructuring their domestic economy as well as the international economy. RADHIKA DESAI: Yeah. And, you know, taking imperialism seriously also, I mean, the reason why we emphasize this is that in so much of the dominant discourse, you have, imperialism is completely erased. Like, for example, I was listening to all the commentary on the BRICS in the mainstream press. And as I was listening, I thought, OK, so these people are comparing BRICS and the G7 and BRICS and the G20 as though there is no history of imperialism, as though the G7 is not, in fact, a collection of the former imperialist countries and still would-be imperialist countries that are trying to to control the world. So in so recognizing imperialism requires jettisoning all those sanitized expressions. For example, instead of talking about U.S. imperialism, people use terms like U.S. hegemony. The U.S. has never achieved anything like hegemony, as I’ve argued in geopolitical economy. But what we do have are ceaseless attempts to try to achieve that, which have been very destructive, which have caused ceaseless wars around the world and so on. You have terms like globalization. I find it so appalling that the term globalization became so popular, not just in the mainstream, but also among many who call themselves critical and even Marxist scholars. Why is that? Because they use terms like globalization or rather by using terms like globalization, what we are completely forgetting is that this is an attempt to force the rest of the world to open up to the imperialism and corporate power of the West. All the free trade and free markets is not necessarily for the West. It’s there to open up the rest of the world’s economies, the poor countries, so that they are available as markets and investment outlets, but equally importantly, as sources of cheap labor and raw materials. And for example, also the use of the term globalization also means that you have to say that from the late 20th century onwards, you got a second wave of globalization, whereas in the late 19th and early 20th century, there had been a previous wave of globalization. What are you talking about? That was not a wave of globalization. That was a wave of imperialism and the competitive imperialism that was in train at that time, that was occurring at that time, culminated in the First World War and eventually also the Second World War, because the Second World War occurred ultimately, because at the end of the First World War, the Versailles, so-called Versailles settlement, settled nothing. It simply laid the groundwork for a new war to emerge. So taking imperialism seriously involves recognizing that. It also involves recognizing that today’s discourse of human rights and democracy and so on is just the dressed up, the old discourse of the civilizing mission and the white man’s burden and so on in a new dress. So it involves recognizing and seeing right through that, which unfortunately too many people don’t do and which is why we feel we need to keep saying this. Also, the idea of the rules based international order. The fact of the matter is, and this is also quite interesting, because if you take imperialism seriously, you would recognize that the United Nations itself is the formation of the United Nations and the Charter and so on were themselves the result of the struggle of the vast masses of the people and nations of the world against imperialism, the recognition of sovereign equality, etc., even though they were compromised. But the fact that they had to be recognized in principle and only then compromised was an achievement of these groups and institutions like NATO were created precisely because the imperialist countries did not want to have to deal with the unwashed masses of the world in institutions like the United Nations. And one final point, you know, back in the day, in the early days of capitalism and well into the 20th century, the Western world, the imperialist world set a standard of civilization. They said that if a country meets the standard of civilization, which means if they are another imperialist country, then they will be dealt with, you know, with all the respect due to another sovereign country, you know, with limits on how they would be dealt with in war as well as in peace and commerce and so on. But of course, this did not include the vast majority of the countries of the world that were regarded as uncivilized against whom anything could be done. The most brutal acts of warfare, the most life-threatening sanctions and so on could be used. And this kind of thinking continues. It doesn’t take that name, but in the name of human rights and democracy, when sanctions are imposed on people, this is just a new standard of civilization being imposed. So taking imperialism seriously involves recognizing all these things. MICHAEL HUDSON: Well, I think that what neither Marx nor even Lenin anticipated after World War I was that the most problematic international disturbance was going to be not private sector debt but intergovernmental debt. And that’s what led to the, you just mentioned, the Treaty of Versailles, which really meant something radical that Europe had never experienced after any of its wars, the Napoleonic Wars and the early wars. All of the allies would forgive all of the mutual support and the cost of fighting the war together. And they expected that the United States would, there were not going to be any inter-ally debts. But the United States said, well, before we entered World War I, we let you fight it out, you know, so we could come in, send a few troops and then claim that we saved it all and you owe us a lot of money. You owe us so much money that you’re going to, you European countries are going to have to go into depression for the next 20 years. But a debt has to be paid. And the Europeans said, well, our whole Western civilization is based on the principle that all debts have to be paid. If you say we owe you the money, we’re willing to go into 20 years of depression. The silver lining is this is going to really hurt the labor force and we can hold them down and we can get even, the class war will be won in Europe and we can make Germany pay. And Germany was the number of the most potentially industrialized continental European country. Germany was the country that had the most industrialized banking system. And Europe, the Allies were just as happy to crush Germany in order to get the money for the Allies to pay the United States foreign debt. That’s what my whole Super Imperialism was about that. And I don’t need to go over it here again. But all of this role of government, not as leading to socialist development, but as the leading of finance and through government as the mode of imperialism, even more than the private sector, was completely unanticipated. Even Marx, when he gave a speech before the Chartists in the mid-19th century, said, strangely as it might seem, he endorsed free trade with India because he said the structure, the dynamics of industrial capitalism are so powerful that it’s a new mode of production and it’s going to modernize the backward countries like India, Asia, Africa, South America. He thought that somehow British trade and other capitalist countries trading with the rest of the world was going to involve replicating their system and making them industrial capitalist countries too, leading to a kind of equality that would all end up moving towards socialism ultimately. But that isn’t what happened. Instead, the trade has imposed backwardness on countries by supporting client oligarchies, supporting military dictatorships, and making them trade dependent, not independent, and most of all, preventing their governments from playing the role that governments played in the industrial capitalist takeoff in England, Germany, and the United States. This is providing basic infrastructure and natural monopolies for the private industrial sector. Well, finance capitalism has basically taken these infrastructure investments and made them all financial exercises. Nobody expected that countries would all move against what was the financial, the economic self-interest of industrial capitalism to be something as twisted as what’s actually emerged from World War I and especially World War II, and especially the Korean and Vietnam wars of the United States that led to the dollar standard. RADHIKA DESAI: Well, you know, Michael, I think you made two points about Marx and what he thought, which I find I couldn’t quite agree completely. In fact, I couldn’t quite agree. Because, first of all, you talked about how you thought that Marx thought that capitalism and imperialism were going to develop India. That is not so. In fact, if you read the pamphlet, “The Future Results of British Rule in India”, Marx ends by saying that, and not only he qualifies this by saying that the British are not doing this out of any kindness of their heart or anything, but that you and I know, I don’t think you would disagree with that. But he specifically points out that the only way in which India will really enjoy the fruits of development is if there is a socialist revolution in England or equally if India gains independence. So there is absolutely no doubt in my mind that while Marx thought that there would be some inadvertent forms of development in India, he actually, even back then, you know, in the early, late 1840s and early 1850s, Marx was very clear that national independence was a prerequisite to development for the reasons exactly that you have recognized. All I want to say is Marx recognized it too. And of course, what I’ve shown in various of my writings is that Marx actually understood very well the centrality of the role of the state in economic development. And then the second point, I think you, of course, rightly point out that Marx did not anticipate the governmentalization of finance. I mean, at one level, I agree with you, but then, you know, it’s a bit like saying that Aristotle did not imagine that there were airplanes, you know. In a certain sense, it’s really worth reflecting on that a little bit, because I think you raise some very good points. So basically if you look at what Marx, Marx’s conception was, you know, what would how would capitalism develop and why was socialism necessary and how would it come about? Essentially, what Marx is saying, if you examine this clearly and I bring this out very clearly in my latest book, Capitalism, Coronavirus and War, in a fairly long discussion about this, what Marx is basically saying is that capitalism requires competition, competition naturally results in monopoly. And once a capitalist economy reaches the monopoly phase in which most sectors of the economy are dominated by one or a small number of big corporations, at that point, society will have become ready. Capitalism will become ready for socialism. It will because it’s very simple. What he’s saying is that insofar as capitalism is historically progressive, insofar as capitalism, by dragging humanity through much mud and gore and by creating a lot of misery and anarchy, nevertheless develops the forces of production. It is because of the virtues of competition. But once competition is no longer there, there is no reason to keep capitalism. So capitalism had already reached its monopoly phase in the early part of the 20th century. And since then, essentially, humanity has been suffering the cost of keeping capitalism alive in a small number of countries, you see. MICHAEL HUDSON: Well, you’re absolutely right about what Marx said, that there had to be a revolution. But he said a revolution is what industrial capitalism is all about. He said industrial capitalism is revolutionary because in England and Europe, it’s gotten rid of feudalism. It’s the strategy of industrial capitalism is to free economies from the landlord monopoly, from the landlord class and from predatory finance. So when he said he expected capitalism to spread to the rest of the world, he meant the capitalist revolution against backwardness, the revolution against feudal monopoly and the revolution that he thought would indeed lead to socialism. So you’re right. Marx took an overall broad social view of economics and didn’t just limit economics to prices and incomes. It was a transformation of society that Marx thought was going to appear towards socialism. And that’s what has been [derailed] by World War One and everything the last century has seen. RADHIKA DESAI: We’re going to have to reserve this point for our discussions of rent, because I think that the revolution you’re talking about is already Ricardo’s point. And then Marx, of course, goes further than that. But let’s go on. So, of course, we also have already pointed out our next point, which is that our understanding is much closer to Marx, as you will have seen in our discussion we just had about the finer points of Marx. And the key point that people forget about Marx, even many so-called Marxists, is that Marx understood that capitalism was contradictory. This is often forgotten. And if it wasn’t contradictory, then we wouldn’t have to get rid of it and we wouldn’t have imperialism. But both of these things are true. The next point, then, is that we understand that capitalism is contradictory and crisis-prone. MICHAEL HUDSON: The crisis of today’s finance capitalism is not one of domestic overproduction within the production and consumption of the real economy. It’s turned out to be debt deflation. And internationally, the foreign dollar debt burden has become a kind of neocolonial leverage to impose austerity, as we’ve said, and other anti-labor policies on the non-US economy. So the kind of crises and internal contradiction that the international economy is suffering now, as it’s being polarized, is not basically what Marx talked about in Volume One. Although if you read Volume Two and Three, you can see his focus on finance. Certainly I filled that out. So let’s talk a bit about what this crisis is and the way it’s taking form today. The United States government is the world’s largest debtor, and it says, we’re the unique nation. We’re the only country that does not have to pay our foreign debt. And in fact, there’s no way that the government foreign debt, which means the bank reserves of the whole rest of the world that are kept in dollars, none of this can be repaid. It’s just they can trade it with each other, but they’re never supposed to ask to be repaid. Only the U.S. private sector and the U.S. government can ask other countries to repay their debt. That is the internal contradiction that has driven the world economy apart and is splitting it and is forcing other countries to either face permanent sort of neo-feudal dependency on the United States or to say, well, we get to develop, too. It’s not going to be just the monopoly of the European garden keeping our jungle as a jungle. So I think the basic point that we’re making is that the global majority needs public investment in infrastructure. It needs to modernize the economy and it needs to create prosperity. And that means freeing their economies from U.S. dollar debt. It’s bad debt in the sense that it can only be repaid by siphoning off their economic surplus, by forcing them into bankruptcy financially and by stifling their growth. That’s the contradiction, that the European garden can grow and the jungle cannot grow because any growth that it has is going to take the form of paying debt service to holders of U.S. dollar bonds, including their own domestic oligarchy. Most dollar debt of Argentina isn’t really owed to the United States, although it’s in dollars. It’s owed to the Argentine ruling class that holds its debt in the form of dollars. While it wrecks the Argentine economy, it’s been doing that now for an entire century. That’s why I was a little surprised to see Argentina included in the new members of the BRICS yesterday. I’m not sure exactly how you can have Argentina as a full-fledged BRICS member as long as its oligarchy supports the United States and remains in control of the government. RADHIKA DESAI: Well, that’s a very interesting point, Michael, and I would say that it’s very likely that that oligarchy itself has become considerably less powerful and it is also itself running out of options. It can no longer rely on the United States, but we will have to see. But I just want to come back to many of the points you were raising. So the point we’re making is that capitalism is contradictory and crisis prone. And one of the things you pointed out is that, you know, somehow the garden is growing and the jungle is not. But the reality is the opposite. The reason why this BRICS summit is so historic, the reason why the West is essentially so afraid of what’s going on at summits like the Johannesburg summit is precisely that the so-called garden, the European countries, the imperialist countries have been trapped in a syndrome of slow growth for the last several decades. Whereas these other countries, China in particular, which is why, of course, every opportunity is taken in the Western press to tell you why China’s growth is going to end very soon. But China, of course, and many other of these so-called jungle countries or what Trump used to call shithole countries, those shithole countries are doing much better than you, folks. So this is, of course, a major issue. But I also wanted to say, you know, I completely agree with you that the current that at the this moment of crisis in the world. And I would say that, quite frankly, we’ve been living in a crisis ridden world for the last many decades, really going back to the 1970s, because that crisis that hit in the 1970s was never resolved. Neoliberalism was trotted out as a solution to the crisis, but it never resolved the crisis. It never restored capitalism’s vigor. And instead, it simply saddled the world economy with the debt that you’re talking about and with the financial speculation and financialization that you’re talking about. But if you’re trying to understand the whole crisis, I would say, first of all, that any given crisis is never any one thing. Of course, there is a financial crisis today. But today’s crisis is composed both of today’s crisis is composed of a financial crisis. But there is also an underlying productive crisis, a crisis of low investment, low growth, low profits, et cetera. Furthermore, there is a crisis of not sufficiently expanding demand, which has been with us for a long time. So, you know, one of the ways I’ve tried to deal with this is that, you know, Marx and I’ve actually in my latest book, I have the most developed form of that table. I’ve actually created a table, you know, because in capitalism, there are at least two forms of crisis. One is vertical, that is, it has to do with the exploitation of the working class by the capitalist class. And the other is horizontal. It has to do with the various ways in which various capitalists relate to one another, namely via competition. So both the mechanisms of competition and exploitation lead to crisis and they lead to crisis in practically every sphere that capitalism requires for its existence. So there are the two core spheres of value production, namely production and exchange or markets, basically the production and markets. And there you have four different forms of crisis that can occur, contradictions that occur. And then there are other realms that have to be transformed in order for capitalism to exist. Capitalism must create money. It must create credit mechanisms. It must have a state. It must relate to the environment and so on, essentially by privatizing it. And of course, then once you create states, there are international relations. So in practically every one of these spheres, there are forms of crisis. There are monetary management can lead to deflation or it can lead to inflation, etc., etc. There are many crises, there are credit crises and so on. So there are many forms of crisis. And any given capitalist crisis is usually a concatenation of several different crisis mechanisms that are working at the same time. But nevertheless, yeah, I mean, having said that, I completely agree that capitalism is crisis prone and contradictory. And today, the financial crisis we have today is underlain by a crisis of the productive system itself, which is partly also why finance accumulates, because it’s when you don’t have enough investment opportunities, productive investment opportunities that people hold back their money and they invest in speculation rather than production. It’s when companies are not borrowing to invest productively that you have to go out and find all the workers who will borrow from you in order to finance their cars and their education and their houses and so on. So underlying this, there is a productive crisis as well. But yes, on top of that, productive crisis has been built over the last many decades, layer upon layer of financial crises. MICHAEL HUDSON: Well, you can see the crisis in the United States. Why cannot there be investment in the United States? The largest companies, the Standard & Poor’s 500, have spent 92 percent of their profits of their net income on stock buybacks and on paying out of dividends. Only 8 percent is to invest. They can’t find anything to invest in. Apple has said we cannot find a single penny to invest. So we’re paying more money in stock buybacks and dividends than we’re actually investing. We’re asset stripping. And finance capitalism is primarily extractive. It has loaded the economy down with debt so much by debt financed housing, by making its labor have to earn a high enough wage to pay its housing debt, its education debt, its automobile debt, its credit card debt, that it’s unemployable. So, of course, there are no investment opportunities left in the United States and Western Europe. That’s why the garden is deindustrializing and is going to turn into a jungle, because the only way that you can make money is financially by asset stripping, by deindustrializing your economy, by cannibalizing it. And that’s the clearest in the U.S. and British economies. That’s what Thatcherism and Reaganomics is all about. RADHIKA DESAI: Absolutely. And we are nearly at an hour. So I think it’s just as well because we are down to our final point, and that is that we understand in this show, in this geopolitical economy hour, that imperialism is declining. It’s very fashionable to show how radical you are by saying that, you know, imperialism was always very strong and it’s either just as strong today as it ever was or stronger today than it ever was. But the fact of the matter is that the large part of the present crisis, among the many contradictions of capitalism that are part of the present crisis, is the simple fact that imperialism has been declining for a very long time. And today it has reached a point, a very critical point, where it looks as though the kind of control that the imperialist countries could exercise over the rest of the world is slipping from its grasp. MICHAEL HUDSON: Well, down through World War I, the German banking system was highly industrialized. It was working efficiently with governments and heavy industry. But that’s not the way the rest of the world went. It took the Anglo-Dutch-American system. And it’s declining because the system basically is like that of the late Roman Empire. It created great wealth for the wealthiest 1% or the 10%, but it impoverished the 90%. And if you’re going to impoverish the market, then you’re going to have the kind of crisis that Marx described. And yet Marx did not think, see that it would, nobody anticipated that it would be a financial crisis, because Marx hoped that industrial capitalism’s self-interest would lead it to prevent finance from operating the way it used to, by what he called usury capital, and actually become productive. The Western economies since World War I have erased the whole distinction between productive and unproductive investment, productive and unproductive labor. The GDP and national income accounts don’t draw any distinction between production and what is really a transfer payment to the rentier sector, to the finance, insurance, and real estate sector, or to monopolies. So there’s not even a way that the seemingly empirical statistics can explain why imperialism and why finance capitalism is declining. RADHIKA DESAI: Yeah, and you know, too, and again, there’s just so much to say here, but we’ll just end by a couple of more points. But you know, imperialism essentially is declining the way I look at it, because, you know, think about it this way, the high point of imperialism, since which point it has been declining gradually, too slowly for me, but nevertheless declining, is 1914. 1914 was the high point of imperialism. In the previous decades, not only had Britain acquired its big empire, but a number of other countries appeared that they’d also tried to acquire empires. And so the world was essentially divided up into these big empires. So that was a high point of imperialism. But it was also the moment at which the big crisis of the imperialist world order broke. The wars between the imperial powers substantially weakened them. And then that, combined with the rise of communism and the struggles for decolonization in third world countries, essentially put the world onto the long and slow road of the decline of imperialism and so on. But that moment also coincided with, I would say, the peak of capitalism, according to Marx anyway, because really, by this point in time, capitalism in its homelands had already entered the monopoly phase. At that point, capitalism really didn’t have that much more to give to the rest of the world, I mean, to the world in general. That is to say, it had done what it could in terms of developing the forces of production. And now the point was that they would be better developed if we had other forms of production, socialists, whatever, some or the other version of socialism. And this was, by the way, witnessed when you saw that the Soviet Union, once it was stabilized, it managed to become the second industrial power in the world in a matter of decades. From being the most backward country in Europe, it became the second industrial power because it showed you what planned production could do. So and also, of course, the very fact that capitalism had reached the monopoly phase and what Hilferding called the finance capital phase in which large banks essentially controlled vast swathes of the productive apparatus. Essentially, what this told you is that the moment for planning had already come because that’s what a big corporation is. It’s a giant planned economy. So the only question that arises is why should we allow these giant planned economies which only exist because of our labor, which only exist because we create the laws and so on that allow them to exist. So why not socialize? And that was a sense in which the moment for socialism had come. And so, of course, we have had now socialistic experiments as well. And they have also stood up against capitalism. But the point is that in the homelands of capitalism, what we are witnessing today is the cost that both the working people of these countries, as well as the rest of humanity, is paying for keeping capitalism alive in these countries. Coming back to the BRICS in closing, one cannot but be aware that most of the countries of the BRICS are not socialist. But the interesting thing is that in practically every case, you can show that where they have done well, where they have alleviated poverty or industrialized or what have you, they have done so by the adoption of non-capitalist means. And it is the freedom to adopt such means, which is the crucial issue at stake in the confrontation between this group of countries and the G7. MICHAEL HUDSON: Well, I think what we’ve been describing is that U.S. imperialism has backfired to destroy its own economy. And above all, by de-industrializing and de-unionizing the labor force, by focusing on external exploitation of what America can get from other countries. Instead of creating an economic surplus at home and within, the United States has followed the same kind of self-destructive dynamic that destroyed the Roman Empire. It cannot re-industrialize, leaving the debt overhead in place any more than the BRICS countries can industrialize without freeing themselves from their foreign debt overhead. Because the financial system has priced U.S. labor out of world markets as a result of making labor pay for what we’ve described all along, the housing, education, health care, et cetera. And yet the economic historians now say, well, you know, there really wasn’t a dark age, because the wealthiest 1% of Romans in the late Roman Empire got so rich that the economy actually grew. It’s true that 99% of the labor were reduced to serfdom, but that 1% actually made a growing economy. Well, that’s what seems to be happening in, that’s Bidenomics. That seems to be what’s happening in the U.S. economy now. The wealthiest 1% to 10% are making so much money that it exceeds the deprivation and the indebtedness and the reduction and shrinkage of the 99% economy. And so the only hope that the United States has of maintaining this kind of prosperity for the wealthiest financial class is to freeze the status quo, to block any kind of active government policies that promote labor and industry at home or abroad. And the industrial capitalism today is a dinosaur. It’s what was leading the late 19th century onwards to what seemed to be socialism. But instead, we’ve got finance capitalism. And if you have knowledge, if you explain what we’re going to be doing in the coming shows of how this mixed economy strategy, every economy that’s developed has been a mixed economy with the government to play a major role. If you let the private financial interests take over this role of government, you’re going to have the kind of shrinkage that’s de-industrialized the U.S. economy. And that role of government has to be the core focus of how the BRICS economies are going to develop. And that requires freeing themselves from the dynamics of finance capitalism and finance imperialism that we’ve been discussing throughout all of our shows. RADHIKA DESAI: Yes, exactly, Michael. So let me just bring this to a close by making one final comment, which is really many of the secrets of what is the United States, when what is the United States is a long list of industrial decline, financialization, inequality, social breakdown, political lockdown, you name it, cultural decay. All of this is happening. The one clue to understanding why all of this is happening is that the United States got its chance to try to be the leading imperialist country and grabbed it with both hands precisely at the moment when imperialism was actually declining. So with that thought, let’s just let’s bring this to a close. We will be back in September, hopefully with many other interesting shows. So until then, thanks for watching and looking forward to doing this again in a few weeks. Bye-bye.

Write an article about: Exaggerating China’s military spending, St. Louis Fed breaks all statistical rules with misleading graph. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, military-industrial complex, Pentagon, St. Louis Fed

The Federal Reserve Bank of St. Louis published a jaw-droppingly misleading graph that portrays China as spending more on its military than the US. In reality, the Pentagon’s budget is roughly three times larger. In an attempt to grossly exaggerate China’s defense spending, and simultaneously downplay the US military budget, the Federal Reserve Bank of St. Louis published a jaw-droppingly deceptive graph. If a student presented this in a statistics 101 class, the teacher would likely give them an F. But because it involves Washington’s public enemy number one, Beijing, the US regional reserve bank was awarded a Golden Star for exemplary service in the New Cold War. The St. Louis Fed listed the world’s top six countries by military expenditures, but used two separate axes: the spending of China, Russia, Britain, India, and Saudi Arabia was depicted on the left axis, which went from $0 to $300 billion; but a separate right axis was created just for the United States, which went from $400 billion to $1 trillion. This extremely misleading graph made it look as though China spends more on its military than the United States. An analysis looks at how defense spending among the nations with the highest expenditures has changed since 1992 and what may have driven the changes https://t.co/3ln08vOKAo pic.twitter.com/yqK6MqwQUm — St. Louis Fed (@stlouisfed) January 22, 2023 But in reality, China’s defense budget in 2021 was $270 billion, whereas that of the US was $767.8 billion – nearly three times larger (in constant 2020 US dollars). The Pentagon budget subsequently ballooned to $782 billion in 2022 (in 2022 dollars), and $858 billion in 2023 (in 2023 dollars). If the graph were edited to put all of the countries on the same axis, one can see how massive US military expenditure is compared to other top spenders: When the St. Louis Fed published the deceptive graph on Twitter, it went viral, garnering hundreds of negative responses. Michael P. McDonald, a professor of political science at the University of Florida, quipped, “If they’re willing to put this out, just imagine the internal analyses the Fed conducts to manage the economy”. In an accompanying report, the St. Louis Fed admitted that China’s 2021 defense spending was just 1.7% of GDP, “which was the lowest share among the six nations in the figure”. Moreover, Beijing’s military expenditure as a percentage of GDP has stayed very consistent since the early 1990s, with no increases. “China’s defense-to-GDP ratio has been almost a flat line since 1992 at around 2%, suggesting that its defense outlays have grown almost proportionally to its GDP”, the Fed conceded. “In turn, this means that the rapid rise of China’s defense spending seen in the first figure reflects the rapid rise in its GDP”. But the US Department of Defense has dubbed China its top “threat”, and major media outlets like Foreign Policy have acknowledged that the Pentagon is preparing for war with Beijing. This new cold war hysteria is reflected in shockingly unprofessional displays from supposed economic and political experts. A much more accurate graphic created by the Peter G. Peterson Foundation shows how, as of 2022, the United States spent more on its military than the next nine largest spenders combined – including China, India, the UK, Russia, France, Germany, Saudi Arabia, Japan, and South Korea (and several of these countries are close US allies). Beijing’s military spending is even smaller when it is measured per capita. China is the most populous country on Earth, with more than 1.4 billion people – four times larger than the US population of just over 330 million. When measured per capita, US military spending is close to the world’s highest, just under Israel and the United Arab Emirates, at $2351 per person as of 2020 (in constant 2019 dollars). China’s per capita military spending that same year was a mere $175, representing only 7% of per capita US military spending. (Russia’s was $423 – lower than that of Lithuania, Portugal, and Belgium.) And all of these US spending figures could be conservative, as they are based on the official Pentagon budget. Actual US military expenditure is often estimated to be even higher, and the Defense Department has failed every audit it has attempted, with tens of trillions of dollars worth of spending that is unaccounted for.

Write an article about: BRICS New Development Bank de-dollarizing, adding Argentina, Saudi Arabia, Zimbabwe as members. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Argentina, Brazil, BRICS, Dilma Rousseff, Egypt, Saudi Arabia, Zimbabwe

The BRICS bloc’s New Development Bank, an alternative to the US-dominated World Bank, is de-dollarizing its loans, promoting local currencies, and adding new members: Argentina, Saudi Arabia, and Zimbabwe. The BRICS bloc of Brazil, Russia, India, China, and South Africa is expanding, and building a new economic architecture to challenge the dominance of the US dollar. One of the most important institutions created by the BRICS is the New Development Bank (NDB). This is a Global South-oriented alternative to the World Bank, which is located in and essentially controlled by the United States. In March 2023, the NDB inaugurated its new chief: Dilma Rousseff, the former president of Brazil, from the South American nation’s leftist Workers’ Party. Rousseff has stressed that the NDB’s goals are financing “infrastructure investments” and “helping our members combat poverty, create jobs, and promote environmentally sustainable development”. She has also welcomed several more countries to join the bank. Current NDB members include the five BRICS nations as well as Bangladesh, the United Arab Emirates, and Egypt. Uruguay is already in the process of joining. Rousseff revealed on June 1 that four more countries have been approved as new members: Argentina, Saudi Arabia, and Zimbabwe. Flags of the members of the BRICS bloc’s New Development Bank (NDB) Rousseff said NDB leadership okayed these countries’ membership request, and the decision will officially be announced in August, at the summit of BRICS heads of state, which will tentatively be held in South Africa. The new NDB president disclosed this news while Argentina’s economic minister, Sergio Massa, was visiting the bank’s headquarters in Shanghai, China. Brazil’s President Lula da Silva, who helped found the BRICS during his first two terms in the 2000s, returned to office in January 2023. Lula has played a key role in advocating for Argentina to join BRICS. In a summit of South American leaders in Brazil in May, Lula also endorsed Venezuela joining the bloc. On May 31, we concluded the 8th #NDBAnnualMeeting in Shanghai on the theme "Shaping a New Era of Global Development." We thank the Board of Governors for their guidance and insights towards building an inclusive, resilient and sustainable future for EMDCs. pic.twitter.com/wbaazny6ac — New Development Bank (@NDB_int) June 1, 2023 On May 30 and 31, the New Development Bank held its annual meeting – the institution’s eighth since it began operations in 2015. NDB President Rousseff used the special occasion to reiterate that the bank’s objective is eventual de-dollarization. The short-term goal is to offer 30% of NDB loans in local currencies. This would be an increase from its present rate of 22%. In April, Rousseff had first announced that the NDB plans to transition away from the US dollar, pledging that nearly one-third of its loan book will be financed in the currencies of member countries by 2026. The new chief of the BRICS' New Development Bank, Brazil’s leftist ex-President Dilma Rousseff, revealed they are gradually moving away from the US dollar, promising at least 30% of loans in local currencies of members. More here: https://t.co/CyJKBODc2D pic.twitter.com/PUGokEHYxw — Ben Norton (@BenjaminNorton) April 15, 2023 By diversifying its use of currencies, the NDB not only seeks to weaken the bloc’s dependence on the dollar, but also hopes to help developing countries avoid painful fluctuations in exchange rates. The US dollar is the global reserve currency, so Washington’s domestic monetary policy has an impact on the world economy (a phenomenon known as the Triffin Dilemma). Since March 2022, the US central bank, the Federal Reserve, has aggressively raised interest rates. This has put downward pressure on the currencies of many Global South nations, making it more expensive to import foreign products and pay off dollar-denominated debt, while also fueling capital flight. “We need to create a diversified global currency system”, Rousseff said at the NDB annual meeting. “In the future, it is unlikely that one single currency can dominate the world’s currency system. We will see more local currencies used to settle trade”, the NDB president added. At #NDBAnnualMeeting's opening ceremony, NDB President Dilma Rousseff highlighted the bank's commitment to eradicating poverty and hunger and supporting member countries' contributions on #climatechange per the Paris Agreement. pic.twitter.com/nxm7Uwz42I — New Development Bank (@NDB_int) May 30, 2023 The New Development Bank has already issued bonds denominated in China’s currency, the renminbi. Chinese Vice-Premier Ding Xuexiang said at the annual meeting of the BRICS bank that the “NDB is designed to better serve the emerging economies by financing more infrastructure construction and sustainable projects”. Rousseff’s view, that the world is transitioning toward a multipolar currency order, has been acknowledged even by some Western mainstream media outlets and analysts. The chair of the editorial board of the Financial Times newspaper, Gillian Tett, implored investors in March to “Prepare for a multipolar currency world“. Prominent economist Zoltan Pozsar wrote in the Financial Times in January that the “unipolar era” of US hegemony is over, and has been replaced with a “multipolar” order of “one world, two systems”. Pozsar, whom the financial press dubbed a “superstar”, noted that “the pace of de-dollarisation appears to have picked up”, with more and more BRICS-curious countries trading in their own currencies. “If less trade is invoiced in US dollars and there is a dwindling recycling of dollar surpluses into traditional reserve assets such as Treasuries, the ‘exorbitant privilege’ that the dollar holds as the international reserve currency could be under assault”, Pozsar warned. Unlike the World Bank, the New Development Bank is a truly multilateral institution, not one dominated by a lone power. The 2014 founding agreement stated that the NDB’s “initial subscribed capital shall be equally distributed amongst the founding members”, and the “voting power of each member shall equal its subscribed shares in the capital stock of the Bank”. No country has veto power in the NDB. The NDB founding agreement likewise stated: “The President of the Bank shall be elected from one of the founding members on a rotational basis, and there shall be at least one Vice President from each of the other founding members”. The World Bank is completely different. This institution is essentially controlled by the United States, and physically headquartered in Washington, DC. The bank clearly states on its website that the United States “remains the largest shareholder of the World Bank Group today”, boasting that, “As the only World Bank Group shareholder that retains veto power over certain changes in the Bank’s structure, the United States plays a unique role in influencing and shaping global development priorities”. The bank’s website likewise admits, “Traditionally, the World Bank President has always been been a U.S. citizen nominated by the United States”. The United States has 15.81% voting power in the World Bank Group’s lending arm, the International Bank for Reconstruction and Development (IBRD). No other country even remotely comes close. In second place in voting power is Japan, with 7.22%. Despite having four times the US population, China has a vote share of just 5.60%. Germany has 4.30%, and Britain 3.81%. India, with a population of more than 1.4 billion, is tied with France, which has a population of less than 66 million; each has 3.81% of the voting power in the World Bank. Russia has a mere 2.88%. Canada has 2.56%, and Italy 2.50%. The World Bank acts as a kind of neocolonial institution, dominated by the Western powers. It is not so much the World Bank as it is the Washington Bank. Along with its Bretton Woods financial sibling the International Monetary Fund (IMF), which is similarly dominated by the United States, the World Bank is notorious for trapping Global South countries in odious debt. When debtor countries are unable to pay back the World Bank (or IMF), the US-controlled institution frequently imposes harsh neoliberal economic policies, as part of a “structural adjustment” program, requiring the government to cut social services, lower wages, slash pensions, reduce spending on healthcare and education, end subsidies, privatize state-owned enterprises, and deregulate markets. Former consultant John Perkins, in his book Confessions of an Economic Hit Man, described the World Bank as an “agent of global empire” that helps “cheat” poor countries in the Global South “out of trillions of dollars”, and subsequently “funnel money … into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources”. Perkins added that the “economic hit men” at the World Bank and similar US-dominated institutions “play a game as old as empire”.

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debt, Geopolitical Economy Hour, Michael Roberts, Radhika Desai

Economists Radhika Desai and Michael Roberts discuss the US debt ceiling deal reached by President Joe Biden and the Republican opposition, and what it means for the future of the economy. Economists Radhika Desai and Michael Roberts discuss the US debt ceiling deal reached by President Joe Biden and the Republican opposition, and what it means for the future of the economy. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hi everyone, and welcome to this 11th Geopolitical Economy Hour, the fortnightly show on the political and geopolitical economy of our times. I’m Radhika Desai, and today we are going to be joined by Michael Roberts. Most of you will know Michael as one of the most acute commentators on the state of the world economy. He has experience working in the financial sector and has also been a labor activist. So he brings a very unique combination of perspectives on his work and provides us with a very informative perspective on the unraveling of the capitalist world economy in recent decades. And today he is here with us to discuss the debt ceiling drama that has unfolded in Washington in recent weeks. Welcome Michael. MICHAEL ROBERTS: Well, it’s good to be here Radhika and I must say that I have enjoyed many of the [Geopolitical] Economy Hours up to now while I’ve been watching, so it’s a real privilege to have an opportunity to discuss with you the debt ceiling and debt in general, I suppose. RADHIKA DESAI: Well, great Michael and I hope this is only the first of many appearances by you on this show. So let’s dive into this. So as far as the debt ceiling is concerned, there has been a pattern which has become a classic of sorts, with just days to go before the day that the Treasury Secretary Janet Yellen said the US would run out of cash to meet its obligations, President Biden and House Majority Leader Kevin McCarthy reached a bipartisan deal which is going to permit the government to keep borrowing in return for certain cuts in spending, social spending in particular, that the Republicans insisted on. The catastrophic disaster predicted by Treasury Secretary Janet Yellen in the weeks leading up to the negotiations and the deadline was again narrowly averted. But as more and more commentary is recognizing, other more slow-moving sorts of disasters that will affect the US political system, fiscal health, the economy, the financial system and the dollar system have not been averted. If anything, it seems as though the deal is simply setting the stage for all these different sorts of crises to accumulate and to erupt at a later stage. So we propose to uncover these unresolved issues in a broader discussion that will range over some very key questions. So first of all, what is the debt deal? Is the debt ceiling even real? What’s in the deal that McCarthy and Biden came up with? Is it good for US society, economy, politics and of course, the rest of the world? Thirdly, now that the US government can borrow more, are its fiscal wars over? Fourthly, how does this impact on the ability of the Federal Reserve to do its job? What about the economy? Sixthly, what about the US financial system? And finally, given the close relation that has always been insisted on between the US fiscal and current account deficits and the functioning of the dollar system, how does the debt ceiling deal reached affect the dollar system? So these are some of the questions we hope to cover in what we hope will be a fairly free ranging conversation. So Michael, why don’t you just start us off with your overall thoughts on what the debt ceiling is, whether you agree with some people who say that it’s not really an actual constraint at all? MICHAEL ROBERTS: Well, the debt ceiling is almost peculiar to the United States in the constitution legislation. There are one or two other countries that have a debt ceiling, the one I can think of is Denmark. The idea is that there’s a certain limit on how much a government can run up in debt. And once that ceiling is reached, then there has to be an agreement to extend it. And so the idea, apparent proposed idea, is this will control public spending and control debt getting out of hand in the public sector. Of course, this is just nonsense. It doesn’t apply at all. Every time the debt ceiling has been reached, it’s been expanded. And I think at least nearly 80 times have we had a debt ceiling which is then expanded accordingly by agreement of Congress. Only a few occasions in the US has there actually been an attempt to block and to hold the debt ceiling and to force reductions in spending by the incumbent government. In just about every case, it’s a Democrat administration that looks to spend and Republican opposition trying to use this debt ceiling as a way of squeezing out concessions. And then what are those concessions? We should discuss them later, but it’s really a political football and not really anything to do with trying to control the debt. In the case of the Danish debt ceiling, by the way, the debt ceiling is about three times higher than the Danish debt to GDP. So it never gets there. It’s only the US, which has this weird and wonderful plan in which they claim will control debt, but it doesn’t control debt in any way. Government debt to GDP or just government debt in general in the US has been increasing every year without any real downturn at all in the overall debt. And in terms of debt to GDP, that’s a ratio that we can look at as a measure of whether it’s exceeding the growth in the economy. That’s been rising dramatically anyway. So the ceiling is having no effect in controlling debt to GDP or debt in general. If that is what you want to do. And the question we could discuss is, should government debt be controlled in this way at all? What is the purpose of government borrowing? Is it playing a useful role? So what we have here is a completely ridiculous and preposterous measure really designed for political infighting within Congress. RADHIKA DESAI: I mean, certainly, just just to you, you rightly pointed out that the debt ceiling has been lifted by my calculation 79 times, counting the last one since 1917. So apparently what has happened is that up until that time, US spending and borrowing were not really very great. But once the war started and the government started to spend more than there was a need for continuing to authorize new borrowing. So the original idea behind the debt ceiling was not at all actually a constraint so much as an enabling feature that you can borrow up to this limit was the idea. But of course, over time, what has happened is it has become a political football. So apparently since 1976, when the issue of spending first began to be made a political issue by the right wing, as you rightly pointed out, there have been 22 government shutdowns. So this is really the interesting thing. And I also wanted to say that, you’re absolutely right to say that the debt ceiling has actually done nothing to control government debt. The US debt has continued to rise and it has risen particularly high in the last few years since the pandemic in particular. But what has happened is that the particular way in which the debt ceiling has been politicized by the Republicans in particular, what this has done is it has controlled the reasons why the debt goes up. So the debt has gone up not because the government is profligate in spending on Social Security or anything like that. US social spending is among the meanest in the overall OECD country league tables. So what this has done is, it has essentially created a situation in which US debt has continued to go up, but it has gone up in order to do certain specific things. Number one, first and foremost, to cut taxes on the rich. Secondly, to keep spending on defense and so on. And thirdly, of course, to give generously to essentially turn the US state into a welfare state for corporations, essentially to give big subsidies to these. But the other question that also emerges is the fact of the matter is that a number of people who are on the left of the Democratic Party and more generally in the left of the political spectrum in the United States have actually pointed out that there are a number of reasons why this drama that is regularly played out in Washington, every time the Republicans want to essentially create a ruckus around the debt ceiling, they get to do so. But the Democrats play along. And this is the really shocking thing is that, as far as the public is concerned, most commentary would lead them to believe that President Biden is straining every nerve to increase social spending and he’s only being stopped by the Republicans. But in reality, there are at least three points that one may make, which show that actually the Biden administration is really kind of looking, essentially looking for a way to have cuts in social spending, but then blame it on the Republicans. So the first point is that many people have pointed out that the U.S. 14th Amendment, which basically says that U.S. obligations of spending a debt payment, etc., will be sacrosanct. They will not be challenged by anybody. This simply means that you don’t need to raise the debt ceiling. The government can continue to borrow in order to finance its spending without any problems. The second is that according to at least one leading expert, maybe actually more, but Cornell University Professor Robert Hockett has argued in a number of writings that that in fact, the budget itself, once it is passed by Congress, if the budget has a shortfall of spending over revenues, then essentially there will be borrowing and the passage of the budget itself authorizes the government to spend. So there is no need for a debt ceiling. But nevertheless, the Democrats have never taken up these legal points. And then finally, Tom Ferguson, the very well-known writer who has really done the most yeoman’s work on following the money in the American political system, what he’s pointed out is that Biden could have easily raised the debt ceiling when the Democrats controlled both houses of Congress, but deliberately chose not to. And why is that? And Ferguson’s answer is very simple. Biden needs to raise money. And this time around, he’s going to need to raise a lot of money in order to overcome his unpopularity to try to become president. And if he’s going to collect this kind of money, he’s going to have to go to big corporations and they want essentially what the Republicans want. So Biden has found a way of “conceding” to the Republicans in this fashion. MICHAEL ROBERTS: The other thing is that he’s also conceded that this debt ceiling is going to come back and haunt us again. It’s only been put off till 2025. And we know why it’s been put off to 2025, so that it doesn’t arise this side of the next presidential election. That was part of the deal in a way that Biden achieved with the Republican opposition that he avoided after making considerable concessions, which we’ll consider in a moment. He managed to push this down the road so that it’s after the election, but it’s going to come back again. Whoever is in administration in 2025, obviously, if it’s a Republican administration, I think we’ll be surprised to see that debt ceiling is an issue. But if Biden is reelected, assuming he’s going to be the candidate, then it’s going to come right back again and further pressure will be put on by the Republican opposition to reduce the spending in very key areas which have already been conceded by Biden in the debt ceiling agreement. Viewers should really know exactly just what did happen during that agreement to realize the way in which the Biden administration has gone backwards on its original commitments to meet the needs of the population. RADHIKA DESAI: As you were talking, I suddenly realized that actually I have not come across any of these debt ceiling standoffs in which it’s the Democrats who say we are not going to allow you to increase the limit on borrowing unless you agree to spend more on social spending. We’ve never seen that. This is the interesting thing. Yeah, it’s amazing. So, Michael, you’ve done a lot of work on examining this debt ceiling deal. Why don’t you start us off? Let’s discuss the question of what’s in this deal. Is it good for the US in what ways, etc.? MICHAEL ROBERTS: Yeah, well, I think the thing to remember, the viewers should remember that the budget has basically been, as it were, ring-fenced. So there’s been no cuts asked for by the Republicans and agreed by the Democrats in military spending at all. Then there is no cuts in social entitlement because that requires legislation because they’re entitlements so that the bulk of Medicare and the bulk of Social Security remains. So basically, the only bit that can be reduced is what is called discretionary spending, which is all the things of services and education, transport and other things that the federal government is supposed to provide and the employees and services that they provide for the population. That’s the area that’s being slashed in the agreement. And I think we have a graph. I’d just like to show you that first graph I’ve brought forward for the discussion. You can see here now in the graph, the blue, big blue block is the military spending, the official military spending, which is about 800 billion dollars a year, which Biden plans to spend. And on the purple side, you can see what is called the non-defense discretionary spending. But actually, the military spending is even higher than that, because if you look in the purple bit and the top right left part of the purple bit, you can see veterans spending on veterans. So that’s really part of defense spending. And all the other blocks in there actually have quite a lot of military spending in them as well. You would believe in all different areas. And really, the total spending that Biden is now committed to on the military front in arms and other defense of the realm, if you want, is one trillion dollars a year, one trillion dollars a year, with no exemptions to cut that back. So all those purple bits, which are now down to about five or six hundred billion, are going to be reduced not only in real terms over the next few years, but also in cash terms. So it’s even a bigger fall. So this budget concession, things like, for example, to get food stamps at work if your income is so low in the US, you get food stamps. But now you will not be able to get those until you’ve reached the age of 54. It used to be 50. So it means that now it’s extended the range of age before you can get food stamp help and various other measures like that for cutbacks in all kinds of areas on the purple side, which Biden has agreed to. Yes, there’s further spending going ahead because the Biden plan is to increase spending in green investment and in infrastructure. But it will be at the expense of all other areas of basic services which the federal government provides. So with one hand, you get a little more on the other hand, you get taken away. But one area is not going to be touched, and that’s arms spending. RADHIKA DESAI: Yeah, this is really interesting. And it seems to me that this deal has essentially done nothing to change the general orientation towards fiscal irresponsibility of a right wing sort. That is to say, you essentially have unfunded tax cuts and you have lots of military spending. And then if you cut anything, you are only going to cut spending that’s going to go to some kind of broader social causes. And of course, these sorts of cuts, they are relatively minor for now, but they will have a slowing effect on the economy. There’s no doubt about it. And this comes at a time when the US economy already faces a lot of challenges, challenges which I also have to say that, the general trend towards right wing forms of fiscal irresponsibility mean that despite the fact that there has been much fanfare around the post pandemic spending programs and then more recently, the Inflation Reduction Act, and though there has been a substantial amount of spending promise, one wonders whether it’s anywhere near enough to really revive the US economy productively and and actually deal with the real causes why core inflation remains very high, which is that the productive structure of the US economy remains very weak. So overall, in terms of what’s in this deal, it’s actually quite disappointing, even though most of the press seems to congratulate Biden and McCarthy. You know, Biden has won this and he has shown that his old skills at congressional negotiations are intact. And McCarthy has proved that he can be a bipartisan person, etc. It’s said the poor fellow apparently is not going to get to keep his job because most Republicans are not interested in bipartisanship at the moment. But really, if you think about it, the whole question of who wins and who loses from this deal is really not about whether Biden wins or McCarthy wins or Democrats win or Republicans win. It’s really about whether it’s really about the fact that the US economy and the US people have lost another opportunity to try to do something about their weakening economy, increasing inequality. MICHAEL ROBERTS: Well, I would add a couple of things there, Radhika. One of the things that’s missing from even the budget was a reversal of the Trump tax cuts that were made during that administration, which were huge, huge corporate tax cuts and also for higher income groups. All that has been preserved. There’s been no reversal there. So the inequality of income that has already expanded dramatically in the US over the last 25 years and was accelerated under Trump is not being reversed by the Biden administration. So on tax, they’re doing that. If you look at the infrastructure spending budget, it sounds great, but actually it works out as something like half a percent of GDP over the rest of this decade. Now that sounds to me way short of the requirements that are needed to move us towards a green environmental structure for the industries of transport and energy and so on, which is so vital for us to sort out by the end of this decade. Because as we now know, and as scientists are telling us, that we are going over the tipping point of 1.5 degrees centigrade above pre-industrial levels on global temperature this decade, almost certainly. And if we go beyond that level, it’s a tipping point, which means that it’s irreversible damage to the planet in terms of droughts and floods and uninhabitable areas of the continent. We’re already seeing the level of fires and other things developing in northern Europe and in North America as well. So we know that something’s got to be urgently done on this. But even the program that was presented to supposedly move towards green investment in the US is way, way inadequate. And so the main structure, as you say, of the economy, of the rich controlling the vast majority of wealth, earning the most of the money, and the government unable to do or unwilling to do anything about that structure. And that remains, that hasn’t altered as a result of anything Biden has proposed and is implementing. And it’s now actually been chipped away at by the debt ceiling agreement. RADHIKA DESAI: Well, this is it. I mean, I just want to respond to your very, very important point. 2023 could be the hottest year on record already. We’ve already had April and May showing unprecedented levels of heat. So a little climate interlude here, because it seems to me that, very often with the Biden administration taking office, everybody was told that, well, now we will see some movement on the climate agenda. But the more closely you look at what’s happened, you really realize that essentially the strategy of even the Democrats in the United States, let alone the Republicans who don’t even accept that there is a climate or there is anthropogenic climate change. Even the Democrats will only implement those aspects of some sort of climate change, some sort of program to address climate change, provided it makes lots of money for the big corporations. This is the key to understanding it so that in reality, climate is just an excuse to give more subsidies to big corporations. And this is where I think we are going to face the biggest obstacles. I mean, this is really content for another program, but I just wanted to mention that. MICHAEL ROBERTS: But as you say, it’s subsidies, the infrastructure program, the Biden is subsidies to big business to carry out green investment and tax exemptions. Actual direct government investment to do projects, to build environmental projects directly, but through government investment hardly exists at all. One of the other concessions in the debt ceiling was the agreement to go ahead with an important gas pipeline. In one of the right wing Democrat states, that was one of the agreements that was reached. So actually, the expansion of fossil fuel investment is taking place as a result of the debt ceiling. RADHIKA DESAI: And needless to say, the sanction strategy in the current proxy war on Ukraine is also, of course, essentially putting the world on a path which increases its resource footprint and its climate footprint and so on. MICHAEL ROBERTS: Military activity and arms activity is the biggest carbon dioxide emitter in the world, the biggest consumer and producer of carbon dioxide. So I’m afraid war is not only bad for people, it’s bad for the planet in general. RADHIKA DESAI: And putting Europe on a diet of American energy as opposed to Russian gas apparently contributes many times more to global warming than Russian gas anyway. MICHAEL ROBERTS: And four times more expensive. RADHIKA DESAI: Yes, exactly. Well, I mean, that’s another story as well. What’s wrong with the Europeans? But let’s maybe come back to this and go to our next question, which is, OK, so now they’ve got a deal. The US government is free to borrow more, at least for the next two years. So given that, are its fiscal wars over? That is to say, are there no longer any problems? And what can we see? I mean, one thing that certainly seems to be right at the top of this list is that, of course, debt servicing. Not only is the debt going to grow, but it is going to grow in an environment where the Federal Reserve is jacking up interest rates and markets are demanding that they be jacked up even more. So debt servicing is going to constitute a bigger and bigger part of this. It’s already at one trillion at low interest rates. It’s estimated to go up to half of government spending if debt continues to rise as expected, and interest rates do not dip below historical averages. So right now they’re high, maybe a little higher than historical average. Maybe they’ll go down a bit. But provided interest rates do not go back to the ridiculously low interest rates that we’ve had over most of the last two decades. This is going to be the situation. So, in fact, Americans, the United States fiscal wars are only going to increase. And this is only part of the story, right? MICHAEL ROBERTS: It is. Well, one of the features, I mean, perhaps we’ll deal with debt in general, apart from the public debt, which is important. But public debt has shot up, as we discussed earlier, even before Covid. Why? Because during the period of the 2010s, there was a massive bailout of the banks by all the countries around the world. There was a slowdown in GDP. So growth wasn’t delivered from this huge debt. So the private sector disaster was placed into default into the public sector. They had to deal with it. So public sector debt rocketed from, say, on an average in the advanced capitalist economies of around 60 percent of GDP to close to 90 to 100 percent of GDP during the 2010s. It came down a little bit just before Covid. And then we had the pandemic slump, which saw a massive increase in fiscal spending so that people didn’t starve because they were locked down and all the rest of it. So the result is that we saw, again, a big rise in public debt globally in just about every country in the world, up to about 95, 100 percent of GDP. So it’s nearly double where it was at the beginning of this century. And as you say, the only reason that this has been not a big problem for the budget up to now has been interest rates have been ridiculously low, if not zero. In many countries, in government bond prices and so on, the interest on government bonds is right down low to levels really close to zero. And in terms of central bank interest rate levels, they were actually negative in many countries for a period during the 2010s. So debt servicing hasn’t been an issue. I used to see lots of graphs from economists saying, oh, the debt’s up, but debt servicing is down. So nothing to worry about. Well, all I can say is that that is dramatically changing, as you point out, in the last 18 months to two years, interest rates have gone up from the Federal Reserve from virtually zero to now five percent, with predictions to go up to five and a half. That’s the Fed’s own prediction. And if it stays at that level with 100 percent of GDP debt, actually higher if you look at gross debt in the case of the US, then there’s going to be a dramatic increase in debt servicing costs. And that can only eat into real productive use of government money. You’d be like lots of emerging economies, so-called emerging economies, that have huge interest payments that they have to make on their public sector debt. The US will be becoming what I call a global south public sector if that continues over the next five to 10 years. RADHIKA DESAI: I remember many years ago when the 2008 crisis hit, we had invited Giovanni Arrigi, the very noted world systems analyst, and Robert Brenner, the economic historian, to come and talk about what had happened. And it was a big public meeting. And Giovanni Arrigi raised, he basically said the time has come for the United States to face its own structural adjustment. And there was an absolute uproar of applause when he said that. And he was not wrong. To some extent, these things did happen. And today, it seems to me that the ability of the United States to keep on borrowing and spending is now in question to an even greater extent, you know. So at the moment, for example, first of all, the massive borrowing that is now expected. Remember that for the first several months of the year, like five, six months of the year, the government has not been borrowing. MICHAEL ROBERTS: No. RADHIKA DESAI: And despite that, you had a drop in the value of US treasuries, which led to these banking collapses and so on, because they had had too much of their assets were in the form of treasuries. And these assets had lost value and blah, blah, and so on. We know that whole story. We’ve covered that in a different program. So that was already happening. Now, there’s going to be, according to all accepted estimates, about eight hundred billion dollars of borrowing in the next four months and a trillion dollars of borrowing before the end of the year. All this debt issuance is going to put a huge pressure on the market. The question is, if the US could not already could not borrow without raising interest rates in the past, this is going to become an even bigger problem. So this is going to keep interest rates high. And what’s more, all of this is happening when, in fact, there are deep structural reasons why the United States is going to keep needing to borrow more. Number one, it’s an aging society. Aging societies are going to have to spend more. They’re going to have to borrow more unless, of course, they subject the elderly to a level of neglect, which we have not yet seen in advanced capitalist societies. Number two, there’s going to be, these constraints on borrowing are going to also constrain government spending. And without very substantial government spending, you’re not going to turn the US economy around. And if you’re not going to turn the US economy around, while also refusing to tax the really rich, your revenue side is going to remain very weak MICHAEL ROBERTS: It’s a vicious circle, really, Radhika. If you don’t carry out government investment big time in order to raise the productivity of the economy in productive sectors, then growth will remain. I mean, the Fed and the government is predicting growth rates this year of maybe a half a percent, maybe one, but half a percent minimum next year, much the same. And in fact the Congressional Budget Office predicts that the average growth rate in the US will be in real terms for the GDP about one point eight percent. I don’t think they’ll even achieve that at the current rate. But even on that basis, that’s not going to be enough to avoid a problem, not only in the public sector debt, but in debt in general. Because what’s going to happen in order to compensate for that is that companies and others are going to borrow more and the government will be forced to borrow more because it’s not getting the revenues as a result of higher incomes that everybody is getting. Apart from the inequalities of the taxation system, which is just ludicrously inequality. I mean, the average worker in the United States is paying something like a total tax effective rate of all sorts of taxes more than the top 0.1 percent and 1 percent. I mean, that is just a ludicrously unequal and unfair way in which to raise revenue such as it is at the moment. So it is a vicious circle. We need growth. I just have to say this here. The argument that we’ve got to lengthen the years required before you get your pension and you’ve got to make more contributions each year. You’ve got to have more years of contribution because we can’t afford to pay decent pensions to people when they get old. This is absolutely nonsense. Just if you had a growth rate, not a three, two percent a year or one percent a year, but three percent a year and you devoted that to increase tax revenues to the government, and they would easily be able to meet the pension requirements that people have as they get older over the next generation. But of course, US and other capitalist economies cannot grow that level anymore. They’re not achieving that. So we have to pay for that. RADHIKA DESAI: Absolutely. And, in fact, you rightly pointed out the inequality, of course, is shameful. It’s morally repugnant, but it’s also economically counterproductive because, on the one hand, the Federal Reserve and other central banks like the Bank of England and so on keep worrying about the wage price spiral. And keep blaming the current inflation on a surge of demand. But in reality, demand has been so weak that it has actually constrained investment. And by keeping inequality high, you are keeping demand, broad based demand weak. And therefore you’re creating another obstacle to the productive revival of the economy. This is not going to happen. So inequality is also economically deeply counterproductive. And I just wanted to add that, essentially in terms of this question, I mean, basically the US’s fiscal wars are only going to increase. And as the US’s fiscal wars increase, people forget, the last time we had this debt ceiling drama under President Obama, once again, the deal was reached and everything was fine. The government could borrow again, etc., etc. after a brief government shutdown. Fine. But nevertheless, even after the deal was reached, I think one of the big rating agencies, maybe S&P or something, actually downgraded US debt. I think today we are facing an even worse set of circumstances and a similar type of downgrading, whether it takes place officially or just unofficially that, essentially the rest of the, essentially markets do not want to purchase US debt. There is going to be further fiscal problems baked into the present scenario. So maybe now we can go to, unless you have anything to add, we can go to the next question, which is how does this impact the Federal Reserve and its remit to maintain financial stability, to contain inflation? And its third remit, which is talked about more than it’s ever fulfilled, which is, of course, to keep levels of employment high. MICHAEL ROBERTS: Well, one of the things that the Federal Reserve does do is actually buy most of this government debt. We’ve seen over the last 10 years or so that the biggest buyer of government debt has been the Federal Reserve in order to keep bond yields down, interest rates down and make it easy for the government to finance its spending. Because, part of the reason for that is that, whereas foreign buyers of US government debt were about 25% of the total debt purchases each year, have gradually reduced their share of buying debt. Their main buyers were the Japanese and the Chinese. Part of the reason is because they don’t quite have so much money to reinvest into US treasuries, but also they’ve been trying to diversify out of the dollar. Particularly China doesn’t want to be dependent on having all its assets in dollar assets, which could, we now know, be seized if the US government feels that the Chinese has stepped out of line from its policies. So there’s been a significant diversification going on amongst the countries that used to hold US government debt. The Federal Reserve has driven interest rates down and bought a lot of that debt. Now, as we go into the rest of this decade, that’s going to be much more difficult for the Federal Reserve to do, because it’s supposed to be tightening monetary policy and it’s actually selling this debt back into the market and to reduce its balance sheet. So we’re seeing a reversal of the policy of the last 10 years as a result of the situation that they’re in now in trying to control inflation. So the European Central Bank isn’t exactly in this dilemma. They want to sell back a lot of the debt that they’ve built up over the last 10 years, particularly with countries whose debt is not really very promising in terms of its returns, like Italy and Greece and other countries. But if they do that, they tighten the interest rates further and squeeze the eurozone economy more. I heard President Lagarde say at a recent press conference, it’s not a trade off. We can do both. Apparently, we can ensure that we can sell all this debt back into the market and we can avoid inflation, get inflation down without having to raise interest rates too much. I don’t see how that’s possible. And only this week, she said that there’s no alternative, but we’ll have to continue hiking. So they’re in a dilemma here now, the central banks, for the first time. The foreigners aren’t around to help them out and the governments are facing significant debt issues, fiscal issues. And yet they also have to control inflation. So it’s a dilemma that we haven’t seen in the previous two decades. RADHIKA DESAI: Absolutely. I think the Federal Reserve’s ability to perform any of its major functions is going to be radically reduced. So it’s not going to be able to tackle inflation. Now, of course, the most fundamental reason it’s not going to be able to tackle inflation is actually, unless you think that it’s a good idea to tackle inflation by creating a recession. Actually, the Federal Reserve has no way of controlling inflation. The Federal Reserve should essentially keep managing money reasonably prudently. But the point of tackling inflation is to actually expand productive capacity, which is the function of government and not of the central bank. But let’s just leave it, leave that aside. Of course, everything the Federal Reserve has done, whether to tackle inflation or to keep employment levels high, has actually been primarily about aiding the financialization of the US economy, aiding asset markets when interest rates are low or simply giving people extremely lucrative assets when interest rates are high. One way or the other, financialization has occurred, whether in the 80s and 90s, when interest rates were relatively high or in the 2000s and 2010s when they were relatively low. But and nevertheless, in the process of the last two decades of low interest rates, the Federal Reserve has jacked up a nine trillion dollar balance sheet by buying all sorts of assets, including, as you rightly pointed out, US Treasuries. The US Federal Reserve is one of the chief buyers of the US Treasuries, chiefly because the rest of the world, rest of the markets do not want treasuries in the volumes in which they are being emitted by the Federal Reserve, by the US government. So the Federal Reserve has to aid the US government by buying. Otherwise, the prices of treasuries will drop even further and the cost the US will have to pay for borrowing will rise even further. And also as you rightly say, the federal government was engaged in a certain amount of what’s called quantitative tightening, withdrawing liquidity from the markets, whereas in the last two decades it’s been pouring liquidity into markets. But this had only gone to financial institutions and aided the speculative activity. It had not gone to real investment in the real economy. So now this new issuance of Federal Reserve debt is going to in fact, the issuance itself is going to be the opposite. It is going to be more quantitative easing in the sense that they are going to be more bonds. But on the other hand, of course, rising interest rates are going to actually have the effect of a certain amount of tightening. But none of these processes are under the control of the Federal Reserve. Meanwhile, and this is my final point on this matter, its ability to maintain financial stability is going down the tube because the big reform that was made after 2008 and the reforms after 2008 were very weak. But one of the ones that seemed to be functioning was to require banks to hold greater reserves. And a large part of these reserves were constituted by U.S. government debt. But now that debt is falling in value and that means that the reserves of banks will be increasingly found to be inadequate. And we are bound to witness new episodes of what we saw in March and April this year. So the ability of the Federal Reserve to guarantee financial stability is going to be even weaker. MICHAEL ROBERTS: Right. One of the ironies of the recent banking crisis was that the Silicon Valley Bank had all these depositors who were able to take their money out by the press of a button. As we know, we can do that by the internet now. But so they thought we better be safe about this. So we’ll invest in government bonds so that we are safe. And we’ve got government bonds, which how can bonds not be safe? So they put a lot of money into long term government bonds. But of course, as you point out, with a huge rise in interest rates, the value of those bonds, for those of you who don’t understand, but then the bond prices fall when the interest rates rise. So the value of the bonds that they were holding dramatically fell. So when they had to try and sell to cover a bank run by customers, they couldn’t cover those deposits because the value of those assets have fallen. And currently, according to the Federal Deposit Insurance Corporation, is something like 700 billion dollars in as it were in the red, all the banks in the US because of their assets in government bonds. And that situation is going to get worse. It’s not going to get better. So if there’s any worry on the part of customers about keeping their deposits in various banks, we could see further runs. It’s no surprise that it’s JP Morgan that’s benefiting from all this. They swallowed up these small banks. They can appear to be having lots of deposits which they can sustain. And they’re fleecing actually their customers by not paying them decent deposit rates. And yes, swallowing up the small banks. So what we’re seeing is the result of this, if you like, the debt crisis in fiscally is gone into the banking sector and is now squeezing and concentrating the banking sector into an ever smaller number of multi large banks. What could be a better case for public ownership of the banks when we can see how clearly it’s just a small number that control the financial sector we have? RADHIKA DESAI: I mean, that’s again, that’s what makes me think that’s another whole episode that we could do another another show that we could do on exactly what’s happened, because, of course, every major financial crisis has led to the failures of many banks and therefore the increasing concentration of the banking system. So in 2008, of course, as a result of the repeal of the Glass-Steagall Act, which had maintained this sort of firewall between investment banking and the commercial banking, essentially, once this firewall was eliminated, the big commercial banks, which have vast quantities of deposits and therefore vast quantities of money to throw into trading, they essentially wiped out the smaller investment banks. And now we have essentially created a financial structure in the United States in which these exceedingly large banks were essentially licensed because they were covered by the Federal Deposit Insurance Corporation. They were licensed to engage in speculation and guaranteed and essentially assured that any losses incurred due to this speculation would be covered or any disasters would be covered by the Federal Deposit Insurance Corporation, which, as you saw more recently, has also been now been extended in certain cases to cover deposits higher than the limit that was $250,000 limit, which is already quite high. But anyway, a topic of concentration of the banking system and the case for public utility banking, I think we should probably definitely put it down on our list. MICHAEL ROBERTS: It’s a revolving door to the people who work for JPMorgan and Goldman Sachs end up in the administration or in governments of other countries. For example, the Turkish government has now got a finance minister who is in Goldman Sachs and the central bank governor is the person who used to be at First Republic Bank, one of the banks that’s gone down in the US. It’s a revolving door. These people are either in government or in banking and vice versa. And the whole thing is totally interconnected. RADHIKA DESAI: You know, I just wanted to mention before we move on to the next question, I read in The Hill, the congressional newspaper, a rather right wing person called Armstrong Williams, writing that essentially now that the Federal Reserve is sitting on all these treasuries which have declined in value, that the Federal Reserve itself has become insolvent. Of course, it’s meaningless to say that the central bank is insolvent. But nevertheless, it is interesting that there is a lot of critique of the Federal Reserve out there. But because so much of it comes from a certain right wing way of thinking, the critique never amounts to what it should really amount to, which is that the Federal Reserve should be essentially run as a public utility, it should be politically controlled, because independent central bank just means a central bank that’s captive of financial interests. So all these things are completely erased. MICHAEL ROBERTS: The right wing say that because their alternative is to close the central bank down and just have a free market of banks to issue whatever they like. They believe that the idea of a central bank means socialism in the state. And we need to wipe out these organizations and let the free market rule in the financial sector. Just imagine, viewers, what that would mean. If you were to implement that as the solution to the problem that central banks are now facing. RADHIKA DESAI: Well, I mean, essentially, central banks, even though they have not performed this very well, the central bank, without a central bank, you wouldn’t have a substantial productive economy, because that’s what, levels of employment, levels of investment, etc, would plummet, essentially. Which maybe brings us to our next question, which is how, how do you assess the effect of this deal on the economy? We’ve sort of covered a bit of this already, but maybe you might want to say something about that? MICHAEL ROBERTS: Well, I think one of the things I’d like to say at this point is we’ve discussed the public sector, public sector budgets, and debt. But remember, that two thirds of debt is not in the public sector. It’s in the private sector. And one of the big issues that we people ignore, because every paper talks about all governments running a deficit, or the government’s borrowing too much money. But we never talk about the huge debt that’s been built up in the corporate sector, particularly amongst small companies, many of whom are so drowned in debt, make no profit, they’re just crawling along. We call them zombie companies, because they don’t make a profit, hardly can service their debt. And yet you could say they clog the capitalist system up because they don’t are not productive. They hold back, block the way forward for more energetic companies, you might argue that’s one argument. But also, a huge amount of debt means these companies are in danger of going bust. And we’re seeing a sharp increase in bankruptcies, both in Europe and the US over the last 12 months. It’s still nowhere near where it was in 2008-9, when we saw the banking financial crash. But it’s an indication that people should be aware that higher interest rates also damage what we might call the real economy, or at least the economy, which is supposedly producing the things and services that we need. And the jobs that people have, are not talking about the banking sector or the government sector here. And that is a huge problem. Where if you added up the total global debt, including the public sector, and this, the rest of it, the private sector debt, we’re talking about something like 250 to 300% of GDP in most of the advanced economies, which is just about 50 to 60% higher than it was 10 years ago. That’s a tremendous deadweight upon the ability of the capitalist economy to produce things and services that we need. It’s driving down productivity. It’s also making sure that profitability doesn’t rise, our profitability has been declining. And it raises real frailties, as you pointed out, Radhika, in the financial system itself, because if a whole layer of companies go bust, banks are going to be in deep trouble, because they’ve been lending to these people. And what’s called non performing loans will be rocketing and banks will go under. Not only are they losing money on the assets that they’ve taken on, but they also could lose money on the loans that they’ve handed out to this layer of companies. I think the impact of debt in general, which we’ve seen build up dramatically in the last 10 years, in particular, but even longer than that, is an indication of how poor and how weak the capitalist economy is now in progressing the things that we need and the services that we require, not just in the big countries, but even worse, for the poor countries of the world, where debt is leading to outright defaults, and the collapse of the economy entirely. RADHIKA DESAI: No, and you know, I just want to add one more point, this is so true. Debt can actually be very productive, you can have banks that are lending to companies that are engaging in long term investment, creating jobs, expanding productive capacity, improving the quality of them, and quantity of economic production. But the kind of debt that we’ve had over the last couple of many decades has been of the absolutely opposite type, because, first of all, as far as working people are concerned, our economies have been run in such a way as to as to put downward pressure on wages, either keep them stagnant or even declining in real terms. And therefore, their debt in that case has been a replacement for income, and you can never really sustainably replace income with debt. And as far as companies are concerned, essentially, debt has been used in a way that these kinds of economic raiders have essentially bought up companies, laden them down with debt, not in order to expand their productive capacity, but essentially to extract as much money out of them as possible. And they have essentially constrained these companies from expanding in any way. And of course, with those levels of debt, of course, they are zombie companies, because they can barely produce enough to service the debt. So the whole nature of the debt has been the big issue as well. MICHAEL ROBERTS: It’s not productive debt anymore. It’s speculative debt, as far as the banks and the financial institutions are. And it’s a complete deadweight for a whole layer of particularly smaller companies. Not just small ones, now, we’re beginning to see in the latest data across the board over the last 10 years, it’s a real indication of how unproductive capitalism has become. And the solution for capitalism keeping going is to keep pumping in more debt, and if there’s a crash for the public sector to pick up the bill, and then the government has to expand that and increase our taxes and reduce our government spending accordingly. This is a process which has been going on for the last two decades in particular, and it’s worse, it’s going to be worse this decade. RADHIKA DESAI: Exactly. So overall, I think, Michael, what we are ending up seeing about the economy is essentially that the debt deal and what we can expect going forward is actually only going to make things worse, it’s going to make productive investment that much more difficult in a high interest rate environment. Meanwhile, governments will continue borrowing in order to finance, particularly the military industrial complex, and all sorts of other inputs into the economy, which might help economically, are going to be curtailed. So we’re not looking at a good scenario at all. If we go to our penultimate question, what do we think is going to happen? What this debt deal and what it generally indicates is going to do to the American financial system? MICHAEL ROBERTS: Well, I think we’ve discussed the problems that the banks have got, you might want to look at it internationally, because I think we could say, as this is geopolitical discussion in a way, that it adds to the likelihood that the US dollar is losing its hegemony, its position of strength in the world economy. As the debt builds up in the US, as the US economy doesn’t grow anywhere near as fast enough in order to fund a lot of the things it wants to do to control and police the world, the dollar is going to suffer. Also, we’re beginning to see a number of countries that are prepared to go along with the former, if you like, Bretton Woods, Washington consensus of controlling everything through the US dollar, looking for alternatives. The US dollar is beginning to lose its strength in the world, or its dominant strength. I’m not saying it’s disappeared. Clearly, it hasn’t because trade is still a huge amount of trade is still in the dollar, huge amount of financial activity and capital flows is in the dollar, and reserves are still so much in the dollar, so that it’s still the international reserve currency. But that situation is changing, and that’s beginning to deteriorate. And over the rest of this decade, I think we’ll see a significant change. If we look at the data, the share that US dollar has in reserves has declined from around about 60% to 55 or 54, depending on what you put in that, and it’s going to go further down. So we could be in a position, I think, as we get to the end of this decade, that less than half of all international reserves held by governments, that is to maintain their current account and their capital flows, less than half will be in dollars. And that is a change, a big change, which is a result of the inability of the US economy to grow without expanding its debt, both private and public. RADHIKA DESAI: No, I think that’s a really great, great point. And we’ve actually also segwayed into our final question, which is also, what will this do to the dollar system, and so on. And that’s perfectly fine. So let me just add a couple of points. I mean, as far as the financial system is concerned, we’ve already said that, of course, the declining value of American treasury securities of various maturities is going to impact the resilience of the banking system. And we are going to see more bank failures. Very likely this will be contributing to more bank failures. And at the same time, I think inflation is probably going to remain stubborn, because we have not solved the underlying problems domestically and internationally, everything the United States is doing is only going to increase the difficulty of accessing products that are sufficiently cheap that they help with inflation, whether they are commodities or manufactured products or what have you. So in that sense, I think that inflation will remain stubborn, which then means that the Federal Reserve, pursuing as it does this policy where you have to increase interest rates to tackle inflation, it’s going to keep inflation higher for longer, which will, as we’ve noted in a number of previous programs, which is going to essentially exacerbate the dilemma of preserving financial stability or preserving monetary stability. These two have been pitted against one another since the beginning of this current episode of inflation, and the dilemma will only get more acute. And then as far as the US dollar system is concerned, the US dollar system really, that one of the, the bedrock of the US dollar system is a robust market for US treasuries. And as we’ve noted already, the market for US treasuries has been troubled for a long time now. The attractiveness of US treasuries is declining. So as a consequence, the market is becoming, as they say, less liquid, that is to say, the volumes that are traded every day have been going down quite consistently. And this matters, because if the volume is very high, then there is no problem for those who wish to buy treasuries and no problem for those who wish to sell them. But with the volumes going down, it’s actually going to be more difficult to be able to sell treasuries. Domestic and foreign buyers each have their own reason for not being particularly enthusiastic about buying treasuries. And if they do buy them, they will demand higher interest rates, which then further compounds the problems, because it will lead to an even greater issuance of treasuries in order to meet the interest payments. So you can see that the United States is going to, and the United States dollar is going as a consequence to have a really tough time. The Federal Reserve is already one of the biggest buyers of treasuries. And if anything, if this trend continues, it will have to become the main buyer, raising a very serious question about whether US debt really can be called a sort of a debt generated by markets. If there is such a big buyer, your own central bank is buying the debt. So yeah, and this may also affect the ratings, as we’ve already said. So Michael, any last thoughts, perhaps? MICHAEL ROBERTS: No, I think the discussion we’ve had has demonstrated, I hope, for those who will watch this, that when we look at the question of the debt ceiling, which is where we started, we can see that’s just a small piece of the general puzzle of global debt, particularly US debt, both public and private, but also globally. And how the rising level of interest rates that we’ve seen over the recent period, supposedly to control inflation, you and I know that it doesn’t do any such thing, but that is the aim of it in order to keep wages down and also to keep profits up is what’s really behind it, is actually creating a problem not only in financing this debt and servicing this debt over the next period in the US and elsewhere, but also causing terrible damage to the government finances of the poorer countries of the world who have so much dollar debt, and they’re seeing sharp interest rate rises. So viewers should bear in mind that when we talk about the debt ceiling in the US, this is just a small part of the disaster that’s going on for debt in many poor countries of the world, in Egypt, in Pakistan, in Ghana, in Sri Lanka, a whole range of other ones too, that are facing basically meltdown in terms of their government finances and their ability to help the impoverished populations that they do have. RADHIKA DESAI: No, that’s really a great note to end on, and maybe I’ll just add that, this also puts in question this whole idea that, somehow the United States has the exorbitant privilege of borrowing cheaply from the world. The United States is not borrowing cheaply at all, and I think this also puts another nail in the coffin of the idea of dollar hegemony. But there are so many more things to discuss, Michael, and I hope that we’ll have you back. I should say to our viewers that this installment, this 11th Geopolitical Economy Hour, is a bit late because I’ve been traveling, and Michael Hudson, who also often joins us, has been busy with other things. But hopefully, Michael Roberts, we will have you back, perhaps with Michael, without Michael Hudson, without. But it’s wonderful that we’ve already touched on three or four further things that we could profitably discuss in a Geopolitical Economy Hour. So thank you very much for joining me today, and looking forward to having you back. MICHAEL ROBERTS: Thank you, Radhika, it’s been great. RADHIKA DESAI: Thank you. Bye.

Write an article about: NY Times is wrong on dedollarization: Economist Michael Hudson debunks Paul Krugman’s dollar defense. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Charles Kindleberger, de-dollarization, dollar, hyperinflation, inflation, media, Michael Hudson, neoliberalism, New York Times, Nobel Prize, Paul Krugman

Economist Michael Hudson responds to the misleading arguments against de-dollarization that New York Times columnist Paul Krugman made in his attempt to defend US hegemony and the dollar system. In this conversation with Geopolitical Economy Report editor Ben Norton, economist Michael Hudson responds to the misleading arguments against de-dollarization that New York Times columnist Paul Krugman made in his attempt to defend US hegemony and the dollar system. Hudson also discussed the ongoing US banking crisis and collapse of four banks in two months in another interview available here. (The following is a lightly edited transcript.) BEN NORTON: Hi everyone, I’m Ben Norton and this is Geopolitical Economy Report. I’m joined by the economist Michael Hudson, a friend of the show, a brilliant economist, the author of many books, and also the co-host of the program Geopolitical Economy Hour here with Radhika Desai. Today we’re going to be talking about de-dollarization. Michael and Radhika just did a series on the decline in the US dollar system and the move by countries around the world to seek alternatives to the dominance of the US dollar. Specifically, I wanted to bring on Michael today to respond to articles that were published in the New York Times by the economist Paul Krugman, arguing against de-dollarization, arguing in defense of the US dollar system. We’re going to look at two articles that Krugman wrote, one in April and the other in May. Michael, I’m going to start with the article that Paul Krugman published in April, called “International Money Madness Strikes Again“. He has this very dismissive tone in this, saying that it’s “madness”. And essentially in this article, he creates a straw man, where he says that if you think that the dominance of the US dollar is in decline, that you think that there’s going to be hyperinflation in the United States. He refers to these people as “Weimarists”, referring to Weimar Germany, where there was hyperinflation in the 1920s. So he essentially says that if you don’t believe that the US dollar will stay dominant, you believe that it’s going to become toilet paper. It’s a straw man argument. He also compared the dollar to the British pound. And he said, this is a quote from his article, he says, “In sum, there’s no reason to be terrified of the consequences if the dollar should lose its special international status. But that said, it’s really hard to see that happening in the first place”. So his argument is that it’s not going to happen, but even if it did happen, it wouldn’t be important, because look what happened in Britain; the British pound was the international global reserve currency, and yet it no longer is, and Britain still is a significant economy, he argues. So what do you make of Krugman’s arguments? MICHAEL HUDSON: It’s not a straw man argument; it’s deliberate ignorance. You have to really have tunnel vision and not understand the most basic economic history to make the misrepresentations that Krugman said. And if I hadn’t met him, and I didn’t know how really stupid he is as a person, I would think he’s deliberately lying, but I have met him and he really is that stupid. In my [book] Super Imperialism and my book Trade, Development and Foreign Debt, I explained the Weimar inflation. Every hyperinflation in history has come from an attempt to pay a debt in a foreign currency. When Germany was saddled with reparations debts in the 1920s, it owed dollars and sterling and French francs. The problem is that the United States and other countries immediately erected tariff barriers so that Germany could not earn the money to pay the foreign debts. The debts were way beyond Germany’s ability to pay because the European governments wanted to punish Germany. So Germany made an attempt to print Reichsmarks, throw it onto the foreign exchange markets in a desperate attempt to buy the dollars to pay the allies, England, France and other countries, who then would take these dollars and they would pay the inter-ally debts that the United States insisted on for the arms that they had sold Europe before America entered into World War I. So the hyperinflation collapsed the exchange rate of the German mark. And, as the exchange rate went down, that meant that import prices went way up. So first of all, the exchange rate went down, then import prices went up and import prices were an umbrella over the general price level. And then the Reichsbank had to print more domestic currency in order to enable the economy to buy and sell food and other basic needs at the higher prices that were all being forced up as a result of trying to pay foreign currency debts. Well, the United States doesn’t owe a foreign currency debt. America’s debts are in dollars and it can always print them. It doesn’t have to throw them on the exchange market to buy rubles or yen or other currencies. So Krugman doesn’t understand the difference between paying a domestic debt and paying a foreign debt. And that’s because he doesn’t understand foreign trade. If he understood foreign trade and debt, he never could have won a Nobel Prize. A precondition for winning the Nobel Prize is not to understand how international finance works so that you can act to preserve the kind of financial superstition that’s taught in the universities like the University of Chicago. And under the monetarist views that are taught in Chicago and parroted in the New York Times and the Wall Street Journal and the other major media, the governments print too much money, usually to pay workers or to pay social security or social purposes, and that increases wages and that results in inflation and that makes the currency decline as inflation makes exports less competitive. This gets the whole system in reverse. The problem doesn’t begin with the government just creating money to spend domestically. It starts with foreign debt and trying to pay debt beyond the ability of a country to earn the foreign exchange, the dollars, in which its debt is denominated. And if you don’t understand that, the government should take away Krugman’s PhD on the grounds that he doesn’t know what any European historian would learn or anybody who’s read what I’ve described in Super Imperialism. I’ve written books about this very phenomenon. Needless to say, I’m sort of the name that must not be spoken when it comes to talking about international financial crises. So Krugman’s misrepresenting the Weimarist and hyperinflation to begin with because he doesn’t want the government to spend money domestically on social security, on labor, on social spending. He wants it spent on, as he said again and again, we need the money to spend in Ukraine. We need the money to fight Russia and China. He’s become a neocon, which is why he’s on the editorial page of the New York Times. And you can just look at whatever he says as the product of an ignoramus who’s become a neocon and is a useful idiot to convince people that, well, we’ve given him the Nobel Prize, sort of like the emperor’s new clothes, to somehow legitimize his wrongheadedness when it comes to how inflation works, how economies work, and how the balance of payments work. So then we get into what you said, the dollar’s demise. Nobody’s talking about the dollar’s demise because the United States will use dollars and American companies own affiliates all over the world. And of course they do their own business in dollars. They don’t do it in foreign currency. So nobody’s really talking about that. What really is happening isn’t simply a currency crisis. It’s not just a problem of not accepting the dollar. It’s the fact that America grabbed $300 billion worth of Russian foreign exchange reserves and told [America’s] satellite, the Bank of England, to grab Venezuela’s gold stock and turn it over to Mr. [Juan] Guaidó, who America said should be the Venezuelan president. And the rest of the world, what President Putin calls a global majority, is now realizing, — We cannot do our own trade with each other in dollars because if we trade in dollars, the United States can grab our dollars. Obviously, Saudi Arabia and the Arab countries are thinking this. They’ve said, — We’d better get out of dollars as quick as possible if America and Israel attack Syria and Iraq, they’re just gonna grab all of our money. Let’s move our money into safety. So just as in the United States, the large bank depositors are moving their money out of small banks into the big systemic banks like Chase into safety, other countries are moving their money, the governments are moving their money, out of the dollar into their own currencies, developing currency swaps and trying to develop a BRICS bank to finance their mutual trade and investment because the world economy is breaking into two halves. Well, that’s what Radhika and I have been talking about in our shows with you on the Geopolitical Economy Hour. We’re talking about how what appears to be a monetary problem, what appears to be a financial problem, is actually the fact that the world is breaking into two different economic systems, finance capitalism in the United States and industrial capitalism evolving into industrial socialism in Eurasia. And if you don’t realize the context of the balance of payments and trade and how central banks are holding their monetary reserves, [and how] in this context [governments are asking themselves]: How are they going to develop their economies domestically? How are they going to develop their economies to keep their economic surplus at home instead of turning it over to the United States like the NATO countries of Europe do? [If you don’t realize this context,] then you’re really somehow imposing a tunnel vision on yourself and not seeing the political context of the economic picture. BEN NORTON: Well said. And another point that Krugman made, in this article in April in defense of US dollar hegemony, is that Charles Kindleberger, the famous economic historian of MIT – and, in fact, Krugman studied with Charles Kindleberger – he had argued that there are three main advantages for the US dollar. And I should point out by the way that Kindleberger, who worked at the US Treasury, was the founder of the academic discipline known as hegemonic stability theory. So he basically is a kind of imperial court economist or court historian, defending US economic hegemony around the world. But he argued, Kindleberger, who taught Krugman, and Krugman is echoing him, they argue that the US dollar has three advantages: One, incumbency – simply the fact that so many people are already using it. Two, US financial markets are open – and Krugman contrasted that to China, which regulates its capital markets. And then finally, what Krugman referred to as the so-called rule of law. And this is such crude propaganda. Krugman wrote – I mean, it’s just laughable – but Krugman wrote, “Unless you’re a dictator planning to commit major war crimes, you needn’t fear that the U.S. government will impound your assets”. So what do you make of Krugman’s argument, citing Kindleberger, that those three main points – incumbency, open financial markets, and rule of law – are what undergird the hegemony of the US dollar? MICHAEL HUDSON: Well, I’ve met over the years a number of classmates of Krugman in Kindleberger’s class. And one of them told me that he had a conversation with Krugman. And Krugman said, the one thing we’re told is, don’t discuss money. Don’t discuss the character of money. And so he never did. Don’t question things that will somehow rattle the status quo narrative. And he’s learned that. It’s true that there’s inertia for using the dollar. That was America’s great strength, that it’s really hard to replace one financial system and economic system and political system with another. It takes a huge effort to sort of get over the hump of, okay, we’re actually going to design a different system. Well, once the United States threatened to cut Russia and other Eurasian countries off from SWIFT, the bank clearing settlement system, Russia and China put money into developing their own alternative systems. Now they’ve done it. They’ve also developed their own credit card system domestically. So they don’t have to use the dollarized Visa system or Master Card system. They’re now developing another system. Krugman has adopted the language of President Biden, who says the world is dividing between democracy and autocracy. So when a Kindleberger or Krugman say, well, China and Russia are run by autocrats, an autocrat is what used to be called a democrat. Somebody trying to develop their act on behalf of their own economy to raise living standards and to raise productivity and to raise basically the economic output. By democracy, he means what used to be called an autocrat. Democracy is what they have in Ukraine. That used to be called Nazism. And it’s still called Nazism throughout much of Eurasia and the global majority. So we’re having an Orwellian terminology here and Krugman is trying to convince people to use this Orwellian terminology where countries trying to protect their economy from American financial aggression of cutting off their banking system, cutting off their credit card system, seizing their foreign reserves, imposing sanctions against them, that somehow they’re autocrats instead of trying to defend their economy against American NATO financial aggression. The other point he makes is that, well, an open economy, people can put all their money into dollars and they can’t put them into China and keep safe. Well, of course that’s the case. China has no need for the kleptocrats of the world, the drug dealers, the criminals, the warlords, to lend money to China that somehow is going to do them the favor of protecting. The United States did that. I’ve described in a number of my books how I was working for Chase Manhattan in 1967. A former State Department person came to me and gave me a document explaining that the United States wanted to become the new offshore banking center, the new flight capital center, saying that, well, what if America could become the Switzerland? They asked me to calculate how much the United States could get if it provided safety to the world drug dealers, to the world’s criminals, to the world tax avoiders, to the world dictators. They said, — If we can have the United States set up banks offshore in the Caribbean and other countries, then we can have Chase Manhattan and other banks set up offices in these countries to take the deposits, and then they will take these deposits and they will send them to the head office. — And that is how we’re going to finance the Vietnam War and foreign military spending. And that’s exactly what the United States did. The United States, by having an open economy, has said, — We will protect all of the savings of the criminals of the world, the kleptocrats, the client dictators that we support, the money that President Zelensky of Ukraine keeps, and that’s true. America is the protector of dictators, not China, and that indeed makes the dollar more attractive to dictators because the United States has criminalized the financial system. It’s criminalized the balance of payments as a means of financing its military spending abroad. And I quote the documents in the various books that I’ve written. They were handed to me in an elevator, and I gather they’re not really secret, so I was able to discuss them. And there was a book by Tom Naylor of Canada called Hot Money, where he describes exactly how it was the United States that sent up the offshore banking centers, making America to be the safe haven for criminals throughout the world. And Paul Krugman says, this is what’s saving the dollar. Criminals are us. If we can attract all the criminal capital to the United States, there’s so much crime that we support by supporting our dictators and calling them democrats, that we can stabilize the dollar by criminalizing the entire dollarized economy. That’s Paul Krugman’s defense of the dollar in a nutshell. And of course, he’s right when he says that. If America can criminalize the global economy and destroy any attempt by Russia, China, Iran, the Eurasian countries, Pakistan, India, Saudi Arabia, to be economically independent, if it can insist that there’s only one currency and a unipolar economy, then America will win, and it can reduce the entire world economy to feudalism. That’s certainly the neocon ideal. The global majority of the world reject this ideal, but what they’re saying, again, is not fit to be seen in the print of the New York Times or other media. So you’re not getting the context. BEN NORTON: Now, I want to also briefly respond to Krugman’s follow-up article that he published in the New York Times in May, and it was even more dismissive in tone. The headline is, “What’s Driving Dollar Doomsaying?” Here, you can see this kind of neoconservative ideology that you mentioned. He blames the increasing discussion of de-dollarization on what he calls “Putin sympathizers, who want us to believe that America will be punished for, as they see it, ‘weaponizing’ the dollar”, he wrote, in scare quotes. So he is very dismissive of the idea, which is an objective fact, that the US government uses its currency as a geopolitical weapon. He also ironically blames de-dollarization on the “crypto cult”. And I mean, we’ve been very critical of the crypto Ponzi scheme. The idea that anyone who is critical of US dollar hegemony is a crypto supporter is laughable. And he blames Elon Musk. It’s a very similar article, but he makes two other main points I want to ask you about. The first point he makes is he says, again, US dollar hegemony is not in danger, but even if it were, he says, quote, “the importance of controlling the world’s reserve currency is greatly overrated”. And then he says, “Why, exactly, should America care whether a contract between Chinese exporters and Brazilian importers is written in dollars as opposed to yuan or reais?” And he asks how the fact that the US dollar is the global reserve currency benefits the US economy. He estimated, writing, “considering all this together, dollar dominance is worth more to America than a fraction of 1 percent of GDP”. What is your response to that argument? MICHAEL HUDSON: Well, basically he’s criticizing the Biden administration and the entire American government’s policy to say, — Why are you fighting so hard to preserve the dollar centrality if it’s only 0.1%? — Why did you bomb Libya and steal all of its gold when President Gaddafi said he wanted to have a gold-based currency for the African countries? — Why did you go to war with them if it’s only 0.1%? Why is NATO going to war with Russia over Ukraine and threatening China for using their own currency if it’s only 0.1%? — Why is America spending 4% of its GDP on militarily fighting countries that are seeking to become independent of U.S. financial domination if it’s only 0.1%? What is Krugman missing here? Well, it used to be, when the status quo of beneficiaries met critics, they’d call them commies. Well, you don’t call them commies anymore because there isn’t any communism really. You call them Putin sympathizers. But the fact is, the CIA itself calls themselves realists. Are you going to be a realist? And if you say, a realist is a Putin sympathizer, then reality is what Putin is saying. Then for reality, read Putin’s speeches and especially read the speeches of Foreign Secretary Sergey Lavrov that spells out exactly what the logic is. This is what the realist school is talking about, and they call themselves the realist school in the United States. They’re the school that are being sidelined by Mr. Blinken and Victoria Nuland and Biden’s foreign state department and CIA group. But the fact is that the whole rest of the world seems to have a reason for wanting all of their governments to have their own currency. Well, let’s look at what difference it makes whether China and Saudi Arabia do their oil trade in yen or dollars. If you’re doing your oil trade and other foreign trade in dollars, then you have to save up dollars to have the money to pay for the oil. You have to have a U.S. bank account. You have to hold U.S. dollars. And that means you take your domestic currency, your domestic yen or whatever the currency is, and buy dollars, buy dollars, and that supports the dollars exchange rate. And it provides the United States central bank with the foreign exchange coming in so that it can afford to pay for the military balance of payments costs of keeping military bases all around the yen countries that use the yen or the ruble or other foreign currencies. So it makes a very big difference. If Saudi Arabia pays for its oil in Chinese yen, then it’s going to have to save in Chinese yen, and it will have to accumulate yen, which indeed it’s doing in its foreign reserves. And China will hold Saudi Arabian currency in its foreign reserves instead of holding the dollar. So there will be a mutual inflow of savings into each other’s currency in order to finance their own savings investment. And this inflow will not go into Silicon Valley Bank or Chase Manhattan or other banks to be turned over to the U.S. Treasury as part of its foreign exchange reserves. That’s the difference. And if you leave gunboats out of the picture, if you look at an economy that exists without military spending, without balance of payments deficits imposed by having 800 military bases all over the world, then you’re missing the quantitative impact of what actually determines exchange rates and currency values and ultimately international economic power. BEN NORTON: You mentioned a key point, which is balance of payments. The other point that Krugman made in this article defending U.S. dollar hegemony is, he insisted that the U.S. constant current account deficit, the constant U.S. trade deficit with the rest of the world, is not related to U.S. dollar hegemony. In fact, what he is essentially doing here is he is arguing against the idea of exorbitant privilege. That’s a term that was created in the 1960s by France’s finance minister [​​Valéry Giscard d’Estaing]. And [d’Estaing] argued that the fact that the dollar is the global reserve currency, and that only the United States can print dollars, gives the U.S. an exorbitant privilege. Well, Krugman says, no, that’s not true. Krugman argues that the dollar doesn’t help the U.S. maintain large balance of payments deficits, because if you look at different countries with their current account deficits as a percentage of GDP, technically Britain, Australia, and Canada have larger current account deficits as a percentage of GDP than the United States does. How do you respond to Krugman’s argument there? MICHAEL HUDSON: The trick that Krugman uses, and he’s being deliberately deceptive here, he talks about the current account deficit. The current account is not the balance of payments. The balance of payments has capital account, and it also has transfer payments. And he leaves that out. What is reported as the current account deficit of trade and services vastly exceeds the actual financial flows. For instance, the Americans report the trade deficit of oil, huge trade deficit. And yet most oil is imported from U.S. firms. And yes, it pays a lot for the oil, but very little of this payment for oil is paid in foreign currency, because the firms remit their profits to the United States. They buy the imported capital goods that they need in the United States. They pay U.S. management in the United States. I’ve written a monograph on distinguishing the financial flows of the balance of payments from the GDP approach as if all of these things were monetary. So Krugman deliberately leaves out the fact that America makes an enormous amount of money on capital account. For instance, the fact that most of the global majorities’ foreign debts are in dollars, not their own currency. This is why the IMF forces them to depreciate their currency and impose a chronic hyperinflation on Latin American and African debtor countries. It’s because if you look at the capital account, including the enormous inflow of the world’s criminal capital through the offshore banking centers, then you’re going to understand that the balance of payment is something utterly different than the fictitious picture that Mr. Krugman states. And you can look very simply. You can look at the Treasury Bulletin, and you can look at U.S. liabilities to foreigners. Look at U.S. liabilities to their own branches in the Caribbean countries and the other offshore banking centers, and you’ll see an enormous inflow of foreign currency from these offshore banking centers into the dollar accounts of the head offices of these banks. The statistics are all right there in the Treasury Bulletin. And when Krugman, instead of looking at the Treasury Bulletin, looks at the Commerce Department’s trade and current account figures, he’s distracting attention from what really is important. Currency values are not determined by trade. They’re determined by capital investment, by debt service especially, and by capital flight and crime. And if you don’t realize that capital flight, crime, warfare is the key to the balance of payments, but only goods and services, then you’re under the same illusion that Krugman is in in the American economy, that the financial sector is all about banks lending money to factories to pay workers to produce the goods and services that they buy, leaving out the stock market, the bond market, the real estate market, the commercial banking system, the private capital, and everything else that is a blank area to Mr. Krugman. BEN NORTON: Yeah, I do have to say it is pretty incredible seeing that this is a Nobel Prize winning economist writing in the New York Times, and he conveniently leaves out any mention of the capital account. He does not mention the capital account one time in this lengthy article. Yet anyone who has taken a macroeconomics 101 class knows that the inverse of the current account is supposed to be the capital account. No mention of that. No mention of all of those dollars being recycled back into the United States. So while the US maintains this massive trade deficit, those dollars go out in the world, but they’re recycled back into buying assets in the United States, which helps keep the whole bubble afloat. MICHAEL HUDSON: That’s why he was given the Nobel Prize, because he was able to create a seemingly readable fairy tale about how the economy would work if it didn’t have any money, if it didn’t have any debt, if there weren’t any gunboats, if there were not any crime, if the financial sector did not control the government, but governments were elected to represent the interests of the people in getting better wages and living standards. If he can somehow provide a readable mythology, like a fairy tale, that seems to make sense, and wouldn’t it be nice if this were true, then you get the Nobel Prize. Then you get applauded, and you get hired by the newspapers that themselves are representative of the financial oligarchy that runs the country. BEN NORTON: Very well said. Well, a final note to end on here, Michael, is probably the most insipid, frankly stupidest point in Krugman’s article, which really reflects his main talking point, which is simply that the dollar is powerful because it’s powerful. Krugman wrote, to conclude his article, he wrote, “The bottom line in most of this analysis is that the dollar is widely used because it’s widely used — that all of the various roles the dollar plays create a web of self-reinforcement, keeping the dollar pre-eminent”. This is a tautology. The dollar is powerful because it’s powerful, and it’s going to always be that way. This is the ideology of people like Paul Krugman and Charles Kindleberger. It’s, of course, why they’re elevated in the US media. It’s why they’re given awards and prizes. But it also just shows how vacuous their arguments actually are. And I think maybe deep down, he probably knows that he doesn’t have much to argue. Because if an undergraduate submitted that argument, I mean, a philosophy professor would rip it to shreds, but maybe an economist, a neoclassical, neoliberal economist would probably take it seriously. They’re the only ones. MICHAEL HUDSON: Well, what does “widely used” means? Just ask yourself for a minute, why doesn’t Venezuela use dollars? Why does Russia not use dollars and moved away from it? Or euros? Why did China say we’ve got our moving away from the dollar? Why did Saudi Arabia make the arrangements with China and other BRICS countries to trade in their own currencies, not dollars? If you don’t acknowledge the fact that other people have another idea, then you’re very biased. Why is it that central banks of Russia, China, and all over the world are buying gold in the last, especially in the last few months? Why are countries deciding, we’re going to sell dollars and are going to buy gold? There must be some logic there. Why doesn’t he explain at least what the logic is? He can say that there are counter arguments, but you have to acknowledge the fact that other people must have a reason for what they’re doing. So Krugman is saying that other people have no reason at all for what they’re doing. And when they move out of the dollar, there’s no reason for them to do it. And obviously, if you read the speeches of what these countries, foreign ministers and central bankers say, they explain just why they’re doing what they’re doing. And you don’t get a word of that in the New York Times any more than you get a word of what Seymour Hersh wrote about why the United States blew up the Russian Nord Stream gas lines to Germany. There are certain things that you just can’t discuss in polite society. BEN NORTON: Well, that’s a great note to end on. I want to thank you, Michael Hudson, a brilliant economist, the author of many books. His website is michael-hudson.com. And Michael also hosts a regular program here with Radhika Desai, which is Geopolitical Economy Hour. Michael, thanks so much for joining me. MICHAEL HUDSON: It’s really good to be here. I love these discussions. Somebody has to talk about them. BEN NORTON: It’s always a pleasure. Anytime.

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Ann Pettifor, debt, economics, Geopolitical Economy Hour, inflation, interest, Michael Hudson, Radhika Desai

Political economists Radhika Desai, Michael Hudson, and Ann Pettifor discuss the growing debt crisis in the Global South and the urgent need for forgiveness and system change. Political economists Radhika Desai, Michael Hudson, and Ann Pettifor discuss the growing debt crisis in the Global South and the urgent need for forgiveness and system change. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to this 12th Geopolitical Economy Hour, the fortnightly show on the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And today we are joined by Ann Pettifor to discuss an urgent issue of our time, that of the third world debt crisis. As we record this, this is the topic of the Summit on New Global Financing Pact called by Emmanuel Macron in Paris. And we couldn’t find a more authoritative guest for this show. Ann Pettifor does not really need any introduction, and I’m only going to give one to remind ourselves of the range of her contributions. She’s a prolific writer on issues relating to debt, finance and development, and is also an activist and has intervened in politics to great effect. Ann launched the Jubilee campaign for debt forgiveness for the poorest countries at the end of the last century, earning the support of the likes of Pope John Paul II, Muhammad Ali, Tony Blair, Bono, Gordon Brown and Bill Clinton. She served as an advisor to prominent British Labour Party figures such as Margaret Beckett in the past, and more recently, between 2016 and 2019, she was an advisor to John McDonnell, MP, who was shadow chancellor when Jeremy Corbyn was the leader of the Labour Party. Then in 2021, Ann was appointed to the Scottish government’s Just Transition Commission, chaired by Professor Jim Skea of the Intergovernmental Panel on Climate Change, the first government to prepare for the green transition. In 2006, moreover, she had authored the very famous book, The Coming First World Debt Crisis, which predicted the 2008 financial crisis well before anyone did, and at a time when no one expected the crisis. Ann is also the co-author of the Green New Deal in 2008, which was subsequently adopted by the social justice democrats such as Alexandria Ocasio-Cortez and others as a major plank in their election bid. And of course, since then, it’s been more widely adopted as well. She’s the author of many books and articles, including Debt, the Most Potent Form of Slavery, and The Production of Money, How to Break the Power of Bankers. Right now, Ann also has a substack, it’s called System Change, and this is going to form the basis of her new book on the need to transform the international financial system, both for social justice as well, of course, as ecological sustainability. So welcome, Ann. ANN PETTIFOR: Thank you very much for that very generous and lengthy introduction. I’m really grateful to you. RADHIKA DESAI: So let me just say a few things to frame what we are going to discuss. In the 1980s, of course, the world experienced a major and very consequential third world debt crisis, which began when Argentina, Brazil, and Mexico declared that they were unable to pay their debts following the Volcker shock. And then they were followed by many Latin American and African countries. And the effects of this financial crisis marked the world for at least two decades, if not more. There were repeated reschedulings, which only resulted in ever greater flows of finance going from the third world to the first world in the opposite direction to which most first world countries say is happening. That is, they say the international financial system exists to transfer finance from the first world to the third world, and the opposite was happening. Practically every major third world country in the world was put under a structural adjustment program which restricted government expenditure, devalued their currencies, massively increased their exports and so on. And this resulted in two lost decades of development. There was massive income deflation in third world countries. In many countries, there was even economic retardation. That is to say, economies shrank from one year to the next. And meanwhile, the first world was flooded with extremely cheap exports from third world countries. This was the reason for the extremely low inflation in first world countries. And of course, the volume of exports grew while the value of exports either did not grow or actually declined. Now, the new century seemed to bring some relief. There was increased lending from first world countries to third world countries. There was also increased equity investment in the same direction. The IMF and the World Bank, which had essentially acted as the bailiffs for the private financial corporations who had lent to third world countries in the 1980s and 90s, began to lose clients as more and more countries in the third world realized what they were doing and began to have options. So essentially, the portfolios of these institutions began to shrink. And this was an era of considerable third world growth, which also marked the weakening of the imperial system of the West. But then after the 2008 financial crisis, you saw a new turn taking place. Financial flows abroad began to reduce. Growth began to slow. Commodity prices began to fall. Third world countries’ products, whether they were primary commodities or cheap manufacturers fell, trade slowed down. And to that was added the pandemic. And then now the Western sanctions and other measures in its proxy war against Russia, which have reduced massively or which have increased massively the burdens on third world countries in terms of rising prices of commodities and so on. So this has brought on fears of a new debt crisis. So are we going to see a rerun of the great third world debt crisis of the 1980s? Are we facing two more lost decades of development in third world countries? Another strengthening of the dollar system on the backs of vast flows of capital from third world countries to first world countries? Another decade of low inflation on the backs of third world producers who are forced to work harder and longer for less and less returns for their labor and products? Or is there a difference between then and now? Certainly one big difference is China. There’s absolutely no Western commentary on the current debt crisis, which does not somehow finger China as the real cause of it and and therefore also the cause of the West and the world’s inability to resolve that crisis. But clearly, there’s something much more complex going on. So what is it? What’s the real story today? And Michael and I hope to unravel it for you by asking the following questions. What is the genesis of the 1980s debt crisis? What are the causes of the debt crisis today? Are third world countries responsible for their own plight, as is implied by so much dominant discourse? Has debt been turned into an instrument of world power and imperialism? Is China putting third world countries into a debt trap? What does the debt crisis have to do with the dollar system and what is the way out? These are the questions and perhaps, Michael, we will start with you on the first one. What are your views on the genesis of the debt crisis? MICHAEL HUDSON: Well, we’re seeing the end of a long process that was dysfunctional from the beginning and was bound to lead to widening economic polarization and crisis. Today’s international financial rules were set in 1944 and 45 by the U.S. geopolitical strategists, and they designed the World Bank and the IMF in a way that served America’s creditor position at the expense of Britain’s position and the world’s former colonies and at the expense of countries that were debtors, because the United States from the very beginning used this creditor position to exert control over debtor countries. That’s what creditors are able to do. I explained all of this in my book, Super Imperialism, at the outset, so I’m not going to go over that here. But to be specific, the World Bank sought to steer the global south economies into dependency on U.S. food exports and other products. The way the World Bank was set up, it could only make foreign currency loans, not domestic currency loans. And yet for third world countries, now we call them the global south, to develop, they needed domestic spending in their own currency. The United States essentially said, well, we’re really only going to lend to finance exports. Most Latin America and Africa, we’re told to export plantation products. The one thing the World Bank was told not to lend for was for their own domestic food production. Every IMF mission said you have to do what America’s done with its agricultural system, provide agricultural services, marketing agreements, rural education, seeds. The World Bank said none of that. If they produce their own food, then they will compete with American exports. We want them to produce only goods that America doesn’t produce and let them all compete with each other to lower the price of debtor country products so America can monopolize the price of creditor country products, mainly food, manufacturers, and high technology. So needless to say, this forced countries into balance of payments deficit. And that’s where the IMF came in and said, well, once you have a deficit, you’re going to have to devalue your currency unless we make you a loan. So we’ll make you a loan, but you have to somehow agree to compete with other countries by putting the class war back in business. You have to be more competitive by lowering wage rates because after all, world prices have the same prices for raw materials, for machinery, for credit. When a country devalues, it’s really devaluing its labor. And the IMF started a process that’s now gone on for 75 years of continually lowering the exchange rate of third world labor to make it cheap for American investors. And of course, by imposing austerity, this didn’t really help them pay their debts at all. It made them even further in debt. And then the IMF said, well, you have to privatize and sell off your raw materials, your mineral rights, your oil rights, and your public infrastructure to foreigners so that they can, by buying out your means of production, that you can use these dollars to pay the foreign debts that you’ve run up by following our bad advice. So it was a losing game from the beginning. And that’s why in 1982, Mexico announced that it couldn’t pay. Behind all of this was, starting in 1953, the CIA began overthrowing governments that aimed at land reform, starting with Guatemala. There was a decision made that countries starting land reform are inimical to the United States, and you had U.S. government interference in other countries to sort of force them into what became known as the Washington Consensus. And it was all self-destructive and destructive. And that really began in 1972. And it was obvious that there was going to be the breakdown. And I worked for Chase Manhattan Bank as their balance of payments economist. And in the mid-1960s, I was asked to look at the balance of payments of Argentina, Brazil, and Chile. How much could they afford to borrow to repay as a market? And I could see that they couldn’t afford to take on any more debt. They were already loaned up before the big crisis came up. And so there was a meeting at the Federal Reserve, and the Federal Reserve told the banks, we know that they can’t pay, but we will simply lend these countries the money to pay their foreign debt. We will call it foreign aid. And if you look at the American foreign aid, a lot of foreign aid increasingly went to debtor countries to pay the U.S. banks. It was a circular flow. And the solution to debt was yet more debt. They borrowed their way out of debt. And finally, that reached an end in 1982. And that really became the debt crisis that exploded. RADHIKA DESAI: Ann, that’s really great, Michael. So Ann, please go ahead. ANN PETTIFOR: I would agree with a great deal of what Michael said, but I think my orientation would be slightly different. I absolutely agree that the U.S. has been using its imperial powers since the Second World War, perhaps earlier even, to control, if you like, resources for the United States at home and abroad. But I would take a different orientation. I would argue that instead of putting the United States in there, I would put Wall Street in there. Instead of putting the IMF in there, I would put Wall Street in there. And Wall Street, in my view, is responsible for much of the mess that the world finds it in at the moment. Now, let me begin at the beginning. I’m a Keynesian. I’m a Keynesian monetary theorist. And I believe that Keynes is far more radical than he’s ever given credit for. He believed in a form of liberal socialism, if you like. And he’s often defined as being exclusively concerned with fiscal policy, tax and spend. But he was actually overwhelmingly concerned with monetary policy. It’s after all The General Theory of Employment, Interest and Money. And money and interest come first. So in 1919, at the Versailles Treaty, he’s in the negotiations. He’s a young economist and he’s struggling to get his voice heard. But he’s also overwhelmed by the tragedy of Europe in 1919. He’s working strangely with the South African president at the time. And he’s traveling across Europe and seeing the devastation. And he comes up with the idea that actually the problem for Europe is the system. Wall Street financed the First World War. And he believed that Wall Street would not finance the recovery. Or if it did try and finance the recovery, it would do so at very high real rates of interest for which you could read real high rates of return. And so he proposed instead that there ought to be public provision of credit for Europe for the recovery in 1919. In other words, he proposed that the United States, Britain and France should issue a bond, a promise to pay, I think was about a million pounds, a lot of money in those days, which would go to Germany and be used in recovery. And Germany would repay that bond over time. He proposed the same for Eastern European countries. Now what we did not know at the time was that the United States President Wilson was accompanied by a big shot from Wall Street, who drafted the letter of rejection to Keynes in the name of President Wilson and said, thank you for your bright idea, but really we don’t want it. He was so disillusioned with that. And what he was proposing was system change. Rather than Wall Street financing the war and the recovery, he wanted to use public authority to raise the finance needed for recovery in Europe. He was defeated hopelessly. He then struggled on. He wrote The Economic Consequences of Peace in a fit of very bad temper. And some of it is very personally insulting. And you know, it’s not a perfect text, but it’s a text that’s never been out of print. And he sort of gave up after that. He didn’t give up, but he despaired. And then Britain, by mistake, fell out of the gold standard in 1932. And then in 1933, Roosevelt is elected as president. And on the night of his election, Roosevelt decides he’s going to dismantle the gold standard. And he proposes to close the banks on the Monday after. And he wants to close the banks then, and that’s Saturday night, on the night of his inauguration. And he starts saying, you can’t because it’s a holy day tomorrow. You can’t do this. So you do it on Monday. And whereas most people think of the closing of the banks as a reason for saving the banks, in fact, it was a reason for dismantling the gold standard. And banks were instructed to hand over all their gold to the Treasury. And indeed, the public were invited to hand over all their gold. And gradually, he moved the dollar of gold. He began to fiddle with the value of the dollar, in fact. Anyway, he’s not perfect. He made some big errors, he even decides to reverse course in 1937 and embark on a period of austerity. So, and of course, there’s an awful lot wrong with what Roosevelt did. And he was racist or he complied with the racist norms of the Democrat Party. And he was a bit of a misogynist. He didn’t include women in, for example, his camps for growing trees and helping with nature’s recovery. And so there we are. So then in 1944, Keynes goes to Bretton Woods and is defeated by White and the president’s representative over the issue of who will control the world’s reserve and how will you manage the world’s reserve currency? He proposes an independent bank with a clearing bank that would operate, if you like, above and beyond individual states and not draw on the imperial power of a single state. And he’s defeated by the Americans who want the dollar. And the reason I’m telling this tale is to disagree to an extent with what Michael is saying, because it’s the power of the dollar that is the problem. And the dollar is part of a system that is generating vast, vast amounts of both private and public debt, which are unsustainable. And this has been done in cahoots with Wall Street and also, of course, with the Saudis. [Though] that deal seems to be breaking up, the petrodollar. So the point is this, I campaigned long and hard to get 100 billion dollars of debt canceled for about 30 of the world’s poorest countries in nominal terms. And that’s small beer, really. But nevertheless, it was an achievement. And in 2005, I worked with the Nigerian government and we cleared 30 billion dollars of debt for Nigeria under a finance minister Ngozi Okonjo-Iweala, who is now head of the WTO. What I learned from that lesson is that canceling the debt is a shallow process. It’s something that can be done. But so long as the spigot of debt is still turned on, the tap is still flowing. And as long as the debt is, I mean, a large proportion of the debt today of low income countries is due to the strength of the dollar. And the dollar strengthened. Number one during the great financial crisis and number two during the pandemic. So whenever there’s a crisis and even when it’s caused by the United States and is located in the United States, the dollar strengthens. And automatically, this affects the exchange rates of poor countries and elevates their debt. And so I’m at the point where I really don’t want to talk about debt cancellation. Although of course it’s either going to be canceled or defaulted or paid down. Those are the only choices we have. I would rather talk about changing the system. I felt that throughout the Jubilee 2000 campaign, when we were campaigning in the process, I began to realize, look, you can cancel the debt, but it won’t break the circularity of the system. And so I began to argue that we should have an independent debt negotiation process between creditors and debtors, similar to an insolvency process where an independent judge judges whether or not the creditor is as guilty as the debtor, and if so, that the losses should be shared. We don’t have such a system. So the burden of losses always falls on the debtor, never on the creditor. The creditor in the international sphere, not in the domestic sphere, but in the international sphere, is always the beneficiary of a default, is always backed up by state resources. So I tried to get that process through. For a minute, in 2001 to 2003, the IMF went along with the proposal for a sovereign debt restructuring mechanism, mainly because they were mired in the mess that was Argentina and was their creation. And they thought, Ann Krueger, who was at the time the number two at the IMF, thought that would be a way of extricating the IMF from that mess. But that was defeated. I went to a conference in 2003 at the IMF and was invited to speak. And that proposal came up. It was defeated on the one hand by Wall Street, which was well represented. I had lunch. I was at the lunch table with Paul Singer of the vulture fund Elliott Associates, but most importantly by the finance minister of Mexico, who is now the head of the BIS, the Bank for International Settlements, [Agustín Carstens]. Hsaid, I’m sorry, I don’t want to upset my creditors. Mexico loves her creditors. We want more creditors. And so I’m not going to support this. And because Mexico was such an important debtor and was so influential, it was agreed that the whole idea should be scuppered. And it was. Now, there have been attempts to go back on it, and there have been dribs and drabs here and there. But fundamentally, the balance of power between international creditors and sovereign debtors has not been altered. But what has happened is we’ve had crises and this has worsened the sovereign debt crisis. So I hope that’s not too long. RADHIKA DESAI: No, no, that’s really great. And I just want to add just a couple of thoughts to that, because, the question is, what were the origins of the debt crisis of the 1980s? And I would say the debt crisis, the 1980s was the first crisis of the post-1971 highly financialized dollar system. Because if you think about it, as I think, Ann, you rightly remind us of Keynes and what he proposed at Bretton Woods. And I really feel everyone should study those original proposals, because by studying them, you realize just what’s wrong with the system that we have right now, because Keynes’s proposals were based on promoting balanced flows, whether of trade, of capital, etc. Whereas by rejecting that, and essentially, I think, Ann, you also said something else very important, which is that at Bretton Woods, we are often told that Keynes lost and White won. But actually, all proposals for a sensible international monetary system, which would not unreasonably empower any one state, which would not rely on imbalances, were rejected by the Treasury Department, by the US government, etc. Of course, the very imbalances that the US system produced, the dollar system produced in the post-war era, led directly to its breaking the link in 1971, because of the Triffin dilemma. The United States ran deficits in order to provide the world with liquidity. And the greater the deficits were, the less valuable the dollar became. And so the system was unsustainable. And so the gold link was broken. But then what happened is that in order to counteract the Triffin dilemma, essentially counteract the effect of the US deficits on the dollar, what the United States did is vastly expand their financial activity. And that expansion of financial activity increased the demand for dollars for financial reasons, not for productive reasons, for speculative reasons and predatory reasons. But they increased the demand for the dollar. And essentially, since then, what we’ve seen is periodic expansions of financial activity in one form or another, which have kept the dollar system going. And so you can see how ruinous it’s been. So to me, the debt crisis, both then and now, is the result of the imbalances necessary for the dollar system to function. So in the case of the 1980s, essentially what you have is a situation in which the United States, in the turmoil that followed the collapse of the gold link and everything, what you had is the rise in oil prices and then the United States persuading the oil exporting countries to, rather than creating an IMF supervised facility that might have helped the oil importers, they said, please deposit your oil surpluses in our financial institutions. ANN PETTIFOR: I think they threatened. RADHIKA DESAI: They threatened. Exactly. They threatened, they cajoled and they managed to get essentially dollars which were earned by the OPEC countries to be deposited in Western financial institutions. And then, of course, if the Western financial institutions saw this tsunami of deposits, they had to lend. And so in the 1970s, these financial institutions went on a lending spree. They lent to third world countries, to even communist countries. They essentially became touts of loans, “borrow from us”, because they had to earn interest if they were going to pay interest. And in the 1970s, therefore, there was essentially a kind of, the balance of payments restrictions on third world countries developments were lifted. Third world countries could borrow money, essentially practically free money, because in the 1970s is where you were going through an era of negative real interest rates very often. So these countries borrowed and they were financing their industrialization, which was actually undermining the United States’ relative dominance of the world economy as well. So by the end of the 1970s, you get a major event that puts a stop to all this. So the Volcker shock, the decision of the Federal Reserve under Paul Volcker to allow interest rates to rise as high as they would rise. You know, at one point they even went up to 20 percent in first world countries, forget what they did in third world countries. In order to quell inflation, but also in order to restrict the power of labor in first world countries and restrict the power of an increasingly assertive third world that was demanding fairer terms, a new international economic order and all these things. So the Volcker shock essentially interrupted all this. And then, as you rightly say, in the debt crisis that followed the reschedulings and renegotiations that followed, the principle, which is that there is creditor core responsibility for adjustment, for dealing with the debt crisis, was completely eliminated and debtor countries were made primarily responsible for the debt crisis. So in that sense, I would say that this was the real origin of the third world debt crisis. And then it was resolved by essentially, like I was saying earlier, through structural adjustment programs which promoted de-development. And that’s the other thing about the international financial system, which caused the 1980s crisis and is causing the current crisis. And that is that essentially the money, debt can be a force for good. Credit can be a force for good. It can finance development. But essentially, on the one hand, the IMF and the World Bank impose policy priorities which are actually de-developmental. They do not permit countries to undertake the sort of investments that are necessary to create development. So first of all, they remove the possibility that developmentalist policies can be followed. And then they lend for essentially debt repayment or, just to keep going, etc., to keep a system that is designed for subordination to first world countries. So this is the real origin. That is to say, it’s not just that there is debt, but the debt is designed to be of the worst kind, not developmental and so on. So I think this is, that’s to me, some of the main points that we should establish. And I also, by the way, agree that in this process, it is private power, Wall Street, that is really the driving force behind these. Wall Street needs to lend in order to earn money from third world countries. And that is why they do everything in their power to expand such lending, whether countries may need it or not. And then, of course, when there is a crisis, the governments of first world countries essentially end up backing Wall Street and getting that, making sure that they do not lose from their own irresponsibility. ANN PETTIFOR: Right. RADHIKA DESAI: Would anyone like to add anything before we go to the next crisis, which is what do you think is the cause of the crisis today? Perhaps we can talk about that. Ann, would you like to go first? ANN PETTIFOR: Yes. I mean, I want to say that the thing is, the thing has moved on. I first of all want to say that total debt, public and private, as far as I could tell, it was quite hard to get the actual numbers here, is about 300 trillion dollars of debt. Global income is around 90 to 100 trillion dollars. So we have just twice as much debt as we have income. And so we know those debts are never going to be repaid. But the proliferation of debt is no longer something that is a feature of the main street, the high street banking system. It’s now a feature of the shadow banking system. So Wall Street has both on the one hand led to the privatization of assets across the world and privatizing those assets has enabled massive surpluses and savings to be accumulated by the asset management funds, the private equity funds, insurance companies, the pension funds and so on that operate in the shadow banking sector. And they engage in a form of credit intermediation and so forth. And as a result, they are actually becoming the creators of new credit. But beyond the regulatory boundaries of democratic governments or undemocratic governments, for that matter. So we now have these massive amounts of debt. We have huge quantities of financial assets in the hands of these corporations managed mainly by Wall Street. And we have, if you like, the deregulation of markets. And one of the reasons we have a crisis at the moment. And by the way, the Volker shock, the Volker shock was a consequence of Volker’s very low interest rates prior to and his highly accommodative process towards Wall Street. And there’s a wonderful book I’ve just had recently. I was trying to look at its title. I think it’s called Lords of Easy Money. It’s by a monetarist, a right wing ex-central banker who argues that he created the conditions that led to the buildup of inflation, i.e. too much easy money effectively, and then clamped down them and in the process, both created the crisis and then destroyed, nearly destroyed the American economy. And that is such a reverse of the story that we get told. And what’s so awful is that we’ve seen that process reproduce itself as we live now. We have this long period of very low rates, highly accommodative monetary policies towards the shadow banking sector, the bailout of the shadow banking sector, which, after all, was the cause of the 2007-09 crisis and had to be bailed out again in 2018 and in 2020 at the height of the Covid crisis. And is basically guaranteed and backed up by central bankers. So we have too big to fail banks. We have something called private equity, which, as Carolyn Sissoko has argued, is neither private nor equity. Not private, because it’s backed up by too big to fail banks, which in turn backed up by taxpayers. And then their investment is not therefore private. And it’s not equity. It’s debt. They used to be you know, they used to have a very different branding. They used to be basically debt creators and they’ve just rebranded themselves. So we have this deeply unbalanced and unstable system, which I know is going to collapse. I wish I knew when. Everyone is quite now really worried about commercial real estate and the fact that, A, there are people working from home and B, the value of these properties are falling. And we know that a massive amount of debt has been leveraged against these finite and limited assets. So they daren’t rent out their buildings at less than the going rate, because that would indicate that the value of that collateral is lower and would automatically increase the value of the debt. So that’s what happened to Silicon Valley Bank. And that’s why Silicon Valley went down. So these commercial real estate guys are hanging on to their real estate. I walked down Bond Street the other day, which, as you know, must be the wealthiest street in the whole of London. The number of voids was quite extraordinary, the number of empty buildings. And what they had done was put fancy posters up in the windows, to make it look lively and interesting. But it was clear there was no business going on behind those posters. They will not rent out those buildings at a lower rate to artists or to any other kind of business that could afford to move into and would love to move into Bond Street, because doing so, they would admit that the collateral that they held had declined in value. That would increase the demands of creditors for repayment of that debt. And so they’re sitting tight. This is going to break quite soon. And the question is when, if we knew we could make a lot of money out of it. But anyway, we’re reproducing the Volker crisis right now. Today, our central bank has hiked up rates again, which is a form of sadistic economics in the rich countries. Never mind what it will do to the poor countries. Because what will it do? It will worsen the strengthening of currencies like sterling and the dollar. These high rates of interest and money will flood out of, for example, the country of my birth, South Africa, towards the city of London and towards Wall Street and weaken those currencies and therefore increase their debts as well. So, I feel as if we’re going over this all over and over again. But this time the scale is greater than it’s ever been. And that could be the final straw, it seems to me. But who knows? You know, these institutions are immensely powerful. Michael will back me up on this. But the US Congress is effectively in the hands, has been bought by Wall Street. So they have immense political and therefore military power. So, the idea that they are going to be damaged or lose money might seem from someone like me to be just delusional. But the fact of the matter is the cost of maintaining this incredibly unstable and unbalanced system. And, just to come back a bit, Radhika, to what you were saying about Keynes’s proposal. Keynes proposed that you would penalize both those with surplus accounts as well as deficits. You would say, look, China should not have a surplus. Germany should not have a surplus. And the United States should not have the deficit that it has. So he would have insisted that they ought to. And that would require a certain amount of discipline. But of course, the United States wasn’t going to have that. MICHAEL HUDSON: Well, what Ann spoke about in both her comments was the ability to pay. How should debts be brought within the ability of countries to pay? And if they can’t pay, is it a bad loan or is the debtor at fault? The creditors demand that debts be paid regardless of the effect on society. And this intransigence of creditors is what’s the basic underlying cause, which is what we’re discussing. But there are also particular causes right now. Ann just mentioned the rising interest rates of the U.S. That raises the dollar’s exchange rate. So a foreign country has to earn the money to pay in its own currency. And it costs more and more of a peso or another local currency to buy the dollars to pay the debts. Countries should only owe the debts in their own currency because at least they can always print the money for that. But if they owe it in a currency that’s rising in value, then the amount that they owe keeps going up even more than the interest rate. So that’s partly it. Ann blames Wall Street. And I always want to point to what the government’s done wrong, too. And certainly the U.S. government has given a shock to the economy that is as bad as the Volcker shock. And that’s the anti-Russian sanctions. These sanctions against Russian oil and gas have increased world energy prices. So all of a sudden the debtor countries have to pay more for their energy, which U.S. diplomacy is based on control of the oil industry. Gas is used to make fertilizer and fertilizer prices have gone up. So food prices have gone way up. That’s squeezed the debtor countries. And the problem is that these countries owe more than they can possibly pay. Well, what Ann suggested, you need some kind of international judge to say, how do we bring the debts back into line with the ability to pay? This is fought against not only by Wall Street, that obviously it wants to collect the debts no matter what. It doesn’t care about the effect on the third world country. But the United States has been imposing these rules because it says the more Wall Street makes, the more the U.S. economy makes. And that’s what gives us our world diplomatic power. The fact that other countries owe us dollars give us the ability to do any U.S. diplomacy we want, including the military diplomacy of running an enormous balance of payments deficit for military reasons. That’s all financed largely by the predator position of the United States, extracting the money from the global south. ANN PETTIFOR: One of the most striking things about the Roosevelt administration was that they understood that they were moving the government from Wall Street to the Treasury secretary’s office in Washington. That was an admission that the government was owned by Wall Street. And I would argue, Michael, Wall Street owns the American government. MICHAEL HUDSON: I would never disagree with that. ANN PETTIFOR: I find it hard to make the distinction there. And can I just say, I think you and I are going to differ on Russia, because I think Russia did invade Ukraine and its territory, blah, blah. But what I’m very clear about is that it was absolutely unacceptable for the United States to freeze Russian foreign Russian reserves. That is that you know, that is a great public good. It is the assets of the people of Russia. It’s not even one of their exports. It is one of their public goods. And it’s like freezing the sanitation system of a country because you’re going to war with them. I mean, that was totally unacceptable. And that has led to this major realignment, geopolitical realignment that’s going on that will harm the United States. MICHAEL HUDSON: That’s the silver lining of all of it. The one silver lining is that this is the idea that dollars are safe. ANN PETTIFOR: Yeah, no, absolutely. No, no, I think we agree absolutely on that. So here I am again, I’m saying Wall Street owns the government. So I want us to call out Wall Street here. If only because Wall Street so often just gets away with this. You know, they like to be invisible. The shadow banking system is invisible. It’s very hard to explain to the woman in the street. Look, there’s a shadow banking system. Did you know that? Can I explain it to you? You know, it’s out there in the stratosphere. And I’m sorry you can’t see it, and your government has that. But it becomes very real, as it has now, when global commodity prices go berserk. Now, I’ve had a real battle here in Britain to assert that we have inflation, not because wages are rising unreasonably. And this government is hell bent on a class war. And so is the governor of the Bank of England. And nobody talks about global commodity markets, which are, transactions are dealt with at the Chicago Mercantile Exchange. So everyone says, oh, the war in Ukraine. And everyone says, oh, President Putin put up the prices. He has no power. The Russians are victims of the price of oil. Yeltsin never had the kind of oil revenues that Putin enjoys at the moment. He never had the power that Putin has at the moment. The Saudis don’t fix the price of oil. And furthermore, the price of oil is not a factor of supply and demand. Because what happened was there was a brief choppy up cut in supply because the war started. But very quickly, the Americans started downloading their oil reserves. And grain appeared from other parts of the world and supply and demand evened out. It took time and there were supply shocks; I’m not denying that. But the fact of the matter is that was not what was reflected in the price. It was the speculation that the price of those essential commodities would keep. That a wall of money and it’s all that shadow banking money and asset management funds in pension funds, in insurance companies, in private equity aimed at Chicago, aimed at the global climate, and our governments and our economists refuse to talk about those global markets. And when you explain to people, sorry, the market in your energy is not determined here or supply and demand. It’s got nothing to do, well, it’s got something to do with the war, but it’s largely to do with speculation. And this was brought home to me. If I could just quickly tell you a story, because I’m on the Scottish government’s just transition commission. We went to the outer Hebrides, to the Isle of Lewis, to look at a community owned turbine, a wind turbine. And it was a really impressive community. I mean, they had borrowed money from a Spanish bank, Santander, because the Brits wouldn’t help. And they spent $15 million, I think, on this huge turbine to get on the island. They had to rebuild the roads to get up, blah, blah. And they’re allowed to not give money from the production of that energy to individuals, but they can provide it to the community. And then we interviewed the citizens, Stornoway, of the island, and we said, what do you think about all this one for wind energy? And they said, we hate it. We hate it because we have these enormous turbines in our back gardens. But we do not pay the price of that cheap energy. They’re able to generate energy almost for nothing. They feed it into the grid and the price of it becomes the price of the gas price fixed. A global price. And so while we have this cheap energy on our doorstep, we are paying a global price for energy. And that brought home so clearly that these markets have nothing to do with what’s going on in our country. They’re global. And who are they managed by? By speculators based largely in Wall Street in Chicago. So, I’m trying to explain here the link between the international and the local. RADHIKA DESAI: And I think this is exactly, the point is that essentially, when you say Wall Street runs things and then Michael says it’s the government. And then you rightly point out again that and we all agree that the American government is in the pockets of the pocket of Wall Street. OK, all this is great. And what is their purpose? What is the overall purpose of their foreign policy? It is to create a world that is as dependent on the decisions of private capital as possible. That is to say, they are not allowed to do what this little island did, which is exactly what all third world countries should do is actually to create their own productive power and through developmentalist policies in a way that makes them independent of the the web of financial transactions, which is basically now what American capitalism amounts to. And so this is the thing. But I just wanted to bring us back a little bit because I think we’ll probably have to end on this question, but let’s just fully discuss the specificity of the current crisis, its difference from the 80s crisis and more generally, its implication in the international financial system. So I would say that, of course, many superficial similarities to the current crisis versus the previous crisis. One of them is, a period of easy money followed by a period of higher interest rates and so on. There is also the role of the Federal Reserve. The usual IMF World Bank stuff is going to go on. But there are also important differences. I would say that one really big difference is the following. That in the 1980s, what happened is that the United States and the Volcker shock essentially were aiming to put an end to what had been a very impressive and extremely genuine spurt of third world development. And today, what we have is a situation in which after sort of collapsing in the latter part of the 20th century, international lending was revived. A lot of it took place under private auspices with securitized lending and so on. So this lending took place. However, it took place in a context where after two decades, 80s and 90s and into the 2000s, decades of structural adjustment policies, neoliberal assault on developmentalism, this money was being lent to countries that had already bought into neoliberalism in a substantial way. So this money that was lent did not have the same developmental effect. Yes, many third world countries grew during this period, but it was thanks to a benign period for the prices of third world resources in particular and so on. So the current debt crisis is actually coming, is going to be in many ways more costly because it’s not coming after a period of healthy development, etc. So that’s another very important thing. And then a third really critical difference is that, in both cases, both debt crises came at the end of challenges to the imperial system, because to me, the most important challenge you can make to the imperial system is for successful development. And, of course, imperialism has sometimes fought with guns. But I think the most important weapon against imperialism is development. And today what we see is that China in particular is in the forefront of having been able to develop and it has been developed. Well, it has developed precisely because it has shielded itself from the effects of the system of international governance, whose prime purpose is to impose development to keep third world countries less developed. So it has done that. And by the way, one thing we haven’t mentioned, has done that through various means, but that includes capital controls. We have also come at the end of so many decades during which the lifting of capital controls was the holy grail that was pursued by the US government. So the presence of China, not only as an important developed, developing country, but also as now a major lender to third world countries is another big difference. And this debt crisis is going to look quite different because it’s taking place in a context where the presence of alternative sources of finance, principally China and to a lesser extent, the BRICS institutions that are being created in other multilateral institutions that have been created. So these are some of the key differences as I see them. Now, the resolution of this crisis is going to be very difficult, particularly in the aftermath of the pandemic and then the current crisis created by sanctions, et cetera. I would say that this is going to exact a huge price from third world countries and some kind of initiative is needed to deal with it. But I think that the international atmosphere to create any sort of initiative that benefits third world countries is extremely fraught. So I just wanted to put those things there. So, yeah, go ahead. ANN PETTIFOR: I agree with all of that. But I would say there’s one other big difference, and that is the ecological crisis. In order to repay these debts, those countries are going to have to strip their forests. They’re going to have to fish their seas. They’re going to have to degrade their land. They’re going to have to exploit their people. And the more they do that, the more they degrade the ecosystem, not just for their own countries, but for the world and for the United States. And it’s that blind spot that you can’t go on extracting and extracting wealth from the poorest countries in the world without hurting yourself, without hurting Americans, without hurting Western nations. That hasn’t fully dawned on the IMF and on all those powers that be. That is a huge development. It’s not a new development. It’s been there a long time and it’s been an issue since the beginning of time. But now it’s a crisis point. And at this point to demand, that for me is the big problem with debt is that it requires extraction of real assets in order to be repaid. It is itself, as Frederick Soddy argued, a mathematical concept. But the repayment of debt requires physical extraction of assets. And it’s that which is not possible. It’s just not possible. It’s not going to happen. And if it does happen, God help us all. And I think it’s that failure to understand that grave, grave risk. And it’s not as if the ecosystem is going to collapse. It is in the process of collapse already. We’re there. You know, we have here what they call an insect apocalypse. I count the number of bees in my garden. I think I’ve got four. This is a crisis for nature and for our survival, for human survival. And, we know the seas are warming and we know there are going to be more floods and there’s wildfires in Canada, Radhika, not far from where you are. I mean, this is crazy. And in that those circumstances demand further extraction of Earth’s finite assets seems to me suicidal, essentially. MICHAEL HUDSON: Yeah, I think you’re right about the characterization of the crisis. And the question is, why can’t the world deal with it? Well, we’re back to the question you raised at the beginning. What’s wrong with Wall Street taking control of government? If the financial sector lives in the short run, if the financial sector and Wall Street took a long-term view, wouldn’t it help to avoid global warming? Wouldn’t it help to have Third World countries and the Global South develop? Of course it would. But the financial sector lives in the short run. They only care about three months, or at most one year. And so the crisis that you talk about is a world crisis over time. And Wall Street says, wait a minute, our crisis is three months from now. This is not a problem. Three months from now, we want to get paid. And we want to get paid. But I’m sorry, you’re going to have to cut down your forest to pay, because that’s what you owe right now. We’re talking about the difference between short term and long term perspective. And that’s the problem of Wall Street. Short term perspective. You’d think that the government can take a long term perspective. And as Radhika just pointed out, that’s what makes China in a strong position because the government runs the central bank instead of the central bank running the government. So this story of the submersible seems to me to symbolize the idea of billionaires that they can defy the laws of nature and sink two and a half miles down or go out like Elon Musk into the stratosphere and survive. I mean, it’s that delusionalism. RADHIKA DESAI: Exactly. ANN PETTIFOR: That you can defy the laws of nature. RADHIKA DESAI: I’m so glad that, of course, you mentioned the climate crisis, because I also see that there’s a deep connection between the climate crisis and the crisis of what I call neoliberal financialization. Because neoliberalism is always regarded as sort of free markets. But actually, what neoliberalism, the only thing neoliberalism could amount to in our time at the particular stage of the evolution of capitalism was financialization. And as you guys were talking, I was reminded of a book that came out in the early ‘90s, by Elmar Altvater. And this was entitled The Future of the Market, but it was about many things. And he pointed out, you made the same point, I think, very well in that book, which is that the problem with the shift to finance is this short-termism, because any capacity to deal with climate issues, ecological issues requires a long term perspective, which finance simply does not have. And by the way, well, anyway, that’s another point. But, Marx also said at the beginning of the section on rent in Volume 3, he said, with private ownership, you cannot have a rational agronomy, which is to say a rational way of dealing with the land, of managing the land and so on. And I think he was dead right. And what I want to add to that is that, people talk about degrowth as an important solution, and I’m not disagreeing with what they mean, but I do want to take a little bit of issue with what the words they are using. Because the thing is, if you actually look at a chart of world growth, a chart of world growth descends actually after the onset of neoliberal policy. So the world is growing less fast. ANN PETTIFOR: The neoliberals are the best degrowthers in the world. RADHIKA DESAI: That’s right. So they have actually already imposed degrowth. But every index of ecological destruction, whether it is climate change, pollution, loss of biodiversity, you name it, every index is actually rising steeply only after 1980. So actually, the less growth has gone side by side with the spoliation of nature, the absolute rape of nature, precisely for the reasons I think that both of you have mentioned, which is that the financialization actually involves the abuse of all the resources of the earth for the privilege of a tiny minority. And this is the financial system that we have created. And this is the financial system that has caused this new debt crisis, as well as the old one. However, we are nearly at a one hour limit. So what I would suggest is that we should end for now and pick up this discussion. We are only at question two and we have five more questions to answer, including the critically important question of what is the solution. And we have already hinted at it, but it deserves fuller discussion. So I think what we might do is end here. If both of you wanted to have any quick say, please do. But otherwise, we can end here. And we can pick it up next fortnight when we just continue this discussion next fortnight in a second part. ANN PETTIFOR: I think that’s great. And no, I don’t have anything to add. I think it’s been a really fascinating discussion. So thank you. RADHIKA DESAI: Yeah. Thank you. And that’s just been your great addition to our usual natter that Michael and I have. So that’s great. And so thanks, everyone, for watching. Thank you. And thanks to Michael. Thanks also to our videographer, Paul Graham. And we’ll see you in a fortnight. Bye bye.

Write an article about: Is neoliberalism really dead? Or does it live on like a zombie?. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Geopolitical Economy Hour, Michael Hudson, neoliberalism, Radhika Desai

Political economists Radhika Desai and Michael Hudson discuss neoliberalism, and the premature predictions about the demise of the free-market fundamentalist ideology. Political economists Radhika Desai and Michael Hudson discuss neoliberalism, and the premature predictions about the demise of the free-market fundamentalist ideology. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to the 20th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: Well, it’s happening again. Reports of the death of neoliberalism are once again proliferating. Just take a look at the UK Guardian. In the UK Guardian website, there’s a whole series of stories, whether neoliberalism is dying, the rise and fall of neoliberalism. Biden just declared the death of neoliberalism. Is neoliberalism finally over? Is neoliberalism finally dead? Is the neoliberal era over yet? And of course, there are also contrary views. The National Institutes of Health say neoliberalism is not dead. And there is also a very interesting story in Jacobin, which says the rumors are false; neoliberalism is alive and well. Well, this is not the first time that the death of neoliberalism has been announced. I remember back at the end of the 1980s, the IMF and World Bank structural adjustment programs were inflicted upon third world country after third world country, each followed in short order by IMF riots against critical food and fuel subsidies being reversed, social spending being cut, joblessness rising, thanks to the recessions induced by these very programs. And a World Bank report at the end of this period, essentially admitted that the neoliberal recipe was certainly not working in restoring productive dynamism to any economy upon which it had been inflicted. I also remember the death of neoliberalism being announced after the 1997-98 East Asian financial crisis, when the so-called “Committee to Save the World”, as Time Magazine called it, a committee allegedly consisting of Alan Greenspan, Larry Summers, and Rahm Emanuel, who were allegedly saving the world economy from a neoliberalism induced meltdown. After the 2008 financial crisis, practically everyone was talking about the return of Keynes, the end of neoliberalism, the return of the state, while Alan Greenspan was admitting before a congressional committee that he had been partially wrong about his free market approach to banking, that the crisis had left him in a state of shocked disbelief. He said, I have found a flaw. I don’t know how significant or permanent it is, but I have been very distressed by this fact. And he said further, I made a mistake in presuming that the self interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the funds. However, even after this massive sort of watershed event, the real story that emerged from it was, as the title of one book about the subject had it, the strange non-death of neoliberalism. And today we have Bidenomics being hailed as the final slayer of the dragon of neoliberalism. Clinton’s Labor Secretary Robert Wright, for instance, thinks that Biden is about to alter the structure of the U.S. economy in ways that help the vast majority and that voters will give Biden another term and reward Democrats with both houses of Congress because it will have transformed the economy in favor of the 90 percent and of workers and unions. And yet other columnists are praising the same actions of the Biden administration and the same legislative actions as the best business opportunity ever. So even after all these crises, neoliberalism seems to be, if not alive and kicking, at least leading a zombie existence and refuses to die. So today we want to talk about neoliberalism, what it is, where it came from, and why it seems not to die. And what will happen if it dies, and other such questions. So Michael, I’m sure you want to get in here and say something. Please go ahead. MICHAEL HUDSON: Well, you’ve just made the point that neoliberalism wants to make itself invisible. It’s like the devil. If there a devil, the devil wants to say he doesn’t exist. Neoliberalism says inequality doesn’t exist, exploitation doesn’t exist, and everything is quite fair. And what it really wants to make invisible or actually disappear in reality is the government. Neoliberalism advocates an economy without government regulation, with no social protection against fraud or exploitation or predatory impoverishment, no usury laws. They’re against consumer protection. They’re against the ability of debtors to use bankruptcy, which is why Biden made sure that students could not wipe out their student loans through bankruptcy, to free themselves from debt. So neoliberalism, basically, it’s a dynamic of economic polarization. Neoliberalism is a way in which they can justify why the economy is getting more and more unequal, as if this is a perfectly natural thing, a survival of the fittest, and is really a road to efficiency. And in that sense, neoliberalism is a point—this requires a point of view. It’s an ideology. You could almost say it’s the new religion because it’s a new moral value. Instead of religion saying we’re for mutual aid and we want to uplift the population as a whole, neoliberalism is saying greed is good, Ayn Rand is good, we want to be free from government, free from government regulation, so the rich can do whatever they want to get rich. And if they do get rich, it’s because they’re productive, not because there’s any exploitation. So neoliberalism is really a cloak of invisibility for all of the problems that we’re seeing today. RADHIKA DESAI: Well, I mean, this is really interesting, isn’t it? Because there’s just so much smoke and mirrors about it, and there’s even smoke and mirrors about the whole question of invisibility, etc. So on the one hand, of course, we know that in the neoliberal era, markets are imposed on, essentially, the ordinary people, on workers, therefore are forced to compete with one another, especially with the attack on unions and so on and so forth. But meanwhile, as we have seen, after four decades of neoliberalism, it has often entailed socialism for the rich and competition and neoliberalism for the poor, so the rich get bailed out. So in that sense, I think it’s really worth unpacking this a little bit more. Because on the one hand, you’re right, of course, that they kind of, you know, the other part of smoke and mirrors is that neoliberalism claims that it’s about having no government intervention whatsoever. But in reality, the neoliberal period has seen an enormous amount of government intervention. If you look at practically any country, including the United States, the onset of the neoliberal era has seen only a slight reduction in the role of the state in the economy, and in many cases, hardly anything, any at all. So in that sense, it hasn’t been about markets. Secondly, you know, on the one hand, they want to say, oh, well, you know, we are doing nothing, the state is doing nothing, this is just the outcome of the market. On the other hand, neoliberalism has also announced itself. So for example, you know, Mrs. Thatcher is very famous for having said, I think sometime in the 70s, before she became a prime minister, she was very aware, she said the other side have an ideology, we need to have one too. So in that sense, neoliberalism was very much a sort of a counter to the sort of center left ideology, whether you call it Keynesianism or welfarism or what have you. So it was very conscious of being an alternative point of view, which was coming to the fore. But I think, really, to me, one of the key issues about neoliberalism is that it advertises itself as being all about free markets and competition. But in reality, when you look at it, it’s historically been about preserving the power of big monopoly capital. That’s what it’s been about above all else. MICHAEL HUDSON: Well, the key trick word there is market, and especially free market. And what neoliberalism claims is a market or a free market is exactly the opposite of everything that the classical economists, Adam Smith, John Stuart Mill, even Marx, talked about what a free market is. Any market is shaped by the social institutions. A market is shaped by the tax laws, by the criminal laws, by all sorts of government regulations. There’s no such thing as a market without government. And if you do get rid of a government shaping the market, then what you have is the wealthy people shaping the market. Well, what did Adam Smith mean by a free market in the whole 19th century? It was a market free from the legacy of feudalism. We’ve talked about this before. A market without a landlord class that was taking money in their sleep to make money without working. A market free of monopolies. That’s what Adam Smith criticized. He wanted to get rid of landlords and monopolies. And that’s what the entire 19th century was about in describing value and price theory. Classical economics of free markets looked at any market in terms of value and price theory. Value was the socially necessary cost of production. Value was the cost of producing something. But market prices could be way above this cost, such as, and that was economic rent. Rent was the excess of price over and above the actual value. For instance, if you’re charging someone for the use of land for housing, the land doesn’t have a cost. That’s just there. There’s a legal privilege to privatize and appropriate the land and add the costs. The same thing for monopolies. A monopoly is just the legal right to charge whatever you want and have prices far in excess of the cost of production. So that was a free market. What neoliberalism has done is erased the whole history of economic language and economic terminology and replaced it with saying a free market is a market free for the rent seekers, a market free for landlords to charge whatever they want for rent without any regulation, free for monopolists to be able to charge whatever the market would bear. And if people are willing to pay $10,000 a year, $20,000 for health care, that’s what the market would bear, your money or your life. That basically is the neoliberal slogan. And in order to do this concept of their kind of a market, a rentier market, they have to erase the whole history of economic thought and even economic history to say, what happens when there’s a market like this? Well, you look at the Roman Empire and when it collapsed, that’s what happened when you had an oligarchy like this. So neoliberalism in that sense, it’s a market, but it’s an oligarchic market, not a democratic market. RADHIKA DESAI: And you know, you make a very good point, Michael. So I just want to say two things. First of all, you make a very good point. What are prices? Prices are really based on the value of things, which is based on the cost of production of that thing. But in reality, of course, market prices can be, as you put it, way above that. But I would say something else. I would say that in addition to that, market prices for the vast majority of producers are often below their cost. That is to say, they suffer. So workers get market prices for their labor below their cost. Peasants and small producers and mom and pop store owners and business owners get prices that are often way below their production costs and so on. So really, as you rightly say, it’s an oligarchic, it encourages an oligarchic form of production. But I also, so that’s my first point. But I wanted to take the conversation further also on another point you made. And that is that, you know, you said that neoliberalism is really about erasing the entire tradition of solid economic discourse that was carried on up until the late 19th century. So what happened in the late 19th century? This is very important. In the late 19th century, on the one hand, Marx and Engels brought the tradition of classical political economy of which Adam Smith or Ricardo were such a big part. They brought it to its culmination by resolving so many of its unresolved problems. What exactly was value? What was surplus value? Where did it come from? How was it that the same amount of capital deployed in different proportions between capital and labor, you know, was it supposed to yield equal rates of profit? Et cetera. All of these were really interesting questions. Marx and Engels, with their ability to think through all these questions in a dialectical manner, they resolved these problems. And the result was a huge indictment of capitalism. And in fact, even under Ricardo, sorry, please go ahead, Michael, I’ll continue. MICHAEL HUDSON: Before you go on to that, your point about labor at less than its cost of production, that’s very important because if labor is paid less than its cost of living, it’s forced into debt. And that’s the important thing. Not only is what the rentier class, the landlords and monopolists charge over the cost of production to get a free lunch, but if labor is less than the cost of production, it’s driven into debt, and it’s driven into debt to the creditor class, and this debt becomes a wedge that polarizes the economy. So the market there polarizes. RADHIKA DESAI: Absolutely. And I would say that even more, I mean, labor, yes, of course, if there is anybody who is going to give them any credit in the first place, because that’s not always been the case. But I would also say that this has historically applied to peasants and small producers of every variety. And that’s why peasants have this constant cycle of debt that they are in, because their products never bring in the kind of return that is necessary. But to return to the point about what happened in the late 19th century. So, you know, if Marx and Engels brought neoclassical economics to a culmination, Ricardo, even before Marx and Engels, Ricardo’s insistence that all value originated in labor was itself the basis of the various currents of Ricardian socialism. So this type of thinking, economic thinking, which was very good and solid, was already giving rise to anti-capitalist currents, even before Marx. Once Marx comes around, things are going downhill very rapidly. And that’s when you get a completely different way of thinking, making its appearance in the form of neoclassical economics. And it’s important to remember that neoclassical economics, which emerged in the 1870s, of course, there were some sort of socialistic elements of neoclassical economics. We’ll leave those aside. But on the whole, it was a complete commitment to free market thinking, particularly in its Austrian version. And that free market economics has been developed, and it survived throughout the Keynesian period. And almost 100 years after it was first born, it finally achieved the influence that it did with the election of governments like Thatcher and Reagan and so on, and has been afflicting our world for the last 40 years. So neoliberalism, it’s very important to remember, is essentially this extreme free market version of neoclassical economics. And it essentially erases all these questions. For example, neoclassical economics does not recognize anything like value. It does not talk about production, but about markets and exchange. It doesn’t talk about values, but it talks about prices. It does not think of capitalism as a historically specific way of organizing society. It thinks that it’s been around since Lucy, it’s been around since the earliest days of humankind. So in all of these ways, neoclassical economics represents a deterioration in economic thinking. MICHAEL HUDSON: Well, that means that neoliberalism really should be called anti-liberalism. Because if liberalism was the classical idea of free markets, free of rent and interest and monopoly rent, then the justification of all these is that the market should include rent as being productive. Then this is the opposite. And so neoliberalism, it’s an anti-social philosophy. That’s what the Austrians were. They said, we have a definition of markets that doesn’t have society at all. As you mentioned, Margaret Thatcher said, there’s no such thing as society. So you have a neoliberal view of society as well as markets without government, without anything that is subsidized, without any social feeling. It’s all individualism. As if you can make the whole society with individualism, there is no public infrastructure because any infrastructure is privatized. There is no public credit and money creation because all money creation, instead of being a public utility, it’s all privatized. And that lets the bankers create the money. The bankers receive the interest on loans of this money. The bankers lend to the landlord class to buy real estate and oil wells and mines and extract economic rent. So the Austrian economics is really a rationale of fighting back, saying we’re against any reform that is going to make the government the recipient of natural resource rent and land rent and income. It should all go to the wealthy class. That was sort of the last attempt to sort of fight against the whole of free market liberalism that was occurring. And it was not only Austria, it was in the United States by John Bates Clark saying there is no such thing as unearned income. Everybody earns whatever they want. The landlord earns the rent and the crook earns what he can take. RADHIKA DESAI: Well, this is exactly, you know, and you know, this is another way in which neoclassical economics, which is the basis of neoliberalism, is different from the tradition of classical political economy, because you see, there was a sense in which in classical political economy, whether they although they didn’t use the term or Karl Polanyi used the term, apparently he got it from from (unclear), the term I’m talking about is fictitious commodities, but they knew that land. labor and money were not commodities, although they were treated in capitalism as if they were commodities. And this led to a whole range of difficulties and problems that Polanyi talked about in great detail. What’s really interesting, and many people think that what Polanyi said has nothing to do with Marx or with the traditional classical political economy, but it does for the very simple reason that the awareness that land, labor and money were not commodities was reflected in classical political economy by the simple point that all the entire tradition of classical political economy from Smith to Ricardo to Marx, they are all concerned about finding the special laws through which the rent of land, the wages of labor and the interest of money are set. They knew that they are not commodities, so their prices are not set like all the other commodities. There are special laws that determine the wages of labor, the rent of land and the interest of money. So in that sense, they were very aware of this. So this is a very, very different thing. And so in classical political economy, as you say, all incomes are earned incomes because there is really no question. They don’t really understand the difference between earned income and unearned income. This is the key point. And of course, they even sort of laugh at Polanyi for even using a term like classical political economy. But fundamentally, I also want to say that neoliberal economics, neoclassical free market economics is essentially bad faith economics because it emerges in the 1870s and develops over the next many decades, precisely during the decades when capitalism in its homelands was becoming monopoly capitalism. Precisely at that time, they are celebrating free markets and competition, precisely that which is being erased, in fact. MICHAEL HUDSON: Well, that’s what de-industrialized the United States, not recognizing the difference between earned and unearned income. You have exactly what’s happened really since the 1980s, since Ronald Reagan here and Thatcher’s there. So you could say that this view of the world leads to not curing the problems, not freeing society from the rentier and creditor interests, but it ends up by you de-industrialize. The neoliberals agree with Marx that the profits are all made out of employing labor and charging more for what labor produces than what it costs to employ it. But instead of what Marx said, well, let’s raise the price of labor so that labor gets to buy and receive what it produces, the neoliberals say we have to lower the price of labor. It’s an anti-labor strategy. And this is why under the Clinton administration in the 1990s, America said, how do we lower the price of American labor to increase profits here? Well, we’ll shift labor to China, to Asia, to where labor has paid lower wages and therefore we’ll put American labor in competition with Asian labor and we’ve de-industrialized. All that was the result of following the neoliberal game plan of how to get rich and meaning how to get rich if you’re one of the 1%, not the 99%. RADHIKA DESAI: No, exactly. And there’s another way in which, so the first point like I’m saying is that just when capitalism is shifting to becoming monopoly capitalism, that’s when they suddenly start talking about competition because the fact is the competition and is the only way in which capitalism can be justified because the idea is that competition imposes upon the capitalists themselves a certain type of discipline that forces them to be more productive. So, and therefore it develops the forces of production, however, brutally and chaotically it may do so, at least it does that. But once capitalism arrives at the monopoly phase, Marx was very clear at this point, it was ripe for transition to socialism. So think about it. Neoliberalism emerges as an ideology to defend capitalism at that point in historical time when the bell was already tolling for it. In that sense, neoliberalism has been fighting a rear guard battle for all these decades. MICHAEL HUDSON: Well, it’s an attack on industrial capitalism. A neoliberalism isn’t the result of industrial capitalism. Industrial capitalism wanted to lower the price of labor by having the government provide most of the living costs of labor. The government would provide healthcare, not the workers that corporations would have to pay high enough salaries to afford healthcare, education, and basic needs. So Marx had believed that neoliberalism would fade away because neoliberalism was a defense of the landlord interests and the feudal interests. You talked about monopoly capitalism. There were always monopolies in the sense of natural monopolies, such as transportation, communications, and neoliberalism wants to privatize these monopolies to take them out of state hands where the government would provide natural monopoly services, transportation, water supply, healthcare, at cost or at a subsidized price. By monopolizing them, you create an enormous source of revenue. Basically it’s rent revenue, and most neoliberal wealth is not made by industrial production. Neoliberal wealth is made by taking assets from the public domain, especially monopolies, especially the transportation system, especially the electrical system, especially the communication system. They privatize healthcare. They privatize education. All of this is taken away from the government. So you had two competing philosophies leading up to the years just before World War I. You have industrial capitalism evolving into socialism saying we want to have the government provide basic needs of labor so that we don’t have to pay the costs and we can compete with countries that privatize all these services. And then you had the Austrian-American, the privatizers wanting to fight back and saying we want to get rid of government and prevent them from doing this. We want the economy to be free for the privatizers to grab Margaret Thatcher and Ronald Reagan style. RADHIKA DESAI: But if I may, Michael, you’re absolutely right, of course, that there are natural monopolies, but I think that there are two different types of monopolies and I’m talking about them both, of course, but I think it’s important to distinguish between the two. The first is, of course, the natural monopolies. Land is a natural monopoly. Moneymaking is a natural monopoly, et cetera. That is to say the creation of money is a natural monopoly of the state and so on. I mean, there are many, as you say, transportation, blah, blah, and so on. All of these things are true. What Marx, however, is talking about when he talks about the capitalism arriving at the monopoly phase is that the unfolding of the process of competition itself will lead, the natural result of it is the creation of monopolies because after the process of competition has eliminated all the inefficient producers, there is only one or a handful left standing and that creates a context in which essentially society moves from competitive capitalism, even in the non-natural monopoly sectors, to monopoly capitalism where a small number of really big producers tend to monopolize everything. Marx felt that once this stage was reached and there was nothing necessarily wrong with it, this is what capitalism was doing and it was leading to more efficient production, but it was more efficient production based on a massive socialization of labor involving the cooperation of thousands and hundreds of thousands of people in a single industrial enterprise. And Marx felt that once this stage had been reached, everybody would be able to see that the myth of the heroic entrepreneur who is owed vast profits, et cetera, is a myth and the myth would be exposed and therefore people would be ready to take things into public hands. People would say, this is our labor, this is social labor and it should be socialized and it should be publicly owned. This is what neoliberalism has made a tremendous contribution to preventing so far. MICHAEL HUDSON: Well, there are two kinds of monopolies. Now, what you describe, Marx is describing monopolization under industrial capitalism, but some monopolies are natural monopolies. That’s what governments have kept in the public domain like the postal service and other things. And within industrial capitalism, already in the 19th century, the American laws and presidents said, banks are the mother of trusts and the antitrust laws in the United States that began to be passed in the 1890s realized that the bankers were organizing industry into trust, that this monopolization was not simply the workings of the marketplace that Marx described, but it was actually done in a predatory way by the banks buying up all of the steel companies and making the steel trust, buying up credit to merge all of the copper companies and making a copper trust to make sure that there was not competition. So that while neoliberalism promises to be a doctrine of free competition to everybody fighting to lower the price, it actually is to prevent competition by monopolizing the entire economy so that you can charge high monopoly rents. As you’re seeing, this is what the legal cases today in the United States, the one good thing that Biden has done, which he’s very embarrassed at having done and doesn’t talk about it is the antitrust laws. You’ve had the antitrust ruling against Google. You’ve had a whole set of antitrust rulings that are being revived today to try to save the economy from being monopolized. And this is something that Marx did not anticipate, the degree to which industrial capitalism would lose the fight against finance capitalism and essentially not defend its interest, but would be co-opted and somehow evolve into this basically anti-capitalist financialization and neoliberalism that is so economically self-destructive that there’s very little way that you can look at, this is a dynamic of the laws of motion because it’s the law of stopping motion, a law of degrowth, not growth. RADHIKA DESAI: No, I must say on this point, I would slightly disagree with you, Michael, because the thing is, it’s important to remember that antitrust is actually one of the keystones of neoliberalism. Let me explain what I mean. So, first of all, let me agree with you, what you were saying earlier, that in the United States, banks like J.P. Morgan played a leading role in essentially the cartelization, the monopolization, the trustification of the economy in the late 19th and early 20th centuries. And of course, Hilferding across the water was talking about similar trends in Germany where banks were playing a central role in aiding the monopolization of capital. But while banks aided it, this was a natural tendency of capitalism. What Marx pointed out is that at this point, once you arrived at the monopoly phase, it was time to shift to socialism. Indeed, many people laugh at Hilferding because Hilferding said something like, you only have to nationalize six large Berlin banks in order to essentially take a bulk of the German economy into public ownership. But he was right because these banks, through their activity in aiding monopoly, had indeed created that sort of economy. He wasn’t talking about the banks of today, which have very little to do with production. At that time, particularly in Germany, they were very different types of banks. So, banks were certainly aiding the process of monopolization, but what Lenin called monopoly capital, what Hilferding called finance capital, and what Buharin called the nationalization of capital were all referring to the same thing, that all the major capitalist societies were now dominated by big monopoly corporations. Marx thought that this was the time for socialism. Antitrust law, therefore, arrives at this point to help the neoliberal defenders of capitalism to try to maintain the appearance of a certain minimum level of competition while actually continuing to have the monopoly structure of the capitalist economy. If it’s not monopoly, then it’s oligopoly, and the competition is largely in name. And it is really, at this point, you go from justifying capitalism in terms of competition to justifying capitalism in terms of consumer welfare. Because remember now, the fate of capitalism is not being decided in the market as it once was in the competitive phase, but in the courtrooms of antitrust law. So, the whole purpose of antitrust law is to try to mask the fact that capitalism is now past its sell-by date and we have to do something much more radical. And this has been true now for about a century at least. MICHAEL HUDSON: Okay, you’re talking about structural monopoly of how the economy is structured as opposed to just the competition within a given industry. So, we’re talking about monopoly. I agree with what you said. We’re just talking about two different kinds of monopoly. The structural monopoly of how wealth is made and then the specific industrial monopolies in particular industries. RADHIKA DESAI: And you know, Michael, though, at the same time, what you were saying earlier, and I think this is absolutely critically important, is very true. Today, what we are seeing is that big monopoly corporate capital is preying upon, of course, first of all, in the days of more robust development of capitalism, even as it was entering in the monopoly phase, what we witnessed was that often the natural monopolistic activities, whether it was transportation or utilities or what have you, were actually often performed by the state. So, you had a fair amount of state ownership, whether it was at the municipal level or the state level or the federal level, you had a fair amount of state ownership. Now, what we are seeing is the attempt by capital on the one hand to privatize those natural monopolies that were hitherto created and maintained by the state, for the purpose of private profit. And then also, of course, preying upon every other monopoly on which they could try and get their hands, whether it is health services or water provisional  utilities or transportation, education, you name it, the private capital has got its fingers in every one of these spies. And its purpose is not productive expansion, but rather the purpose today is to skim off the incomes, the ever shrinking share of incomes that are actually made by producing something. And these are largely made by workers, by smaller enterprises, and so on and so forth. And this is what is done through the entire structure of indebting the economy, whether you are indebting households or you’re indebting businesses or you’re indebting governments. And this is the way in which today’s financial monopoly capitalism is skimming off income. But there is one other thing that I also want to introduce in here, which is that- MICHAEL HUDSON: You should make one point at a time, not two points. RADHIKA DESAI: Sorry, I will wait, I will wait, you go ahead. MICHAEL HUDSON: Okay, what you said is what I said earlier in our discussion. I said, most wealth under neoliberalism is made by privatizing the public domain. And the fight between socialism and neoliberalism is who is going to provide for natural monopolies and basic needs? Who will provide healthcare, education, communications, transportation? Are these going to be public services provided at a low cost for everybody? Or will it be essentially privatized and monopolized, as you say, so that these natural monopolies are going to be able to become vehicles to squeeze out economic rent. And economic rent is really the key objective of neoliberalism. Not so much profits, but monopoly rent. So neoliberalism denies that there’s any distinction between monopoly rent and profit. As opposed to classical economics that made a very clear distinction. There are rent recipients and profit recipients. And they’re antithetical, not together. RADHIKA DESAI: And the reason why it’s so important to make this distinction between rent as unearned income, versus wages and profits as having at least some kind of earned element in it, is the simple fact that this, it draws attention to where production is involved. But of course, neoclassical economics is habituated to not focusing on production at all. But yeah, okay, so I entirely agree with you. And I just wanted to say that in order to understand why we are in this position today, where you say the purpose of all capital today, especially in countries like the United States, seems to be to essentially prey upon and earn rents from these monopoly activities and so on. How did we come here? Well, I just want to throw in one further thought, which is that, what I was saying earlier, that Marx was expecting that once capitalism arrived at this monopoly phase, that people would realize that it was important to socialize it, et cetera. Now, of course, neoliberalism came along and neoclassical economics came along and started producing these inherently false, and I would say that they were bad faith defenses of capitalism. But nevertheless, all their efforts could not prevent the cataclysmic crisis. So what Arnold Mayer called the 30 years crisis of 1914 to 1945, from erupting, which involved inter-imperialist wars, which involved Great Depression, and finally, nuclear weapons, the Holocaust, and what have you. All of these things happen, and by the end of this period, I would say that most people were convinced that capitalism, really, that the world was going to move away from capitalism, that capitalism had shown the destruction that it would cause, the misery that it could cause, and that the world was not going to stand for it. People like Keynes or Polanyi expected that the world would move radically leftwards. But then you got the golden age of capitalism, and most people attributed that golden age of capitalism to capitalism itself, sorry, the golden age of world growth, I should say, they attributed it to capitalism. They said, you know, people like Keynes or Polanyi were wrong, and others who thought that, you know, the capitalism would end in the post-Second World War period, they were wrong. Capitalism had regained its mojo and everything was fine. But in reality, what we can, what becomes very clear after 40 years of neoliberalism, is that the real source of growth in this period, after three decades after the Second World War, lay in the fact that monopoly capitalism was heavily regulated, was ringed around with the institutions or with socialistic institutions and practices, whether it is the practice of macroeconomic management for full employment, the creation of welfare states, the expansion, massive expansion of domestic demand, etc., and all of these things, these socialistic measures, these are what account for the dynamism of capitalism. Why can we see that? For the simple reason that after this model got into crisis, not because of the socialistic measures, but because the underlying system remained capitalist. After the crisis of the 70s, when the governments of these countries took the turn to neoliberalism and rolled back many of these socialistic measures, you did not get a revival of capitalism, but the transformation, the morphing of capitalism into the system that you were describing, Michael, as preying upon, you know, public enterprises, privatizing them, and essentially using the state as a (unclear) from which to make unearned profits. MICHAEL HUDSON: Well, there’s also another factor that we haven’t discussed yet that gave the appearance of capitalism having a golden age after 1945, and that is that every country emerged from World War II almost free of debt, because the Depression had basically wiped out debt, and during the war, consumers were not going into debt because there was nothing they could buy. Corporations weren’t going into debt, and after the war, there were no reparations on the defeated parties as after World War I, so you had every economy beginning with what in Germany was called the economic miracle, a debt-free society. Now, there were many business cycles after 1945, but each cycle started from a higher and higher debt level, and this rising debt increased the power of creditors and the bringing to power of Thatcher and Reagan and neoliberalism in the 1980s was largely a result of all of this growth in creditor power that resulted from the growth of debt, meaning of savings in the hands of the creditor class that found its counterpart on the other side of the balance sheet in debt by labor, by corporations, and by government, so the governments essentially were prone to a debt squeeze. You had, since the 1980s, the International Monetary Fund telling countries, well, you have to pay your foreign creditors, and the way you’re going to pay your foreign dollar holders, basically, you’re going to have to sell off your infrastructure to monopolize it. It was debt that forced the privatization of monopolies throughout the global south, largely through the IMF and the World Bank, so you had a neoliberalism that was not only debt-based, but also, as we’ve discussed in our earlier broadcasts, that this is a U.S.-centered phenomenon because after World War II, the creditor-oriented system was really based on the U.S. dollar and U.S. government debt, which essentially was debt run up by balance of payment deficits to pay for America’s military control, and that is what neoliberalism leaves out. Neoliberalism is wrapped in the iron military fist of 800 American military bases to make sure that there is no alternative. If you’re going to have no alternative, you need to enforce neoliberalism militarily, and that globalizes neoliberalism in the way that we’ve been talking about. RADHIKA DESAI: I agree with what you say, but I would confine all of that to the neoliberal period because why does debt rise so exponentially in the neoliberal period? It rises exponentially in the neoliberal period because, first of all, the income of workers is being squeezed because there’s an attack on unions and, of course, there is a massive outsourcing and so on and so forth, so you get a squeeze on workers’ incomes and if workers need anything, then in that case they have to be indebted. Secondly, although of course there are a lot of cutbacks of government spending as far as social spending is concerned, on a whole lot of other outlays, government spending does not decrease. Government spending does not decrease in terms of helping industry, subsidizing industry. Government spending does not decrease in terms of military activities. In fact, it increases on all these fronts massively, so government expenditures do not decrease. Meanwhile, every government, especially every Republican government in the United States, tries to outdo the previous one in giving tax cuts to the rich, so the tax structure becomes increasingly regressive and therefore, of course, there is a debt crisis of governments and, of course, households, that is to say, yeah, I mean, and businesses are also increasingly indebted because as businesses are taken over by bigger businesses, the bigger businesses or financial interests that take over businesses are only interested in borrowing as much as they can on the basis of the collateral that that business provides, so they burden every business with as much debt that it can possibly take in order to essentially appropriate dividends and profits for themselves. So in all of these ways, neoliberalism has led to a massive increase in debt and this is itself, to me, a result of the fact that freeing capital, freeing monopoly capital from the burdens of state regulation and social obligation, has not restored to capitalism any kind of productive mojo. It has only set capital, monopoly capital, free to prey upon the earned incomes of the rest of the world, so a tiny elite has as a consequence been getting ever richer at the expense of the vast majority of working people in the world. MICHAEL HUDSON: Well, I think the protector of  monopoly capital was basically the financial interests and there was an exponential growth of debt beginning already in 1945. There was a build-up of pressure of increasing wealth and concentration of financial wealth that enabled the financial class to really take the lead in protecting monopolies and playing a catalystic and ultimately controlling role in the monopolization. So you have to look at this interaction between the financial sector and the rest. RADHIKA DESAI: Well, I’ll say two things. Number one, I would say that first of all, if you look at, if you chart the amount of debt in the world, yes, sure it was increasing in the post-second world war period, but there is absolutely no doubt that it goes, I mean, it may be increasing like so, but then it spikes up in the neoliberal period in very noticeable ways. MICHAEL HUDSON: Yes, because it was created. RADHIKA DESAI: Yeah, exactly. And on the matter of the United States dollar and the dollar system, the fact of the matter is that again, the amount of debt the United States incurred as a result of the operation of the dollar system compared to what we have today in terms of the sheer amount of debt, not just the US debt to the world, which is a small part of it, but just the explosion of debt of all sorts. Again, it is out of proportion and this explosion of debt and the financial markets upon which it rests and the speculation to which it has given rise to, these are the things, not just the US’s current account deficit that accounts for the indebtedness of the world. The US’s current account deficit, big though it is, is a small portion of the largest structure of indebtedness. MICHAEL HUDSON: Okay, you made an important distinction that is often left out of account. You’re absolutely right. When I talked about compound interest increasing exponentially, that’s interest on debt that is already in place. But what you’ve just mentioned is the very important fact that most debt isn’t simply the accumulation of interest on past credit, it’s actually the creation of new debt by banks simply creating bank money. And that’s exactly what’s happened. That was the explosion, the creation of bank money, which in a way you could call it the privatization of the monopoly of credit creation. And the credit creation was created, as you just pointed out, out of all proportion to the productive use of credit or to the means of production. It wasn’t created to create new means of production, but to buy existing means of production to take them over and monopolize them, downsize them and financialize them. RADHIKA DESAI: No, exactly. And you know, Michael, this has been such an absorbing discussion, but I also noticed that we have only been through a fraction of the points that we wanted to go through. But let me just start bringing this hour to a close. We may do another session on the same subject, but let me start bringing this hour to a close by mentioning just one important thing that I think we should put out there, whether or not we do another hour on this. And that is that precisely because neoliberalism was never an accurate theory of how the economy works or even how the capitalist economy works, precisely because neoliberalism, although, you know, was incapable of delivering the kind of prosperity that it was promising. As a result of that, it has been shifting shape about once every decade. So once every of each one of the four decades that we have seen, we have seen a slightly different type of neoliberalism. And as a consequence, the current debate, the current announcements of the demise of neoliberalism are also not going to lead to… are also, you know, the reports of the death of neoliberalism are greatly exaggerated. MICHAEL HUDSON: Well, you’re right. Neoliberalism in practice doesn’t work. And yet, if it doesn’t work, and it’s junk economics, what it has done to conceal the fact that it doesn’t work is to redesign the whole picture of the economy that’s depicted in the national income accounts and the GDP accounts. And it actually depicts this unproductive, predatory, rentier overhead as if it’s a product, a product, as if rents are a product. That’s it. RADHIKA DESAI: No, absolutely. So on the one hand, it sort of tries to create the illusion of growth. You know, right now, everybody’s saying that the United States is growing. But how much of that growth is purely financial growth? So that’s absolutely right. And as I say, we must talk about this as well. But I just wanted to finish the point. So in the 1980s, you got classic neoliberalism, you know, markets good, states bad. And this is what’s going to lead to prosperity. By the end of the 80s, this was no longer so. Then in the 1990s, you got a different neoliberalism. This was the neoliberalism of globalization. It was enforced not by right wing, new right governments like Reagan and Thatcher, but by new labor and sort of, you know, Clintonite, you know, third way governments like Clinton and Blair and so on and so forth. And what did they say? They did not deny that neoliberalism was very punishing for ordinary people. And they said to their mostly working class support base, they said, we would love to raise your wages, we would love to increase welfare, we would love to have, you know, better environmental protection. But you know what, our hands are tied, our hands are tied by globalization. Globalization is this unstoppable juggernaut, that’s not going not going to, you know, we’re going to have to bow to it. By the 2000s, you’ve got jobs. Two more, three more points. So by George Bush, Jr, you got the US as an empire. And by this time, Europe was suffering from euro-sclerosis, and Japan was not doing well. So the United States economy, especially with the housing and credit bubbles was made to look, you know, with great difficulty, of course, but made to look like it was somehow a very dynamic economy. After 2008, you got the massive period of austerity. That was the neoliberalism of the 2010s. And now we are going to see a new version of neoliberalism. MICHAEL HUDSON: Well, you’re talking about the conflict between illusion and reality. And in the United States, all of the polls show that consumers, workers, consumers are the neoliberal word for workers, say that they’re much worse off. And President Biden keeps saying, how can you be worse off? Read Paul Krugman in the New York Times, and he said GDP is up. Well, GDP is up, but all the GDP is occurring to the monopoly class, finance, insurance, and real estate, not to the workers. So when they talked about a boom with GDP up, that’s again for the neoliberalized rentier economy. So the way to make a transition, I guess, from what we’re talking about now to our future broadcasts, is just ask yourself, would China have been better off if it would have abandoned its socialism and adopted the U.S. neoliberal model back in 1990 with Clinton? Should China have just said, well, Russia invited the neoliberals in to just close down all of our industry and give everything in the public sector to the ruling class and the gangs for free? Would China have been better off if it would have followed the Russian Boris Yeltsin’s plan in the 1990s and the Clinton plan in the United States and the Obama plan? Or would it have been better off being socialism? Once you ask that question, you begin to say, what is neoliberalism leaving out of account? RADHIKA DESAI: Well, exactly. And so, you know, I mean, bang on, you know, I don’t think that the rest of the world is going to do and, you know, the rest of the world is going to benefit by imitating what the U.S. is doing. But in the U.S. itself, you know, this idea that somehow Bidenomics is going to, you know, is now talking about industrial policy and it is going to essentially constitute the rejection of neoliberalism. This is all complete nonsense. You’d only believe it if you thought neoliberalism was about free markets. Neoliberalism has never been about free markets. It has always been about hiding the fact that capitalism is now in its senile monopoly phase. Instead, you keep talking about competition as though it’s going to revive it. But in any case, it has always been about preserving the power of an ever-shrinking monopoly, financialized monopoly, capitalist elite. And in this form, Bidenomics, with its massive subsidies to corporations, etc., is just another version of that. In my book, Capitalism, Coronavirus and More, I call what we are now about to see pseudo-civic neoliberalism. That is to say, our governments will tell us the people must have X, Y, Z goods which are free or very cheap. And they will subsidize massively the production of these things, whether it is vaccines or various forms of green technology or transportation, what have you. And the governments will essentially give vast subsidies to private corporations to produce these things, which they will sell at high cost to government. And government will then allegedly make it available to us, either for cheap or for free, at least in name. But the fact of the matter is, we are going to pay for it through our taxes. And we are also going to pay for it because the goods and services we get will be so shoddy that they will probably not be worth having. So this is the kind of pseudo-civic neoliberalism that we are about to witness. What is being called Bidenomics is not at all the advent of a new post neoliberal age, but merely the fifth form that neoliberalism will take in its fifth decade. MICHAEL HUDSON: So neoliberalism is the new Cold War turning into a hot war, basically. It’s a globalized Cold War. RADHIKA DESAI: I guess, Michael, you might want to elaborate very briefly on it. MICHAEL HUDSON: Well, in order to maintain the system, you can’t have a rivalry to neoliberalism. There must be no alternative in the United States. Why is it fighting against China? China is an alternative. Russia is an alternative. If the world sees that the US and NATO, Europe are shrinking, and Eurasia is going way ahead, then there obviously is an alternative, and people are going to ask, what makes the Eurasian multipolar development so different from the world that the United States is trying to create, a neoliberal, financialized, privatized world ruling by force and by client military oligarchies? RADHIKA DESAI: You’re so right. In a certain sense, this new Cold War is the Cold War. I think it’s like the old Cold War. It’s the Cold War between, on the one hand, those countries that refuse to accept that capitalism is past its sell-by date, and on the other hand, countries that know this and are willing to experiment with all sorts of interesting ways of creating economies that are actually going to work for people. I think that’s the divide we are increasingly going to see. So that really means, you know, perhaps another program which we must do is, really, we should talk about the international manifestations of neoliberalism over the last four decades, and how they have changed, and how they have brought us to this point of this new Cold War. But for now, I guess we will say goodbye, and looking forward to seeing you, perhaps not in two weeks, but certainly in early January. So look forward to that, and thank you very much. Bye-bye.

Write an article about: ‘Oil war’: How US and Saudi crashed crude prices to hurt Russia, Iran, Venezuela in 2014. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Iran, John Kerry, oil, Russia, Saudi Arabia, Venezuela

In a 2014 “oil war,” the US pressured Saudi Arabia to overproduce crude and intentionally crash prices on the global market, in order to hurt the export-reliant economies of Russia, Iran, and Venezuela. The United States and Saudi Arabia waged a very important yet little-known “oil war” in 2014, which had huge geopolitical and economic consequences for the world. Washington pressured Riyadh to significantly overproduce crude and intentionally crash prices on the global market, in order to hurt the export-reliant economies of Russia, Iran, and Venezuela. Multipolarista host Ben Norton analyzed this crucial historical episode in the video and podcast below: Historian and political scientist Aaron Good also joined Norton to discuss how oil is used as a geopolitical weapon in the following video and podcast: Oil as a geopolitical weapon: US hegemony, OPEC, Saudi Arabia, and the petrodollar Reuters published a new wire on June 27, 2014 titled “Kerry, Saudi King discuss oil supply, U.S. official says,” reporting: U.S. Secretary of State John Kerry and Saudi King Abdullah briefly discussed global oil supplies during a meeting on the crisis in Iraq on Friday, a senior State Department official said. During the talks, Kerry referred to recent comments by a Saudi oil official that the world’s largest oil producer would increase supplies should crises in Iraq or Syria disrupt supplies, the official said. “The secretary noted positively a recent statement from an oil official in the kingdom reflecting the kingdom’s desire to do what will be required in the event of any turbulence,” said the State Department official, who briefed reporters on the talks. US Secretary of State Kerry subsequently returned to Riyadh in September 2014. The economics editor of Britain’s top newspaper The Guardian, Larry Elliott, explained the scenario most clearly in a November 9, 2014 column titled “Stakes are high as US plays the oil card against Iran and Russia.” US state media outlet NPR published a report on October 28, 2014 titled “Why Does Saudi Arabia Seem So Comfortable With Falling Oil Prices?” It answered its own question with the following: While that’s good for consumers and most businesses in the U.S., the falling price is bad for oil-exporting countries such as Russia, Venezuela, Iran and Iraq. … “The Saudis have shown themselves to use oil politically throughout their recent history. They’re quite good at it; they think of oil as a strategic commodity and kind of their key lever of influence globally,” says Bronson, a senior fellow with the Chicago Council on Global Affairs. German state media outlet DW published a column on December 16, 2014 titled “Oil price tanks,” writing: Oil prices have dropped nearly by half since June, with declines accelerating recently after member nations of OPEC, the Organization of Petroleum Exporting Countries – led by Saudi Arabia – decided on November 27 they would not cut back production despite an oversupplied oil market. … “Political and social tensions arise in producing countries that depend on income from oil and gas. Vladimir Putin has warned of harsh economic times in Russia. Venezuela and Nigeria are under pressure, and people speculate just how long [oil-exports-dependent] countries can dig into their savings, when they need $70 to $100 per barrel to balance the books,” [David Elmes, head of the Global Energy Research Network at Warwick University] said. … Geopolitical aims are in part responsible for the oil price plunge Analysts speculate that US Secretary of State John Kerry, who visited Saudi Arabia and other Gulf states in summer, may have pressed the Gulf Arab oil states to overproduce oil in order to depress global oil prices and thereby weaken Russia – and Iran. … Jason Furman, chairman of the US White House’s Council of Economic Advisors, on Tuesday expressed satisfaction at the impact of low oil prices on Russia. “They are between a rock and a hard place in economic policy,” Furman said. “The combination of our sanctions, the uncertainty they’ve created for themselves with their international actions, and the falling price of oil has put their economy on the brink of crisis.” Reuters released a report titled “Saudi Arabia is playing chicken with its oil,” which was republished by CNBC on December 16, 2014, noting: Today, Saudi Arabia is once again using its “oil weapon,” but instead of driving up prices and cutting supply, it’s doing the reverse. In the face of a global slide in oil prices since June, the kingdom has refused to cut its production, which would help to drive prices back up. Instead, the Saudis led the charge to prevent OPEC from cutting production at the cartel’s last meeting on Nov 27. … “What is the reason for the United States and some U.S. allies wanting to drive down the price of oil?” Venezuelan President Nicolas Maduro asked rhetorically in October. His answer? “To harm Russia.” … More broadly, the Saudis are also punishing two rivals, Russia and Iran, for their support of Bashar al-Assad’s regime in the Syrian civil war. Former US military intelligence officer Ralph Peters, a notorious neoconservative, wrote a column in the right-wing New York Post on December 14, 2014, titled “Saudi Arabia’s oil war against Iran and Russia,” in which he boasted that the crashed oil market would hurt Russia, Iran, Iraq, Venezuela, and Brazil. Reuters published a news wire titled “Saudi Arabia to Raise Spending, Cover Deficit with Reserves,” which was republished by US state media outlet Voice of America on December 25, 2014, stating: Saudi Arabia plans to raise government spending 0.6 percent to a record high in its 2015 budget while covering a large deficit due to plunging oil prices with its huge fiscal reserves, the Ministry of Finance said on Thursday. … the plan suggests Saudi authorities are confident of their ability to ride out a period of low oil prices and see no need for major austerity. Some analysts believe Riyadh is content to see oil prices fall as a way to squeeze out competing producers in non-OPEC nations. The geopolitical situation has changed somewhat drastically since 2014, however. The Wall Street Journal published an article on March 15, 2022 titled “Saudi Arabia Considers Accepting Yuan Instead of Dollars for Chinese Oil Sales,” in which it reported: Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia.

Write an article about: Anti-China hawks’ drive to expand NATO into Asia may destroy Western military alliance. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, Geopolitical Economy Hour, Michael Hudson, NATO, Pepe Escobar, Radhika Desai, Russia, Ukraine

Political economists Radhika Desai and Michael Hudson are joined by geopolitical analyst Pepe Escobar to discuss how the war hawks’ drive to expand NATO into Asia to contain China may destroy the Western military alliance. Political economists Radhika Desai and Michael Hudson are joined by geopolitical analyst Pepe Escobar to discuss how the war hawks’ drive to expand NATO into Asia to contain China may destroy the Western military alliance. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello everyone and welcome to the [15th] Geopolitical Economy Hour, a program that discusses the political and geopolitical economy of our time. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And today we have once again Pepe Escobar, roving reporter extraordinaire. Welcome, Pepe. PEPE ESCOBAR: Thank you. It’s an enormous pleasure to be with you guys again. RADHIKA DESAI: And today we are going to continue the discussion we started in the last Geopolitical Economy Hour, entitled “NATO Out of Bounds: War Against Russia, War Against China”. Last time we discussed where the Vilnius Summit had left NATO, and the divisions within the alliance that the summit had exposed; how the proxy war on Russia was faring; and how the Biden project of uniting so-called democracies against so-called autocracies relies so critically on the outcome of this war, which by present indications does not look good for Ukraine, and it does not look good for NATO. We then went on to discuss how much longer Europe and other US allies could sustain the appearance of NATO unity, which is cracking as we speak, and ended with a discussion of how the grain deal [the Black Sea Grain Initiative] had broken down. Now that discussion already permitted us to expand our frame out of Europe and to take in the world as a whole, because, as it became very clear in our discussion, you cannot understand the breakdown of the grain deal unless you put it in the larger context of how imperialism has a long and murderous history of attempting to deny food security to most of the world. So now today we are going to continue that discussion by focusing on the danger of NATO being transformed from a North Atlantic Treaty Organization to a North and South Atlantic and Pacific Treaty Organization, as Biden leads to an ever-widening and deepening hybrid war on China with trade, technology, diplomatic, and military aspects, but which is coming ever closer to some kind of military war. So once again, we framed our discussion around several questions, so I will just begin by posing the first one: What is the United States’ wider intention and strategy vis-a-vis China in the so-called Indo-Pacific region? What do recent events mean for the region? I’m thinking of events such as the visit of high-ranking Chinese and Russian officials to Pyongyang to commemorate the 70th anniversary of the armistice in the Korean War. I’m thinking of Western hysteria over the recent agreement between China and the Solomon Islands, one of a very large number of Pacific island nations. The recent announcement of a new package of military aid to Taiwan from the United States, which essentially is going to be done by a kind of presidential decree, using the same military drawdown program that President Biden has been using to fuel the war in Ukraine. And generally, I’m thinking of rising tensions in the region, thanks to the announcement of AUKUS a couple of years ago, and the reactivation of the so-called Quad alliance, or incipient alliance, whatever you want to call it, between the United States, South Korea, Japan, and India. And of course, there has been the recent NATO declaration that it considers China a threat. U.S. strategy is not easy to understand, because, while on the one hand, there seems to be some effort to promote dialogue with the visits of recent high-ranking U.S. officials, such as Antony Blinken and Janet Yellen, while on the other hand, U.S. actions continue to ratchet up tensions across all the fronts. So, Michael, why don’t you start us off with your views on this matter? MICHAEL HUDSON: Well, today is just two years since America was driven out of Afghanistan, and we’re seeing a repeat of the defeat in Ukraine. So the U.S. and NATO have lost Ukraine, but they want to keep the fighting going because Biden said this is a fight against China that’s going to take two decades, maybe three decades. So it looks like the Pacific and even the Arctic may become the new U.S. disruption zone. Now, especially since Russia and China are working with North Korea to develop ports for the new trade from the Pacific via the Arctic to Northern Europe. So the United States is losing militarily, but it looks like it’s going to lose Europe in a few years. And the American strategic plan since the 1990s was to absorb the Warsaw Pact into NATO. And it’s done that, but now it looks like it’s overplaying its hand. And the cost ultimately may be to lose Western Europe, headed by Germany, France, and Italy. And we’re already seeing, in the last few days, just since our last broadcast, we’re seeing riots throughout Europe as the economy and employment are declining. And there’s discussion, where is the German chemical industry, led by the BASF company, going to go? They’ve announced they are not going to make any further capital investments in Germany. They say that they’re being pressured to move their facilities to the United States. And they already have facilities in China. So where will the German industrial population go when it abandons the country, just like Latvia, Estonia, and Lithuania’s population have fallen by about one-third since 1990? When you look at how this all works out geopolitically, the Baltics and Central Europe are not important economically. Their population is declining. And only Poland has a military value, because of its dreams of recovering where it was in the 16th century, when it controlled most of Scandinavia and the Baltics. So the U.S. is pushing the insistence, either you’re with us or against us. And the break that’s coming may move Western Europe into the Russian and SCO – Shanghai Cooperation Organization – orbit. When they finally make the decision, if they do decide, “Gee, we shouldn’t have lost the trade with Russia. And now we’re being told to stop trading with China. Maybe we shouldn’t have made that”. If they reverse their decision, this is going to be irreversible. And you could say the same of the Global South countries that are being pressured – and indeed, most of the Global Majority – they’re being forced to choose, either you’re with the U.S., whose industrial economy is shrinking, or you’re with the expanding BRICS+, plus the Shanghai Cooperation Organization. So where are these countries going to realign over the next few years? The U.S. can keep England as a dependency. And England’s fate is, I think, going to be a warning to what happens to countries that adopt U.S.-style finance capitalism instead of socialist industrialization and public services as a human right. PEPE ESCOBAR: Michael gave us the big picture, right? I would like to focus on something that happened these past few days, which is enormous, and I would say, for most of the planet, quite unforeseen, which is Russia bringing back North Korea, the DPRK, to the rank of a very important Global South power with enormous reach. So we have [Russian] Ministry of Defense Sergei Shoigu received like Mick Jagger in Pyongyang. He got a true rock star welcome, the whole thing, including a private audience with Kim Jong-un and obviously the whole leadership of the DPRK. What leaked, of course, was the possibility of many military agreements and increasing their military collaboration. What did not leak is the best part of them all, because it’s the geoeconomic part. What do the Russians really want to do with Pyongyang? They want to integrate Pyongyang with South Korea, with Seoul. And of course, this will mean Russia developing a sort of go-between, diplomacy between both. And they have the possibility to do both, because they are also respected in Seoul. And something that has already been discussed at the Eastern Economic Forum in Vladivostok. These discussions, they started at least three or four years ago in Vladivostok. And what they’re all about basically is to build a trans-Korean railway, which is going to connect with the trans-Siberian and connect both Koreas to the Russian far east, and then all the way across Eurasia. So imagine that you are a Samsung businessman in Seoul. You look at that and say, “Wow, I don’t need to use cargo tankers anymore; I can have direct access to the enormous developing market in the Russian far east, not to mention the whole of Eurasia via Russia, just by building a railway”. Very, very simple. Which sooner or later, and I would say, with Chinese input, could become a high-speed rail. Considering that the Chinese are already investing in high-speed rail in Russia, and considering that if there is a duplication of the trans-Siberian into a trans-Siberian high-speed rail is going to be built by the Chinese, this trans-Korean railway could also be built with Chinese input, technical input as well. And financed via a Chinese Silk Road Fund, the BRICS Development Bank, Russian banks, etc. It could be a reorganization of finance, East Eurasia style. So they were discussing that, of course, and this is going to be re-discussed, and they’re going to get deeper into it at the next Eastern Economic Forum in Vladivostok in early September. So it’s around the corner, literally. So the fact that this is happening now, it’s very, very important, because this is a sort of a preamble to what they’re going to get into at the next Eastern Economic Forum. So everybody is happy with this arrangement. North Korea, because they are brought back to the forefront of trade in the parts of Eurasia. The possibility of having some sort of geoeconomic deal between North Korea and South Korea. Russia, developing the far east and integrating the far east with the Koreas. And China, of course, because this also integrates this part of Eurasia, this Northern Eurasia framework. And it’s part of BRICS. It’s part of the Shanghai Cooperation Organization. And this opens, I would say, this leaves us with the possibility of North Korea sooner or later getting integrated into the Eurasia Economic Union. And that’s fantastic, because I see that happening in at least two stages. The first stage, the EAEU strikes a free trade agreement with North Korea, just like the ones they have with Cuba, or with Vietnam in Southeast Asia. And they are also working with Indonesia to have an EAEU free trade deal with Indonesia. They could also do the same thing with North Korea. And fantastic, this bypasses US sanctions, because it’s going to be – the EAEU basically, Russia is 80% of the firepower of the EAEU. They can devise a settlement mechanism involving North Korea that bypasses the US dollar completely. You have expansion of EAEU to Northeast Asia, which is very important. The Chinese are going to love it as well, because they can also, even if they’re not part of the EAEU – don’t forget that Putin and Xi have already said, and the directives are already there – the Belt and Road Initiative, BRI and EAEU, they have to converge. And this would be a perfect example of convergence between BRI and EAEU. So that’s why, the way I see this visit by Shoigu as Mick Jagger, it extrapolates it everywhere, geoeconomically and geopolitically. And it’s no wonder that it was not even mentioned, I would say, or barely mentioned in Western mainstream media. RADHIKA DESAI: That’s absolutely true. And I mean, the more one thinks about it, the fact of the matter is that it is only a matter of time when the US’s strategy will stop working in the region. So first of all, I mean, this idea that the United States can extend NATO to the Pacific is not going to wash, because the Pacific region has historically focused on its own economic development. The Chinese are essentially pitting their own strategy of proposing economic development to the NATO strategy of securitizing everything, and essentially turning everything into a military conflict or a military alliance. We’re going to see the contestation of these two visions in the region. And I would say, basically, it’s a matter of time before everybody begins to realize that what the United States is doing in Asia, what the United States has been doing around the world, at least since the Second World War, if not before, is essentially, well, the United States says it is providing protection to the world; in reality, the United States has been running a protection racket. What is a protection racket? A protection racket is to promise to provide security against dangers that you have yourself created, so that your promise to provide security appears credible and attractive. So, for example, the United States has continued to foment disunity on the Korean Peninsula. The fact of the matter is that the vast majority of Koreans, North and South, deeply yearn for some form of unification. There is absolutely no doubt. And this is attested to by the fact that, periodically, governments come to power that have advanced progress towards unification, but the United States then comes in and disrupts it. It’s only when Koreans realize this that they will stop voting for those forces. And I think it’s a matter of time. Similarly, in the case of Taiwan, already we are seeing in the run-up to the elections that are due, I think, in a few months, you have in the appearance, side by side with the KMT that wishes to promote peaceful reconciliation with China, the emergence of a new party that is going to do the same. This is going to essentially push the DPP out of the picture. So they’re not going to win. Similarly, also you read in the papers, although Japan has signed, has pronounced a new military policy in recent years that people say should be unthinkable in a country with a pacifist constitution, but in reality you see that the overwhelming majority of the Japanese are not going to join any kind of US-led war against [China over] Taiwan. And so finally, what I’m really driving at is that the wonderful specifics that you gave about what can happen just in the case of North Korea, this is part of a wider set of pressures that I like to think of as the exertion of the economic magnetism, the economic gravity of China. And no country can afford not to respond to that. And so we are going to see a shift, but at the same time, in terms of what we can expect to happen in the next few years, maybe even few decades, is an attempt on the part of the United States to stop this inexorable development from occurring. And you were saying, Michael, that I agree with you, that, at one level, it looks as the United States is looking at a multi-decade war. But we also read in the papers that the United States feels compelled to do something now, because they think that they have up to 2027 before China will become capable of really resisting US forces. But yeah, I mean, this is a kind of a segue into the next question, which is basically, what can the US expect from its allies? MICHAEL HUDSON: Japan has sort of a Stockholm Syndrome, and it identifies with the United States because the US bombed it. And despite its export trade opportunities with China, its right-wing government is still willing to lose this market and sacrifice its economy for the United States once again, just as it did in the Plaza and Louvre Accords. And South Korea is really the key to all of this, partly because it’s so important in ship making, and it’s being pressured to continue cutting back its export of sophisticated ships to China. The Wall Street Journal just had a long report on that. But if it sees the promise of the Chinese market – and as Pepe has explained, the whole Eurasian market, thanks to the railroad – it’s going to decide, what it is going to choose: the export markets to resolve the military overhead and the threat of North Korea, or is it just going to continue to back the US? It’ll probably have to tell the US to remove its occupation troops, because I think the Korean War still is legally on. So we may finally see an end of the Korean War that began in 1950. PEPE ESCOBAR: Your question is what America will do essentially. Just look around and see what they are incapable of doing in several parts of the Global South or the Global Majority. For instance, Southeast Asia. Well, I lived in [Southeast Asia]; it’s my home. I moved to Southeast Asia in ’94, a long time ago. So I followed the relationship between the ASEAN 10, the 10 members of Southeast Asia, with Russia, China, India, and the US on the spot. And nowadays, everybody knows that the number one trade partner of all ASEAN is China. We also know that the U.S. has more margin of maneuver in some of the Southeast Asian nations than in others. For instance, Singapore, we usually joke that Singapore is an American aircraft carrier station in Southeast Asia, side by side with Indonesia and Malaysia. More and more relations between Indonesia and China are being, finally, there was a lot of mutual suspicion during the times of Suharto, of course, and immediately afterwards. And the Chinese have been very, very clever to explain to Indonesia, “Look, we don’t have any designs on your islands, the Natuna Islands in the South China Sea”. So the Indonesians are more relaxed. So now they are talking business, for instance, like, you know, Chinese investments, part of the Belt and Road Initiative across Indonesia. Philippines, we all know, it remains an on-off American colony. But the Americans, for instance, have absolutely zero penetration in, for instance, Myanmar, Laos, and Cambodia. This is Chinese territory. And these have Belt and Road Initiative projects all over the space, like the absolutely extraordinary high-speed rail that the Chinese built from Yunnan to Vientiane. I saw that being built in the middle of the forest across the Mekong River. It’s something that only the Chinese are capable of pulling off. And they did in record time on top of it, because the Laos government said, “OK, come here, do everything”, and it’s the way to go. In Thailand, there’s going to be an extension, because, of course, of foreign interference, because of Thai lobbies fighting among themselves, the Thais haven’t even started to finish their own stretch, you see. But this proves that Southeast Asia, in terms of Chinese-U.S. relations, it’s a balancing act. But most of these nations know exactly what’s going to happen from now on. Their number one trade partner is China. And Chinese influence in all of them will continue to be very, very strong, directly and indirectly, via the Chinese diaspora in all of them, what we call the “bamboo internet”, which is strong in all of these nations. South America: South America, what they basically, against Argentina and Brazil, of course, the Americans have tactical victories. In case of Argentina, for instance, they forced Argentina to get a loan to pay another IMF loan. So basically, the plan is to get Argentina to keep begging for IMF loans ad infinitum. So this is plan A. There’s no plan B. Brazil is much more complicated. But for the moment, it’s a tactical victory, because the margin of maneuver of the Lula government is very, very slim. And we have the famous list of what you’re going to do, that Jake Sullivan went personally to Brasilia to hand out to the new Brazilian government. So obviously, Lula inside BRICS has to be very, very careful. Every time that he opens his mouth and he talks about de-dollarization, we see people shrinking in the beltway. So very complicated. And across Africa, of course, which I’m sure we’re going to discuss, we are watching basically a second wave of decolonization. And now, finally, the real thing with a new generation of young African patriots in Burkina Faso, in Mali, in Niger, in Gambia. And of course, with very, very important allies, not only Russia and China outside, but Algeria in the Maghreb, who plainly supports all these new governments in the Sahel area. So in terms of not only the U.S., but the collective West as a whole, they’re being expelled little by little, with or without AFRICOM, from Africa. And of course, in West Asia, they still cling to, for instance, Syria. Everybody seems to forget nowadays, with the war in Ukraine, that one-third of Syria is still occupied by the Americans. And they are plundering oil virtually on a daily or weekly basis, and wheat. And this disappeared completely from the narrative anywhere. Even in West Asia, the war in Syria is not over. The war in Syria continues, and there is an illegal occupation of one-third of the Syrian territory. So we have tactical victories. At the same time, we have Hezbollah growing stronger and stronger by the day. So the Americas are losing terrain everywhere. [The US has] tactical victories in Europe, of course. They managed to get Germany and the EU separated from Russia. But this is not eternal. This is a tactical victory for the moment. This could change in a matter of a few years only. And of course, across Eurasia, we all know what’s happening. Shanghai Cooperation Organization, BRICS+, the Greater Eurasia Partnership conducted by Russia, Belt and Road Initiative. We’re going to have a forum in Beijing in October. This is it. Eurasia now is Eurasia controlled by Eurasians, and without foreign interference. Of course, we still have attempts at color revolutions. I’m going back to Central Asia soon. I’m going to see what’s happening in Kazakhstan now. Kazakhstan, they are so uncomfortable; they’re trying to hedge their bets, considering that they suffered a color revolution a year and a half ago. And there are sequels. This thing is not controlled yet. So it’s a very mixed picture, guys. I think we all agree that, in terms of tactical victories, the Americans have some serious ones. But in terms of the overall strategy, they are losing virtually in every continent. RADHIKA DESAI: And the very fact that Kazakhstan would be having second thoughts about this is a very important thing. Because from what I understand, of all the Central Asian republics, it is the most pro-Western. It is the most penetrated by American capital, and so on and so forth. So that’s really fascinating. And you’re absolutely right that the picture is very complex. But we can see where the undercurrent of history is going. It’s going away from the United States and toward China and Russia and so on. But at the same time, the undercurrent is one thing. But on the surface, the United States will continue to try and make attempts to block this from happening. There will be vain attempts, but they will be made. People will pay the price for it, et cetera. But still, if you try to, you know, as you say, the United States’ ability to conduct all this is in danger. One indication of this, as we’ve discussed in the past, is that the U.S. cannot, you know – today it’s in the news that the U.S. is going to use the drawdown facility that has been created for Ukraine to send weapons to Taiwan. But the fact of the matter is, what’s also being reported in the U.S. media itself, let alone elsewhere, is that the U.S. ability to produce the sort of arms that are necessary for theater operations today is actually very weak. It is not able to produce. The United States provides vast quantities of money to its pampered military-industrial complex to produce weapons that are of no use – or they are not sufficient. You know, they’re very good at producing high-priced, big-ticket items that cannot be used on the battlefield. Now, this is really a fascinating comment on capitalism, on American-style monopoly capitalism, that you have a pampered military-industrial complex that cannot produce what you need, and you still keep supporting them. So that’s one contradiction. And of course, there are also many others, you know, within an election campaign about to go into high gear in the United States. The unpopularity of the [Ukraine] war, even in the U.S., will be clear. Every other day, there is some item in some or the other newspaper saying, “You know, why are we sending so much money to Ukraine when we can invest in the U.S.?”, etc. So what are the U.S.’s options? I mean, Michael, you recently wrote a paper in which you said that the United States has lost any capacity to rationally calculate what it ought to do, what strategy will win. Perhaps you can say something about that. MICHAEL HUDSON: Well, the U.S. chip makers like Intel are protesting very loudly that China represents one-third of their market. And so if they’re told by the Biden administration to stop selling sophisticated chips to China, then the government is going to be told, well, you’ll have to make up maybe a $50 billion subsidy to us. And will the U.S. Treasury really be asked to replace the China market? That’s what’s already being debated in Congress. So if it does that, how is this kind of giveaway going to affect the U.S. presidential and the congressional elections just next year? This is already an issue. And business donors are not giving money to the Biden administration and the Democratic Party, because they’re wondering what to do. And on the other hand, you have Donald Trump trying to get votes by being even more anti-China than the Democrats. So the great unknown is how China is going to respond to the U.S. shooting itself in the foot. Is it going to be willing to turn the tables and retaliate by imposing its own sanctions? And it has a much stronger ability to impose sanctions on the U.S. than the U.S. has to impose sanctions on China. And [China] fired a warning shot a week ago by stopping the exports of gallium – it produces 80 percent of the world’s supply – and germanium, which it does 60 percent. And on August 1st, China just announced that it has limitations on rare earth exports. And rare earths are a key to making the magnetic characteristics that are required for sophisticated chip technology. So China can simply impose sanctions on trade that doesn’t have much monetary value, but a key technology value, and can limit the trade in raw materials only to its Shanghai Cooperation Organization allies, and say, “Well, look, I’ll provide you with all the materials, and you can make what the United States and Western Europe are no longer able to make, because they don’t have what only we can supply”. So the question is, when will China’s political mentality decide to actually fight the U.S. type of negative war with sanctions instead of the competitive cost-cutting, high-technology war that economic trade is supposed to fight? That’s the issue. RADHIKA DESAI: Absolutely. And, you know, as you were talking, Michael, I was reminded of the fact that, of course, sanctions against Russia were supposed to, you know, “reduce the ruble to rubble” and, you know, push the Russian economy back into the stone age and whatnot. And, of course, if they didn’t win against Russia, they are not going to win against China. We know that, as you say, rightly, that perhaps China should engage a little bit more in the kind of action that it has just undertaken to deny the West important inputs that it needs, important raw materials that it needs. But even without such restrictions, China is already making U.S. sanctions useless, because it has rapidly accelerated its innovation in chip technology and so on. And you know that if the Chinese really roll up their sleeves and say we are going to attack this problem, that problem will be solved in relatively short time. If the Taiwanese can do it, why can’t the Chinese? It’s not you know, the Chinese have been happy to rely on imports since they were easily available. But if they are not, they will develop their own. So the sanctions are going to boomerang big time vis-a-vis China as well. In fact, in a much bigger way. And so the thing that becomes very clear is that it’s very unlikely that there’s going to be anything like an Asian NATO. In fact, given the failure of the war, as I’ve argued before, in Ukraine, the real question will become whether even a European NATO can survive. PEPE ESCOBAR: Radhika, can I change the subject a little bit? Touching on what Michael just said, it dawned on me that the ultimate form of sanctions against the empire is de-dollarization. Because if you don’t change the geoeconomic paradigm, nothing’s going to happen in terms of multipolar integration. So I’d like a little introduction and then I’m going to ask Michael a direct question. Because he’s probably the number one specialist in the world that can give us, without being part of the negotiations, that can give us, OK, what are they planning to do? It’s about the so-called BRICS new currency. What I learned from BRICS Sherpas is that there won’t be an announcement of a BRICS new currency in South Africa in three weeks, for a number of very complex reasons. First of all, they don’t have time. Second, their negotiations started only a few months ago. And this is something that I discussed in Moscow; you need five, six, seven years to design a system like that, if not 10 years, and start to implement it and test it with businesses first, and then with nation states. What is going to happen in South Africa is they’re going to announce an increase in bilateral trade in their own currencies, which is something that they already do. And they are already working on alternative settlements. So basically, starting with the five BRICS currencies – which significantly, [their names] all start with an “R”. That’s very, very quirky, isn’t it? Obviously, if we use renminbi instead of yuan, so we have renminbi, real, rand, rupee, and ruble. So we’re going to have the R5 together, organizing an alternative settlement system of payments. And this will be the first step towards multilateral trade in their own currencies, the five. Don’t forget that we’re going to have BRICS+. So we’re not going to have five; we’re going to have maybe seven, eight, nine, or even 10, depending on the first wave and the second wave of candidates to become parts of BRICS+. And then expanding multilateral trade with these national currencies. And, of course, building, okay, let’s start designing a system, and let’s try to sell this to our businesses in our individual nations, and then to other ones as well. And that will mean the Shanghai Cooperation Organization, Eurasia Economic Union, etc. The Eurasia Economic Union, they have already started discussing an alternative currency three years ago, at least. And they’re still discussing it. Like, you know, two months ago, [Prominent Russian economist] Sergey Glazyev went to Beijing to discuss this with the Chinese. Essentially, it’s an extremely complex thing. And, of course, taking into consideration that the Chinese are terrified of American secondary sanctions, especially. So this is all extremely complicated. So my question to Michael would be, what would be the ideal path in terms of elaborating an alternative payment system inside BRICS first, then expanding to BRICS+, and then selling this system of payments, considering that the Chinese have their own payment system; the Russians have their own payment system; Iran have their own payment system. So getting these all together, so you can settle trade within this new framework, bypassing the U.S. dollar. And then you’re going to have your big enterprises, your big companies, individual nations say, “Well, this is an excellent deal, fantastic”. So now if we’re a company in Turkey, we can do business with a Russian company and we use an alternative payment system. What would be the best way to proceed ahead? And when would we reach a stage where we can actually discuss an alternative currency in terms of bypassing the U.S. dollar and the euro? MICHAEL HUDSON: Well, actually, Radhika and I have devoted two programs of this series to just that question. And we pointed out that what people think of when they say BRICS currency is something like a euro that you can use for buying and selling things, either buying steel or spending at the grocery store. You’re absolutely right. That’s far away, because you need political integration to have that. But what we’re really talking about, and what the kind of currency that’s being talked about isn’t really a currency; it’s a bank credit, a bank settlement system, very much like the SDRs [Special Drawing Rights] for the IMF, except it won’t be controlled by the U.S. But most of all, this is what [John Maynard] Keynes supported in [the Bretton Woods Conference in] 1944 with the bancor. It’s a means of settlement only for spending among central banks. So it’s not a general currency. It’s a means of settling credits among central banks. And the credits are apparently going to be based on the artificial bank currency, tied to the price of raw materials that the member countries all support. And it’ll be very much like paper gold. Right now, the alternative to holding each other’s currencies or U.S. dollars is gold, because gold is an asset without a liability. It’s just something that you can invest in. But you have to somehow earn the money to buy the gold. Many countries have left their gold, since the pre-1991 movement devaluation. Countries used to leave their gold with the U.S. Federal Reserve to settle, buy, and sell in the gold market to stabilize their exchange rates. They never asked for their gold back. Finally, Germany asked a few years ago, and the Fed said, I’m sorry, all your gold is gone. We’ve kept down the price of gold to prevent people from moving away from the U.S. dollar by pledging it to commodity dealers. And we don’t have any gold to give you. And how much of the world’s gold has been left with the Federal Reserve? We don’t know. So to avoid the problem of how to really settle new gold, the BRICS bank will create a credit system where all the countries have credit to buy and sell with each other to be settled in their own currency, so that China, for instance, won’t hold too much Argentinian currency – especially since Argentina has just done the currency swap to pay the IMF for its foreign debt that it should have simply wiped out. So we’re talking about a central bank special currency, not a general spending currency. There are two different things that are often confused in the public discussion. RADHIKA DESAI: Yeah, and if I may add to that, because – you know, Michael and I have done work on this together in our programs, in a paper that we jointly wrote; and then also, independently, so Michael has done his work in Super Imperialism and so on; and my own work on geopolitical economy, is really, it’s primarily – in the book called Geopolitical Economy – it’s primarily a critique of the US dollar system, which I argue has never worked stably. So it has always run into crisis. And in order to appear to function, [the dollar system] has required the inflation, particularly after 1971, of very dangerous bubbles of financial activity. And the reason for that is very simple. You know, the loose talk – which, by the way, includes a lot of academics who engage in loose talk – loose talk of the naturalness of the sterling system and then the dollar system has given everybody to understand that somehow, yes, of course, the currency of the most powerful country should be the world’s currency. But this is, in fact, as we’ve shown, an extremely unstable situation. It cannot obtain. And that’s why Keynes in 1944, speaking on behalf of his country – not willing his country to be subject to the external authority of the dollar, knowing that the sterling can no longer perform the role it once used to perform, knowing intimately well why that was so – proposed the bancor. And essentially this completely separates out the issue of international settlement of imbalances from the ordinary requirements of money within a society. So within a society, money has to be run in order to create full employment, a productively dynamic, ecologically sustainable currency that will work domestically. But often the requirements of that may go directly counter to the need to maintain its international value. And gold, by the way, often people confuse it: gold is not money. When gold is used as money, it shows that there is no money. Gold is a commodity. You know, Michael said it’s an asset without liabilities, but maybe it’s even more pertinent to say it’s a commodity. So it’s a bit like, you know, going back to barter. So you give me steel and I’ll give you gold. That’s the exchange of two commodities. It just happens to be a widely accepted commodity. But people have proposed other things. But essentially, the resort to gold, the Germans and others saying we want our gold back, etc., it’s one of the signs – one of the many signs, by the way – that the American dollar system is not working. So essentially, the point that I’d like to make, therefore, is what would need to happen? You know, your original question was, you know, how will these currency plans work, etc.? So I would say that the first step would be to, of course, create a relatively stable system of exchange rates between these – let’s just assume it’s the five Rs. So let’s say, you know, what is the mutual exchange rate of the five Rs, and to try to stabilize them and so on? And then, in the long run, you know, this kind of system can work. They can even create a sort of bancor based on the five Rs – although originally Keynes had said, let’s not even not use any currencies; let’s just tie the value of bancor to a basket of a few dozen, most widely traded commodities, because that’s what ultimately matters in international trade. So you could do that, and maybe you can get there, but you can begin by stabilizing the values. But then I think the big step would have to be, you would have to try and create relatively balanced trade among all the trading partners. Why is that? Because, Michael said that we have to ensure that, you know, China does not end up with too much Argentinian currency or whatever, or any one of the five does not end up with too much of the currency of the other. Because what it shows is that one country buys a lot from another country, but that country, which is exporting a lot, has no use for its export revenues. Now, that would require a development plan among the holders of the five Rs so that, for example, let’s assume a trade relationship between China and Russia. Well, China and Russia have to ensure that each would want to buy things with what it earns from the other country. So if it’s absent, then maybe there should be investment and opportunity to develop the capacity to produce the thing. Because, you see, the genius of Keynes’s arrangement was that it had mechanisms within it to force people, force countries to move towards balance. Surplus countries were equally responsible, as were deficit countries, to try to address imbalances, both in terms of capital flows and in terms of trade. So once you create those mechanisms, then you create an incentive for, say, if China has too many rubles, then China says, “OK, Russians, we are going to help you develop this productive capacity, so that you can export more of X, Y, Z to us, etc.”. So I think that’s what needs to be done. And just one final point, Keynes’s genius is really apparent in our time because, just as Keynes said, a stable system should try to eliminate persistent imbalances. Now, move your eyes to the dollar system. The one thing it primarily relies on is the generation of persistent imbalances, because to provide the world with money on the basis of your persistent trade deficits and the current account deficits with the rest of the world, means that the whole system is reliant on imbalances, which means it is volatile and unstable. So, as you rightly say, Pepe, this is a very complex thing, and it’s going to take time to work out. But it won’t be worked out if people are laboring under misapprehension, such as that, you know, we need to create a currency like the euro rather than a currency like bancor. MICHAEL HUDSON: Just one thing about the dollar. You just mentioned, and everybody who discusses the dollar system talks about how the US has been providing dollars. In [my book] Super Imperialism, and my work for Arthur Anderson years ago, the US private sector is exactly in balance. Since 1950, year after year, from the Korean War to the Vietnam War, the private sector, trade and investment, is just in balance; it hasn’t provided any extra dollars at all to the world. The entire US deficit supplying dollars to the world has been military. It used to be called the dollar glut. It was to stop that, that [French] General de Gaulle kept cashing in [dollars for] gold. What the new system of the BRICS and the five Rs are going to cure is that the credit is not going to be paid by building 800 military bases around the other countries, to lock them into a dependency system. You’ll have the international payment settlement system demilitarized. That’s the basic aim of all this. The US dollar system is a militarized system. The dollars are US military spending abroad. That’s the number one reason for world peace, that the dollar system should be superseded. RADHIKA DESAI: I agree that in terms of trade, US trade was balanced for a long time, like longer than you might imagine. But certainly starting in the 1980s, the US trade deficit also made its own contribution to the current [account deficit]. The US trade deficit is today between 3 and 4 percent of US GDP. MICHAEL HUDSON: No, that’s absolutely fictitious. It’s based on fictitious statistics. Much of the trade deficit is in oil. When the oil comes in, it’s counted as a trade deficit. But only about 10 percent of the price of this oil is paid in non-dollars. All the oil that’s imported is from US oil companies. And the offset is the earnings on this, the interest paid, or the cost of producing this oil are all made in the United States. So you have investment inflows on the capital account and on the income account to offset the fictitious payments of oil imports that don’t involve foreign currency at all. RADHIKA DESAI: OK, I’m not quite sure what you mean, because the fact of the matter is that the whole point is that the United States pays for this oil in dollars. But let me just make another further point, which is that, you know, people tend to focus on the US trade deficit, and then they say, “Look, the Chinese are buying so many US treasuries and so they are essentially financing the trade deficit, and so this is a kind of a mutually supportive system” – “Chimerica” and all that. But in reality, what people forget is that what’s really keeping the dollar system going is not Chinese financing, not Chinese purchases of US treasury securities; what keeps the dollar system going is the vast expansion of financial activity, which goes in both directions. And so, for example, if you look at the statistics, the financial statistics about all the international capital flows that were going on, the bulk of them being in dollar-denominated assets in the run up to the 2008 financial crisis, the Chinese played hardly any role in it. The biggest role that was played, the part of the world that was most fully integrated into the US financial system, which was producing these toxic securities that led to the 2008 financial crisis, was Europe. And therefore, it is no wonder that Europe was the part of the world that suffered the most from the 2008 crisis. The 2008 crisis set the foundation for the 2010 Eurozone crisis, and so on and so forth. And that is why I really find it important to correct people when they term what happened in 2008 a global financial crisis; there was nothing global about it. It was a North Atlantic financial crisis. MICHAEL HUDSON: That’s right. PEPE ESCOBAR: I want to pose a question to both of you. Because I was reminded of something very clever that the Chinese are doing and maybe they are setting an example for the whole Global South. You know that they have now oil futures being traded at the Shanghai bourse, especially the GCC. It’s fascinating. So the GCC goes to the Shanghai bourse. They sell their oil futures. The Chinese buy it. They pay yuan. But then the GCC says, look, we don’t want all that yuan. You know, what are you going to do with so much yuan? The Chinese said, no problem. You can trade your yuan with gold using the Shanghai exchange, a clearing house, or in Hong Kong if you want. This is absolutely brilliant. Do you think that this could be expanded to the other BRICS, starting with the other BRICS, and then if we have, for instance, Iran and Saudi Arabia being part of BRICS+, adopting the same mechanism? RADHIKA DESAI: I think that can work. I would say that, you know, the role of gold, as I see, is always residual. If all the money in the world were actually backed by gold, we would suffer massive deflation, because there wouldn’t be enough money in the world, because there isn’t enough gold in the world. MICHAEL HUDSON: Gold only finances international balances, not general activity, as the gold exchange standard, not the gold standard. And again, the gold is an alternative, the easiest alternative to the dollar, because everybody accepts it. It’s taken a couple of thousand years, but they finally decided something that they can accept as an alternative. It’s a transition to the BRICS artificial currency. It’s a transition to something away from gold – the idea of an international currency that is not the embodiment of not the U.S. trade deficit, but U.S. military spending. RADHIKA DESAI: So then to further add to that, so I would say that essentially, when people buy gold, what they’re saying is they don’t want money; they want a commodity; they want that commodity, etc., an easily tradable commodity, so some kind of asset. So in that sense, it’s a good idea. You know, the function of gold, I often like to say that the sterling standard in the late 19th and early 20th centuries, the sterling exchange standard was often called the gold standard, you know, because sterling was backed by gold. But two things. Number one, the genius of the system actually lay in creating such wide international acceptability for the sterling that it was rarely exchanged for gold. And the reason and the mechanisms by which this was done, we can talk about it. But the point is, it was rarely exchanged for gold. Keynes writes in his [book] Indian Currency and Finance, which is actually a primer on the functioning of the international gold standard, the sterling standard. And I’ll come in a minute to why a book on Indian currency and finance should serve as the primer on the gold standard. But let me just finish this point. He makes the point that the Bank of England had less gold than the Caja of Argentina. And he prided himself on that. And he also used to berate the French for holding gold. He says, look, you don’t need to, et cetera. But that’s a whole other set of questions. Now, let me come to how the British were able to do this. It’s because they drew – I mean, the so-called gold standard actually had very little to do with gold, except for the fact that gold was the benchmark of the value; the price of gold was the benchmark of the value of sterling, and sterling was occasionally exchanged into gold. And, you know, in those days, some gold coins did circulate. But that was really a very limited role. The real foundation of the sterling standard was the surpluses that the British drew from their colonies, chiefly British India, which is why a book on Indian currency and finance, which is really a description of how surpluses were transferred from India to the UK. What were the mechanisms employed in order to do this? So my point being that that is why this book is a primer on the gold standard. And the real foundation of the gold standard was the surpluses Britain extracted from its colonies, and then exported as capital exports. To where? To Europe, to North America and Oceania, and to some extent to South Africa – that is to say, to all its settler colonies. So if you think about it in a different way, Britain drew surpluses from her non-settler colonies – British India, Africa, the Caribbean – and exported them as capital exports to her settler colonies. This is really, it’s quite a racialized thing, but that is the way it was. It is primarily where the money went. And so Britain provided the world with liquidity by exporting capital, not by running deficits as the US would do later. The US had no choice. The US didn’t have colonies which it could squeeze to provide surpluses to export to the rest of the world. So the US had to take a different role. So to come back to your question, I think that the Chinese strategy of allowing things to be exchanged for gold is a good confidence-building measure. And, you know, at the moment, the transactions are few enough that it can do so. I mean, ultimately, the system should work so well that it does not need gold. Now, there again, the question is, if China tried to internationalize its currency on the model of the dollar, it would actually reduce China to the sort of economy the US has, of de-industrializing and aging infrastructure. So it will not do so. That is why Michael and I, and anyone who thinks about it, always says you should not internationalize your currency in that way, not to any significant extent; instead, you need this kind of artificial currency that will help settle international imbalances. PEPE ESCOBAR: So you’re right, Radhika. And this is the official position in Beijing. They want to go very, very slow with the internationalization of yuan. RADHIKA DESAI: Yes, yes, exactly. So, folks, I should say, you know, we’ve had a really wide-ranging discussion, as usual, absolutely fantastic. We’re about an hour and we’d like not to go too much over an hour. So let me ask you both to say any closing remarks you want to say. MICHAEL HUDSON: Well, you’ve been brought back to the point that we’ve been making in part one of this discussion, which is the U.S. sanctions were designed to isolate Russia’s raw materials and China’s information technology and shipmaking. These are not in the economic interest of America’s allies, or of China’s Asian neighbors, or even the United States. Europe is being told to buy its oil and gas from the U.S. Korea, and Japan, and Taiwan – Basically we’re back to the issue of whether trade is going to be economic or national security in nature. And it seems now, given the U.S. military presence, it’s going to be both. It’s going to be economic with national security. And I think it’s hard to see getting the U.S. using any military leverage at all, given the failure of the NATO tanks and the missiles and the anti-aircraft. And the idea is that basically the U.S. is, the dollar is being rejected. And at first glance, the thought of the BRICS and the Global Majority emerging may seem outrageous, but it’s no more outrageous than the thought that the Nobel — I want to make a suggestion that, just as the Nobel Peace Prize was given to Henry Kissinger for destroying Laos and Cambodia and covering Vietnam’s forest with Agent Orange, or Obama was given the Peace Prize for destroying Libya and confiscating its gold that Gaddafi had hoped to use for an African gold-based currency and turning it over, and the final Obama act starting today’s crisis with organizing the pro-Nazi coup in Ukraine, I think that America is trying to force Europeans to believe that war is peace in the same sense that Tacitus described a British chieftain of saying that Rome was making a desert and calling it peace. But in view of what we’re seeing in the last year and a half, I could imagine President Biden getting this year’s Nobel Peace Prize. It would fit in perfectly. It meets the traditional qualifications of destroying a country, Ukraine. But actually, there’s another reason which he can get it. Biden and Blinken and their neocon team have driven most of the entire Global Majority together to create an alternative to the U.S.-centered world that has become increasingly one-sided. And under the Biden administration, the United States is forcing the entire rest of the world, except for its NATO satellites, to create a new economic order. And that’s what we’ve been discussing. And this new international economic order is on the lines that the United Nations was supposed to be created in the first place, before it was taken over by the U.S. Self-sufficiency in food production for each country. They won’t have to run a trade deficit to import food, because, just like Russia was able to make itself independent in grain and become a grain exporter, other countries can do the same thing, when they’re freed from the World Bank and the International Monetary Fund trying to block it. The new economic order will be a mixed economy along socialist lines, to uplift the entire economy, at least of the expanded BRICS and the Shanghai Cooperation Organization. And there will be a focus more on peaceful integration instead of military and financial integration. So it turns out that the NATO war in Ukraine has turned out to be this grand catalyst for this new world order. And just because this wasn’t Biden’s and Blinken’s original intention doesn’t mean that it’s not the effect in practice. And remember, [Charles Maurice de] Talleyrand, the French official in the 18th century, said of one policy, “It’s worse than a crime, it’s a blunder”. And you could say that that describes American policy perfectly. But let’s give it credit for this fortuitous blunder that has driven the whole Global Majority together, to make an alternative to the World Bank, an alternative to the IMF, and an alternative to the failed U.S.-centered unipolar order. PEPE ESCOBAR: Well, I am in touch with a group of Chinese writers and scholars, and they are always absolutely fascinated. And one of them, in fact, Michael was just talking about blunders. They said, this is the number one blunder in the history of the empire, and they won’t be able to recover. And the Chinese have a little bit of experience with blunders, right? Well, I would like to finish basically saying that in three weeks we’re going to have the BRICS Summit. So everything that Michael was telling us a little while ago is going to be discussed at the BRICS Summit. And this is what the Sherpas have been doing these past few weeks. The Sherpas were actually organizing and designing the proceedings, what’s going to happen, the agenda, and the procedures for BRICS Plus, the expansion. So in three weeks, we’re going to have a geopolitical, geoeconomic earthquake. There’s no question about that. Just to remind all of you, there is a list of potential members of BRICS+. This is fascinating because these are part of an organization parallel to BRICS called Friends of BRICS. Whenever there is a BRICS Summit, you have Friends of BRICS Summit as well. They interact and they also have their own mini summit. And this is exactly what happened in South Africa, what, two weeks ago, maximum. I’ll give you the list. Iran, Saudi Arabia, United Arab Emirates, Cuba, Democratic Republic of Congo, Comoros, Gabon, and Kazakhstan. So probably the first tier, the first wave of BRICS+ is going to come from these guys to one, two, three, or four of these. And there’s also Belarus, which was not in Friends of BRICS, but it’s very close to Russia. And Belarus also applied for BRICS. You will notice that in this list, there’s no Argentina, unfortunately. And this, I think we discussed this in our previous, because Argentina, basically, they were, I would say, forced to withdraw their application toward BRICS. And this, they didn’t know how to explain that in Buenos Aires. But this is what it is at the moment. So can you imagine if we have just in terms of the brand new world ahead? Iran, and Saudi Arabia, and the United Arab Emirates as a member of BRICS. So we’re going to have BRICS+ directly linked to OPEC+, directly linked to major sources of energy to China, directly linked to that mechanism at the Shanghai bourse of the GCC selling oil. And if you want gold, you can have your gold as well. So can you imagine this in a matter of two or three days? We’re going to have this thing turning upside down. And then maybe this is the beginning of the new world economic order. Voila. RADHIKA DESAI: Yeah, absolutely, folks. And so, yeah, let me just wind this down by making just a couple of remarks. Number one, I think that, you know, you were talking about blunders. But if you look at the long term historical point of view, the whole project of American hegemony has been a blunder. We are just seeing the latest and ever more desperate blunders of the United States in trying to keep it going. This has been my argument for a very, very long time. And bringing the matter back to NATO, which was at least formally the subject of our thing, NATO has always, of course, been an instrument of U.S. hegemony. But if you cast your mind back a couple of decades, you will see that people, very few people really talked about NATO very much. Because U.S. hegemony was much more extensive. NATO was one part of a larger structure of U.S. hegemony. Now we’ve come to a point where the U.S.’s purchase on world events relies on NATO to such an extent that it has become the mainstay of U.S. power. And this mainstay of U.S. power was, you know – part of the reason people didn’t talk about it very much is because it was always fractious. There were always tensions between the Europeans and the Americans and so on. So there was not much to see there in terms of U.S. hegemony. And now that so-called U.S. hegemony has become reliant on reliance on this outfit is really telling, is really telling about how far, how low U.S. power has sunk. So perhaps with that, I think we should end today’s today’s show. Please look forward to more shows with us. Hopefully, Pepe, we will have you back another time, after these upcoming summits, or something like that, to assess them. PEPE ESCOBAR: Thank you so much. My pleasure. RADHIKA DESAI:  Thanks very much. And thanks again to our videographer, Paul Graham. And of course, as always, to Ben Norton for hosting our show. Goodbye, everyone. And see you next time. Bye bye.

Write an article about: Oil as a geopolitical weapon: US hegemony, OPEC, Saudi Arabia, and the petrodollar. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Aaron Good, inflation, interest, oil, OPEC, Paul Volcker, Saudi Arabia

Multipolarista host Ben Norton and historian Aaron Good discuss how oil is used as a geopolitical weapon, analyzing the 1973 OPEC oil embargo, Saudi-US alliance, petrodollar, Nixon shock and Volcker shock, and Washington-orchestrated 2014 oil crash. Multipolarista host Ben Norton is joined by historian Aaron Good to discuss how oil is used as a geopolitical weapon, analyzing the 1973 OPEC oil embargo, Saudi-US alliance, petrodollar, Nixon shock and Volcker shock, and Washington-orchestrated 2014 oil crash. In 2014, Secretary of State John Kerry traveled to Riyadh, where the US and Saudi Arabia made a deal to crash the oil market in order to hurt top crude producers Russia, Iran, and Venezuela. Reuters reported in a June 2014 news wire titled “Kerry, Saudi King discuss oil supply, U.S. official says“: U.S. Secretary of State John Kerry and Saudi King Abdullah briefly discussed global oil supplies during a meeting on the crisis in Iraq on Friday, a senior State Department official said. During the talks, Kerry referred to recent comments by a Saudi oil official that the world’s largest oil producer would increase supplies should crises in Iraq or Syria disrupt supplies, the official said. “The secretary noted positively a recent statement from an oil official in the kingdom reflecting the kingdom’s desire to do what will be required in the event of any turbulence,” said the State Department official, who briefed reporters on the talks. In November 2014, The Guardian followed up with an article by the top British newspaper’s economics editor, Larry Elliott, titled “Stakes are high as US plays the oil card against Iran and Russia,” which stated: Washington is trying to drive down prices by flooding the market with crude but risks collateral damage to its own shale industry … The fourfold increase in oil prices triggered by the embargo on exports organised by Saudi Arabia in response to the Yom Kippur war in 1973 showed how crude could be used as a diplomatic and economic weapon. History is repeating itself. Think about how the Obama administration sees the state of the world. It wants Tehran to come to heel over its nuclear programme. It wants Vladimir Putin to back off in eastern Ukraine. But after recent experiences in Iraq and Afghanistan, the White House has no desire to put American boots on the ground. Instead, with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil exports, the assumption is that they will become easier to deal with. John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising. The Saudis did something similar in the mid-1980s. Then, the geopolitical motivation for a move that sent the oil price to below $10 a barrel was to destabilise Saddam Hussein’s regime. This time, according to Middle East specialists, the Saudis want to put pressure on Iran and to force Moscow to weaken its support for the Assad regime in Syria. Turning on the oil spigots comes at a cost. The Saudis, like all other producers, have become accustomed to oil above $100 a barrel. The Arab spring in Libya and Egypt raised fears that the political unrest would spread. Oil revenues financed higher public spending, so Saudi Arabia needs the price to be above $90 a barrel to balance the books. But a bit of pain is acceptable. The Saudis are gambling that they can live with a lower oil price for longer than the Russians and the Iranians can, and that therefore the operation will be relatively short-lived. There is no question that this new manifestation of cold war muscle is hurting Russia. Oil and gas account for 70% of Russia’s exports and the budget doesn’t add up unless the oil price is above $100 a barrel. The 2019 Al Jazeera documentary “Saudi Aramco: The Company and the State” features an interview with energy researcher Jim Krane, at 16:07, who explains: Saudi Arabia is the keystone in OPEC; it is the big dog. It’s the ringleader, if you will within OPEC. OPEC members maintain a little bit here and there. None has more than 1 million barrels per day of spare oil production capacity, that I know of, that maintains that kind of level of spare capacity as policy. Saudi Arabia, Saudi Aramco, typically maintain a million, 2 million barrels a day of oil production capacity that they don’t use. No profit-oriented firm would ever do this, right. You wouldn’t invest all the billions in developing oil fields, and pipelines, and storage facilities, and production infrastructure, and then just leave it dormant. Saudi Aramco has done it at the behest of the Saudi state. And it’s the key aspect in the Saudi-US partnership, Aramco’s ability to bring more oil production online, and its willingness to cut back at times the markets are oversupplied. It’s kind of the crux of the US-Saudi strategic partnership. After, Al Jazeera featured a quote from former US President Donald Trump, who stated openly: Saudi Arabia, if we broke with them, I think your oil prices would go through the roof. I’ve kept them down; they’ve helped me keep them down. Right now, we have low oil prices, or relatively; I’d like to see it go down even lower.

Write an article about: BRICS expanding into economic powerhouse: Petrodollar under threat. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Argentina, Bandung Conference, Brazil, BRICS, China, Cuba, Cyril Ramaphosa, Javier Milei, Lula da Silva, Patricia Bullrich, South Africa, Xi Jinping

In its South Africa summit, BRICS invited six new members: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. The bloc now represents 37% of global GDP (PPP), 40% of global oil production, and roughly 1/3rd of global gas production, challenging the US petrodollar system. In its summit in Johannesburg, South Africa this August, BRICS invited six new members: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. The bloc now represents 37% of global GDP (measured at purchasing power parity, or PPP), as well as 40% of global oil production and roughly 1/3rd of global gas production. The inclusion of top oil producers like Saudi Arabia and the UAE, which have long priced their crude in dollars, is a direct challenge to the US petrodollar system. All of the invited nations have indicated that they will officially join the extended BRICS+ bloc on 1 January 2024. Four of Earth’s top 10 gas producers are now de facto BRICS+ members, making up 32% of global production. Seven of the world’s 10 largest oil producers are now de facto BRICS+ members. According to 2022 data from the US Energy Information Administration, these include the: In this video I discuss the importance of the expansion of BRICS The BRICS+ bloc now represents:-37% of global GDP (PPP)-40% of global oil production-1/3rd of global gas production It can challenge the petrodollar system that undergirds US economic hegemony Full video below pic.twitter.com/SDQm1ymacV — Ben Norton (@BenjaminNorton) August 25, 2023 A key topic at the Johannesburg BRICS summit from 22 to 24 August was de-dollarization – the international movement of countries seeking alternatives to the hegemonic US currency. The Russian government has confirmed that some BRICS members are slowly making plans for a new global currency for international trade, to settle balance of payments, and to hold in central bank foreign-exchange reserves. Brazil’s President Lula da Silva, an original co-founder of the BRICS, used the meeting in South Africa as a platform to call for creating a new international reserve currency, to challenge the dollar. BRICS has a working group dedicated to developing concrete proposals for this new reserve currency. Lula emphasized that it would be “a unit of account for trade, which will not replace our national currencies”. These comments made it clear that BRICS model is not the euro; it is rather something like the bancor, the international unit of account proposed by economist John Maynard Keynes at the 1944 Bretton Woods Conference (which ended up adopting the dollar as the global reserve currency, under US pressure). Discussions of a new international unit of account are still in the early stages, however, and the currency is only on the horizon in the medium-to-long term. In the short term, BRICS members voted to increase their use of national currencies in bilateral trade. The BRICS New Development Bank (NDB), now under the leadership of Brazil’s former President Dilma Rousseff, has promised to gradually de-dollarize the bank’s lending, instead providing financing for projects in the national currencies of members. In an August article published before the BRICS bloc announced its expansion, economic geographer Mick Dunford explained: In 2022, the combined economic output of the five BRICS members, measured in purchasing power parity, exceeded for the first time that of the US-led G7. At market exchange rates in 2021, the BRICS accounted for 26.1 percent of global GDP and 53.1 percent of world population, compared with 43.5 percent and 9.8 percent for the G7. However, GDP is misleading. If one examines the production of manufactures, energy and raw materials and food, the BRICS countries account for 36.6 percent, 28.3 percent and 53.1 percent of world output, respectively (compared with 35.5 percent, 28.1 percent and 14.1 percent in the case of the G7). This contribution to the production of real goods vital for human survival significantly exceeds the BRICS’ share of GDP (without correcting for purchasing power differences which significantly raise its shares) while those of the G7 are much smaller than its GDP share. The bloc has become a massive economic powerhouse – and is only growing in influence. President Xi Jinping stressed in his speech at the BRICS summit that China does not want a “new cold war”. Xi called for “win-win cooperation”, guided by the goal of “common prosperity” for all. At the same time, the Chinese leader warned of the “hegemonic and bullying acts” of “some country” – obviously a reference to the United States. Xi stated: We need to promote development and prosperity for all. Many emerging markets and developing countries (EMDCs) have come to what they are today after shaking off the yoke of colonialism. With perseverance, hard work and huge sacrifices, we succeeded in gaining independence and have been exploring development paths suited to our national conditions. Everything we do is to deliver better lives to our people. But some country, obsessed with maintaining its hegemony, has gone out of its way to cripple the EMDCs. Whoever is developing fast becomes its target of containment; whoever is catching up becomes its target of obstruction. But this is futile, as I have said more than once that blowing out others’ lamp will not bring light to oneself. China's President Xi at the BRICS summit: "some country [hint: the USA], obsessed with maintaining its hegemony, has gone out of its way to cripple the EMDCs (emerging markets and developing countries). Whoever is developing fast becomes its target of containment; whoever is… https://t.co/mjXvydA5yz pic.twitter.com/XNHc0aYsPT — Ben Norton (@BenjaminNorton) August 23, 2023 On the sidelines of the summit, Xi also met with Cuba’s President Díaz-Canel. State media reported that Xi pledged that “China will continue to firmly support Cuba in defending national sovereignty and opposing external interference and blockade”. In a similar vein, Brazil’s President Lula condemned the unjust, Western-dominated international financial system and insisted that countries need “a fairer, more predictable, and equitable global trade”. “We cannot accept a green neocolonialism that imposes trade barriers and discriminatory measures under the pretext of protecting the environment”, he added. In his speech at the BRICS summit, South Africa’s President Cyril Ramaphosa compared the bloc to the 1955 Bandung Conference, which was organized to oppose colonialism. “When reflecting on the purpose and role of BRICS in the world today, we recall the Bandung Conference of 1955, where Asian and African nations demanded a greater voice for developing countries in world affairs”, he said. “We still share that common vision”, Ramaphosa added. “Through the 15th BRICS Summit and this Dialogue we should strive to advance the Bandung spirit of unity, friendship and cooperation”. Among the six countries invited to join BRICS+, a question mark is hanging over the head of one. Argentina’s current, centrist government, led by President Alberto Fernández, has vowed to join BRICS+. However, whether or not the South American country actually does depends on the results of the elections approaching in October. Two of the three main presidential candidates have publicly stated that they will not join BRICS+: the right-wing candidate Patricia Bullrich and the far-right extremist candidate Javier Milei. Milei wants to abolish Argentina’s central bank, abandon monetary sovereignty, and adopt the US dollar as the official national currency (while also implementing mass privatizations of state institutions, building private for-profit prisons, and heavily militarizing the country). When asked if he would consider joining BRICS+ if he won the election, the far-right extremist Milei declared: “Our geopolitical alignment is with the U.S. and Israel. We are not going to align with communists”.

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Economist Michael Hudson discusses US “Super Imperialism,” the new cold war on China and Russia, the Joe Biden administration, and dedollarization. In this extended interview, renowned economist Michael Hudson discusses his concept of US “Super Imperialism,” the new cold war on China and Russia, the Joe Biden administration, and dedollarization – the potential end to the dollar as the global reserve currency. Benjamin Norton 0:03 Hello, everyone, I’m Ben Norton. You’re watching Moderate Rebels. And there will be a podcast version of this after, for people who want to listen. We are joined today by the economist Michael Hudson, one of the most important economists in the world, honestly, in my view. And I don’t think he needs introduction. He has written many books, and has been an economic adviser for multiple governments, and has a long history on Wall Street and academia. And you can find his work at Michael-Hudson.com. Today, we’re going to talk about an issue that Michael Hudson has been writing about for decades, and something that you’re never really going to hear from other economists, especially mainstream neoliberal economists, and that’s what he calls super imperialism. The US government has of course its military apparatus, which we talk about a lot here at Moderate Rebels and The Grayzone, with the war in Iraq, the war in Syria, the war in Libya, but then there’s also the economic form that imperialism takes. And Michael Hudson wrote the book Super Imperialism that details exactly how this system works. So today, Michael Hudson, I want to start just talking about what super imperialism looks like today, in the new cold war. This is something that we talk a lot about. We saw that Joe Biden gave his first kind of major speech to Congress – we’re not supposed to call it a state of the union because it’s still his first year – but Biden gave a joint speech to Congress in which he declared that the United States is in competition with China to own, “to win the 21st century,” as he put it. And we’ve seen that the US government, under Biden, and of course before under Trump, has imposed several rounds of sanctions on Russia and on China. So Professor Hudson, let’s just start today talking about what you think the posture has been of the Biden administration, vis a vis Trump. We saw that the Mike Pompeo State Department essentially declared a kind of new cold war on China. Pompeo gave a speech at the Richard Nixon library in which he said that the famous Nixon visit to China was a mistake, and that we have to contain China and eventually overthrow the Communist Party of China. And some Democrats hoped that the Biden administration would kind of take a step back. But we’ve seen that the Antony Blinken State Department has continued many of these aggressive policies, accusing China of genocide. And we’ve seen that the Treasury Department just imposed several new rounds of sanctions on Russia. So what is your view on on the new cold war that’s going on right now? Michael Hudson 2:57 Well, I had originally wanted to call my book Monetary Imperialism. The publisher wanted to call it Super Imperialism, in 1972, because it was really the US moving towards a unipolar order, where it was not competing with other imperialisms; it wanted to absorb European colonialism, absorb European imperialism, and really be the single unipolar power. And of course that is what really has come about. The United States is trying to become the only dominant power in the world. And in today’s Financial Times [on May 5], one of the reporters said, it’s as if the United States wants to be the world’s absentee landlord, and rent collector. So we’re dealing with a monetary and a rentier phenomenon. And when Biden gave his speech last week, there was a very marked change, right in the middle of it. The very beginning was very calm, offering means of improvement for the American economy, and a set of proposals that were so wonderful that they don’t have the chance of being enacted. And that was simply to co-opt what calls itself the left wing of the Democratic Party, if that’s not an oxymoron. And then all of a sudden, his body language changed, his voice changed, and there was just an anger towards Russia and towards China, a visceral anger that brought back the whole 30 years of his tenure in Congress. And he was the leading cold war proponent, the leading proponent of the military, and of course now he wants to increase the military budget. So while on the one hand, he’s continuing the nationalistic trade policies of the Trump administration, he’s escalating the cold war against Russia and China, in the belief that somehow if he can impose sanctions and punish them economically, that will lead to a fall of the government. Well, you can see what he’s projecting here. It’s obvious that the United States economy is going to be in real trouble. Once the Covid crisis stops uniting the country in a feeling that we’re all in this together – and certainly in New York, where I live, in August, the freeze on real estate evictions, by renters, and foreclosures on mortgagees is going to end, and it’s expected there will be 50,000 New Yorkers thrown into the street. They’ve very kindly decided to postpone this until August, so at least they can sleep in the park, and don’t have to begin sleeping in the subways until maybe October. There’s no way that any Wall Street economist that I know can see if the economy is really going to recover. The stock market is going way up, thanks to a Federal Reserve policy of subsidizing bonds and stocks, with 83% owned by the 1% of the population. But the Federal Reserve is not backing any spending into the actual economy. Well that’s where the first part of President Biden’s speech came in. He was talking about building infrastructure and somehow reviving the economy. But it doesn’t look like he’s going to get much support from this from the Republicans, and he wants to be bipartisan. In other words, he says the Democratic Party, as always, won’t do anything that Republicans wouldn’t agree on. Because the Democrats are an arm of the Republican Party. Their role is to protect the Republican Party from left-wing criticism. So you can expect a wishy washy sort of slow decline with a few rapid spikes in decline as the Covid crisis ends. And you’re having almost a preparation for this by – I think Biden and the government people realize that the economy cannot regain its former industrial position, because it’s a rentier economy now. Money is not made by companies investing in industry and factories and means of production. When companies do make profits, they are largely monopoly rents, or resource rents, or other forms of rent extraction. And 90% of corporate income in the United States is spent on share buybacks and dividend payouts, not on investing in new production. So nobody’s really expecting new private investment to occur in the United States, that is private capital investment in means of production. So Biden says, well, if the private sector won’t do it, then the government can do it. But his idea of the government doing it is to give government money to private companies that will build industrialization. And he wants to essentially replicate the military-industrial complex into an enormous public-private partnership, to build very, very high-cost infrastructure that will make it almost impossible for Americans to have any trade competitiveness with other countries. Well if you’re going to create a high-cost rentier economy, that is post-industrialized like that, what do you do? You say it’s not our fault, foreigners are doing it to us; it’s all China’s fault – as if China had something to do with American de-industrialization. China’s trying to avoid the rentier policies, avoid the financialization, avoid the privatization that has made America so high cost and so ineffective. And the [US] government is trying to sort of blame it. But I think there is something else behind this fight against China and especially Russia. The Democratic leadership seems to have an almost emotional, passionate antagonism towards Russia that can’t be explained on objective grounds. But it’s obviously there. Their attempt to isolate Russia is as if somehow they can recapture the dream of the Yeltsin 1990s, the dream of somehow replacing Putin with a pliant alcoholic kleptocrat like Yeltsin who will resume the sale of Russia’s national resources and public utilities to Americans. There’s no way that’s going to happen. The actual effect of the sanctions on Russia and China has been to drive them together into a unit, into a critical mass. And ironically, America’s attempt to isolate other countries is turning into an attempt to isolate itself. The question in this is, what about Europe? In the last few days, there has been a lot of discussion about cutting Russia off from the SWIFT bank clearing system, and of other sanctions against Russia. Russia has already worked with China to develop their own alternative to the SWIFT banking clearing system. So Russian domestic payments are not going to be that disrupted, after a week or two that they say it’ll take the put the new system in. But what cutting Russia off in the SWIFT system does is block its trade and its community, its economic relations with Western Europe. The United States, I think, realizes that if it can’t get through, if it can exploit Third World countries, or Russia or China, at least it can make Europe permanently dependent, and drawn, and really under US control. So if you look at the sanctions against Russia and China as a way to split Europe and make Europe increasingly dependent on the United States, not only for gas, and energy, but also for vaccines. These are the two issues that have been in the news in the last few weeks. Blinken and other US officials said that Russia offering its Sputnik V vaccine to Europe is divisive, is an attempt to break up the world’s “rules-based order.” This is amazing, that Russia’s attempt to – now that Pfizer and the other American companies are not producing enough vaccine to provide to Africa, South America, and Asian countries, the United States is attacking Russia, and Cuba, and China for offering other vaccines and saying they’re trying, their attempt to save lives through the rest of the world is an attempt to divide and break up the American order. Because only the Americans can have the intellectual property monopoly, something that Blinken mentioned in his speech, and that President Biden mentioned. The intellectual property monopoly means that America gets to tell other countries, our firms have the right to say, “Your money or your life” to Third World countries. And that will be our means of, “Well, you can’t pay, well, why don’t you sell off some more of your infrastructure? Why don’t you sell off more of your oil or mineral resources to us?” So what we’re seeing is an intensification of economic warfare against almost all the other countries in the world, hoping that somehow this will divide and conquer them, instead of driving them all together. Max Blumenthal 13:24 Yeah, hi Professor Hudson, I totally agree with you about the Democrats, at least the political class and their perspective on Russia. And you have kind of two types that command the Democratic Party. You have these boomers who grew up hiding under their desks during the Cuban Missile Crisis, and were indoctrinated on anti-communism, then they went through the trauma of the ’60s, and saw McGovern lose, and moved to the center. And so they see Putin as a revival of the KGB and the evil Soviet Union that forced them under their desks in elementary school. And then you have the 30 and 40 somethings who see Russia as this exporter of white nationalism and the right wing, and they get this constant steady stream of propaganda from BuzzFeed and other sites about that – completely ignoring Ukraine. But this is just a marketing strategy to me. I mean, there’s something that you’ve spoken about written about in Super Imperialism and in recent talks that I think lurks behind what both the Trump and Biden administrations call “great power competition.” And that is, while this political class sees a national rivalry with Russia and uses it to unite its own constituency, a very fractious constituency, there is what you called the conflict of economic and social systems. And I fully understand this with respect to China. You see industry journals, even rail journals in the US talking about the fear of the Chinese rail system “not playing by the rules,” which means the free market, because they’re receiving state subsidies and kicking the ass of the American rail system, expanding infrastructure. But you have also included Russia into this counter-hegemonic system, which some would call state capitalist or socialized system, versus the financialized system – where that land, basically, that giant landmass, which the state in China, certainly, and you seem to be saying Russia, is socializing, is seen as an existential threat to the very essence of what the US has been constructed as, as an empire, where finance, industry, corporations have merged with the state. I think you understand where I’m going here. How can – maybe you can explain a little bit more about how this is actually, when we see Russiagate or this cold war rhetoric, it’s actually kind of a marketing device for the real conflict of economic and social systems. Michael Hudson 16:12 Well the real existential threat isn’t a trade rivalry; it’s not one of technology at all. The existential threat is to the idea of an economy based on completely a rentier system. In today’s world, the banks play the role that landlords played from the feudal epoch through the 19th century. And all the classical economics, the whole concept of free markets, from the physiocrats, with their laissez faire to Adam Smith, through John Stuart Mill, the whole of classical economics was to free industrial capitalism from the rentier class, from the landlords, and from banking and the monopolies that banks created in organizing trusts. So the US realizes that the economy has been transformed in the last 40 years, since the 1980s, since Ronald Reagan and Margaret Thatcher, when Margaret Thatcher said, “There is no alternative.” Of course, there were many alternatives. But the United States says, if we can create, if we can turn the “rules-based order” of free markets and classical economics upside down, and say our rules-based order means no government power to regulate, no government progressive taxation, but a flat tax – like we convinced Russia to have, that they still have, by the way – if we can have a rules-based order that backs the rentier class – a hereditary, financial, wealthy 1% of the population – holding the rest of the economy in debt peonage, or reducing them to other forms of dependency in a patron-client relation, then we’ve restored essentially the feudal economy. But in order for us to do that, we have to make sure that there’s no alternative; we have to prevent any alternative. And China is an existential threat, because what it is doing – its policy, which is very largely ad hoc, and purely pragmatic – China’s policy is exactly the policy that made the United States the industrial power of the world in the 19th century. China, like the United States, built public utilities to provide public services at low, subsidized costs, so as to enable its private industry not to have to pay for the costs of education, for high rental costs and housing costs, and high monopoly rents. China is doing exactly what the United States did, and what the United States now says, no other country can do what we did; we’ve pulled up the ladder, and our wealthy rentier layer of the population that got rich, now, having gained control of the United States, and its politics, we want to control the whole world. And if there is another successful economy, whether it is China, or Russia, or Iran, or Venezuela – if there’s any other economy that retains a strong state power, strong regulatory power, progressive taxation, preventing a landlord class from somehow increasing housing costs, privatizing medical and health insurance, so instead of making it a public right – well, if we can prevent that from occurring anywhere, then people will really believe there is no alternative but to let our takeover that reverses the entire last two centuries of free market economics, and now the economy has to be free for the 1% to take over government enterprise, to privatize every part of government, including government itself, including the central banks especially, and including the health system, the educational system – all running either for profit or at a cost that has to be paid by credit creation, and essentially recreate the economy of the 13th century. Benjamin Norton 20:31 Yeah, Professor Hudson, the argument that you’re making here, which I have seen very few people make, is – I mean, I think it’s a correct argument – but it’s interesting because it contradicts this claim that we’ve seen from even a lot of people on the left, who argue that the new cold war, or in general just the conflict between Washington and Beijing, is not a clash of systems; rather, their argument is that China is yet another capitalist power, and it’s an inter-capitalist rivalry, similar to the rivalry that led to World War One, and that China and the US have very similar economic systems. But you’re arguing, in fact, the exact opposite. And I just want to read a really brief part of this column that you published at your website, Michael-Hudson.com; it’s called “America’s Neoliberal Financialization Policy vs. China’s Industrial Socialism.” And you have an interesting quote here from a US government advisor for the Reagan administration, Clyde Prestowitz, who wrote, kind of complaining, saying: China’s economy is incompatible with the main premises of the global economic system embodied today in the World Trade Organization, the International Monetary Fund, the World Bank, and a long list of other free trade agreements. These pacts assume economies that are primarily market based with the role of the state circumscribed and micro-economic decisions largely left to private interests operating under a rule of law. This system never anticipated an economy like China’s in which state-owned enterprises account for one-third of production; the fusion of the civilian economy with the strategic-military economy is a government necessity; five year economic plans guide investment to targeted sectors; an eternally dominant political party names the CEOs of a third or more of major corporations and has established party cells in every significant company; the value of the currency is managed, corporate and personal data are minutely collected by the government to be used for economic and political control; and international trade is subject to being weaponized at any moment for strategic ends. Now in your column, you pointed out how this is actually a pretty funny comment coming from a US trade adviser, because some of those same things that the US is accusing China of – like namely weaponizing international trade, or fusing the civilian economy with the military economy – of course Washington embodies that really better than any other country in the world. But he is confirming the point that you argued is correct. His complaint was that China still has state-owned enterprises accounting for 1/3 of production, and that the Communist Party of China still guides the economy. And in old-school terms, going back to Lenin, they would say controls the commanding heights of the economy. So do you think that, when people on the left in the US and other countries argue that this is all just a rivalry, an inter-capitalist rivalry between the capitalist class in China and the capitalist class in United States, what do you think of that argument? Michael Hudson 23:45 Well I have spent a great deal of time in China, and I have professorships at a number of universities there. It certainly is fundamentally different from the United States. You may have noticed in the last month, China has moved against Jack Ma, who was developing his information technology system into a credit system. They knocked him down, stopped the issue of new shares, the IPO, and said only the government can keep finance and credit as a public utility. Now what Prestowitz calls state-owned enterprises used to be called public utilities in the United States. And in Europe, most public utilities were government owned, like the National Health System. In the United States, it broke away from that government direct ownership and management of many public utilities, but the electric utilities, the gas utilities, almost all public utilities providing natural monopoly services were regulated. Now they have been deregulated. In the last 40 years, you have almost no regulation at all. So China is, by keeping public utilities in the public domain, that means that these are not vehicles for rent extraction, that is for charging monopoly rents such as we pay in New York for cable services, such as Americans pay for the internet, such as Americans pay for public health, such as Americans pay for education. China provides free education. China provides, and Russia basically, free public health. Unfortunately, Russian public health means giving you an aspirin if you have a problem, but at least it is not privatized. So the United States is a rentier economy. And when left-wingers – or people who call themselves left-wingers, they’re really not left-wingers at all; they’re, I don’t know what, post-left – very few people who call themselves left-wingers distinguish between industrial capitalism and finance capitalism. Well, that’s the distinguishing feature of the last century. Ever since World War One, there has been a movement away from industrial capitalism, towards financialization of the economies, towards finance capitalism, based on a merger between the financial sector and the rent extraction sector, mainly the FIRE sector – finance, insurance, and real estate – and also the natural monopolies where the banks have taken the lead in organizing trusts and organizing monopolies. And so the basis of most bank credit in the United States is to provide the ownership of companies or monopoly rights. Now, China doesn’t make loans for these things. The People’s Bank of China is the central bank. And the central bank doesn’t create credit for corporate takeovers; it doesn’t create credit for speculation; it doesn’t provide an economy that enriches itself off economic rents and exploitation. But, obviously, there are many successful billionaires in China, many successful entrepreneurs, but these are largely industrial entrepreneurs who have actually created something. China managed to avoid the Russian Stalinist micromanagement that blocked any kind of market feedback, or any kind of spontaneous innovation. China let 100 flowers bloom; it let innovation take place. It let individuals get rich off innovation, as long as they conducted their business, and production, and wealth in the public interest, defined as uplifting the quality of labor and contributing to the economy’s long-term growth. Well finance capitalism, such as we have in the US, doesn’t live in the long run; its timeframe is short term, one quarter at most, three months. And the timeframe is, how can we increase the price of our stock so that we can sell out and jump out of the sinking boat, when the time comes. They are not concerned with making the economy richer; they’re not concerned with making their labor force happier, better paid, or with a better standard of living, or even getting long-term pensions, which have been replaced by defined contribution plans instead of defined benefit plans. It’s basically an exploitative system. And China’s whole management system, although it’s centrally managed, you need a strong state in order to prevent an independent rentier class, an independent financial class, from emerging and doing to modern economies what it did to the Byzantine Empire, and tried to do in the Bronze Age Near East: take over the government. China does not want a rentier class to do what they have done in the United States and make America into a centrally planned economy. We’re now more of a centrally planned economy than Nazi Germany was. But the centrally planned economy is in Wall Street, in the financial system, not the government. So when Biden and Blinken talk about a free market, they mean a market centrally planned by the financial sector, with the government and elected officials not having any role to play except to decide whether they want to vote for the Democratic or Republican sponsors and backers of the rentier interests. Max Blumenthal 30:01 How do you think the pandemic, and – well I guess I could say there is a class in Washington that believes that Covid-19 was deliberately cooked up in a lab in Wuhan, because financial capitalism has performed so poorly in this pandemic and has suffered such a setback, in contrast to China’s economy, which is the only major economy in the world to have grown. And they fostered this conspiracy theory, because they can’t really understand why that is. So maybe you can explain how the pandemic has accelerated the trends that you have been elucidating, and the contrast between financial and industrial capitalism? Michael Hudson 30:44 Well I’m shocked to hear you say that finance capitalism has performed badly. The 1% have made a trillion dollars since the Covid crisis began. The Covid crisis is the best money-making opportunity. This is a bonanza for finance capitalism; it’s wonderful, because they’re pulverizing economy, they’re picking up all the marbles. Max Blumenthal 31:06 I meant for people who are not reptilian shapeshifters. Michael Hudson 31:09 Ah, I know. You’ve gotta be careful about what’s working, you know… They have to somehow prepare the ground for the fact that things are not going to get better. Nobody knows whether they’re going to go back to offices or not; they probably won’t be able to go anywhere near the levels that they were before this fall, because the schools and the offices don’t have the ventilation systems to stop aerosol transmission. They don’t have fans; most of them don’t have windows. So the result is they’re expecting a crash in commercial property values in the major cities. I know New York landlords who are trying to sell out their buildings here, anticipating that well, things are not going to get back to normal, and they’re not being offered any money at all. Because all the buyers, the money, the new private capital funds that have all been created, with trillions of dollars in the last few months, are waiting for the crash to pick up office buildings, commercial real estate, foreclosed homes, foreclosed rental properties, all at pennies on the dollar – and to do essentially what Blackstone did after Obama’s 2008 crisis, of the 10,000 families he affected, and created a bonanza for his backers, who elected him, the banking sector. So they’re expecting another Obama-type disaster that will make finance capitalism even more successful in reducing the rest of the economy to a state of dependency. Max Blumenthal 32:58 Do you think that the lockdown policies has benefited this class that has earned trillions and trillions of dollars? Michael Hudson 33:08 Well what is the alternative? I think there had to be a lockdown. We have seen what happened in Asia and countries that did have a lockdown; they didn’t get sick. You had to have a lockdown not to get sick. The problem is not the lockdown. The problem is that other countries are not doing the evictions and the foreclosures that the Americans have. Things like this happened way back in the Bronze Age, which is what I’ve written a number of books on, in Babylonia – and I think we’ve spoken about this before. When there was a drought, or an economic crisis, or a disease, and debts couldn’t be paid, rents weren’t due, debts weren’t due. America could have avoided the whole problem that the lockdown had by saying, ok, nobody is able to go to work; it’s obvious they can’t make, most people can’t make enough money to pay the rent and the mortgage payments on their homes, or even get by, so we’re going to say this is a time out of time; we’re not going to enforce the enormous backlog of unpaid rent and unpaid debts that have occurred. Now, to some extent, the problem has been mitigated by first Trump and then Biden giving a more stingy CARES Act giveaway to families, that were able to use the $1400 and the $600 that they got, or $1200, basically to pay their landlords, and to pay the credit card companies, and to pay the banks. But once the Covid crisis is over, there’s not going to be any more bailout of people and they’re still going to have all of the arrears that they’ve been running up. And they’re going to be even more debt-strapped after this September than they were before the crisis. And what the crisis really did was just accelerate the polarizing trend that you have in the United States, between creditors and debtors, between property owners and renters, and between consumers and monopolists. These trends have been exacerbated. And it doesn’t look like the government is going to find an alternative because they say there isn’t any alternative; iff you don’t like it here, why don’t you go to China? Whereas Americans are not good enough in language to go en masse to China. Max Blumenthal 35:43 Yeah, I hope they – Michael Hudson 35:45 It used to be, they’d say, if you don’t like it, why don’t you go to Russia? Nobody says that anymore. But what are you going to do? Oh, well, OxyContin I guess is the alternative. Max Blumenthal 35:56 When I criticized Israel, they’d told me to go to Gaza. I was like, ok, if you’ll let me in, I mean, you control the borders. But on another related note. Last summer, Venezuela applied for an IMF loan. It was a small loan, something like $20 million, to allow it to buy medical supplies, because the pandemic had begun, and they were locking down their population. And of course the IMF said no. It wasn’t difficult to understand why. And we’ve seen this same rejection applied to Iran. However, in early 2015, I believe it was February, Joe Biden went to Kiev – it was his first trip to Kiev as the kind of imperial lord of the post-Maidan [coup] order – and he boasted that he had secured a gigantic IMF loan of billions of dollars for Ukraine. This is a country that already at that point was notorious for corruption, ranked as one of the most corrupt countries in the world. And that loan money went straight to Swiss banks, through the pockets of the few, 10 or 11 sweaty oligarchs that controlled the country. So how do you explain this? You have written that “the IMF is basically a small room in the Pentagon’s basement.” So how do you explain this disparity in treatment between countries like Ukraine, which are absolutely incapable of paying back these loans, are so notoriously corrupt, and countries like Venezuela and Iran, which are obviously targets of US empire? Michael Hudson 37:47 Well my book Super Imperialism is all about how the IMF was created as an arm of US foreign policy. And it still is an arm. And there’s a mentality that the IMF has; it’s a pro-creditor mentality, and it’s dominated thoroughly by the United States, in a cold war modality. That’s why Russia and China are seeking to create their own international bank. And the even more vicious arm of American imperialism, probably the most deadly, is the World Bank, which is enormously destructive, throughout the former Soviet Union, in the Third World, by pushing micro-currency loans that are aimed at essentially making loans to women as heads of families, 70%, 80%, and then breaking up the family, foreclosing on them – essentially using microcredit loans as a way of evicting masses of families from their property, and turning it over to the client oligarchies in these countries. And in blocking countries from developing their own food self-sufficiency in grain, making them dependent on US grain exports, that has been a central aim of the World Bank ever since its inception, fighting against land reform. So the World Bank and the IMF have always been probably the most viciously pro-rentier, anti-progressive institutions in the world. And as such, they’re guided by essentially America’s deep state, as an arm of subjugating other countries, preventing their self-sufficiency. The idea is, if you can impoverish them, you will somehow lead to a regime change and put in a client oligarchy that will be willing to make their economy dependent on the United States. That’s a US foreign policy in a nutshell since 1945. Benjamin Norton 40:01 Yeah, Professor Hudson related to Venezuela, you were talking about the impact of sanctions, and there’s a de facto blockade of Venezuela – a Venezuelan economist, named Pasqualina Curcio, recently wrote an article in a Venezuelan media outlet in which she estimated that $350 billion of Venezuelan assets have been stolen or frozen from the Venezuelan public. And they’re currently held in foreign banks, in the she calls it transnational private sector. And she points out that this number – I don’t believe it’s adjusted for inflation – but this number, $350 billion, is equivalent to 25 times what was invested to rebuild Europe after World War Two. So this reminds me of a term that I think you pioneered or you popularized: grabitization. You talk about how, after the US plundered the former Soviet Union, Russia and the former Soviet republics, forcing neoliberal shock therapy, that it wasn’t just privatization, it was grabitization; it was grab as much as you can, as quickly as you can. It seems to me that that kind of model has been applied to Venezuela, with Juan Guaidó, the attempt to impose a fake interim government that was never elected. Do you think that that parallel of grabitization is is appropriate for Venezuela? Michael Hudson 41:36 Well you’ve seen it very clearly, when its gold reserves were seized by the Bank of England, which said, America is really the democratic center of the world, and as the democratic center, because we’re the democracy we get to say who is the president of any country in the world; and we have found a nasty little opportunist that you just mentioned, and we have decided he is the head of it, and we’re giving all of Venezuela’s gold supply to him, even though the the Venezuelan people didn’t elect them. Well Chileans didn’t elect Pinochet either. As the “democratic center of the world,” America gets to designate the heads of any given country, by military force when necessary. And so of course, the gold supply was simply grabbed by England – which again, is a small branch, totally dependent on the United States – and grabbed the gold; they grabbed all of Venezuela’s holdings, its oil company’s distribution network and gas stations in the United States. And the problem goes back – Venezuela was tied in a knot long before [Hugo] Chávez. And it’s when the United States backed a series of dictators, ever since [Marcos] Perez Jiménez in the 1950s, who essentially drew up international loan contracts, not only pledging sovereign debt to whoever the bondholders were, but collateralizing Venezuela’s debt with all of its oil reserves, and all of the holdings of its oil company, including the US affiliates of all this. And so Venezuela is still suffering from the era of colonialism that America is trying to blame on Chávez and his successors and on socialism, instead of on the American assassination teams and killer squads that put in the dictators that pledged all of Venezuela’s oil reserves to the foreign bondholders. Max Blumenthal 43:50 It was recently reported that Bill Gates – besides creating this global Earth surveillance system, and having contracts with the NYPD for mass surveillance, and then asking for privacy in his divorce – has because become the largest landowner in the United States, the largest landlord, the largest owner of agricultural land. He also presides over the vaccine distribution system or program that the US is employing, GAVI. His apparatchiks, and people who came through the Gates network populate the World Health Organization. He is donating millions and millions of dollars to mainstream US media organizations. He is regarded as sort of, almost a scientific expert. Whereas when Joe Rogan says something that might be seen as sensible about vaccination, Anthony Fauci comes out and condemns him as not a scientific expert. I don’t even believe Bill Gates has a college degree. But I just was wondering, because of the dominant position that Bill Gates enjoys over all of these multilateral, international institutions, as well as internally within US domestic politics, where do you think he fits into your analysis of super imperialism? Michael Hudson 45:17 Well certainly, the private sector is trying to merge with government to the largest extent possible. I think it’s very interesting, what is the real effect of Gates’s purchase of American land? What he’s doing is not developing agriculture; he’s poisoning the land that he’s on. He is promoting the use of pesticides and herbicides that are destroying the soil quality of the land. If he were an agent of the KGB, trying to destroy American agriculture, to make it dependent on Russia’s resurgence in agriculture, you couldn’t ask for a better foreign agent, because the policies he’s footing are so destructive of soil fertility, so destructive of the bee population, so destructive of the biological element of the soil. And in fact, Gates is making the same mistake with his foundation that Khrushchev made in Russian agriculture, when he began to develop Siberia, thinking that that would restore Russia’s self-sufficiency and grain to get free of America’s threats of the grain embargo. The development of Siberian land under Khrushchev worked very well for three years, and then it collapsed. Because they didn’t use crop rotation; they didn’t use natural fertilizers; they didn’t use any replenishment of the soil. And the policy that Gates is promoting in agriculture, instead of replenishing the soil is poisoning it. So if you wouldn’t want your worst enemy to be in charge of taking over American agricultural land, you wouldn’t want him to have any role in that whatsoever. The fact is, he’s really stupid. Once you get $100 billion, your IQ drops 30%. And so he’s suffered from that. You want to just sort of belong. You’re not the same person anymore. And once you inherit money, right there, your IQ goes down 20%. So now he’s operating with 50% of an IQ. So of course, when you have his money wield influence over international organizations, you have a “democracy” taking over. Benjamin Norton 47:45 How do you think that Bill Gates and the Gates Foundation fits in to super imperialism and your analysis of US control of the international financial system. Michael Hudson 47:54 He is volunteering to get the support of the deep state by following policies that win the approval of the deep state. And essentially, imperialism is a mentality, and it’s a technocratic mentality, with the idea that all of the fruits of technology should be a kind of monopoly rent accruing to the financial sector. And he has bought into that mentality. And whether you’re in the private sector or in the state, if you’re into the rentier mentality, you’re into the super imperialism mentality. Benjamin Norton 48:37 Well do you also agree with the argument, it seems like Gates has invested not just billions of dollars, but really his life into what seems like the privatization of the global public health system. I mean, the Gates Foundation is one of the principal funders of the World Health Organization. This is not a state; this is a foundation run by a single capitalist. Michael Hudson 49:00 Well he made his money in his computer systems by having a monopoly power, and what bigger monopoly can you have than a monopoly over health care? Saying, “your money or your life.” So of course, he puts his money as a natural extension of having his monopoly. It’s the same mentality of trying to create a privatized monopoly to prevent health care from being offered freely – to say, every public utility, from education, to health care, to transportation has to be offered at cost, and that cost will include a profit – and in fact, whatever the market will bear for economic rent, and dividends, and management fees, and consulting fees, until it all looks like the military-industrial complex applied to the hitherto public sector. Max Blumenthal 50:07 Well and also as you mentioned, the micro-loans, the privatization of public education through charter schools, the cash-free system that he and other global oligarchs like Pierre Omidyar are trying to implement in places like India, where they’re trying to get the rural poor out of the cash system and get them in debt, and then I guess move them off their land. And we have seen suicides and social catastrophe already as a result of the implementation of this system. And now Gates, his obsession with vaccination, and openly stating that he does not want to remove patents; he is obsessed, along with the US government that represents his interests and the interests of Big Pharma, with protecting intellectual property, potentially at the peril of global health. And then, Pfizer announced that it sees a massive profit potential in the vaccination of children as young as two years old, with these experimental mRNA vaccine, so the CDC goes ahead and licenses that or is planning to license that. So it’s pretty obvious what’s taking place. I think what’s a little bit more confounding – I mean, this is a little bit of a diversion, and it’s really my last question; I hope we can get into some Patreon questions, and Ben, if you have anything else – it’s a little bit more confounding, as you know, that there has been this trans-atlantic alliance that the US has marketed, but now it is threatening sanctions on the most powerful economy of Europe, Germany, for the Nord Stream 2 pipeline. And the US has, it seems – and I want to get your view on this – successfully disrupted this massive EU-Chinese trade deal by weaponizing human rights allegations, talking about the treatment of the Uighurs in Xinjiang, or the supposedly poisoning of Sergei Skripal, the poisoning of Alexei Navalny. These have all been weaponized to try to interrupt these deals with what were seen as core post-war US allies. How is Europe going to respond to this? I mean, they seem to be pretty much buckling under US pressure. But how is the EU and Europe responding to this obvious attack on their independence? And how could this alter the contours of super imperialism? Michael Hudson 52:58 Well I want to comment on what you said earlier about Pfizer. Pfizer just announced $3.5 billion profit just for the first quarter. What they call intellectual property is what used to be called monopoly rent is unearned income. And the intellectual property in vaccines means not only that other countries are going to have to pay a monopoly rent to Pfizer and other monopoly rent pharmaceutical companies, but that America has to block other countries from accepting Russia’s vaccine. And it is said that Russia’s attempt to export its Sputnik V vaccine is an attempt to create “dissension” in Europe, “dissension” in the Third World countries. It is “dissension” if you don’t let half of your population die. It’s an insistence that other countries have to die in order to guarantee the profits to Pfizer, once it is able to put in place, four years from now, the enough facilities to prevent the rest of the other 50% of the population from dying. This is absolutely evil. And unfortunately, the German elections that you mentioned, are coming up this fall. And the Americans are putting enormous pressure to push an anti-Russian, pro-NATO puppet, I think largely from the Green Party – which is the anti-green, right-wing military party in Europe, unlike the United States – the Green Party is all for sanctions against Russia, and saying you have to treat any socialist in the same way that we’ve treated Julian Assange. I mean Julian Assange is an example of America’s commitment to intellectual freedom and to personal freedom. And the assassination teams that it has been sending out to Ecuador. other Latin American countries recently are more examples of this. Max Blumenthal 55:14 Can I just interrupt? Sorry Professor. One example that I think our listeners and viewers might not know about that really strikingly illustrates the trend that you’re elucidating here, is that two days before the Czech Republic, echoing the US, accused Russia of having blown up a munitions dump in 2014, and fingered as suspects Petrov and Boshirov, the same supposedly Russian FSB or GRU agents who supposedly poisoned Sergei Skripal as the culprits – this happened this this happened two days after the Czech Republic had announced that it would accept the Russian Sputnik V five vaccine. And on April 20, two Czech Republic announced that it would no longer accept the Sputnik V vaccine. It looked like such a bogus intelligence intrigue cooked up by the CIA to sabotage Sputnik V in Central Europe. And of course, the US-funded NATO troll farm known as Bellingcat had already been investigating this munitions dump issue. So that was pretty telling. So I think it’s exactly right, what you’re saying. I just wanted to illustrate it with that. Michael Hudson 56:32 Well comedians all over Europe for having a field day with that. I mean, here are the two alleged KGB agents. Max Blumenthal 56:41 Not here, haha. Michael Hudson 56:43 Haha, ok well, I have seen many comedy shows about this. And the fact that they would have the same two KGB agents who allegedly poisoned the Skripals using the same false names in the same passports in Czechoslovakia – you know, there has to be a black comedy about about all of that. But you’re right, it’s amazing, the accusation that helping save lives in other countries by offering them free or inexpensive vaccines will undercut the profits of American companies is a crime against humanity, and must be punished by sanctions. It shows you that I guess the United Nations is dead. Max Blumenthal 57:35 And just picking up on something else you said. You mentioned the German Green Party. This sort of represents everything that’s fraudulent about what we consider green politics. It’s a pro-NATO, pro-war, pro-surveillance state green party. And there is a – I don’t want to call it a conspiracy theory – a suspicion, based on the appointment of Armin Laschet to Germany’s CDU party, the Christian Democratic Union of Angela Merkel, which has been the dominant party in Germany, that he is too pro-Russian, he’s made some comments criticizing US conduct in Syria, that the US is sort of quietly backing the Green Party and then we see the Green Party surging. What do you make of that? And what do you make of the idea of the US sort of backing this pro-NATO form of green politics, or a NATO-oriented Green New Deal to reestablish, or to retrench global US financial control? Michael Hudson 58:48 This has been consistent and unbroken US policy since World War Two. After World War Two, the United States interfered with Italian politics to keep the Italian communists out of power; it interfered in Greece by wholesale assassinations, both by England and America, of Greek communists; it interfered in Yugoslavia. What it has done in Germany is the same as it has been doing throughout Latin America, and the Third World, and other countries for the last 75 years. So this should not be surprising at all. What is appalling is that the European press is not dealing more with this, and that the American press isn’t picking up the little bit that the European press is commenting on. So even the Financial Times is saying what you just said about the German politics in the Green Party. The major German papers are – I mean, I’ve had numerous interviews with the Christian Democratic Party newspaper, the Frankfurter Allgemeine Zeitung, and other groups there. It’s appalling that the Germans are almost like the English in believing that because they were defeated in World War Two, there’s still a reliance not only on the United States, but also the resentment by the East Germans over the Russian occupation of East Germany, and the appalling conditions there, that Germany still is as if it’s juxtaposing East Germany to the United States without realizing how much the world has changed in the last 30 years. Benjamin Norton 1:00:41 Well, Professor Hudson, we’re at an hour here, and I don’t want to keep you too long. So we’re gonna start wrapping up and we have some questions. But before that, I wanted to point out, just while we were talking about Pfizer – here in Latin America, there was a story going around that didn’t really get much coverage, if any, in English in the US, and that was that Pfizer, when Argentina was in negotiations with Pfizer, Pfizer was demanding control over glaciers and fresh water in Argentina, as well as fish reserves, in order for the vaccines. Which ironically, is what pushed Argentina to ally with Russia, more closely with Russia – traditionally they have not been very close allies – and now Russia is providing the Sputnik V vaccine as one of the main vaccines for Argentina. So this is another example of the point you’ve often made about how, the more that the US Empire pushes other countries, that actually in some ways backfires and pushes them into an alliance with China and Russia. But just just in the last few minutes here, over on our Patreon, we actually have 15 questions. So I’m not gonna be able to ask all of them, unfortunately. And what I can say, Professor Hudson, is maybe maybe you could try to answer some of them briefly. But I’m not going to ask you all of them, just because I don’t want to keep you for another hour here, but just for a few minutes. So we have a few questions here; I’ll kind of combine them. One of them is about Modern Monetary Theory, MMT. And another one is about Dr. Stephanie Kelton’s book The Deficit Myth. So I’m wondering if you just want to briefly address Modern Monetary Theory, Stephanie Kelton, his work, and what you think about it? And then I would add my own question to that briefly: How does Modern Monetary Theory fit into super imperialism? Because the point I would add is that you can only do Modern Monetary Theory-style spending if you have a sovereign currency, and if that sovereign currency is backed by a military, and you don’t have to do trade in the US dollar. So in many ways, it seems to me that Modern Monetary Theory is only really possible for the US because of super imperialism. Michael Hudson 1:03:05 Well, Stephanie, has been the major promoter of the now obvious idea that governments do not have to borrow from bondholders in order to finance their budget deficits; they can simply print the money, and the effect of printing the money is no more inflationary than borrowing from billionaires. If you borrow from a billionaire, money that they would not have spent, and spend it into the economy, the monetary effect is exactly the same as simply printing the money and creating it. And Stephanie used to be the number one promoter of Modern Monetary Theory until of course she was overtaken by Donald Trump, who said, we can cut taxes, run an enormous deficit, and as long as we give all of the deficit to the wealthiest 1%, by using $8 trillion to bid up stock and bond prices, and only $2 trillion into the economy, we can create all the money we have. And of course, he has a larger audience than Stephanie has. We’ve gone around the world giving speeches together, but I think the largest audience we had was maybe 40,000 in a sports stadium in Italy once, where people came to hear us talk about Modern Monetary Theory. But we didn’t have Donald Trump’s constituency. And he has shown that Modern Monetary Theory works. The difference is that the Republicans’, and now the Democratic, and the Federal Reserve’s idea of monetary theory is, of course the government can create all the money it wants, simply by printing it, but because the government has been privatized by the commercial banks and the financial sector. And so when we do create money, we’re going to create it to enrich the 1% not the 99%. Well of course Stephanie and me, and the rest of the University of Missouri at Kansas City staff, Randy Ray, and the others, we all wanted – our whole idea of printing money to finance deficits was to spend it into the economy, to create a full-employment economy, like Pavlina Tcherneva has been urging. Our idea was not to create money to give it to create a stock and bond bubble. And so somehow, the idea of MMT has been hijacked by the right-wingers and the Federal Reserve that are running away wild with it beyond anything we could have imagined. Benjamin Norton 1:05:34 Well really quickly, Professor Hudson, I think there is a lot of value to Modern Monetary Theory, and you just articulated that. But at the same time, I’ve seen this, this argument, and I’m curious about your thoughts that – you could say that, for instance, Venezuela tried Modern Monetary Theory, but because the currency was totally devalued by an economic war by the United States; it doesn’t have the same kind of financial, international economic power that the United States has, or that a currency like the euro would have. So of course a country like Greece can’t do MMT because Greece doesn’t have a sovereign currency. And a country like Venezuela can do MMT. It seems to me that only a major economic power that other countries might use their currency to trade in, like the United States, would be able to carry out these policies. Michael Hudson 1:06:25 The key is the balance of payments effect. No country can go broke if its debts are denominated in its own currency. Venezuela can print all the domestic currency it needs to pay its debts to keep the economy going. But it can’t print dollars. Only the United States government can create dollars, and in as much as Venezuela’s foreign debt is in dollars, that is beyond the ability of its government and treasury to print. Benjamin Norton 1:06:35 Well and Greece can’t print euros. Michael Hudson 1:06:58 That’s right. It can’t do that either. And when the United States structured the Eurozone, it made sure that no central government, no national government could create its own national currency, so they can’t run budget deficits to spend into the economy to help a recovery. The Eurozone has turned Europe into a dead zone, because it is unable to use Modern Monetary Theory, because the European Central Bank – the terms of the Eurozone agreements are that no government can run a deficit of more than 3%. Well obviously if the United States functioned under the Eurozone rules, we couldn’t have had the Trump policies; we couldn’t have had the policies that President Biden is suggesting. So the Eurozone has committed economic suicide by following a pro-creditor, deflationary policy on the logic that, if the government doesn’t create credit, there’s only one source of financing for the economy, and that source is private banks. So the Eurozone economic philosophy is designed to enrich private banks and their credit creation, not the government credit duration. And that’s the key of Modern Monetary Theory. Either credit is going to be created by private banks and interest for the things that private banks lend credit for, or it will be created by government, for the public interest and the kinds of things that governments run deficits for, if they’re good governments, to spend into the economy. Benjamin Norton 1:08:49 Professor Hudson, here’s another interesting question from over at Patreon. Have you followed this debate on the so-called “Great Reset,” which the World Economic Forum has talked about; it’s their plan. We’ve also seen the Five Eyes countries have used this phrase, “Build back better,” we’ve seen again and again. There’s clearly coordination; the United States has used, the Biden administration has used that term a lot, the Australian Government, etc. So basically the World Economic Forum and other kind of neoliberal institutions have been pushing this Great Reset idea. There was a video that kind of went viral that was later taken down where there were 10 visions for our future in 2030, and the first one was that, “You will own nothing, but you will be happy.” And another point of it was that, like everything will be delivered via drone. Max Blumenthal 1:09:44 And you’ll subsist off Bill Gates’ Impossible Burgers or whatever. Benjamin Norton 1:09:50 It seems to be very similar to like a kind of a new shock doctrine, but do you have any thoughts? Max Blumenthal 1:09:54 Well they call it a Fourth Industrial Revolution. Michael Hudson 1:09:58 It’s so bizarre. It’s almost a comedy. It’s like the old comics they used to have in grade school, “What’s wrong with this picture?”, and you’d see birds flying upside down and all sorts of dogs walking people. It’s just such nonsense. Can you say about it? It’s silly. But again, that’s what happens when when you get rich enough to join the World Economic Forum, your IQ drops 30%, and you lose your sense of judgment. Max Blumenthal 1:10:33 Well I think there is a logic behind it, when you think about it in terms of a Fourth Industrial Revolution, which is to unlock new financial potential to keep global capitalism going. And this is where a Green New Deal comes in. Michael Hudson 1:10:0 Sure, if I was a billionaire, I would be subject to wealth addiction, and I’d want to own all the property in the world. And so of course, I’d tell everybody else, you’ll be happy with no property. I’ll own it all, and my friends will own it all. Of course, you’ll be happier. Just let us take it. I mean, that’s the message. Benjamin Norton 1:11:08 I don’t know if you saw Jodi Dean has a new book, and her argument is that we’re seeing a kind of, not necessarily a new economic transformation, but a shift into what you could just call neo-feudalism. And that is actually a totally different system, a different mode of production; it’s no longer even really capitalism. The Great Reset is just their vision for techno-neo-feudalism. Michael Hudson 1:11:30 Yes, this is not Karl Polanyi’s Great Transformation. It’s feudal, yeah, I’ve been saying all along, it’s neo-feudalism. That’s what a rentier class is, a rentier economy. The difference is that the financial interests today and the monopolists play the role that the landlords played in the 19th century, before democratic reform ended the landlord class as such. And by doing that, paved the way for the resurgence of the financial class and the monopolists. Ben Norton 1:12:02 Well a question that is very interesting – we were talking in our discussion before the interview, and Professor Hudson said he doesn’t follow cryptocurrencies a lot. But I’m just curious because we got a question over at Patreon, Professor Hudson, what do you think about cryptocurrencies like Bitcoin? Also Dogecoin has become popular. And this is related to non-fungible tokens, NFTs. There has been an argument that all of this is just a new form of speculation for rich people who have nothing to invest in. And there’s another argument, especially for NFTs, which is that this is a new way to launder money. But I’m wondering what you think about cryptocurrencies and these new technologies. Michael Hudson 1:12:48 Well I think that, functionally speaking, cryptocurrencies are like Andy Warhol etchings; they have no intrinsic value, except the fact that other people want to buy them, and enough other people may them as trophies. As people get richer and richer, they want to buy trophies. Andy Warhol etchings and other bad art is one example of a trophy, and having money in a cryptocurrency, like Bitcoin, is another kind of a trophy. I think its main function is either money laundering or tax evasion. And certainly the amount of energy that it uses to mine Bitcoins makes it impractical as any actual means of payment. So you have essentially cryptocurrency only as a means of storing your liquid money in an asset that you think other people will buy, so it’s all based on expectations, nothing intrinsic at all. It gives new meaning to the phrase fictitious capital. Ben Norton 1:13:53 So someone asked here, over at Patreon, do you think that cryptocurrencies like Bitcoin could be a way to help get off the dollar, to de-dollarize? Michael Hudson 1:14:03 No, they have no effect at all. It’s just shunted aside. If everybody would put their money on Andy Warhol etchings, that wouldn’t have anything to do about the dollar; it wouldn’t affect – money put in Bitcoin doesn’t affect international trade, or international investment, or tourism, or any of the actual payments among countries. It’s completely separate; it’s like money held in a Caribbean offshore banking center. Max Blumenthal 1:14:33 Max Kaiser and the Velvet Underground are not going to be happy about this. Michael Hudson 1:14:41 I’m not sure. I’ve known Max for many years. He has an audience that wants to hear about cryptocurrency, but I don’t think he has any. Maybe things have changed, but I would be very surprised. He and I don’t I have real disagreements about that. But I don’t have his audience. We have different audiences. So we talk about different things. Max Blumenthal 1:15:09 Right, well, I think you’ve found some common ground with central banks. Benjamin Norton 1:15:15 I also do want to point out, just to our audience, for people who don’t know – among Michael’s audience are multiple governments who he has advised. I was actually gonna say earlier, it’s just funny to me that, in the US, economic experts, the so-called “experts,” are people like Larry Summers, the big privatizers, who have destroyed entire economies – in the case of the former Soviet Union, to subordinate Russia’s economy to US capital. But to me, it just says a lot that they’re considered so-called economic “experts,” whereas Professor Hudson has advised the Chinese government and other governments. So to me, it says a lot about who the real experts are, and especially when you look at the the financial voodoo and the snake-oil salesmen that make up Chicago Boy economics. Michael Hudson 1:16:10 Wait a minute, my first client was the US government. And it was after Super Imperialism, they hired me to in 1972 to explain Super Imperialism to them, and they gave the Hudson Institute a $75,000 contract, most of which went to my salary, in order to explain it all. So I certainly was viewed – Super Imperialism was done as part of my consulting with the US government, as was the sequel, Global Fracture. And then the Canadian government, Mexican government, and it all spread out from there. Benjamin Norton 1:16:47 Well, a few more questions before we wrap up here, Professor Hudson. This is a very interesting question: How do you think that China can deal with a problem like extremism, especially in regard to the China-Pakistan Economic Corridor, CPEC, in neighboring volatile countries like Afghanistan and Pakistan. Because we’ve seen that a key part of the Belt and Road Initiative has been to better integrate Central Asia and South Asia, some of these countries that do have a problem with extremism and secessionist movements. And that’s really at the heart of the New Silk Road. Michael Hudson 1:17:24 China is not as interfering as the United States is. It is trying to carefully avoid taking sides, for better or worse, in any of this. Pepe Escobar follows all of this pretty closely. It’s certainly not going to get militarily involved, as the United States does. Its main concern is that the United States foreign legion, essentially America’s major ally, is Saudi Arabia. America has an alternative to socialism, and the alternative is Wahhabi fanaticism. And it has worked for Saudi Arabia to use ISIS and other Wahhabi terrorist organizations to try to destabilize Russia from the south, which was Stalin’s great fear in World War Two, and to destabilize China from the Uighur section. So what China is trying to do is to prevent foreign-backed terrorism and sabotage in its own country, while trying to just make a modus vivendi with other countries that have problems and not to try to engage in the kind of regime change, much less military occupation, that is the centerpiece of American policy. Benjamin Norton 1:18:44 There’s another question here – we’ll probably just ask two more, two or three more here just to wrap up – but this could be an entire interview, so of course, we can keep it brief, and maybe we can have you back another time to talk about this. One of our patrons asked about “Socialism with Chinese Characteristics,” and said, from your experience working with the Chinese government and other education systems, do you see the political will from the Xi Jinping administration to keep toward on the socialist path? Or do you feel that China is having a new battle with capitalists and financialized forces within the system since Deng Xiaoping’s reforms? Michael Hudson 1:19:24 Well in the late 19th century, everyone viewed socialism as the more efficient evolution of industrial capitalism. So I don’t think it helps to say whether China is socialist or capitalist. The famous phrase from Deng went, “White cat, black cat, it doesn’t matter as long as it catches mice.” I think the Chinese are sort of in the process continually of reinventing their economy, of seeing what works and what doesn’t. I think they’re operating on a pragmatic, ad hoc basis, and that pragmatism doesn’t lead them to think, is this capitalist or socialist? They don’t think in terms of an abstract generality; they think very specifically, does this particular industry help develop China or not? Is it part of our overall long-term plan for 2025, 2030, and beyond? How does this fit into developing the economic structure of our economy to make it more practical? So I don’t think labels really help in this at all. They present themselves as a Marxist country, but Marx didn’t talk about the kind of problems that they’re handling now. And as one of my fellow professors at the Peiking University said, Marxism is the Chinese word for politics. And they’re political; they’re pragmatic; and you should think really in terms of what are they doing structurally, and not thinking, what label, especially what Western label, are we going to print or paste on what they’re doing? Labels don’t help; you actually have to get into the nitty gritty, looking at how they’re handling tax policy, how they’re handling land ownership and credit policy, how they’re handling the budget deficits of rural communities – these are the problems that they’re dealing with right now. Benjamin Norton 1:21:45 Yeah, there’s definitely on the left a very long history of holier-than-thou kind of No True Scotsman sentiment, so I think that’s very refreshing. Here’s another question, Professor Hudson: What do you think is the regional and international significance of the RCEP, the Regional Comprehensive Economic Partnership? That’s the trade trade agreement sign between countries in eastern and southeastern Asia in 2020. Michael Hudson 1:22:13 You can’t tell yet. There’s still a jockeying for position with its relationship to the United States, Europe, and other countries, so too early to tell. Benjamin Norton 1:22:27 Ok, here’s an interesting question, he said, Dr. Hudson, do you think land tax or the Singapore model is best for creating affordable housing for workers? And what can we do on local and state levels? Michael Hudson 1:22:45 The land tax is by far the best way of keeping housing prices down, because as countries get more prosperous, the value of the rented location is going to go up. As you develop educational systems, and parks, and public utilities, then you’re going to have the rental value of given sites and properties, houses and office buildings rise. Now, landlords don’t create this prosperity; they don’t create the public infrastructure that raises value. If you do not tax it away, then all of this rental value is going to be available to be pledged to banks, and the banks will lend enough money so that the mortgage interest is going to absorb all of the land rent. If you tax away the land rent, then this cannot be capitalized into higher value. And if you tax the land rent, number one, you don’t have to tax income, you don’t have to have a sales tax, you tax only the unearned economic rent. And the argument for that was all laid out by Adam Smith, and John Stuart Mill, and Marx, and Thorstein Veblen, and other people in the 19th century. So obviously, if you want low-cost housing, you want to prevent the financialization of real estate. And that I can assure you is one of the central problems that China is dealing with right now. And it’s a problem that I have a book coming out on this, a series of my lectures in China dealing with this, that will be available in about three months. Benjamin Norton 1:24:28 Final question, and we’ll wrap up. Thank you so much for joining us, Professor Hudson. This is another one of those questions that could go on forever, but we can just keep it brief, because we’re almost at 90 minutes here. Can any country attempt to move away from the dollar? Or does the economy need to be of a certain size? And does the country have to have specific resources to do so? Michael Hudson 1:24:51 Any country can move away from the dollar as long as they they are part of a system that has a critical mass. So the great threat to the dollar hegemony is that China, Russia, Iran, and the Shanghai Cooperation Organization countries are going to be a critical mass, that Venezuela, much of Latin America, Africa, and the rest of Asia can all join. So, yes, as long as you’re part of, as long as there’s a viable alternative with a critical mass – the fact is, if you rely on the dollar, you’re probably going to get screwed. Because with the dollar, as we discussed earlier in the show, the US can grab your bank account, at any point; they can grab your gold reserves at any point. Even Germany is now asking for its gold reserves to be flown black slowly, month by month. Max Blumenthal 1:25:47 They can grab you. They can literally grab you. Look at Alex Saab. Michael Hudson 1:25:54 Right, indeed. So yes, any anyone can – within a few years, you’ll have an alternative economic order to the dollar, so that things don’t have to be the way they are. There is an alternative; Margaret Thatcher was wrong. And so is Biden and Blinken. Benjamin Norton 1:26:15 Excellent, well, thank you so much, Professor Hudson, for joining us. I just want to plug that a new version of his book Super Imperialism will be coming out soon, in a few months. And hopefully, Professor Hudson, we can have you back to discuss that. I’m looking forward to it. I think it’ll be very important. And I think we’re living through really a historical watershed moment, with what you just referenced, that there is a new international financial system being built right now, as we speak, and so few people acknowledge that’s even happening. So thanks so much for your work, and thanks for speaking with us. Michael Hudson 1:26:50 It’s been a very enjoyable discussion. Thanks for having me. Max Blumenthal 1:26:53 Thanks a lot, Professor. Benjamin Norton 1:26:55 Great, and if anyone wants to support the work we do here at Moderate Rebels, you can go over to Patreon, patreon.com. And I would also highly recommend checking out Michael Hudson’s website; that is Michael-Hudson.com. I would definitely never call myself anywhere near an economics specialist; I focus much more on politics. So I always find that such a valuable resource. I’m constantly going to read it. Because what’s good is that Professor Hudson has not only his articles, but he also has transcripts of all of the interviews that he does. And we will have a full transcript of this interview that he’s going to post over at Michael-Hudson.com. Thanks so much for joining us. And we will see you all next time. If you want to submit questions like we did in this broadcast, go to patreon.com. And we’ll see you all next time. Thanks.

Write an article about: China reaffirms ‘rock solid’ friendship with Russia, deepens economic integration amid Western sanctions. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, EU, European Union, Mir, Russia, sanctions, SWIFT, Ukraine, UnionPay, Wang Yi, Zhao Lijian

While the US and EU isolate Moscow over Ukraine, China is strengthening its alliance with Russia, calling it its “most important strategic partner.” In response to Western sanctions, Russian banks are moving to a Chinese payment system, and the Eurasian economies are integrating closer together. (Se puede leer este artículo en español aquí.) The United States and European Union have used Russia’s invasion of Ukraine that began on February 24 to try to isolate Moscow politically and strangle the country economically. At the same time, Russia has strengthened its alliance with China, deepening the integration of their economies. Washington and Brussels have created what is essentially a new iron curtain, imposing crushing sanctions aimed at devastating Russia’s economy and devaluing its currency, the ruble. The US and European countries have pledged to ban Russian oil. Several Russian banks have been removed from the SWIFT system for financial transactions. And Western sanctions have even hit Russia’s central bank, freezing its foreign assets. What this economic war has done is accelerated a process of decoupling of Russia from the West, one that began several years ago as Moscow has aimed to de-dollarize. At the same time, the Joe Biden administration has sought China’s help in trying to enforce these new sanctions and pressure Russia to de-escalate – despite the fact that Washington has spent years waging a new cold war on Beijing, making unsubstantiated and politicized accusations of genocide while imposing sanctions on the East Asian giant. The US strategy to use Ukraine as a wedge between Russia and China has not worked. Instead, the barrage of new sanctions on Moscow has had the impact of bolstering Eurasian integration of the Russian and Chinese economies. Meanwhile, China has firmly stood with Russia. Its foreign minister, Wang Yi, referred to Moscow as Beijing’s “most important strategic partner.” Wang denounced the United States for “acting irresponsibly on the international arena.” China stressed that its “rock-solid” friendship with Russia is “free from interference or discord sown by third parties” – a clear rebuke of Washington’s attempt to divide them. The U.S. met with China over three months to present intelligence showing Russia’s troop buildup near Ukraine and to urge Beijing to help avert war, U.S. officials said. Chinese officials rebuffed the U.S. and shared the information with Moscow.https://t.co/Ngbuu9P3n1 — The New York Times (@nytimes) February 25, 2022 By making the decision to militarily intervene in Ukraine in February 2022, Russia made it clear that it is no longer concerned with trying to integrate with the West. Moscow recognizes that its future lies in Eurasian integration with China, Iran, and other Eastern powers. Beijing has also helped Moscow weather the financial storm of Western sanctions and trade restrictions, and the two countries have strengthened their economic ties. China lifted all restrictions on imports of Russian wheat on February 24. Russia is the world’s largest exporter of wheat, and China has gradually increased imports from its northern neighbor. The South China Morning Post (SCMP) noted, “China could provide a lifeline to Russia’s economy after the United States and its allies imposed swift economic sanctions on Moscow.” The newspaper added that China’s ambassador to Russia, Zhang Hanhui, said Beijing “was ‘pleased’ to see that its currency has been widely used in Russian trade, financial investments and foreign reserves, and was also looking forward to discussions about yuan settlements in bilateral energy deals.” Russia’s state-owned bank VTB, the second-largest financial institution in the country, announced on March 9 that customers can open savings accounts in the Chinese currency, the yuan, with an interest rate of up to 8%. VTB Bank is offering a Chinese yuan savings account with a maximum interest rate of 8%, as the Russian lender faces strict sanctions from the U.S. and U.K. https://t.co/33vqAu7Zpm — Bloomberg Asia (@BloombergAsia) March 9, 2022 In a separate article, the SCMP reported that bilateral trade between China and Russia has increased during the Ukraine crisis, rising to US$26.4 billion in January and February, a 38.5% increase from the previous year, and the highest growth rate for these months since 2010. It did add, however, that export growth is slowing. In response to Russia’s invasion of Ukraine, Visa and Mastercard announced they would be limiting operations in the country. So Russia is turning toward its own domestic payment system, while expanding use of a Chinese counterpart. Moscow’s state news agency Tass published a report on March 6 revealing that various banks in Russia are already using China’s UnionPay system for financial transactions, including the state-owned Russian Agricultural Bank (Rosselkhozbank) and Promsvyazbank and the private Gazprombank and Sovcombank. Reuters noted that more Russian banks plan to work with UnionPay, including the state-owned Sberbank, Russia’s biggest bank, as well as the private Alfa Bank and Tinkoff. Russian banks rush to switch to Chinese card system https://t.co/Lit9GM4DdD pic.twitter.com/hmfz0ytq0K — Reuters (@Reuters) March 6, 2022 Russia has its own payment system, called Mir, which was created by the central bank in 2017, largely due to the effects of Western sanctions imposed on the country in 2014. Tass said some national banks are considering combining these Russian and Chinese payment services, and “will possibly issue co-badged cards linking Russia’s Mir and China’s UnionPay systems that will provide the option of payment for purchases and cash withdrawals abroad.” The Joe Biden administration has sought to turn Ukraine into a wedge between China and Russia, and prominent Western media pundits like the New York Times’ Paul Krugman have argued that “China can’t bail out Putin’s economy.” CNN declared that “China can’t do much to help Russia’s sanction-hit economy,” while Bloomberg prognosticated that Beijing made a “fateful choice on ties with Russia” that will supposedly come back to hurt it. At the same time, the US government has publicly threatened to hit Chinese firms with financial punishments if they refuse to comply with Western sanctions on Russia and help Moscow get around these unilateral coercive measures. Faced with this antagonistic strategy, China has doubled down on its support for Russia. In a press conference on March 7, Beijing’s foreign minister, Wang Yi, declared that the Chinese-Russian partnership is “free from interference or discord sown by third parties.” This was a clear rejection of attempts by the United States and European Union to create divisions between them. Wang said China and Russia are “each other’s most important close neighbors and strategic partners,” calling their relationship “one of the most crucial bilateral relations in the world.” “China and Russia jointly oppose attempts to revive the Cold War mindset,” Wang stressed, warning about Washington’s drive toward a new cold war. The Chinese foreign minister said Beijing and Moscow have a “shared commitment to ever-lasting friendship and mutually beneficial cooperation,” one that “is based on non-alliance, non-confrontation and non-targeting of any third party.” “The China-Russia relationship is grounded in a clear logic of history and driven by strong internal dynamics, and the friendship between the Chinese and Russian peoples is rock-solid,” Wang added. China and Russia have good energy cooperation and will continue to conduct normal trade cooperation including on oil & gas in the spirit of mutual respect, equality & mutual benefit. — Spokesperson发言人办公室 (@MFA_China) March 9, 2022 Bejing has also forcefully condemned Western sanctions on Russia. Foreign Ministry Spokesman Zhao Lijian stated, “China is definitely against unilateral sanctions that are not based on international law. Brandishing a sanctions baton will not bring peace and security. It will only lead to serious issues for the economy and the quality of life in the corresponding countries.” Zhao warned, “In this situation, everyone loses. Sanctions will only intensify division and confrontation.”

Write an article about: Economic solutions: How to go from financialized neoliberalism to a productive, sustainable economy. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

banks, debt, finance, Geopolitical Economy Hour, Michael Hudson, money, neoliberalism, Radhika Desai

Political economists Radhika Desai and Michael Hudson discuss realistic alternatives to the neoliberal model of financialization, and tangible policies to build a productive, sustainable economy. Political economists Radhika Desai and Michael Hudson discuss realistic alternatives to the neoliberal model of financialization, and tangible policies to build a productive, sustainable economy. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello, and welcome to the 22nd Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: I’m Michael Hudson. RADHIKA DESAI: And working behind the scenes to bring you this show every fortnight are our host, Ben Norton, our videographer, Paul Graham, and our transcriber, Zach Weisser. We all urge you to click the Like button, if you like what we are doing, share it on social media, and subscribe to our work by hitting the Subscribe button. In our last show, which we entitled “The Debt Explosion: How Neoliberalism Fuels Debt Crises“, we promised that our next show would be about what the solution is, what is the solution to the myriad problems that we were describing. And that is indeed what we are going to discuss today. The solution, we feel, in the United States and in all countries that have gone down the road of neoliberalism and financialization involves a root and branch reform of the financial system. And this would be the foundation for the urgent economic transformation. It will be the single largest component of the economic transformation that so many of us realize we also badly need. We must reorient the financial system away from the sort of predatory lending and speculation that we described last time, the sort of predatory lending and speculation on which it has come to rest for the past five decades, and increasingly so over the last five decades. It has to reorient away from that and towards lending for more sustainable production, pure and simple, and the sustainable production of the goods and services which everyone needs. This involves transforming the very basis of our money and credit system. And given the link between the US financial system and the dollar’s world role, it would also involve ending that role and setting up an international monetary system for the world on the basis of cooperation among the different countries of the world. Most Americans, I mean this may surprise many Americans, because they are all invited to feel rather proud of their dollar’s world role. However, precisely those who invite American citizens to feel proud of their role are hiding the fact that it is precisely this financial system or it is precisely this world role and the financial system that underpins it that has undermined the US’s productive economy and its capacity to create well-paying, skilled and meaningful jobs for most people in the United States. Most people in the rest of the world have been asked to regard the dollar’s world role as natural and inevitable. But as Michael and I have shown repeatedly in so many shows, it is anything but natural and inevitable. It is indeed instead unstable, volatile, crisis-prone and profoundly exploitative. The dollar’s world role has always rested, as we have argued in our shows and our writings, on an attempted and never successful imperialism, and it has to give way to international cooperation for universal development and planetary sustainability, and the international monetary and financial system that promotes production, sustainability, equality and a broad-based prosperity, a broad-based well-being, let’s say, if not prosperity. The ultimate goal has to be economies in which money plays as small an independent role as possible, where most things are available as entitlements in kind, whether it’s food, clothing, housing, education, transport, culture, goods produced publicly and equitably and provided in adequate quantity and quality with a view to sustainability. However, to get there from here, from our very highly financialized economies, transformations are necessary in a number of spheres. So today we want to focus on some of the main elements of this transformation, and one way to summarize what these elements would be is we’ve tried to divide our conversation into the following topics: Who should create money? What should monetary policy aim for? How do we redesign the taxation system? What about land, rent and so on? Should we nationalize the land and eliminate rent? How should the financial system be regulated? What should replace debt? Obviously, income rather than credit. And finally, how should international money be reorganized? So that’s what we want to discuss today. So Michael, why don’t you start us off by just offering some thoughts on what should money creation look like in the different type of economy we’re talking about now? MICHAEL HUDSON: Well, the key word that you used was system. And a system has many dimensions of the solutions. And so all the points that you mentioned are various parts of the overall system that we’re trying to put together. There’s not one single reform that can cure the problem. And the problem basically is that most money is issued by commercial banks, not by the government. And bank credit, as we’ve discussed in the last episode, is largely created for the wrong things. It’s created against housing to inflate housing prices. It’s granted for corporate takeovers. One thing bank credit is not issued for is to build new factories and to employ labor and to increase economic growth. That’s the job of the government when the government treasury creates money to spend into the economy for functions that are supposed to serve society and serve economic growth. But when a government lends money, it’s for very different reasons. It’s for the real economy. And when banks lend money, it’s for the financial overhead economy. And that’s why we would like to see all money created basically by the Treasury. And of course, if the loans are lent out by commercial banks, if they are the agents of the government, they will get credit and the ability to issue credit from the Treasury, but really not from the Federal Reserve. The Federal Reserve was created to get rid of the Treasury in 1913. The Treasury wasn’t even allowed on the Federal Reserve. Most people don’t realize that before there was a Federal Reserve here, all of the functions that are now done by the Fed were created by the Treasury. And that’s the same in most countries. Every country that has a central bank is to essentially take power away from the government to spend money into the economy, to insist that the government should run a balance and not create money and force everybody to depend on bank credit for whatever they need. And the bank credit, as we’ve described before, is not very helpful. And so money is created by running into debt for a commercial bank. We want money created by the Treasury where it does not involve this kind of debt. There are many ways of doing it. If the commercial banks acted like savings banks, 100 percent reserve, then they would essentially be reliant on the government to create their credit for the kind of thing that the treasury creates credit for, for growth. And so if you look at the solution, what is the problem that you’re trying to solve? The problem is to minimize the debt overhead and to maximize economic growth. RADHIKA DESAI: Absolutely. And just, you know, you’ve said so many interesting things, Michael, and I just, you’re prompting me to say a few things in this response. So what are the implications of what we’re talking about here is that essentially the government would be, because it is the main issuer of money, it would be capable of lending to itself the money that it needs, whether to build roads or schools or hospitals or what have you. And for that matter, engage in all sorts of sustainability initiatives, whether it is protecting forests or transforming the fossil fuel economy into a different type of economy. All of these investments can be made. So that’s the first thing. And so the key here in terms of the creation of money is to take away the power that has been given by governments to the private sector to create money as credit and essentially create instead money as cash on the part of the government, minimizing the role of credit and therefore also minimizing the kind of indebtedness that has been so problematic for economies. This would then also lead to the merging of essentially fiscal policy and monetary policy, because in the sense that, you know, today the two are divided because in order to expand government spending, governments are told that they have to borrow from private creditors. This will no longer be the case. And finally, thirdly, you know, central banks, you know, a lot of people, I mean, I’m against what the Federal Reserve has been doing for a very long time. But having said that, central banks are necessary because there has to be some institution that mediates the relationship between the national currency and the currency of other countries. So typically, historically, central banks have had three roles: number one, to maintain the external value of your currency; number two, to set the interest rates; and number three, to regulate the financial sector. So obviously, the first function is, of course, important. And the way in which it will be different in the scenario that we are talking about, the kind of anti-financialization scenario, is that the maintenance of the external value of the currency would not just be governed by the need to keep the value of the currency high in order to enable rich people to benefit from it. Sometimes devaluation may be necessary because that is what will be necessary to expand employment, etc. As far as setting interest rate is concerned, the simple fact should be, as the old adage goes, credit should be cheap, but not easy. And I think that’s the way in which this should be run. And finally, the whole regulation of the financial sector, I mean, this is exactly where the Federal Reserve in particular, and many other central banks that have permitted vast degrees of financialization to occur, have essentially abused their power. Because instead of regulating the financial sector in the interest of a productive economy, they have regulated it in such a way as to permit financialization and predatory lending. And the whole nature of financial regulation will have to change radically, and go back to something like what it was in the aftermath of the Depression-era banking legislation that was implemented in the United States. MICHAEL HUDSON: Well, you pointed to another product of the banks, and that’s junk economics, pretending that the bank credit fuels economic growth and that it does so in a way that promotes stability. But what it really does is financial parasitism, a debt overhead. You mentioned cash, and that you want to replace the bank credit with cash. What you mean, basically, is like the paper money in your pocket. The government would spend the equivalent of paper money by any kind of government-created credit through the Treasury or through Treasury banks, or even by commercial banks acting like savings banks with the savings coming from the government. The distinguishing feature of the paper money you have in your pockets that’s different from bank credit is the paper money doesn’t have to be repaid. Nobody is going to somehow repay your currency and say, I’m going to cash it in. You cash in a $10 bill, you get two $5 bills. But bank credit does have to be paid and comes with interest. The Treasury credit does not have to entail this huge increasing debt overhead that banks create. That’s basically it. It’s this debt overhead that actually, as we will discuss later, deflates the economy instead of inflates it. Bank credit inflates prices for assets, for houses, for stocks and bonds. But it deflates the economy by making people spend more and more of their income on debt service to buy the higher-priced houses or to buy the higher-priced retirement income that the banks bid up. RADHIKA DESAI: Michael, I think that you’re absolutely right that this is exactly what’s going on right now. However, in our past programs, one of the things we have emphasized is that, historically, this was not the case even in the United States in the immediate post-War period. It was a very different type of banking system which did lend for productive expansion. And it’s only really sort of in the ‘60s and particularly from the ‘70s onwards that the kind of deregulation we have witnessed have converted the bank lending into lending essentially for mortgages and the kind of lending you’re talking about. And of course, the other thing we’ve emphasized is that historically in countries like Germany or Japan or China today, the banking system is very different. And it is geared not towards lending for mortgages, et cetera, alone, but rather lending for productive activities. And so there is a different model. And that’s the model that we need to go for. I just wanted to add one other point, which is that, of course, when you talk about increasingly taking away the right, [or] the franchise, that has been given to private financial institutions to create credit, create money in the form of credit. One of the subjects that has become increasingly discussed these days is, of course, that today we can, in fact — the system of government creating money can be made far more efficient thanks to information technology, which is why so many central banks are looking at central bank digital currencies. Now, the thing to remember about anything you read about central bank digital currencies is that a large part of the discourse is affected by the need to placate the financial sector, which would be wiped out — the private financial sector would be wiped out if you had central bank digital currencies. And I’ll explain why in a minute. But so it’s either those who are trying to sort of create the world in favor of it, but they are afraid of the power of private finance. They articulate their discourse in a way as to placate private finance. And of course, private financial interests are dead set against the creation of central bank digital currencies. But on the other hand, precisely because other countries, countries like China and so on, are going to look at it and may well be in the forefront of implementing it. Other central banks have to look at what’s being done and look at its potential. So this is what you have to understand. Now, the reason why the private financial sector is dead set against creating central bank digital currencies is very simple. Historically, the existence of a private financial sector has been justified by saying that, well, the central bank cannot have, you know, a presence in every locality. So the idea has been that in order to create a dispersed financial system, you should have private, you should allow private banks to set up shop wherever it is needed. And all you then have to do is regulate it. And we’ve seen what has happened to that regulation, particularly over the past five decades. But now, essentially, information technology allows every person to have an account directly with the central bank. And therefore, the central bank can essentially regulate, central banks can essentially regulate the money system in a much more tactile way than was ever possible without the intermediation of private interests. And this would also have a further effect, which is that, you know, today there is a so-called financial exclusion. A number of people who are excluded from having bank accounts, etc., they would be included. And there are a number of people who are excluded from participating in payment systems like credit cards and so on, because they are unable to get them. But if the government creates a payment system, then everybody could use it without the sort of usurous credit card charges that are essentially charged by central banks. So, in this way, central bank digital currencies can be part of the solution. MICHAEL HUDSON: Okay, next topic. RADHIKA DESAI: Okay, next topic. So, what should monetary policy aim for? MICHAEL HUDSON: Well, we were going to, the monetary policy has to go hand in hand with tax policy. It always does, because what gives money its value is its ability to be accepted in payment of taxes. One of the problems is that banks have led the fight for the last 100 years against progressive taxation. And the result has been that banks have united with the landlords and monopolies to create monopolies to finance an absentee ownership class. And essentially, instead of following the classical economics that we discussed last time, Adam Smith, and John Stuart Mill, and Marx and the others, instead of making economic rent the basic tax base, land rent, monopoly rent, and financial rent, the banks have led the fight to untax real estate and to untax land because they know, they say, there’s all this economic rent, this free lunch, the advantage of price over and above the cost of production, purely empty prices, monopoly prices, when monopolies raise the price of your pharmaceuticals or when stores raise the price of groceries, the banks want all of this monopoly rent for themselves. And so if the government were to pursue anti-monopoly regulations, or if it was to do the classical policy of taxing the land, then there would be two results: number one, the land tax would not be paid to the banks and not be capitalized into higher housing prices; and number two, the price of housing would be kept down, the price of monopoly goods would be kept down, the price of doing business would be kept down because this excess economic rent, which means empty pricing, which means free lunch, would not be paid to the banks as its major source of income. And we’ve talked before, last time, about how 80% of bank loans are mortgage loans. So the whole idea of progressive taxation is not simply taxing incomes higher, it’s taxing a particular kind of income higher, bad income, unearned income, economic rent income, not wages, not corporate profits. The original American income tax in 1913, along with the Federal Reserve, didn’t tax wages, and it didn’t tax normal small businesses. It taxed the wealthy bankers and the wealthy real estate owners and the monopolists. And the last century has been moving away from this because banks became the mother of trusts, as they used to be called. Banks became the main fighters against any kind of economic progress toward the kind of free markets that the classical economists talked about. So we’re not going to go into value, price, and rent theory here, but if you’re looking at the principles of credit reform and bank reform, you want to ask, how does this affect the relationship between the prices that people have to pay and what it actually costs to build a house? The land is provided freely by nature. The locations are more valuable than others. But banks don’t create this money, but they get all the rent for it, just like before the 20th century, landlords used to get all the rent for it. You want to fulfill the fight that the classical economics had to free the economies from the legacy of feudalism. Banks want to restore a kind of feudal economy where the richest people live off rent, rentiers. They live off interest, off landlord rent, and monopoly rent. And you want to get rid of that, and that’s what makes socialist economies so much more cost-efficient than finance capitalist economies. There are hardly any industrial economies anymore, except for the socialist economies. And if you want to say, what is a socialist economy? It’s an industrial economy free of the rentier class. RADHIKA DESAI: Well, exactly, and this reminds me of a point that I made earlier, and this is very, very important. Just as you pointed out, these days, bank credit is designed to inflate the value of already existing assets. And in fact, in doing so, it tends to strangulate the production of new goods and services, which people need. So I call this a form of necromancy, the love of the dead, because the already existing goods whose values are being inflated, whether they are houses or fine wines or pictures or what have you, this is dead labor. And in order to inflate the value of dead labor, you are strangulating the exercise of living labor without which no economy can prosper. So that’s one point. And before we move away from the issue of monetary policy, I just wanted to also share my screen once again and just remind people of how absolutely awful monetary policy has been for such a long time. So this is just a graph of U.S. interest rates and historically from 1955 onwards. And you see that there have been various periods of very high interest rates. This is us right here with the big increase in interest rates. And all these increases in interest rates have been designed to strangulate the economy, to induce recessions, so that the value of existing money and of existing assets will be preserved rather than being undermined in any way. And this is precisely what we have to avoid. And this type of policy is followed because it is believed, as Milton Friedman claimed, that inflation is everywhere and every time is always and everywhere a monetary phenomenon. That is to say, it results from creating too much money. So you have to stop creating money. You have to decrease money supply, increase interest rates and essentially strangulate the economy. In reality, inflation is a supply problem. And if prices of certain things are going up because there is not enough supply, the best thing a government can do is to organize the supply, either incentivize the private sector to produce it or go into the production of those goods and services on its own. And this is the way to deal with inflation, not by strangulating the economy, as has been done in the past. And as we are continuing to do so, one of the things you will have noticed is that even today, Jeremy Powell has said that he would like to decrease interest rates, but he’s not sure exactly when. Why? Because the U.S. economy is doing too well. I mean, consider the absolute, how can you say, obscenity of this. But that is what monetary policy is doing right now. And again, in the kind of economy we are talking about, the economy which will solve these problems, we will not have that kind of monetary policy. We will instead recognize that inflation is not always and everywhere a monetary phenomenon, that it is a phenomenon bound up with production and it will be attacked as such. Michael, do you want to add anything else to the monetary policy matter before we go on to the next question? MICHAEL HUDSON: Yes. The reality is just the opposite. The deflation is everywhere a monetary problem. The function of Milton Friedman and the Chicago School is to make sure that people are confused and do not understand how the economy works. You want to produce students that end up like Paul Krugman, not people who understand what Radhika and I are taking. You can say just as well that increased money creates deflation. How does this work? If most bank credit is created to increase the price of housing, to lend against houses and raise the price of housing, that is going to increase the amount of money that people have to pay for housing. From 1945 to 1980, 25% of American income was what you would pay for a mortgage or for rent. Today it’s up to 43%, guaranteed by the government and even higher for many people. If you have to raise the amount of your income from 25% to 43% to pay the banks for mortgage credit, you’re going to have to cut back your spending on goods and services accordingly. In the 1930s, this was called debt deflation. Everybody knew what it was. Irving Fisher wrote a great article on debt deflation. My book, Killing the Host, describes debt deflation. The banks try to say, no, no, money inflates the economy and our credit helps employ labor and raise wages, but when we create too much, meaning when wages go up, then we have to step it back down. The worst thing that can happen to an economy for a banker is for wages to go up. The banker wants wages to go down, so the banker wants all the money to be paid as interest in the economy. Somehow they can turn everything upside down. What you get in the press and the politician speeches is an inside-out economics, not realizing that bank credit deflates the economy, causes unemployment, and that’s how the Federal Reserve manages the banks to make sure that wages don’t grow, that housing prices grow, that rents grow, that money paid to the banks grows, but not money paid to labor or to industry. Because if you had industrialization, if America was still a manufacturing economy, there would be higher employment for labor, and that’s not what the class war is all about in a financialized economy. RADHIKA DESAI: Exactly. Just one side point, Michael. You and I were discussing this a few days ago. You had written a book called Junk Economics, and you were doing a search on whether you were the first to use the term junk economics, and you found, no, somebody else had used the term before, and guess who that person ended up being? It was me. The reason I’m bringing this up is because I wrote this book, Geopolitical Economy, in which a large part of my narrative actually rests on reading the economic reports of the president. As the U.S. economic policy became more and more essentially neoliberal, financialized, etc., which could not be justified on any sane basis, the economic discourse emanating from the highest places of the administration could be seen to be visibly deteriorating. It made less and less economic sense. I used the term junk economics when I was giving a presentation based on chapter 9 of that book, which covered the George Bush Jr. period, and I said that by this time the level of irrationality of economic policy had risen to such a great extent that essentially what was essentially a bubble economy was justified as being just perfectly fine on the basis of what I call five tall tales, that the highest, best-paid economists of the country were telling Americans and the rest of the world why they should keep investing. This is essentially when you create a junk economy, then you need junk economics to justify it, and that’s what we’ve had so far. Having said that, Michael, you already have touched on our third question, which is how do we redesign taxation? I think you have some really important things to say about this, so go ahead. MICHAEL HUDSON: As I said, should I repeat myself? You want to tax economic rent, not value. Value is created by labor. You don’t want to tax labor, because if you tax labor, the employer has to pay a higher price, and if the price of labor is what determines what goods industrial products are sold for, the more you tax labor and the more you tax industry, then the less competitive you are in the world, and you lose out to countries like Asia or countries that are not post-industrialized, but continue to industrialize. That’s basically it. Interest is an element of cost. Debt service is an element of cost. If you have to pay higher interest, then, of course, this is the cost of production, and the American economy, by being taken over by the banks, has made itself so high-cost an economy that that is what has de-industrialized the economy. The only way that you can re-industrialize the economy is to prevent all of this unearned income, this free lunch income, the land rent, the interest charges, the monopoly rent. You want to prevent that from being subsidized by the politicians that are put in place by bank contributions so that all of this rent can be paid to the banks. If there is unearned income, obviously some houses and some locations are going to be better. You want this to be the tax base. If it’s the tax base, it’s not going to be capitalized into higher prices. RADHIKA DESAI: You mean a land tax? MICHAEL HUDSON: Yes, a land tax primarily. Also, you don’t want to charge for student loans. You don’t want students to say, OK, I want to get a job, I’ll go to college, I’ll pay $40,000 a year, and I’ll come out owing so much money that I can’t afford to buy a house and I can’t afford to buy many of the goods and services I produce. They’re not even producing many goods and services because those are basically industrial services and they’ve all been moved offshore. It’s not that foreign countries have stolen this industry. It’s that America said we don’t want industry that employs labor because you’d have too high employment and you’d have high labor prices and we’re running the economy and we want the money, not labor. We bankers and monopolists and billionaires want all the money for ourselves, not labor. That’s why we’re moving it offshore to keep wages down because we want a low-wage economy. That’s what we call an efficient economy, an economy where people can’t afford higher education, an economy where people can’t afford housing because they’re paying us. They take out student loans that we get the money from. That’s the kind of economy that economists say is efficient. Another word for it is race to the bottom, and that’s the kind of economy we have. RADHIKA DESAI: Absolutely. And just one final point on redesigning taxation. What Michael is saying essentially is that instead of taxing earned income, particularly labor income, what should be taxed is land, and that should be the main basis on which— and the rationale for this is very simple. Basically, land becomes more valuable not because of anything you’ve done. Imagine I own a piece of land. I have absolutely no idea. Maybe it’s in a sleepy, faraway place in the country, and it’s really worth very little. And then somebody discovers that there is some new mineral that can be found on my land. Well, with me having done nothing to earn it, suddenly I become the beneficiary of a vast inflation in the price of my land. And ideally, since this discovery itself is a result of broader social processes, society as a whole should benefit from the increase in the value of the land, and that’s why the land tax makes sense. I mean, you can have other scenarios as well. You can have a scenario in which imagine that I bought a piece of land for next to nothing, and then 10 years down the road, the government decides to put a bus route near it or put a railway line near it. Suddenly the value of my land would go up for my having contributed nothing because of broader social processes. So on the whole, the value of land tends to fluctuate as a result of this. And so neither should people not unduly benefit from such increases in valuations, and nor should they suffer from decreases in valuation. And that’s why a land tax makes sense, because the increases and decreases in the value of land is a result of broader social processes for which the government should take the benefit and also the hit. So I think this is one thing. And the only other thing I would say about taxation is that, of course, in the first instance, we want progressive taxation. That is to say that the absurd and obscenely high incomes and wealth of the people we have become so rich on the basis of the last 50 years of economic policy should, of course, be taxed. But in the long run, the aim should be to depress the differentials in wages as well. There’s absolutely no reason why somebody should make hundreds of times more money than somebody else. It simply doesn’t make sense. They’re not a hundred times better. They’re not hundreds of times more intelligent. They’re not working hundreds of times harder, etc., etc. Michael, please. MICHAEL HUDSON: Modern monetary theorists, as you know, say that it’s not necessary to tax, that the government can simply create money without taxing. But even if the government could create money, there’s a good reason for taxing. Some taxes are necessary because taxes prevent unearned wealth from being created. For instance, here in New York, they spent a few billion dollars on extending the subway on the Upper East Side a few miles in a very high-rent, high-housing district where a lot of wealthy people live. When the subway was finally built along 2nd Avenue, housing prices and rents went up all along the line. So all of a sudden, the landlords got a free lunch. Radhika was just talking about landlords getting money for nothing. This is an example. They got a free lunch. The city could have said, OK, by building this subway line, we’ve created a much higher valuation for rents because people now don’t have to walk so far to the subway and they’re willing to pay for that. But instead, the transit authority raised the fares and stopped paying money to maintain the switches throughout the system. The system throughout all the rest of the city decayed. Fares went up, and the city did not recover this money from the absentee landlords who made a killing off the $2 billion that America paid. You don’t want people to make money that way. You don’t want money to be taken by people who will then bribe the politicians or not bribing, but contribute to their political campaigns and mounting attack ads on their opponents and distort the economy. So the failure to tax economic rent, the failure to tax land rent and bank financial gains is you let a class develop whose economic interests are in fighting against the economy as a whole and turning the economy into getting wealth by unearned income, getting wealth by financial maneuvering and by rent-seeking, as economists say, not by actually producing labor and raising living standards, not by industry and improvements in productivity, but essentially not reinvesting in long-term development, research, and the kind of investment that the countries that are actually growing. And if you look at what the Asian countries are doing, they’re avoiding this. The Asian countries are doing exactly what Adam Smith, John Stuart Mill, Marx, and the other classical economists defined as a free market. America’s going back towards the kind of 17th, 16th, 13th century. We’re going back to feudalism, not moving out of it. RADHIKA DESAI: Yeah, I’d only say, by the way, that I personally tend to avoid using the term feudalism for our economic system, because it tends to let capitalism off the hook. I mean, this is what capital, senile capitalism looks like. And so we should, you know, but it’s a terminological problem. Now, our fourth point was nationalization of land and elimination of rent. And I think we’ve kind of covered that as much as possible. I just wanted to make one small point, which is that, you know, which matters for ordinary people, because a large part of our lives are dominated by things like long commutes. Long commutes happen precisely because of the unfair process of some people benefiting from the increase in the value of land, which again, they have nothing to do with, and essentially pricing people out of living near where they work. And a rational land policy, which would be possible if you had nationalized land, would actually enable people to live near where they work and not suffer from this kind of long commutes and all the distortions of life that that brings, and of course, distortions of productivity that that brings. So it would also be a solution that you’d have a rational location policy, rational location of workplaces, housing, and of course, a rational transportation policy, as a consequence as well. MICHAEL HUDSON: This is exactly what’s happened in London. Now they can’t afford to live there anymore. RADHIKA DESAI: Exactly. Okay, so our fifth point was financial regulation to prevent speculation and predatory lending. So do you want to start off with anything there? MICHAEL HUDSON: Well, basically, speculation is a function of how much credit will the Federal Reserve let banks lend against. Donald Trump could buy huge swaths of real estate for putting down no money at all. And most of the private capital companies are able to say, here’s a profitable company like Sears Roebuck, or Toys R Us, lend me the money to buy it, and I will pay you interest on it, and I’ll buy it, and I will immediately essentially break it up into parts, sell it off, fire the labor force, squeeze labor more, and then leave a bankrupt shell, but you, the banker, and I can get rich off this. That’s basically speculation. Speculation is making money financially by dismantling an industrial economy. Speculation is taking over a company, borrowing money, using the money to pay out as dividends, using the money for stock buybacks. Speculation is when you buy a company and say, well, look at a company like Boeing. Why is this company spending so much money on engineering aircraft? Let’s not develop a new aircraft. Let’s just take the money that we’re getting already and pay it out as dividends, make stock buybacks, pay it to ourselves, and of course the company is going to go bankrupt and end up crashing in time, but that’s not our problem because we’ll become billionaires by the end of that. We’ll make the banks rich. We’ll get rich. Who needs investments? Let’s just run it all down to the ground. The whole economy is looking like Boeing right now, and what they’ve done to Boeing, what they’ve done to General Electric has become the model of how to de-industrialize and wreck an economy. They call it speculation, but it’s really debt leveraging. It’s really loading a company down with debt and using its income to pay debt service, not to invest in new capital formation. RADHIKA DESAI: You know, you say such an important thing about Boeing. Honestly, I remember reading in the Financial Times recently, just as these scandals are coming out about Boeing, that for the last several decades, actually engineers have been refusing to work for Boeing because it’s no longer an engineering firm. It’s a firm that values extraction of value out of whatever carcass is left of that firm and does not emphasize engineering good airplanes as it once used to do. So, this is really quite an interesting point you make. Several other quick short points. Number one, you know, just a very basic thing, you know, you were talking about how this speculative activity, it happens in a kind of club-like environment. And that reminds me that one of the things I always like to say is that people think that credit relationship is a market relationship. It’s not a market relationship. A credit relationship is effectively a social and political relationship in which you give credit to those who you know. And every model that has been created to try to replace that has essentially either not been practiced by the financial institutions or it has led to huge problems. So, I think that’s the first thing I want to say. The second thing I want to say is that the best way of preventing speculation was already found and it was found in the United States and it was called the Glass-Steagall Act. And the Glass-Steagall Act said something very simple. We are going to back those parts of the financial system that do not engage in speculation with federal deposit insurance. And if you want to engage in speculation, fine, you can do that. We’ll let you do that, but you do it on your own dime. You do it at your own risk. If you lose money, the Federal Reserve is not going to come and the Federal Deposit Insurance Corporation is not going to come and rescue you. And I think that was fair. And they didn’t stop speculation, but it sure contains speculation to a very, very small number of people and a very small amount of money, et cetera, et cetera. But beginning with the repeal of Glass-Steagall, and before it was repealed, it was also softened up quite a bit, beginning with the repeal of Glass-Steagall, the Federal Reserve has created a situation in which the big banks, which sit on your and my money, the billions and billions and trillions of dollars, which are made up of your and my small deposits can be thrown into the market for speculation. And as a result of that, what most people don’t realize is that in 2008, all the small boutique banks that used to be the speculative banks, not protected by the Federal Deposit Insurance, were wiped out by the big commercial banks, which were now backed by the Federal Reserve, even though they were engaged in speculation. I mean, so we know how to do it. We can do it. And I think that it would be not that difficult to do it. A final point I want to make, you know, we’ve always emphasized that the problem with the financial system is predatory lending and speculation. And I think that, you know, we have had two very distinct periods in the history of neoliberalism and financialization. In the 1980s and 1990s, interest rates were relatively high. And there, basically, you just made money if you had a lot of money, because essentially, you were being paid lots of money just to sit on it with high interest rates. So in that sense, that was one type of, and of course, those who borrowed money paid through the nose for borrowing that money. So it was an era where predatory lending was much more, I mean, still happens, but it was sort of in the lead. In the, after 2000, what you got were long periods of very, very easy credit, easy monetary policy. And that is what essentially fueled speculation, because it was easy to borrow money. And you, you know, if the margin was, you know, 0.0001%, on that margin, if you just put in a few thousand dollars, you’re not going to make more than a couple of bucks. But if you could throw in millions and millions and billions of dollars into the trade, then you could make a lot of money. And that’s the two different types of economies we had. And all of this is easy to regulate. It’s just a question of finding the political will to do so. MICHAEL HUDSON: Well, you use the word market, and that people don’t realize that every economy is some kind of a market. Ancient Babylonia had a market. Briggs and Rome had a market. China has a market. Even Stalinist Russia had a market. The question is, what kind of a market are you going to have? And what’s the relation between prices and the cost of production? And who gets the income? Labor, capital, landlord? And today, almost all the economists say a market is something where the bank, where the government doesn’t do anything. It’s a free market, meaning the billionaires control the economy. The government will not regulate them. The government will not try to steer credit to be productive. The government will not help the people. It will help the 1% exploit the people. A free market is an economy won by the 1% in an oligarchy where democracy has either no role to play, or if you let the people vote, they don’t understand how the market works and how to create an economic alternative. So what we’re really talking about in this broadcast is, what kind of a market do you want to have? And where does finance fit into this market? Where does tax policy fit into this market? And how do you then create an alternative? Well, any economist, Paul Krugman or the New York Times or the entire Council of Economic Advisers will say, with Margaret Thatcher, there is no alternative. But of course there’s an alternative. And that’s what our program is all about. Every few weeks, we’re trying to outline an alternative that it doesn’t have to be this way. Economists say it has to be this way if you want a free market, a free market for the 1% to take whatever they want, to control the banks, to control real estate, to create monopolies, and to extend this all throughout the world so that there’s no country in the world that has a different kind of a market to show that there is an alternative. That’s really the geopolitics of our analysis of how an economy works. And every economy is a market. The question is, do you want an oligarchic market, a democratic market, a productive market, an industrial market, or a financialized market? RADHIKA DESAI: Exactly, Michael. So well put. Okay, so our sixth point is expansion of income in place of debt. And my point here is a very simple one. At the moment, we have, over the last five decades and more, we have created a financial system which prioritizes, which strangulates ordinary people’s income and instead invites them to expand credit, to become debtors instead. The kind of economy we are talking about would not do that. It would in fact leave the government free, either to encourage private enterprise or itself engage in the types of investments that will be necessary to increase the incomes of ordinary people. You have what you have by right. The government creates the kind of conditions in which you are able to make a contribution and make a good income, the kind of income you need for a decent standard of living. And the root and branch reform of the existing financial system is the conditio sine qua non of this kind of system. We have to eliminate it if we want to have a kind of economy in which we are capable, every society is capable of producing what it needs, employing its labor to good effect, and so on. So to me, that’s the most important thing to say about this point. Yeah, you agree. So a final point is the point about international money, moving from the dollar disorder to an international monetary system based on the kind of proposals that Keynes had made. So essentially, maybe just to start us off on the discussion of this, these are the main elements Keynes had proposed to create. Let me just begin with the center and then we’ll move to each one of these things. But essentially, Keynes proposed to create a new currency. It was not going to be the currency of any country. All countries would continue using their national currencies. But this bancor would be used among central banks to settle imbalances. So if one country imported more from another country over a given year, at the end of that year, if you are clearing the balances, then that country owed a certain amount of bancor to the other country, et cetera, and so on. So bancor was the key thing I want to emphasize here is that bancor was not to be used in ordinary daily transactions. For that, every country would continue using its own currency. Bancor was only international currency to be used by central banks. MICHAEL HUDSON: Yes. Obviously, something like that should be used today. There are two alternatives. One is the International Monetary Fund special drawing rights. They created an artificial currency, and they did it because the United States said, we’re running a budget deficit because we have 800 military bases all over the world, and we can’t afford them. Give us enough money. But of course, you can’t give us money. In order to give us money to have our military bases to control the world, to make sure there’s no alternative to our kind of free market, you have to give other countries the ability to special drawing rights, too, so that the IMF can lend money to Argentina and the global south so that they can pay for the banks for the balance of payments deficit from following the kind of warped economic growth that the World Bank sponsors, privatization and dependency on American exports. What we want is indeed an international currency to be used, but it’s not going to be to enable debtor countries to pay the American and European banks. It’s not going to be a currency to finance American military spending. It’s going to be a currency that people will not have to keep their money in dollars anymore. Imagine you’re Saudi Arabia, and you’d say, we’re getting a lot of pressure from our Palestinian population to support Gaza. But if we support Gaza and don’t support the United States, they’re going to grab all of the money that we keep in the United States. They’re going to do to us what they did to Russia. The United States can grab any country’s foreign reserves if they support a policy that the United States doesn’t support militarily. We need an alternative that is not controlled by the American military and by the American neoconservatives. Countries do need credit, just like the economy needs credit that we’re urging should be created by the Treasury. What Keynes suggested is the equivalent of an international treasury, but that would lend money for the things that treasuries are supposed to create money for, to promote economic growth, not military spending, not trade dependency, and not a debt-ridden international economy, which is now breaking apart as a result of the last 75 years of IMF and World Bank lending. RADHIKA DESAI: Great points, Michael. Let me just emphasize one quick thing, though, about SDRs, special drawing rights of the IMF. The problem with SDRs is that while in some respects it looks like a bancor, in a key respect, it is not like bancor, maybe in two key respects. Number one, because it is issued by the IMF, it is still under US control because the US still retains a veto in the IMF. So that’s the first thing. And the second reason is that, of course, thanks for historical reasons, the IMF and the World Bank are deeply implicated precisely in the US-based financial system, whereas a proper bancor would be extricated from the extremely unproductive, predatory, exploitative, speculative US-type financial system. You also mentioned, Michael, not creating trade dependency. And another feature of the principles that were embedded in Keynes’s idea of a bancor was the principle of creditor adjustment. Today, we have a situation in which if you are a trade deficit country, you are the one who is forced to adjust. If you owe money, if you’re a debtor country, you are the one that is forced to adjust. But Keynes said that one person’s deficit is another person’s surplus. One country’s deficit is another country’s surplus. And therefore, the two are co-responsible for that situation, and the two must cooperate in order to get out of that situation. So, for example, take Germany and Greece as a classic example of a persistent surplus country and a persistent deficit country. Germany and Greece have to come up with an agreement to end these persistent imbalances, deficits on the one hand and surpluses on the other, either by Germany investing in Greece, in the Greek economy, in a way as to make it capable of producing more things, which Germans can then buy from them, or by reducing its deficit. Have one way or the other. So, creditor adjustment for both trade flows and capital flows was a very, very important principle. MICHAEL HUDSON: Well, we’ve just solved the world’s problem. RADHIKA DESAI: Well, we still have a couple of other points here. So, anyway, let me just discuss the rest of this and then give it over to you, Michael, for whatever else you want to say. So, a third principle was, of course, that there should be capital controls. That is to say, governments and central banks should be able to monitor and control the inflows and outflows of large amounts of money with a view to ensuring that what was happening would not harm the economy. So, for example, the kind of inflows of hot money that gave rise to the East Asian financial crisis in 1997-98 would not happen, would not be permitted, etc. So, capital controls were a very, very important principle and that would have to be accepted. And all capital flows that are flowing in and out of the country would be based on what is good for that economy. The price of Bancor, the value of Bancor was to be set on the basis of the 30 most traded commodities. Today, we may expand the list, maybe 50, 60 commodities, but whatever. The idea being that the prices of commodities, that is to say, primary commodities like wheat or copper or gold or what have you, these were the prices that were the most volatile. And if the value of the currency was based on that, oil, of course, was based on that, then this would provide a kind of stable and acceptable value to the commodities. And finally, the whole system was to be run — Michael mentioned the equivalent of a treasury. That equivalent was to be the International Clearing Union, which would be a multilateral agency agreed by all countries on the basis of, you know, and whose principles would be to prevent persistent surpluses and deficits and where there were surpluses and deficits, essentially to tax them, both surpluses and deficits, in order to provide financing for development. So, these were some of the principles that Keynes brought to Bretton Woods. This, if they had been implemented, they would have actually led to the creation of a permanently expansionary world economy because it would have allowed every country to govern its economic fate. But of course, precisely because of that, the United States essentially nixed his plans. And every time there’s a big economic crisis in the world, people recall the sensibleness of Keynes’ ideas. MICHAEL HUDSON: Well, these ideas that we’ve discussed were all discussed 75 years ago. And there were big political arguments about them. I’ve summarized them in Super Imperialism, a chapter on this. And the result of the way that the world economy was malstructured by rejecting Keynes’ idea was the United States did not want to have economic balance. It wanted all the money for itself. The United States said, we’re the world banker. What does a banker do? The banker impoverishes the rest of the economy to get rich. That’s why you’re a banker. And that’s what we’re going to do. We’re going to create an economy, especially to the World Bank, through diplomacy, through military spending, and especially by regime change, so that raw materials prices go down. We’re not only fighting labor, we’re fighting the third world raw materials exporters. We’re fighting the copper producers. We’re fighting the agricultural producers of warm climate tropical crops that we import. We’re fighting everybody who supplies us with what helps our economy so that we can get rich, not them. We can get rich in America and our satellites in Europe by keeping the global South poor, and by keeping Asia poor. There’s not going to be any kind of bancor. There’s not going to be any creditor responsibility for not monopolizing the world gains, because the economic system we want is all about monopolizing the world gains, and that’s what the dollar standard has become. All of this was foreseen 75 years ago, and because of America’s power after World War II, it was able to establish this regressive, exploitative, unfair economic system that finally today, for the first time, the world is looking back at these principles and saying there is an alternative, while the United States educational system tries to convince economic students that there is no alternative, and the military and the neocons want to say, hey, if you got an alternative, we have some people who can take care of you and have a regime change. RADHIKA DESAI: Quite so, and you mentioned imbalances, Michael, and one of my favorite points, you reminded me of one of my favorite points about Keynes’s bancor system and the current dollar system. The dollar system relies on imbalances. The greater the imbalance is, the more there will be a demand for dollars, etc., etc. Whereas the genius of Keynes’s — and of course, imbalances create volatility, create crises, and all these things we’ve discussed, all these things in previous shows — the genius of Keynes’s idea was actually that if you reduced imbalances, then the actual amount of bancor that would be needed to make the system work would actually be as little as possible, you know, because ideally, think about it, if you buy $100 worth of goods from me and I buy $100 worth of goods from you, there is nothing, we don’t need money to settle imbalances. The only reason you need bancor is when there are imbalances, and the idea was to reduce imbalances, and the purpose of this was that, again, with credit adjustment, Keynes basically said that, look, if you’re in a stronger position, you should be able to help your partner who is in a weaker position to become productively stronger. That was the whole point, and I would say that it still makes a lot of sense, as you just said, Michael. So here we are, we’ve dealt with actually all our seven questions, and I hope that we’ve given you something to think about, about the kind of economic system we could have, we could easily have. The most important difficulty is not intellectual, it is political, and as the political legitimacy and power of those who are running the system, particularly in the United States, is visibly declining, cracking, etc., now is the time to strike, now is the time to raise demands for an alternative system, much as, by the way, Jill Stein is doing in her campaign, and I should add that Michael and I are both part of her advisory team, and so please look out for it. We hope to have her on one of our shows very soon, as soon as she is able to find some time, so that we will discuss the kind of economy that the U.S. needs, and I would say if the U.S. turned around, boy, so many other problems would be solved. So, on that note, unless Michael, you want to add anything, we will end for now, and see you again in a couple of weeks. Meanwhile, please like, please share, please give us our comments, please subscribe, and look forward to seeing you next time. Thank you. Bye-bye.

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banks, First Republic Bank, Jamie Dimon, JP Morgan Chase, Michael Hudson, neoliberalism, Signature Bank, Silicon Valley Bank

Economist Michael Hudson discusses the collapse of four US banks in two months, giant JP Morgan Chase taking over First Republic Bank, and how government regulators are in bed with the bankers. Economist Michael Hudson joins Geopolitical Economy Report Ben Norton to discuss the collapse of four US banks in two months, giant JP Morgan Chase taking over First Republic Bank, and how regulators – and the government itself – are in bed with the bankers. In March, Norton also interviewed Hudson on the collapse of Silicon Valley Bank, Silvergate Bank, and Signature Bank. (What follows is a lightly edited transcript.) BEN NORTON: Hi, everyone. I’m Ben Norton, and this is Geopolitical Economy Report. Today, I have the pleasure of being joined by Michael Hudson, the brilliant economist and author of many books. Michael is also the co-host of a program here, Geopolitical Economy Hour, which he does every two weeks with friend of the show Radhika Desai. I had Michael on in March to discuss the collapse of three U.S. banks in just one week – that was Silicon Valley Bank, Signature Bank, and Silvergate Bank. Yet the crisis has continued since then, and I knew I needed to bring back Michael to talk about the latest developments. In just two months, four banks in the United States have collapsed. And we now see the latest example this May is First Republic Bank, which is the second-biggest bank in U.S. history to collapse, and which went down and was taken over by JP Morgan. This is the biggest bank to collapse since 2008, when Washington Mutual collapsed. Although, as Michael has often pointed out, what we should be saying is it was the biggest bank in the U.S. that was “allowed” to collapse, because he pointed out that many banks were actually insolvent, but weren’t allowed to collapse. Now, First Republic Bank had $207 billion in assets. And there are similarities between this collapse and the previous collapses. A similarity with First Republic is that the majority of its deposits were uninsured. About 68% of its deposits were above the federally insured limit of $250,000. So that means that there were $120 billion worth of uninsured deposits. And what’s interesting about First Republic compared to other banks is it had very wealthy clients, and many of them had long-term, low-interest mortgage loans. So as an example, the CEO of Facebook, Mark Zuckerberg, had a $6 million mortgage with First Republic Bank, and that was at 1% interest. That’s obviously below inflation, so Bloomberg pointed out that Mark Zuckerberg – a billionaire – was “borrowing for free” for a 30-year mortgage on a mansion. This is just one example of the kind of clients that were at First Republic Bank. Now, when I had Michael on last time, he explained how one of the reasons that Silicon Valley Bank collapsed is because it had invested a lot in long-term bonds. And because the Federal Reserve has been aggressively raising interest rates, the value of those bonds has significantly decreased. So when there was a run on the bank, the bank had to sell those bonds that had lost value and use that to try to pay the depositors. But it didn’t simply have enough, in the end, and it collapsed. Now, in the case of First Republic Bank, it wasn’t too exposed to bonds like Silicon Valley Bank was, but it did have a lot of long-term mortgages, about $100 billion worth. So now we see that JP Morgan is taking over First Republic Bank. And JP Morgan has been given a sweetheart deal. In fact, JP Morgan reported that it expects to make $2.6 billion off of this deal. As part of the agreement, JP Morgan does not have to pay First Republic Bank’s corporate debt. And the Federal Deposit Insurance Corporation (FDIC), the U.S. government-backed company, has agreed to a loss-sharing agreement. So because of some of the long-term mortgages that have lost value, if JPMorgan ends up losing some of the value on mortgages and commercial loans, the FDIC agreed to bear 80% of the credit losses. The very favorable terms of the FDIC loss-share agreement with JP Morgan Chase Meanwhile, the FDIC is estimating this is going to cost $13 billion to its Deposit Insurance Fund. That means that, in just two months, since the beginning of March, the FDIC’s Deposit Insurance Fund has paid out around $35 billion to save Silicon Valley Bank, Signature Bank, and now First Republic Bank. 3 of America's 4 largest bank failures have occurred in the past two months. In total, it has cost the FDIC's deposit insurance fund ~$35 billion. $20 billion for Silicon Valley (mainly bailing out uninsured depositors)$2.5 billion for Signature$13 billion for First Republic pic.twitter.com/I2leti80Kg — Heather Long (@byHeatherLong) May 1, 2023 So, Michael, those are the basic facts. Now, that doesn’t explain what’s happening at a macro scale in the economy, but it does show that it’s another example of how these private banks are getting bailed out by the government, while large banks like JP Morgan, the largest bank in the United States, is given a sweetheart deal, where it’s going to make billions of dollars. The FDIC is bearing the cost. And this is despite the fact that, as Pam Martens and Russ Martens pointed out at Wall Street on Parade, JP Morgan is actually ranked by regulators as the riskiest bank in the United States. So giving JP Morgan Chase control over this bank that already had financial issues makes it even riskier for the U.S. financial system. So I talked about a lot of things there, but those are the basic points. I want to get your analysis, Michael, and especially in response to the JP Morgan takeover and the increasing concentration of these large banks, the sweetheart deal it got, and the FDIC bailout. What do you think about all of that? MICHAEL HUDSON: Well, the entire U.S. banking system is just as insolvent as the banks that you’ve just mentioned. What’s amazing is that all of this is treated as if somehow it was unforeseeable. And people are saying, like Queen Elizabeth said in 2008, did nobody see this? Well, I’ve been writing about this, exactly how this would occur for the last 15 years, ever since I wrote [my book] Killing the Host. And the reason the banks are insolvent now is because of President Obama’s program and his Secretary of the Treasury, Tim Geithner, who appointed the current Federal Reserve President, Powell. When President Obama decided to bail out the banks, instead of writing down the bank loans to what would have been reasonable levels, instead of saving the junk mortgage victims from their houses, he decided to go along with his boss, Robert Rubin, the former Treasury Secretary under Bill Clinton, and save Citibank and the other big banks that were the most troubled banks of all. And they’re still the most troubled banks of all, except they have a government guarantee, just like Obama gave them, that no matter how much they lose, they will not lose the money. No matter how much the banks lose in negative net worth, the economy will lose, not the banks. All of that became implicit when the Federal Reserve decided to help the banks that were insolvent in 2008 and 2009, to help them recover their net worth by quantitative easing. That is creating $9 trillion worth of Federal Reserve balance sheet support of the banks to enable the banks to drive down interest rates to near zero, 0.1%, which is about what banks were paying their depositors. And the banks used all of this increasing liquidity. What were they going to do with the [liquidity]? Well, they lent them out largely to private capital firms. In other words, they lent them out to operators on Wall Street who borrowed from the banks to buy out companies and take them private. Then they would have the companies borrow money from the banks for billions of dollars of money and pay this money out as special dividends to the private capital companies that had bought them out, leaving companies as bankrupt shells, such as Bed Bath & Beyond. Well, as long as interest rates were just about zero, you had free credit and you had a debt-fueled stock market boom, the biggest bond market boom in history, and a real estate boom. All of these things you and I have been discussing for many years now, and I’ve been discussing it on my website and my Patreon group. What happened then was that the Federal Reserve, under the lawyer, Mr. Powell, he’s not an economist, he’s a lawyer, serving his clients, which are Chase Manhattan, Citibank, and the big banks, to decide, well, there’s a danger of wages rising and we’ve got to keep wages down in order to maintain the profit of the stocks that are fueling the stock market gains. The Federal Reserve decided and announced that it was going to begin raising interest rates from 0% to 4%. Now, at the time this was publicly announced, I talked to many businessmen, many investors, many CEOs, and every single individual that I knew said, — Oh, they’re going to raise the interest rates. That means that if we hold a long-term government bond, like a 30-year bond, or a 5-year bond, or a 10-year bond, the price is going to go down, because when interest rates go up, the price of bonds go down. Everyone I knew moved into short-term government bonds, that is, Treasury bills, three-month Treasury bills, or maybe two-year Treasury notes, because they didn’t want to take the loss that occurred if you’re holding a 30-year bond. And holding a 30-year mortgage is just like holding a 30-year bond. All of a sudden, interest rates are going up, but you’re holding a security, a mortgage or a bond that pays a very low interest rate and whose price has fallen by 30%, maybe even 40%. Now, that means that if you’re a bank and you have depositors and your assets are reduced in market price by 40%, what are you going to do if your deposits aren’t reduced? You have negative equity. Well, just about every bank in the country moved into a negative equity position, because all the banks have made fairly long-term loans. And as the Federal Reserve raised interest rates, that lowered the price of the mortgages that banks held, the Treasury securities that banks held. All of this was going down. Now, after Silicon Valley Bank went under, for instance, Yves Smith on Naked Capitalism, which is my favorite financial site to follow on these things, said, — Well, Silicon Valley Bank just hopelessly mismanaged their portfolio in holding on to these long-term government bonds. Why did they do it? Well, here’s why they did it. Imagine what would have happened if Silicon Valley Bank or any bank in America would have acted just like the private individuals who move their personal retirement accounts or their personal financial accounts into short-term treasuries. They all would have begun to sell their 30-year mortgages or other long-term mortgages. This by itself would have crashed the price of 30-year mortgages. If they would have sold their 30-year Treasury bonds and said, — Well, we’d better move into short-term treasuries, imagine if all the banks would have decided, we heard what the Federal Reserve said, they’re going to raise the interest rates to 4% and lower the value of these securities by 30 or 40%. Let’s all dump them. Well, the act of selling them would have caused the prices to decline to a point where indeed, right away, they would have been yielding this 4%. Obviously, there’s very little they could do. That’s because finance and credit in the United States are privatized. The crisis that we’re going through today is not the kind of crisis that China would experience because China has made money and credit and banking a public utility. In the United States, it’s all privatized and part of it is subject to the balance sheet constraints of: What do you do if interest rates go up, the value of your assets goes down, while your liabilities, that is what you owe depositors, continues high? Well, some of the newspapers said, — Well, why didn’t Silicon Valley Bank and other banks simply take out an option and hedge? In other words, the suggestion was, — Well, if you know you’re going to have a $100,000 mortgage that’s going to be worth $60,000, why don’t you just get someone to guarantee that in two years or so when the Fed increases interest rates to 4%, you can still go to the counterparty that’s holding the derivative and say, — Okay, now this is only worth $60,000. I want you to pay me $100,000 for it. Well, how are they going to find a sucker who would have gone into that? Because the banks that write the derivatives and the futures and the options read the newspapers also and they all read that the Federal Reserve says it’s going to raise the interest rates to 4% and reduce the value of assets to only about 60%. So they would have said, — Sure, we’ll write it. You’ll have to give us a $100,000 mortgage. That’ll cost you $40,000 for the insurance. In other words, nobody wants to lose any money. And the fact is, whoever held these long-term securities was going to lose money. Well, this is exactly what happened to the savings and loan institutions in the 1970s, in the 1980s. There was nothing the banks could do. The banks were able to survive for a few years despite the fact that the Fed was raising interest rates to 4%. The banks said, — Well, there’s only one way that we can avoid facing the fact that our assets are much less than our liabilities by just keeping the deposits there. Let’s keep paying the depositors what we were paying all along, 0.2%. — We hope our depositors are really, really stupid and inertia, and it’s so hard to change a bank account and take money out and buy a government security short term or to buy another financial security. Maybe this inertia will just save us and nobody will do anything. — But we’ve got to get really stupid people in charge of the Federal Reserve who don’t realize that the banks are insolvent. We’ve got to get flacks, public relations people, for the Fed, like Paul Krugman, who said, — No problem at all. Everything’s going to be okay. Our financial system is great. Nothing to worry about. And as long as you can get the Fed saying there’s no problem and the newspapers saying interest rates are going up, forget about the fact that when interest rates go up, the price of mortgages and bonds go down. If you can just ignore that basic balance sheet fact, depositors are just going to be quite happy earning their [0.2%] on their savings account, even though anyone smart has already taken their money out of the bank and invested in government securities that are yielding 4%. Now, I know many people, friends of mine, who’ve taken their money out of the bank and invested in two-year government notes or short-term money market funds, and they’re getting 4%. Why on earth would they leave the money in the banks? Well, Silicon Valley Bank and the New York Bank that just went under, went under largely because they cater to the wealthiest depositors, the high-income depositors. And if you’re a wealthy depositor, you’re smart enough to know that, — Well, when the banks move into negative equity, they can’t cover the deposits. We’d better pull our deposits out now. And instead of making 0.2%, we want to make 4% also. That’s what the Federal Reserve has done for us. So the Federal Reserve had painted itself into a corner during quantitative easing. By lowering interest rates to just about zero, the Fed has guaranteed that if you ever move out of this position, if you ever go beyond the Obama policy of saving the banks by inflating the capital markets, then you’re going to drive the capital markets bankrupt, insolvent. So we’re now finally facing the insolvency that Obama and Trump and Biden early on were able to avoid. And it’s just a seventh-grader, well, maybe an eighth-grader, could have done the arithmetic. Anybody who compares the market price of bank assets to the acquisition price and realizes, well, banks have lost 30 or 40% of their asset values, their deposits are high, anyone doing this is going to say, let’s take our money out of the banks and make a lot more money by buying government two-year notes or ten-year treasuries and lock in these high interest rates now. And that’s exactly what’s happening. And the newspapers say, — Well, this is such a surprise. Who could have guessed? And of course they’re moving it into banks like Chase Manhattan or Citibank, which indeed, as Pam Martens said, are serial abusers and violators of regulations. Of course they’re moving there because the government says, — No bank depositor, no financial investor will lose any money. We promise you that the economy will lose money, not the banks, not the financial sector. — We promise you that if we have to pay more money to support the financial sector, we’re willing to cut back Social Security. We’re willing to get rid of Medicaid and Medicaid. — We’re going to get rid of social spending because the economy needs the banks not to lose any money, because that’s, to us politicians, they’re our campaign contributors. They’re who we’re really working for. They’re who we’re protecting. That’s our job as politicians. And it’s just amazing that nobody is just coming right out and saying this except the few people that are carefully avoided by The New York Times, The Washington Post, and the usual suspects when it comes to saying there’s no problem at all. So why do they go to Chase? Because the government has said, — No matter how much money the banks lose, even if Chase and Citibank are insolvent, because after all, they have long-term mortgages, they have long-term loans, they have long-term securities, but no matter what, we’re going to create enough money to bail them out. Well how much money are we talking about? Well what has been pushing up all of the prices of the mortgages and the stocks and the government bonds that the banks hold was this $9 trillion in quantitative easing. To make the banks whole from the loss, the government will have to create suddenly another $9 trillion. The entire economy will not only move into what Mr. Powell calls a recession, but a deep depression, a total financial collapse. And that’s obviously, it’s almost inconceivable that that can happen, but as long as the government says no bank depositor will lose money, the government will pay. Well, somebody has to lose money, and who do you think it’s going to be, whether it’s the Biden administration or the next Republican administration? The economy will lose money. This is not only the disaster of Fed mismanagement, because the Fed is managing a financial system that has been privatized and financialized and debt leveraged to the point where it is unsustainable. And the government and the media are not confronting the fact that the existing debt overhead of the banking system and the financial system and the private capital, that all of this is unsustainable, and we’ve reached the point of unsustainability. Well, if eighth graders can see that the banks are insolvent, even investors and even some economists can do the mathematics and see how insolvent they are and realize that we’d better take our money and run. So you’re now having the wealthiest 1% of the country taking their money and running, and that’s what’s causing this problem. You can expect the wealthiest 1% to contribute very heavily to the 2024 presidential campaign. BEN NORTON: Very well said. And Michael, I want to emphasize how this highlights regulatory capture. So you talked about how essentially the so-called regulators are working for the banks. Now the irony is that, as Wall Street on Parade pointed out, JP Morgan has been rated by regulators to be the riskiest bank in the United States. It’s also the largest bank, and it just swallowed up First Republic Bank. Now, this also violates antitrust laws. That’s what’s so incredible. So not only is the US government further empowering and enlarging this risky bank, but antitrust laws say that a financial institution that holds more than 10% of all of the insured deposits in the US cannot expand further and buy up another bank. Obviously JP Morgan, as the largest bank, has significantly more than 10% of insured deposits in the US. So now it’s growing even further, in violation of the antitrust laws on the books. And again, I want to highlight this fact, that the FDIC’s deposit insurance fund, according to its filings at the end of 2022, had $128 billion. And in just two months, it’s already spent $35 billion. So about one quarter of the entire deposit insurance fund to bail out these banks, Silicon Valley Bank, Signature Bank, First Republic Bank. And now we see this crisis spreading further. So who is watching the watchmen? Who is regulating the regulators? I mean, they’re working for the banks, clearly. MICHAEL HUDSON: I think you’re missing the point to put the blame on the regulators. The problem’s not that the banks control the regulators and regulatory capture. They’ve captured the government. And it’s the government that appoints the regulators. So you can’t just blame the regulators, because if the government has been captured by the financial sector, then they’re just going to appoint new regulators who’ve gone to the same business school and have been brainwashed in the same neoliberal “Chicago School” economics that would do exactly the same as the regulators are doing now. The regulators can only regulate within the existing legal system and the existing political system. They can’t change the political system. And the problem is systemic itself. The existing financial system cannot survive in the way that it is now structured, because it makes any increase in interest rates drive banks insolvent. And the government has said, — We’re not going to support the small banks, we’re not going to support the local commercial banks or the smaller revenue banks. They’re not our campaign contributors. — We know who the campaign contributors are. The Citibank, Chase Manhattan, they’re the big financial firms and the private capital firms. So the government has basically announced, if you want to keep your money safe, move it to one of the five big systemically important banks. “Systemically important” means, it’s a bank that controls government policy of the financial sector in its own favor. And you want to be part of a system where the banks [in which] you have your deposits are in control of who gets elected in government to appoint who becomes the Federal Reserve regulator and the various bank agency regulators. That’s what President Biden says is the key to American democracy. Not realizing the semantic terminological distinction between democracy and oligarchy. BEN NORTON: Yeah, very well said. And I’ve mentioned, we both have mentioned a few times here, Wall Street on Parade, the amazing financial blog by Pam Martens and Russ Martens. I highly recommend everyone checking out their website. I’ve invited them on before, but unfortunately they don’t do interviews. But Michael, they published another article that discussed the $247 trillion in derivatives that 25 U.S. banks are exposed to. And they speculated that one of the reasons, in March, that these large banks, 11 big banks in the U.S., deposited $30 billion in First Republic Bank to try to save it. Now, at the time that was portrayed as this great benevolent act by these large banks to try to prevent First Republic Bank from going under. But Wall Street on Parade speculates that actually one of the reasons they did that was to try to save themselves over their exposure to $247 trillion in derivatives. And they pointed out that the four big banks that contributed the most to try to save First Republic Bank, the systemically important banks, have 58% of the $247 trillion in derivatives. So that means that they have over $140 trillion worth of derivatives. I mean, just saying that number sounds just unfathomable. It sounds like we’re talking about imaginary figures. But what we’re essentially seeing is that the entire U.S. financial system is a big casino. And there are bets that are several times the size of the entire U.S. GDP in the U.S. banking system. I mean, what’s going to happen with these derivatives? MICHAEL HUDSON: Well, I describe what has happened before in [my book] Killing the Host. Remember when Greece elected the Syriza party, and it was obvious that Greece could not pay the $50 billion in foreign debt that it had. And there was a lot of pressure by the incoming government, Varoufakis and others, saying, you’ve got to write down the debts. And the European Central Bank was all set to write down the debts. The head of the IMF pointed out that the Greek billionaires actually had $50 billion of their own money stashed in Switzerland, of tax avoidance money. And this $50 billion could have been grabbed by the government and used to repay Greece’s foreign debt. Well, they were about to write down the debt when President Obama sent his Treasury Secretary, Tim Geithner, over. Obama made a speech, Geithner made a speech. I quote them in Killing The Host. He said to Europe, — No, no, you can’t let Greece let these bonds go under and default, because the American banks have made such a big bet on derivatives that they would lose money, and you Europeans have to lose the money, not America. That’s how our democracy works. And so the Europeans said, — Okay, we will make Europe lose money, we’ll make Greece go bankrupt, just so that your American banks, who’ve contributed the most money to Mr. Obama’s presidential campaign, will not have to lose a single penny on their bad derivatives, because now they’re good derivatives because we’ve destroyed the Greek population to help you. This was probably the most vicious of all of Obama’s actions, apart from the destruction of Libya. What had happened to Greece under the Syriza government and the bankruptcy is exactly what’s happening on a vastly increased scale today. The Treasury Secretary’s job is to protect the big banks. And Ms. Yellen has said, — Just as we’re supporting an unsupportable loser in Ukraine, we’re going to support the unsupportable losers, seemingly, in the American banks. — We will do whatever it takes so that the big banks do not lose money, even though they’ve made a bad bet, a bet that would have lost all the money, a bet that would have left them insolvent, a bet that would have led them to be taken over by the FDIC and turned from a private bank into a government bank. — We’re going to prevent that, because that would be socialism. And that’s what we’re fighting against in America, just as we’re fighting against that in Europe. So you’re having, I won’t characterize what kind of a political system we’re under, but the Treasury Secretary, the Treasury as a whole, has been just as captured by the financial sector as the Federal Reserve. And you want to look at the Treasury as the bad guys in this. You want to look at the people who are working under Ms. Yellen. And I think that Pam Martens makes this very clear when she goes through all of the balance sheet maneuverability for this. When I have a question, I’ve called her to ask for explanations. I mean, you’re right. Her site is the go-to site for this. So the bottom line is, the whole U.S. economy is being sacrificed to banks that have made bets, and they’ve been bad bets. Their bets have gone wrong, and they’re bailed out by the Treasury, saying, — Even if you make bad bets, no matter what, we’re going to rescue you, no matter what it takes for the economy at large. That is the hard iron fist of the financial system controlling the economy as today’s central planner. BEN NORTON: Yeah, and we now see that this crisis that we’ve seen in the U.S. banking system is spreading, especially to medium-sized banks. The latest reports show that PacWest is on the verge of collapsing. Also Western Alliance is being targeted and their stocks are falling very rapidly. And once again, to go back to Wall Street on Parade, they specifically single out short sellers. They say short sellers are targeting these banks because they can see that they could potentially be the next banks to go down. And they’re trying to make money off of this. And over at Wall Street on Parade, Pam Martens and Russ Martens argued that the U.S. government is putting its own national security at risk, the stability of the financial system at risk, by not suspending the short selling of federally insured banks. So what do you think about this argument that short sellers should not be allowed to do this because they’re helping to fuel the collapse of these banks in order to profit from it? MICHAEL HUDSON: Well, it’s sort of like when they tried to ban betting on horse racing or ban the numbers racket. The banks can always make, inherently, the equivalent of a short sale. And if they don’t do it in the U.S. economy, they’ll do it offshore in the Cayman Islands. So it is very hard to do something. The government certainly has the money to hire somebody, a first year BA graduate in business could tell just what the short sellers are saying. A short term graduate or Pam Martens herself could look at the banks and say, this bank has negative equity, and the government can immediately take it over into the public domain. But the government won’t do that because they’ll say that’s socialism. And socialism, which we used to call democracy, but now they’ve [renamed] democracy socialism because they think it’s a bad term. And they say, no, we have to let private enterprise rule. And private enterprise is gambling. Most banks have not made money, as much money in interest as they’ve made in capital gains. And the biggest capital gains have been derivatives and short sales and options. So the financial sector isn’t about making loans to industrialists to build factories and employ labor to produce more goods. It’s made to make loans to gamblers, because that’s where most of the money is made. That’s what the financial system is. And to characterize the system as if it’s part of the economy is the sort of mythology of our time. The financial system is external to the economy. It’s like a parasite on the economy, using the government as a means of extracting money from the economy or using its own money-creation abilities to make sure that it creates enough money to make sure that the wealthy financial institutions cannot lose. Smaller financial institutions can lose, but that’s okay to the government, because the big fish eat little fish, and the small banks are taken over by the big banks. So ultimately the logical result is, if there are only four or five systemically important banks, meaning banks that we’re not going to let go under, and no matter how much they lose, you won’t lose your money in these banks, well, that means, hey, folks, take your money out of your local bank and put it in one of the big banks, because they’re now running things. That’s the message. And I don’t know why the newspapers and media don’t come right out and say that, or why don’t the banks themselves. Why doesn’t Chase take out a one-page argument in the New York Times and the Wall Street Journal and say, — Hey, folks, you notice how they bailed us out? We’ll always be bailed out. You’re not going to lose your money here. Put your money in our bank. That’s a good advertising slogan. Why don’t they think of that? BEN NORTON: Well, Michael, to conclude here, I just want to give you a quote from [JP Morgan Chase CEO] Jamie Dimon. He insisted in a media interview that with JP Morgan taking over First Republic Bank, he said, “There may be another smaller one, but this pretty much resolves them all. This part of the crisis is over.” So, JP Morgan Chase wants us to think that we’ve gone through the worst, that the solution has been pretty much solved. What do you say in response to Jamie Dimon? MICHAEL HUDSON: Well, all of the banks have suffered the same problem that began with Silicon Valley Bank and the other banks that have gone under. All of the banks have seen the market price of their mortgage loans and their government securities fall by a large amount, so much that the amount of the decline in their assets has wiped out the equivalent of their net worth. So they’re in negative equity. They’re technically insolvent, except that the government doesn’t ask the banks to report what is the actual market price of your assets. That’s a secret. And it’s a secret because if people could see the market price of the assets and what their liabilities, they’d see that their net worth is worse than that of the average homeless person on the New York subways. And so they just don’t do that. The fact is that we’re still in the problem that the Federal Reserve painted itself into when it moved to zero interest rates. Any increase in interest rates causes a crash in real estate and bond prices and implicitly stock prices. And if the government doesn’t bail out the banks, they’re going to be insolvent, like somebody who’s bet the fortune at a racetrack or a casino and has lost their money. So of course [Dimon] is going to say everything’s okay now. But what that means is, well, it’ll be okay if the depositors leave their money in the banks and their savings accounts that are paying 0.2% and don’t go to an investment bank or broker and buy government money market funds or Treasury bills. If they don’t go to Vanguard or one of these companies that’ll set up an account for them to buy Treasury bonds or local government funds, and are willing to give up the money in the banks and let the banks make money off the financial distress, not themselves, then everything will be okay. But for the bank depositors and for the public to be quiescent, they have to be stupid. And that’s the role of The New York Times and The Washington Post and the other media. You’ve got to have a financially stupid public. And the best way to do it is to have the university courses teach stupid economics, like that’s what Chicago School is all about, the economic curriculum in the United States. Don’t look at debt problems. They don’t look at balance sheet problems. None of the problems that are occurring today appear in the economic curriculum that people have to learn in order to see how the economy works. It’s all a mythology. It’s a fairytale. And you could say it’s sort of the superstition of our time. I won’t dignify it by calling it a religion, even though many banks look like the ancient Greek and Roman temples. It’s really just a superstition that the financial system works to help the economy instead of, how can we make money from the economy by taking over the government and capturing the whole government, not only the regulators. BEN NORTON: Well, that’s a good note to end on. I want to thank you, Michael Hudson, an economist and author of many books. People should go check out his website at michael-hudson.com. And Michael also co-hosts the show Geopolitical Economy Hour here with Radhika Desai. I will also link to his previous interview with me, where we talked about the collapse of Silicon Valley Bank, Signature Bank, and Silvergate Bank this March. Michael, it’s always a real pleasure. Thanks for joining me. MICHAEL HUDSON: Well, thanks for having me, Ben.

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Christine Lagarde, dollar, economics, EU, Europe, European Central Bank, European Union, IMF, imperialism, Janet Yellen, Josep Borrell, Radhika Desai

European Central Bank President Christine Lagarde acknowledged “the tectonic plates of geopolitics are shifting faster” and “we may see the world becoming more multipolar”, with the decline of US dollar hegemony, war in Ukraine, and rise of China. (Se puede leer este artículo en español aquí.) The president of the European Central Bank, Christine Lagarde, gave a speech acknowledging that “the tectonic plates of geopolitics are shifting faster” and “we may see the world becoming more multipolar”, with the decline of US dollar hegemony, war in Ukraine, and rise of China. “We could see more multipolarity as geopolitical tensions continue to mount”, Lagarde added. Geopolitical Economy Report editor-in-chief Ben Norton analyzed Lagarde’s speech with Radhika Desai, professor in the Department of Political Studies at the University of Manitoba and director of the Geopolitical Economy Research Group: In the April 17 speech, titled “Central banks in a fragmenting world”, the European Central Bank (ECB) president cited the “growing rivalry between the United States and China”. Lagarde stated: So I decided to accept the idea, and I do that reluctantly, because I don’t think that it’s necessarily a pretty picture, but to accept the idea that we are moving towards a fragmented or a more fragmented world than we’ve had it, and that we are not necessarily in a completely bipolar situation, but that we might move in that direction. We are witnessing a fragmentation of the global economy in two competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. And this fragmentation, as I have mentioned, may well coalesce around two blocs led respectively by the United States of America and by China, the two largest economies in the world at the moment. In her presentation, Lagarde hinted that the European Union could potentially try to pursue an independent path, mentioning the “strategic autonomy agenda in Europe”. This was a clear reference to a concept that French President Emmanuel Macron has promoted. This April, Macron visited China and publicly criticized US dominance of Europe, arguing the leaders of the region cannot simply be “vassals” and “followers” of Washington. Lagarde is one of the most powerful people in Europe. She was France’s former finance minister, before later serving as director of the International Monetary Fund (IMF). The current ECB president gave this speech in New York for the Council on Foreign Relations (CFR), a powerful think tank with a close relationship with the US government, which essentially acts as the link between the State Department and Wall Street. The politically connected Rockefeller oligarchs cultivated the CFR in the early 20th century, funding its influential War and Peace Studies Project during World War Two and collaborating with Washington to help plan the First Cold War against the Soviet Union. Lagarde addressed the CFR just one day after the former Federal Reserve chair and current US secretary of the Treasury, Janet Yellen, admitted in an April 16 interview with CNN: There is a risk, when we use financial sanctions that are linked to the role of the dollar, that, over time, it could undermine the hegemony of the dollar. … Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative. Professor Radhika Desai noted that much of Lagarde’s speech was about inflation. “This point about inflation goes to the nub of the issue of multipolarity, which, ultimately, what is it but is diminution in the power of imperialism?” Desai said. In her speech at the CFR, Lagarde acknowledged that, following the end of the First Cold War, the world was “under the hegemonic leadership of the United States”. Lagarde said: In the time after the Cold War, the world benefited from a remarkably favourable geopolitical environment. Under the hegemonic leadership of the United States, rules-based international institutions flourished and global trade expanded. This led to a deepening of global value chains and, as China joined the world economy, a massive increase in the global labour supply. As a result, global supply became more elastic to changes in domestic demand, leading to a long period of relatively low and stable inflation. That in turn underpinned a policy framework in which independent central banks could focus on stabilising inflation by steering demand without having to pay too much attention to supply-side disruptions In these comments, Lagarde was clearly indicating that the exploitation of low-paid Chinese workers by Western companies was a significant factor in reducing consumer price index inflation in the core of the imperialist world system. Lagarde’s remarks were reminiscent of a confession by EU foreign-policy chief Josep Borrell, who admitted in Brussels in October that “our prosperity was based on China and Russia”: So our prosperity was based on China and Russia – energy and market. You, US, takes care of our security. You, China and Russia, provide the basis of our prosperity. This is a world that is no longer there. Our prosperity has been based on cheap energy coming from Russia – Russian gas, cheap and supposed[ly] affordable, and secure and stable, which has been not the case. And the access to the big China market for exports and imports, for technological transfer, for investment, and for having cheap goods. I think that the Chinese workers with their low salaries has done much better, much more to contain inflation than all the central banks together. So our prosperity was based on China and Russia – energy, a market. Desai stressed that it is not true, as Lagarde claimed, that “the world benefited from a remarkably favourable geopolitical environment” under US “hegemonic leadership”. “No, the First World benefited”, Desai countered. Desai noted that this system of US hegemony, which was never really stable, was based on two things: “US military power on the one hand, but also equally importantly, the US dollar system”. “And if we look a little bit more closely at it”, Desai said, “in practically every major respect, the dollar system has not been good for the Third World, not good for the vast majority of countries in the world, that are not Western, that do not have a place in the G7 where they can coordinate macroeconomic policy and make sure that US allies don’t get too badly burned by the US dollar system – although they have been badly burned by it as well, as we saw in 2008”. Political economist @RadDesai explains the imperialist nature of the US dollar-dominated financial system, which systematically undervalues currencies, labor, and resources in the Global South The US often wages war on countries that try to create alternatives (eg, Libya, Iraq) pic.twitter.com/Czs0fujDYy — Ben Norton (@BenjaminNorton) April 21, 2023 Desai explained: First of all, the dollar system systematically undervalues the currencies of the Third World. And when you undervalue a currency, what you are doing is you are undervaluing the resources and the labor of those countries. Precisely, this is the mechanism by which the West has managed to get access to the resources and the labor of these countries cheaply. And that also means that the rest of the world has to sell their resources for a song and to work doubly hard, triply hard in order to sell – they have to sell a massive volume of goods, export a massive volume of goods to Western countries, in order to earn Western hard currencies, including the dollar, because their money is systematically undervalued in relation to this. So that there has always been a big discrepancy between the volume of exports and the value of exports, which of course is artificially lowered by the bad exchange rate. Secondly, the dollar financial system has given the world nothing but a series of crises after crises, a great deal of volatility. An international medium of [exchange] ought to have a stable value, but the dollar’s value keeps fluctuating. Another problem, and a large part of the volatility, and the tendency to crisis, comes from the fact that, whereas a proper monetary system should be based on sort of a balanced environment, the dollar systematically has required imbalances. The chief among them, of course, being the vast US current account deficits, which the rest of the world has to finance. But also the imbalances that are created by the US dollar-centered financial system, which has been on the one hand creating vast amounts of unsustainable dollar debt, indebting households, indebting businesses, and indebting governments around the world. And, on the other hand, blowing up asset bubbles so that US financial institutions and high-net-worth individuals can make a killing with the inflation of asset values. But this, of course, only leads to the crash of these, or the bursting of these bubbles, and this has created more problems. Further, the Third World is told that the US has a very sophisticated financial system; it’s great, it’s going to provide you with the capital you sorely need for development. But of course, in reality, the US-focused financial system offers the opposite of that, because capital for productive investment – which indeed the Third World and the rest of the world really needs – needs to be stable, long-term capital that is able to invest for a long period in infrastructure projects and projects that have long gestation periods, but eventually are very important and good for the economy. But this is not the sort of capital that the US financial system offers. Instead, the US financial system offers short-term capital that only goes to inflate the value of existing assets, rather than investing productively in the creation of new goods and services. So the rest of the world is told, you know, ‘Lift your capital account restrictions, allow free capital flows and you will get the capital you want’. In fact, what the Third World gets is the opposite of that: the capital they don’t want – hot money that comes stampeding in when these investors, who are not particularly knowledgeable, think things are good, and hot money that stampedes out at the slightest sign of a problem, thanks to equally ignorant investors leaving behind financial crises, credit crises, currency crises, and, of course, economic crises. A couple of other points that one should also add to this: Number one, this system, particularly debt crises, from the Third World debt crisis onwards, has enforced a system of debtor responsibility, completely ignoring that any credit relationship has two relatively equal parts, and if things go sour, if things go wrong, if a debt cannot be paid, both debtor and creditor are co-responsible for the problem. Instead, all the weight of adjustment, the weight of repayment, etc. has been on the debtors. And, as you know, this is the chief mechanism by which so much money is being drained out of debtor countries, which are the vast majority of countries in the Third World, and goes into the coffers of the rich countries. And finally, one final point: Given that this system has been so awful, naturally, countries have wanted to leave it. And what has the US done historically to countries that have wanted to leave it? It has essentially waged war against them. Think of Saddam Hussein. Think of Moammar Qadhafi. What was crucial about these two leaders? It was the fact that one of their key projects in each case was a project to leave the dollar system and try to create an alternative to the dollar system. And this is why they were essentially deposed and killed, in gruesome ways, in the case of Qadhafi. And, of course, their countries have been left essentially prey to all sorts of military, political, financial, and economic instability. So this is not a [stable] system. And so, naturally, finally now, the rest of the world has alternatives. And the United States can’t even wage a war to force the Third World back to the dollar system.

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capitalism, China, dollar, economics, India, Michael Hudson, neoliberalism, podcast, ruble, Russia, socialism, yuan

Economist Michael Hudson discusses the decline of the US dollar, the sanctions war on Russia, his concept of “free-trade imperialism,” and financial parasitism. In this interview with Geopolitical Economy Report editor Benjamin Norton, economist Michael Hudson discusses the decline of the US dollar, the sanctions war on Russia, his concept of “free-trade imperialism,” and financial parasitism. We talk about these concepts explored in his new book “The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.” BENJAMIN NORTON: Hey, everyone. I’m Ben Norton, and this is the Multipolarista podcast. And I have the great pleasure of being joined today by one of my favorite guests, one of I think the most important economists in the world today. I’m speaking with Professor Michael Hudson. If you’ve seen any of the interviews I’ve done with Professor Hudson over the past few years, you probably know that he’s a brilliant analyst. He always has, I think, the best analysis to understand what’s going on economically and also politically, geopolitically, in the world today. And right now is, I think, a very important moment to have Professor Hudson on today. We’re going to talk about the economic war on Russia and the process of economic decoupling between Russia and China and the West, which is something that Professor Hudson has talked about for many years. And that really has accelerated with the Western sanctions on Russia over Ukraine. We’re also going to talk about the decline in U.S. dollar hegemony. A recent report from the International Monetary Fund, which is dominated by the U.S., acknowledged that the use of the dollar in foreign bank reserves is gradually declining. Now, it’s not going to disappear overnight. But even the IMF is acknowledging that dollar hegemony is eroding. And, of course, the IMF acknowledged that the Western sanctions on Russia are going to further erode the hegemony of the U.S. dollar. We now see Russia doing business with China in the Chinese yuan. Russia is also doing business with India with the Indian rupee. And of course Russia has been telling Europe that if it wants to buy Russian energy, it has to do so with Russian rubles. So there’s so much to talk about today, Professor Hudson, but I want to begin in the first half of this interview today talking about a new book that you’re just about to publish. Today is Monday, May 9th. You said on Wednesday, May 11th, the book comes out. And it’s called “The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.” And everything that I just prefaced this interview with, discussing the economic war in Russia and sanctions and decoupling, this is all deeply related to what you talk about in this book. And I had the pleasure of getting an early copy and reading through it. It’s a really important book, I think. And you talk about this fundamental divide internationally – and this is a divide that actually goes back historically as well – between these three models for different economic systems you discuss: finance capitalism, industrial capitalism, and socialism. And your argument is that the U.S. empire has been a force for imposing neoliberalism, which is a particular form of finance capitalism, which is nonproductive, in which finance capital destroys productive industries in pursuit of rent-seeking, and what you call the rentier class. So instead of producing, as the classical bourgeois economists had said capitalism would be a productive system instead, finance capitalism is fundamentally a system of destruction and debt. And your argument is that this is deeply rooted in U.S. foreign policy. This is the U.S. foreign policy strategy for expanding its economic power, is imposing this finance capitalist model on the world. So can you expand further on your argument about the fight between finance capitalism, industrial capitalism, and socialism, and why you decided to publish this book now? MICHAEL HUDSON: Well the book came out of a series of 10 lectures that I did for my Chinese audience. I’ve been a professor at Peking University for a number of years in economics, and have professorships at other universities, Wuhan and Hong Kong. And I have a fairly large audience of about 65,000 people per lecture there. And I was asked to give my general overview, sort of a history of economic development in the West, for the Chinese. And in order to understand today’s finance capitalism, you have to understand what industrial capitalism was, as it was described in the 19th century. And it’s often forgotten, or played down, that industrial capitalism was revolutionary. What it was trying to do – from the physiocrats in France in the late 18th century to Adam Smith, John Stuart Mill, Marx, and the whole late-19th century flowering of socialism – the ideal of classical value theory and rent theory, was to say what is the actual value, the cost value of producing goods and services? And what is earned by the capitalist, when he employs labor to make a profit, and what is unearned? And what is unearned was the landlord class. That was the hereditary warrior class that conquered all of the European kingdoms in the Middle Ages. And the attempt by England’s industrialists was saying, look, we cannot become the workshop of the world; we cannot undersell foreign countries if we have a landlord class ripping off all of the money in land rent. And if we have predatory banking, or the wealthy people just lend really for buying property, or making distressed loans or predatory loans that have nothing to do with financing actual capital formation. Well, what made this capitalism revolutionary was the British industrialists and advocates of industry, even the bankers in Ricardo’s time, said, well, in order to overthrow the landlord class, which controls the House of Lords and all of the upper chambers of government in Europe, we have to have democratic reform. If we have democratic reform and give voting to the people, they’re going to vote against the landlord class, and then we can have an efficient economy where our prices of our exports and our goods and services reflect the actual cost of production, not the rake off for the rentiers class, not the rake off of what landlords take, not the rake off of what predatory bankers take. And the whole long 19th century leading up to World War One was this revolutionary value theory that depicted land rent and monopoly rent and financial returns as being unearned income and wanting to strip it away. And all of this seemed to be moving toward socialism. The industrialists were all in favor of government public utilities, of government enterprise, because they said, if the government doesn’t provide health care, then individuals are going to have to pay it, and it’ll cost a lot of money, like it does in the United States. And so you had the conservative prime minister of England, Benjamin Disraeli, saying, health, all is health, we’ve got to provide public health for the people. And it was the conservative Bismarck in Germany that said, we’ve got to provide pensions. If labor has to save up for the pensions, then it’s not going to have enough money to buy the goods and services that we Germans are producing. We have got to make pensions public. So all of this move towards socialism was not only in favor of increasing living standards, which soared in the 19th century, but also in freeing the economy from the rentier class, from the landlords, from the bankers. And for the classical economists, a free market was a market free from landlords, free from bankers, free from monopolists. Well, needless to say, the rentiers fought back. And by after World War Two, we’ve seen a continual anti-classical theory replacing the classical idea of free markets with a value of free theory, saying, well, everybody earns whatever they they have. All wealth is earned, not unearned. And if Goldman Sachs partners are paid more than anyone else, that’s because they’re so productive. So you had a move rejecting classical economics, a junk economics, and a kind of artificial economics that doesn’t really talk about how finance capitalism has worked. And as it turns out, the business plan of finance capitalism was so predatory that it was anti-industrial. That’s why President Clinton in the United States moved to invite China into the International Labor Organization, saying, well, we can fight wage rises in America by a race to the bottom. We can we can hire Asians to do work, and that will cause unemployment here. And that’s wonderful for the industrialists. It will basically cut wages and keep American wages down. Well, that basically is the strategy of finance capitalism, and the aim of finance capitalism is not to invest in factories, and plant equipment, and research and development, but to live in the short term, but to make money by financial engineering, not industrial engineering. And it becomes predatory, and so you have the whole ideological attack on public enterprise. You have Frederick Hayek’s “The Road to Serfdom,” where you say, if government provides public healthcare, that’s “the road to serfdom,” where actually it’s finance capitalism that is the road to debt peonage and serfdom. And you have now a whole disparagement of government. And all of this is a counter-revolution to the revolutionary impetus of industrial capitalism in its early stages. And it’s true that corporations now are just as right-wing as the the banks and the hedge funds. But that’s because corporate industry has been taken over by the financial sector, and the heads of almost every industrial corporation are rewarded the how high they can push the stock price, to exercise the stock options they’re paid in. And you increase the stock price not by investing more, not by hiring more labor or increasing productivity or increasing sales, but simply by using whatever income you have to buy back your stocks. And by buying back your stocks, this forces up their price. And, most of all, by giving political contributions in this country to the Democrats and Republicans alike, who appoint Federal Reserve heads that have spent $7-9 trillion buying up stocks and bonds to increase the price of buying a retirement income, to increase Wall Street prices, to increase housing prices, and make America even less competitive industrially. So finance capitalism is what has essentially de-industrialized the United States and turned the Midwest into a Rust Belt. Well, the alternative, obviously, are the societies that have not followed this neoliberal finance capitalist plan. And the most successful economy, obviously, has been China, which is why it has been spending so much time there. And China has done exactly what 19th-century United States, Germany, England, and France did. It has kept basic utilities, basic needs, housing, and above all, finance and banking, in the public domain, as public utilities. Instead of having an independent financial sector operating on its own self-interest, the Bank of China creates the money. And the Bank of China lends money by deciding, where do we need to have investment in real estate to provide housing for the population at as low a price as we can make it? How do we build up the industry? How do we provide an educational system with training? How do we provide health? And the fact is that the central planning in an efficient socialist style, not the Stalinist planning that everybody refers to of Russia, but a mixed economy as you have in China, which is truly a mixed economy, with guidance, like the French planification. Well, that is obviously the way in which you survive and you avoid the kind of overloading the economy with debt service, with high rents, with high payments to the health-care monopoly in the United States, by avoiding all of this payment to a rentier class that has what the classical economists call unearned income, predatory income. And instead of unseating them, we’ve put them in charge, and made the banks and Wall Street, and the city of London, and the Paris Bourse, the central planners. So we do have central planning much more centralized than anything that was dreamed by the socialists. But the planning, the centralized planning is done by the financial sector. And financial planning is short-termism; it’s short-term planning; it’s take your money and run. And that’s what is stripping and impoverishing the global economy today. BENJAMIN NORTON: Absolutely. And, in your book, you write about the important distinction between the classical economic idea of a so-called free market, and how, you argue that, neoliberals turn that idea on its head. So this is what you write in your book. And this is, again, Michael Hudson’s new book, “The Destiny of Civilization,” which is out this week. You write: “The neoliberal ideology inverts the classical idea of a free market from one that is free from economic rent to one that is free for the rentier classes” – that is the rent-extracting classes – “to extract rent and gain dominance.” So they they completely flip the idea of what it means to have a free market. And then you note that, “in contrast to classical political economy, this neoliberal ideology promotes tax favoritism for rentiers, privatization, financialization, and deregulation.” And you discuss all of that. That is, of course, what we could call the Washington consensus. And then you argue that “U.S. foreign policy seeks to extend this neoliberal rentier program throughout the world.” And you have a very interesting section of your book where you discuss this concept as “free-trade imperialism.” So can you talk about what your idea of “free-trade imperialism” is and how it relates to U.S. foreign policy? MICHAEL HUDSON: Well, the Nobel Prize is given basically for junk economics. And probably the worst junk economist of the century was Paul Samuelson. He made the absurd claim that he proved mathematically that, if you have free trade then, and don’t have tariffs, and don’t have any government protection, then everyone will become more equal. At least the proportions between labor and capital will be more equal. Well, the reality is just the opposite. And the term “free-trade imperialism” was actually created by a British historian of trade theory who pointed out that, wait a minute, when England went for free trade, the idea was, if we have free trade, we can stifle other countries from being able to industrialize, because if we have free trade, then we can tell America, we will open our doors to your markets – meaning the markets of the slave South, that Britain supported – and in exchange, you will open your markets to our industrial goods. And America followed that until the Civil War, which was fought not only over slavery, but by the Republican Party after 1853 that said very explicitly, if we’re going to win the election – the Whigs never could win – if we, the new party, are going to win the election and industrialize America, we’ve got to integrate ourselves with the anti-slavery issue, with emancipation, but for us, the economic war of America is a war of, either we’re going to have protective tariffs in the North, or we’re going to end up as a non-industrial, raw materials-producing society, as the South wants. And that was the debate from 1815, when the Napoleonic wars ended and world trade began again, until really the Civil War. And America became strong in the way that Germany became strong too, by having protective tariffs, in order to have prices large enough to nurture what was called infant industry, to nurture American manufacturing. And I wrote a long book about this, published some years ago based on my PhD dissertation, “America’s Protectionist Takeoff.” Well, the English tried to fight against other countries protecting their economy, saying that if you just have free trade, you’ll get rich. Whereas the reality is, if we have free trade, you’ll get poor, if you’re not already able to have industrial and labor productivity and agricultural productivity on par with the most advanced countries. Free trade was an attempt to prevent other countries from investing government money and building up their agriculture, and building up their industry, and building up their productivity, and creating a school system, to raise wages, to make wages more productive. And the American protectionists said, well, we’re going to have a high-wage economy because high-wage labor undersells pauper labor. And skilled, well-fed, well-rested American labor can produce much more than the pauper labor of other countries that have free trade. Well, what the leading American protectionist economist, Erasmus Peshine Smith, went to Japan and helped industrial help Japan break away from British free trade, helped Japan industrialize. And other American economists, other foreign economists, all picked up the ideas of the American protectionist, like Friedrich List went to Germany promoting protectionism. And Peshine Smith’s book, “The Manual of Political Economy,” was translated into all the foreign languages – Japanese, Italian, French, German. And you had Europe realizing that free trade polarizes economies. Well, it was this that after World War One, and especially World War Two, when you had orthodox economics turning into basically propaganda. That’s where you and Samuelson and others try to convince other countries, governments are bad, leave everything to the wealthy people, to the finance people, trickle-down economies, it’s all going to trickle down, don’t worry, just give more money to the rich, and don’t have any government interference with markets. Whereas America had got rich by interfering with markets, to shape them in the years leading up to World War One. But after World War One, America had already achieved its industrial dominance. And it was after World War One that America said, ok, now our protective tariffs have enabled us to outproduce all the other countries, and our protectionist agriculture especially – the most protected sector in America, has always been agriculture, since the 1930s. Basically it said, well, now we can outproduce other countries, we can undersell them, now we can tell them to go for free trade. And after World War Two, the Americans created the World Bank for economic impoverishment, and the International Monetary Austerity Fund. And the World Bank’s leading objective was to prevent other countries from investing in their own food production. The guiding line of the World Bank was, we’ve got to provide infrastructure for building up plantation agriculture in Latin America, and Africa, and other countries, so that they will grow tropical export crops, but they cannot be permitted to grow grain or wheat to feed themselves; they must be dependent on the United States. And so the function of free trade, the World Bank, and the International Monetary Fund has been to finance dependency, backed up by the American support of dictatorships throughout Latin America who agree to have client oligarchies supporting pro-American trade patterns and avoiding any kind of self-reliance, so that the United States can do what it has recently done to Russia and other countries, impose sanctions – say, well, now that you depended on us for your grain, we can now impose sanctions, and you can’t feed yourself if you don’t follow the policies we want. That was the policy that America tried to use against China after Mao’s revolution. And fortunately for China, Canada broke that monopoly, and said, well, we’re going to sell grain to China. And China was always very friendly to Canada in those earlier decades. So basically, free trade means no government, no socialism. It means central planning essentially by Wall Street – countries should let American firms come in, buy control of their raw materials, resources, control of their oil and gas, and mineral rights, and forests and plantations, and basically let other countries send their whole economic surplus to the United States, where it will be duly financialized to buy out other countries’ raw materials and rent yielding resources. BENJAMIN NORTON: Yeah, and in your book, you have a very funny passage that I think really encapsulates this ideology that you’re talking about here. You referred to Charles Wilson, who was the secretary of defense under Eisenhower in the U.S., and he was also the former CEO of General Motors. And he famously said, “What’s good for General Motors is good for the country.” And that idea has morphed into the idea that, “What’s good for Wall Street is good for America.” And then you note that “this merged with evangelistic U.S. foreign policy that says ‘What’s good for America is good for the world.’ And therefore the logical syllogism is clear: ‘What’s good for Wall Street is good for the world.’” And you describe this, you link it to the new cold war, this idea that what’s good for the U.S. is good for the world and what’s good for Wall Street is good for the U.S., therefore, what’s good for Wall Street is good for the world. You argue, “We must recognize how finance capitalism has gained power over industrial economies, above all in the United States, from which it seeks to project itself globally, led by the financialized U.S. economy. Today’s new Cold War is a fight to impose rentier-based finance capitalism on the entire world.” And this is such an important analysis. Because among those very few people of us who talk about this idea of the new cold war and how dangerous it is, there are very few people who frame it in economic terms. Usually we frame it in political terms, right, the geopolitical interests between the US and the EU on one side, and China and Russia on the other. And going back to Brzezinski and The Grand Chessboard, his 1997 book, where he talks about the importance of preventing near strategic competitors from emerging in Eurasia. That’s of course a geopolitical discussion and economics is part of it, but it’s often not at the forefront. But your analysis I think is even more important, and more accurate, because your argument is not only is it geopolitical, but the geopolitical struggle is rooted in economics. And this is an economic struggle between systems. So talk talk more about the new cold war and how you see it. MICHAEL HUDSON: Well, as we’re seeing now, the world is dividing into two parts. We can see that in the fight against Russia, which is also a fight against China, and against India, as you noted. And it seems Indonesia and other countries as well. The United States is pushing a world that can be controlled by American investors. The ideal of the American neoliberal plan is to do to other countries what it did to Russia after 1991: take all of your public domain, your oil companies, your nickel mines, your electric utilities, give them all to the wealthy oligarchy, that can only make money once it’s taken control of these companies, by selling the stocks to the West. The West will buy out oil, just like Mikhail Khodorkovsky tried to sell Yukos oil to Standard Oil in the West. And we’ve got to put an oligarchy that will sell all of the national domain, all of the patrimony and natural resources, and all the companies, to American investors on the cheap. The Russian stock market led all the stock markets in the world from 1994 up to about 1998. This was a huge rip off. The United States wants to be able to do that to the rest of the world. And it was furious when Russia said, we’ve lost more population as a result of neoliberalism than we did in all of World War Two fighting against Nazism. We’ve got to stop. And Russia began to say, we’ve got to use Russia’s population, and industry, and natural resources for Russia’s benefit, not for the United States’ benefit. Well, the United States was absolutely furious with this. And the fury has erupted in the NATO war against Russia in the last few months, and what’s ongoing now. And the United States says, U.S. State Department officials have said, what we want to do is carve up Russia into maybe four different countries: Siberia, western Russia, southern Russia or Central Asia, maybe northern Russia. And once we’ve done that, we cut Russia off from China, then we go into China. We finance, we send ISIS and al-Qaeda into the Uyghur areas, the Muslim areas, and we start a color revolution there. And then we break up China, into a northern part, a southern part, a central part. And once we break them up, we can more or less control them. And we can then come in, buy up their resources, and take over their industry, their labor, and their government, and get richer to obtain from China, Russia, India, Indonesia, and Iran the wealth that we’re no longer producing in the United States, now that we de-industrialized. So the world is dividing into two parts. And it’s not simply the United States and its European satellites on the one hand versus the non-white population on the other hand; it’s finance capitalism versus the rest of the world, which is protecting itself by socialism, which in many ways fulfills what was the ideal of industrial capitalism during the 19th century, when industrial capitalism was actually progressive. And it was progressive. That’s part of the whole theme of my book. It was revolutionary. It tried to free economies from the legacy of feudalism, from the legacy of hereditary landlords. And now the financial class is no longer the landlord class, but the landlord class pays most of its rent to the financial class in the form of mortgage interest, as it borrows money to buy property and housing and commercial sites on credit. And you have the kind of financialization that has increased housing prices in the United States to over 40% of income, that is officially guaranteed for mortgages. That has priced American labor out of the market. Privatized health care, 18% of GDP, that is pricing America out of the world market. Debt, auto debt, student debt, which in other countries education is free; that’s pricing America out of the market. So you have a basically un-competitive economy that’s committing financial suicide, following the same dynamic that destroyed the Roman empire, where a predatory oligarchy took over and maintained power by an assassination policy of its critics, just very similar to what America has been doing in Latin America and other countries. So you’re having history repeat itself with this same kind of world split. And this split couldn’t have occurred back in the 1970s, with the Bandung Conference in Indonesia. There were other attempts by the Non-Aligned nations to break free of American imperialism, but they didn’t have a critical mass. So right now, for the first time, you have a critical mass. And you have the ability of China, Iran, Russia, India, other countries together to be self-sufficient. They don’t need relations with the United States. They can handle their own; they can create their own monetary system outside of the International Monetary Fund, which is basically an arm of the Defense Department. They can give loans to build up the infrastructure of countries outside of the World Bank, which is basically an arm of the Defense Department, the deep state. So you have the American economy – essentially a merger between the military-industrial complex and the Wall Street FIRE sector, finance, insurance, and real estate – really cannot develop any more than the Roman Empire could develop, by trying to obtain militarily what it could not produce at home anymore. Well, China and other countries, now that they have their industrial base, the raw materials, the food, the ability to feed themselves, the agriculture, and the technology, they can go their own way. And so we’re seeing in the last few months the beginning of a war that is going to go on for, I think, 20 years, maybe 30 or 40 years. The world is splitting away. And it won’t be a pretty sight, because the United States and its European satellites are trying to fight to prevent an inevitable break away they cannot prevent, any more than Europe’s landlord class could prevent industrial capitalism from developing in the 19th century. BENJAMIN NORTON: Yeah, and this is a good segue to what I wanted to ask you about, Professor Hudson, which is the economic war on Russia. And I should say, of course, that today is May 9th. Today is Victory Day in Russia, celebrating the Soviet Union’s victory over Nazi Germany in World War Two. Not the US and British victory over Nazi Germany, the Soviet victory, in which 27 million Soviets died. And actually I should say that, here on YouTube, in the comment section, there are some Russians who are your fans, Professor Hudson, saying they’re thanking you for your cogent analysis of Russia. But on the subject of Russia, Professor Hudson, we now have seen that since Russia’s military intervention in Ukraine on February 24th, we saw really what could be referred to as financial shock-and-awe. That’s a term that’s been used. Just as when the U.S. invaded Iraq, it waged a military shock-and-awe campaign on Iraq. Well, now it is waging economic or financial shock-and-awe on Russia. And Russia has been referred to as the most heavily sanctioned country in history. Which I think is probably accurate, although maybe the DPRK, maybe North Korea, is more sanctioned. But I mean we’re talking about levels of sanctions not seen against a country of this size ever. And you can also refer to it as the contemporary equivalent of medieval siege warfare against Russia. Joe Biden, in a speech in Poland, made it clear what Washington’s goal is: it’s regime change. The U.S. wants to overthrow the Russian government, as it did in the Soviet Union in 1991, and clearly install a a pliant alcoholic neoliberal puppet like Boris Yeltsin. So can you talk about, from an economic perspective, what do you see as the effects of this economic war on Russia? And specifically in terms of the concept of decoupling, which you have talked about for years, and you have said that the Western sanctions on Russia and China were accelerating that process of decoupling. And this was before the financial shock-and-awe we’ve seen. So you talked about a move away from this neoliberal globalization where everything is interconnected, or at least capital is interconnected globally, to the creation of a kind of, what you could say is kind of an economic iron curtain. But how do you see that also in terms of integrating the Eurasian economies more deeply? And also what is the effect on the European economies, which my impression is that Europe is going to become what you call an economic dead zone, more and more reliant on the U.S., whereas Russia, China, and Iran, and even potentially India, Pakistan, Bangladesh, Indonesia – we’re seeing much more economic integration of Asia, which is, of course, where the majority of humanity lives. MICHAEL HUDSON: Well you have used the words shock-and-awe, picking it up from the U.S. statements of shock-and-awe. There hasn’t been any shock-and-awe; there’s been a self-defeating piffle, and laughter. That’s not all. There was an attempt to grab $300 billion of Russia’s foreign reserves, saying, well, any country that leaves their reserves in American banks or in the American Monetary Fund to stabilize their currency, we can grab if we don’t like their policy. So the idea was, now Russia is going to go broke. It can’t afford to buy anything without U.S. dollars. And the people are going to get so angry, they’re going to vote against Putin. And then we can pour in our money to twerps like Navalny and other right-wingers who have promised to be the new Yeltsins. Well, it didn’t work that way. They did grab the $300 billion of Russia’s reserves. Russia immediately said, ok, we have our own money. We now, fortunately, have enough oil and gas that we don’t have to sell to Europe and Germany. If they want to freeze in the dark and let their pipes burst when the weather gets cold, that’s their problem. We’ll sell to India, and China, and other countries. And there was, for a few days, the ruble plunged, by saying, uh oh, what is Russia going to do? So all the foreign exchange traders thought, you can trust Biden to have a really brilliant policies. I think Paul Krugman, the Nobel Prize winner, said Biden is the greatest American president since Roosevelt, or since Truman, that he was so smart. Well, that’s why Krugman got the Nobel Prize, for making statements like that. So immediately Russia said, well, obviously we can’t get paid in dollars anymore, or in euros, because, you’ll just grab them, so you’ll have to buy oil and gas in rubles. We’re going to price it in our own currency. Just like China had talked about pricing its exports in yuan. And so what has happened is that immediately the ruble not only recovered, but is now selling at a higher rate than it was before the American sanctions. So there was no shock at all. The Americans felt shock. The Americans are shocked. The Americans are awed. The Russians are laughing and everything is going their way. So it’s almost as if – I would not accuse Biden of being on the pay of Russia, and I would not say that the leaders of Congress are the Russian agents, but if they were Russian agents, if they were paid by Russia, they could not have done a better job of helping Russia catalyzing its protectionism that it wouldn’t do itself. The fact is that President Putin and many of the people around him still were neoliberals. I mean, they began as neoliberals, in the ’90s. They began by hoping that they could make an arrangement with Germany and Europe, that Europe would develop their industry and make Russia as efficient an economy as Germany or the United States. Well, obviously that hasn’t happened. All the same, they didn’t think of imposing protective tariffs as the United States did. They didn’t protect their agriculture. They bought grain, and cheese, and other agricultural products from the Baltics, and from other countries. Well, now that, once the Americans put on the sanctions, beginning already under the Trump administration, all of a sudden Russia had to produce its own food. And it did. It made the investment. It is now the largest agricultural exporter in the world, not a food-deficit country. It’s not importing any more cheese from Lithuania and the Baltics. It has its own cheese segment. And the sanctions are forcing Russia to do exactly what the United States, Germany, and other protectionist countries did in the 19th century, developing their own industry by isolating it from low-priced foreign imports that would be priced so low that the Russians otherwise could not afford to make the investment in factories, plants, equipment, research, and development. So what the United States has done is actually catalyze Russia moving together. And also, for three or four years, I have been talking with Russians, and with the Chinese, and other countries about the need to de-dollarize. If you want to develop your own economy, you have to develop your economy in your own interest with public spending and planning, independent from the United States. Well, now everybody thought that, well, in a few years it may take a decade for China, Russia, Iran, all these countries to break away from the U.S. But America said, we’re going to help you, we’re going to speed up the breakaway process. We’re going to isolate you. So you’ve got to band together against us. So that’s exactly what it has done. You can just imagine how the Russians are crying all the way to the bank about this. And how China is watching what the Americans are doing to Russia, and listening to President Biden saying, you know, Russia is not our real enemy, our real enemy of China. And when we’re finished with Russia, then we’re going to go against China and do the same thing to it. Well you can imagine what this is leading the Chinese government to try to plan to be sufficiently independent from the United States, so that similar type sanctions will not hurt it. And President Xi in the last few weeks has said we’ve got to make China as independent as possible. We’ve got to make our own computer chips. We’ve got to not depend on the United States for anything, except maybe Walt Disney movies. That’s basically about it. So it’s as if – you know, I had mentioned earlier that finance lives in the short term. American policy, being financial policy, lives in the short term. And it’s looking at if it can make a quick, a quick victory, and forget about what’s going to happen next. I’m told that, years ago, already from the war with Iran, and then Iraq and Syria, in the State Department, if there were Arab specialists who spoke Arabic, they were all fired. Because they said, well, if you can speak Arabic, you must’ve learned Arabic because you’re sympathetic with them. You’re fired. We won’t have anyone who can read Arabic here. Well, now in the last decade or so, they fired all the Russia specialists from the the State Department and CIA, saying, well, if you can read Russian, why would you want to learn Russian? You must like something in Russia. You wanted to learn it. You’re fired. So they have people who have no idea of what’s happening in Russia, no idea what’s happening in these other countries. And they’re blinded by their ideology. And if anyone would say, wait a minute now, public planning and making education a public utility is actually making them more competitive, well, that’s against the ideology. That’s not the corporate type. And they’re taught, well, we really can’t trust people, maybe they’re tending toward socialism, and they’re out the door. So you’re having American policy pretty much run by the blind, and the Europeans are simply taking orders, and money in little white envelopes from the United States, to just show their loyalty, and basically are willing to spend three to seven times as much for their energy, for their liquefied natural gas and oil, by buying from the United States, than they are by a long-term contract with Russia. Europe is willing to spend now $5 trillion on putting together ports that can handle shipping tankers for liquefied natural gas instead of relying on the Russian pipeline, the Nord Stream Two, that’s already there. So Europe is making an enormous sacrifice. If it doesn’t have Russian gas, and it refuses to pay rubles, it says, if you don’t give us our gas and oil for free, you’re attacking us, because we’ve been getting all of your oil and gas for free, because all the dollars, all the money we pay, you’ve recycled to the United States in your foreign reserves. Thank heavens, the U.S. can grab it all. If you don’t continue to give it to us for free, then you’re attacking us. To the United States, other countries protecting their economy, other countries trying to raise their living standards, and especially other countries undertaking land reform, are viewed as enemies of the United States, because they’re an enemy of the neoliberal American financial system. And the idea of the unipolar world where the United States gets all of the profits, and rents, and interests of the world economy, just as ancient Rome stripped its provinces by getting all of their wealth and income for themselves, not producing it at home, while impoverishing their own domestic population. It’s just an exact parallel. So Europe is willing to say, well, ok, if we don’t have a Russian gas, well, that means that our chemical companies cannot buy the gas to make the fertilizer to make our crops grow, and our agricultural productivity is going to fall by about 50%. We’re also going to spend a lot more money on America’s military, NATO arms to support NATO. So higher food, higher military spending, higher energy costs. This ends Europe as an industrial rival to Asia, and Eurasia, I should say, because now the Chinese Belt and Road Initiative and other spending investment, capital investment, throughout Western Asia is creating a new productive plant that is not only self-sufficient, but is leaving the United States and Europe without any industrial competitive power. They’ve priced themselves out of the world market. They’re no longer competitive. So the world is developing. And I’m sure the only way that the NATO countries can fight against it is militarily, by threatening to bomb. But they can’t fight economically. They can’t fight financially. They tried by disconnecting Russia from the SWIFT system. It put it in its own system very quickly. It really is left without a strategy, except that it’s done a wonderful job of controlling the public relations dimension of this war, making it appear as if somehow other countries are the aggressors, in not letting America exploit them, and making it appear as if Russia is the aggressor in Ukraine, instead of NATO prodding and prodding Russia to say, we’re going to capture your port at Crimea, and we’re going to attack the Russian-speakers if you don’t fight back, and we’re going to keep bombing them year after year, from 2014 on, we’re going to keep bombing them until you protect them. So all of this is treated as if America is purely defending itself. Well, this is what the Nazis said in World War Two. Hitler and Goebbels said, we can always mobilize a population to support our war by saying it’s a war to defend ourselves. And that’s how the United States in Europe are doing it. Not only are they pulling a strategy out of Goebbels’ Nazi book, but a few weeks ago, Germany went to the museums, the military museums, where they had the old Panzer tanks from World War Two, and they sent the Panzer tanks, the Nazi tanks from World War II, to Ukraine, saying this is symbolic, now we can fight Russia with the same German Nazi tanks run by the neo-Nazi groups, that Zelensky is supporting, the same Nazi fight against Russia. We can reenact World War Two with the same tanks, even symbolically, to show that this is a fight of Naziism, and neoliberalism, against Eurasia. BENJAMIN NORTON: We’ve also seen Germany not only re-militarizing, but also boosting its relations with Japan. There are some terrifying echoes of of World War Two. But you mentioned something that I want to analyze a little bit more, which is the strength of the Russian ruble. I talked about the concept of financial shock-and-awe that was waged on Russia. And President Biden said, “the Russian ruble has become rubble,” he joked. He said the Russian ruble has become rubble. Well, that’s actually not at all what happened. This is the value of the dollar to Russian rubles, right now [showing a graph]. Russian rubles are at 69 to the dollar. A few days ago, it was at 64, or 65 to the dollar, which is actually better than it was even before the Russian war in Ukraine, which began in February 24th. And it did spike, and there was a peak here, at which it was devalued to 139 to the dollar, about half the value it has now. But in the months leading up to the Russian military intervention, in November and December, it was around 75 to the dollar. So the ruble has actually strengthened despite these sanctions. And here’s a report from Reuters from five days ago, that was May 4th: the “Rouble leaps to over 2-year high vs dollar, euro as EU ups sanctions.” So the ruble is doing quite well. And you talked about the Russian mechanism to force Europe to buy energy exports from Russia in the Russian ruble. And this graphic here, for people watching, it’s in Russian, but really it just shows this mechanism in which a European firm that wants to buy gas from Russia’s state owned gas giant Gazprom, it has to send the money in euros to the Gazprombank, which is the obviously the bank that works with Gazprom, and then it puts it in a special account in euros, and then that is sold in the Moscow exchange for Russian rubles. And then those rubles are put in another special account, called a K account, that belongs to that European firm. It has two accounts, two special accounts with Gazprombank, one in euros, one in rubles. And then this special ruble account sends that money to Gazprom. And then once the money reaches Gazprom, that’s when Russia considers that the payment officially went through. So this is the mechanism by which Russia is getting paid in rubles. And much of Europe claimed at first that they would not do so, but eventually they gave in. So that’s an incredible development. And related to that, what I wanted to ask you about, is I think another reason that the Russian ruble has strengthened and stabilized is not only because Russia continues to maintain constant exports of energy to Europe and other parts of the world. You can talk about the central bank policies. But one of the policies is that the Russian central bank has basically put the ruble on gold, which I think is a very interesting and historic development. And we saw that from the beginning of April until the end of June, the Bank of Russia says that it’s going to buy gold at a fixed price of 5000 rubles per gram of gold. And then the question is whether or not in July, when this policy ends, if it’s going to continue, and if the ruble will basically become fixed, it become pegged to gold like the U.S. dollar was up until 1971. So you don’t think it will be? So talk about this policy. Do you think that that the gold standard is going to come back? Or apparently you don’t think so. MICHAEL HUDSON: No, Russia is not going on on the gold standard. What it is doing is investing, its foreign exchange in the only way that is not grabbable. It’s investing it in gold; it’s putting gold in its reserves. It is not setting its exchange rate according to the price of gold, but it is buying gold with what it has been getting. I want to go back to your talk about rubble. You talked about, “from ruble to rubble,” what President Biden said. There have been a lot of pictures of rubble in the news for the last few days. For instance, there are talks of, here’s a Ukrainian picture, and look at this picture of a Russian tank, we shot it down, it’s rubble. Turns out it’s a Ukrainian tank, that they just say it was the Russian tank we shot down. So basically, they’re taking their own destruction, and they’re saying that, while they’re being destroyed, they’re saying, no, this is a picture of Russia being destroyed, Russian assets, not Ukrainian assets being destroyed. Well, the similar thing is with the Russian ruble. America says, look, we’ve isolated the the ruble. Well, what has happened? If you isolate the ruble and you say we’re not going to export anything more to Russia, so it’s not going to be able to spend any of its rubles on buying American or European products. Well, meanwhile, Russia can continue to earn rubles from Germany and Europe, and it can continue to earn foreign exchange from other countries that it’s selling its agriculture to at rising prices, its oil and gas at rising prices, too. So obviously, the balance of payments is going way up. And they believe that what is in store is a new monetary system that is an alternative to the dollar IMF system. And in this system other countries will hold their reserves in each other’s currencies. In other words, Russia will hold Indian rupees and Chinese yuan. China will hold rupees and Russian rubles. There will be the equivalent of what Keynes thought of as something like artificial special drawing rights that the banks will be able to create to help fund governments to undertake capital investment. But for settlements settling balance of payments deficits among countries, once they don’t have enough foreign exchange to make a swap, they will use gold as the means of settlement, because gold is a pure asset. It’s not a liability. Any foreign currency basically is held in a foreign country that has the power to do what America did to Russia and just grab it all, and say, we’re just wiping it all out. It’s as if you have a bank account, and the bank says, we’ve just emptied out your account to give it to one of our friends, and you don’t have it anymore. You can’t do that if gold is held in your own country. Venezuela made the problem of keeping its gold in England, trusting England, saying that, even if there is war, they’ll never interrupt gold and finance. And England just grabbed Venezuela’s gold. So, obviously, countries are not going to leave their gold in other countries. Even little Germany has asked America to begin sending back the gold that it has in the Federal Reserve Bank of America because it’s worried that what if it ever buys Russian gas again? America will grab all of Germany’s gold, grab all the German money, and it’ll be like World War One all over again. So this act that America did of grabbing Russian money, Afghanistan’s foreign reserves it grabbed, this is telling all the other countries, pull all your money out of dollars. What are they going to put it in? There’s not that much they can put it in that it is absolutely safe. So gold is a flight to safety today, because it’s one of the things that all of the world realizes as having an international value for settling balance of payments deficits, that is independent of world politics. So that’s the explanation. Russia is not going on gold. It’s going on an independent standard from the United States with gold as an element of its foreign reserve, just as it’s holding Chinese yuan and Indian rupees. It’s not going on the rupee standard. It’s not going on the yuan standard. And it’s not going on the gold standard. But these are elements of its foreign reserves. BENJAMIN NORTON: I have a question for you. It’s kind of a more technical question that I’ve always wondered. And I’ve tried to do research on this, because there’s not much information. So we know that that the U.S. and European Union have frozen over $300 billion from Russia’s central bank foreign exchange reserves. And of course they did this after doing the same to Iran, to Venezuela, to Afghanistan, which is now threatening a famine in Afghanistan that could kill more people than died in the 20-year NATO-U.S. military occupation of Afghanistan, which is another topic that really needs to get more coverage. And I should add, by the way, that the US and the EU, they’ve frozen nearly half of Russia’s central bank’s foreign exchange reserves, and are now saying they’re not going to give it back. So they stole it. I mean, they stole half of its reserves. My question is, what is the mechanism by which they effectively freeze and steal those reserves? Because my understanding is that there is of course a physical element of those reserves, which you’re talking about, which is gold. But not all of the $640 billion in Russia’s central bank reserves is physical currency, right? A lot of it is just computerized? It’s number in computers and bank accounts. So when when the U.S. and the EU steal this money from central banks like in Russia or Afghanistan – obviously in the case of Venezuela, as you mentioned, they physically stole the gold. But if it’s not gold, is it physical cash stored in Moscow, like physical dollars and euros? Or it’s mostly just numbers in a computer, which is why they can steal it? MICHAEL HUDSON: Every country needs to manage its exchange rates, and there’s always like an up-and-down and a zigzag in the flow of payments for imports and exports, investment, capital movements, debt service, all of that. So countries want to stabilize their exchange rate. How do they do that? Well, most of the big exchange markets are in New York and in London. So countries would leave their money in correspondent banks. Like when Iran, at the time under the shah, kept that foreign reserve in the Chase Manhattan Bank. So when Iran, after the revolution and Khomeini came in, and Iran wanted to pay interest on the foreign debt that the shah had run up, they told Chase, please, here’s our bondholders, please pay them. Well Chase was told by the Treasury, don’t pay them, just take the money and hold it. So Chase said, we put a freeze on your account. And so Iran defaulted, and then Chase and the State Department said, oh, Iran defaulted, it missed the payment. Now, all the money that it’s due for foreign debt has to be paid all at once. And Chase paid all of the bondholders off. No more money in the account. It was all emptied out. Suppose you had an account in Chase Manhattan. And they said, ok, now you’ve done something really bad, you put Michael Hudson on the show. We’re going to grab your account. We’re going to give it to Mr. Guaidó, because he needs the money in Venezuela because the people still are not voting for him. So all of a sudden, you won’t have money in your account. It’ll go to Mr. Guaidó’s account. Well, that’s what happened with Russia. They took the money. They grabbed the money from Russia’s account. And they said, half the money we’re going to give to, I think, to the 9/11 people, because we all know that it was Russia that bombed the World Trade Center on 9/11. And we’re going to give it to all sorts of other people who suffered all over the world. It’s all Russia’s fault. BENJAMIN NORTON: But Professor Hudson, when you say that they seized Russia’s assets, you mean the assets held by the Russian central bank in foreign bank accounts? MICHAEL HUDSON: Yes, yes. BENJAMIN NORTON: And these are not physical assets, these are numbers in a computer, right? MICHAEL HUDSON: In Venezuela’s case, Venezuela had used some of its oil company earnings to buy oil stations and refining companies and the United States actually grabbed the ownership of the gas stations and the refineries and distribution system that Venezuela had in America. BENJAMIN NORTON: It’s called Citgo. MICHAEL HUDSON: Citgo, yeah. Russia doesn’t really have any capital investments in the United States. It did have bank accounts, and that was all that the United States could grab. BENJAMIN NORTON: So when you say that, when Russia, at least for now, the central bank is allowing convertibility of rubles at a set rate into gold, that’s a temporary policy to make sure that they have a physical asset that their central bank can hold on to, because if they have dollars or euros in their reserves, my understanding is that’s not physical cash, it’s actually just numbers in a computer, so they don’t have it physically in their bank reserves, so it’s easy to steal that money. Obviously, if they had billions of dollars worth of cash, of paper cash, it would be much harder to steal it, but if it’s just on a bank account, if it’s numbers in a computer, then they can just freeze it. So I think this is also a reflection of a point that you’ve also made about the financialization of the economy, is it’s also just a lot of this capital is not even physical capital. MICHAEL HUDSON: Yes. Savings take the form – one person’s savings is another person’s debt. So these are Russia’s deposits in American banks that it used to buy or sell rubles, or to buy goods from America, or to receive payments in, if Russia exports something such as oil. Americans buyers of Russian oil would put the money into the Russian bank account. They never dreamed that this would be grabbed. But now Russia says, ok, you’ve grabbed our money, now that means that we get to grab all of your assets in Russia. This is great! All of your stock holdings in nickel, and Yukos, and all these other companies, ok, you’ve got the money, we have the assets, look at us as just buying the assets on the cheap. And the Western investors in Russia have all been selling their Russian assets to show that they’re good American citizens in NATO, and the Russians are buying up these European and American assets on the cheap, largely by borrowing money from the banks, that get the money from the central bank, now that they’re so wealthy, and all of the foreign exchange reserves is a result of the American shock-and-awe statement, that’s sort of shock-and-awe in reverse. So Russia is coming through just fine. And you can imagine how the American strategists are gnashing the teeth. They don’t understand how Russia was able to avoid being bankrupted by this. They really are not economists. They’re not really financiers. They’re foreign-policy strategists. They’re ideologues that are not very well educated in how to think about the future and how to recognize the fact that the world can actually change from what it is today into something else. And sometimes that change is not in America’s interests. That is sort of not a permitted thought over here. So essentially, Americans and Europe are operating in the blind, and Russia and China, and Iran, and India, are all looking at how are we going to restructure the world so that we come out of it more prosperous than we were before, not more impoverished. That’s really what the world is dividing into. BENJAMIN NORTON: Professor Hudson, I don’t know if this is directly related, but it’s it’s something that’s always been a very curious question in my mind. Germany, back in 2016 and 2017, it moved, physically moved, its central bank’s gold reserves, which had been stored in New York, London, and Paris, and it physically moved those reserves, those gold reserves, to Frankfurt. Now this was before the U.S. and Britain stole Venezuela’s gold reserves and other reserves. But do you know anything about what motivated Germany’s central bank to move the physical location of its gold reserves into Germany itself? MICHAEL HUDSON: I don’t think it’s all moved yet. It’s still going on. Gold is very heavy, as heavy has lead, basically. And America said, well, we can only do a little bit, trickle by trickle. So America has been returning the gold very slowly. So I think Germany, with all of its history of hyper inflation, I think just realizes that, now that gold is not used to settle balance of payments deficits anymore – the gold that Germany had in America was all of the exports that it made to the United States during the Vietnam War. This is Vietnam War gold. You remember that President de Gaulle would every month cash in, the dollars that America spent in Vietnam would all be spent from Vietnam to Paris, the dollars would end up there, the central bank of Paris would essentially buy gold on the London exchange and keep the gold either in New York or in London. Well, Germany, because America defeated Germany, and it wasn’t going to keep its gold in Russia, that defeated it even more, it said, well, ok, we’re cashing in our surplus dollars for gold, but we’re going to hold the gold in America. But now it says, well, America is never going to settle its balance of payments deficits and its foreign debt in gold again, because it doesn’t have any balance of payments surplus, any ability to do that. It’s going to spend its export surplus and its investment surplus on war. So it’s never going to be able to pay. That’s obvious. Let’s get the gold back. That was the calculation that every country was making already a decade ago. They realized that America can never repay its foreign debt, unlike other countries. When other countries can’t pay their foreign debt, they have to go to the International Monetary Fund, that tells them, well, we’ll make you a loan, but you have to sell off your natural resource reserves to the Americans, or we won’t lend you the money. Well, basically, that’s not going to happen anymore. They realized that America is just going to say, haha, we’re just not going to pay. Well, now other countries are saying, wait a minute, if America’s never going to repay its foreign debt, why do the Global South countries have to pay their debt to the IMF and the World Bank, all this dollar debt to dollar bondholders? If America won’t pay, we don’t have to pay. Let’s have a clean slate. Let’s start from the beginning. And we’re only going to have debt and credit relations with friendly countries, not countries that want to go to war with us like America did in Afghanistan, Syria, Iraq, Iran, and now Russia. So that’s basically what’s happening. BENJAMIN NORTON: Great. And just to wrap up here, I have another question. And I know your time is limited, so I really appreciate you being here. I have a quick question about the decline in U.S. dollar hegemony. We were talking about the strength of the ruble, the economic war on Russia; we talked about the bilateral trade that’s growing between Russia and China using the Chinese yuan, between Russia and India using the Indian rupee. And Iran also is talking about doing business with a basket of currencies. I want to point to a report that was recently published by economists who work with the IMF. And I published an article about this over at Multipolarista.com, “IMF admits US dollar hegemony declining due to rise of Chinese yuan and sanctions on Russia.” And there is this report that was published by the IMF, by these economists, and I cite you, Professor Hudson, in this report. It’s a working paper from the IMF, published in March, titled “The Stealth Erosion of Dollar Dominance.” And here’s a graph, for people watching, here’s a graph from the report. And it shows not a large, but a noticeable and consistent decline in the use of the holding of the U.S. dollar in the foreign exchange reserves of central banks around the world. So this is around the world. And it has declined in the past years from about 70% of central bank exchange reserves to about 60%. So a 10% decline. That’s not massive, but it’s steady and I think it’s going to accelerate. And at the same time they’ve also found an increase in the use of what they call “non-traditional currencies” in the foreign exchange reserves of central banks around the world. And here you can see this graph. I mean it looks like a significant influence because if you look at the y-axis it’s only from 90 to 100. But there is a significant increase in the use of other currencies in foreign exchange reserves, aside from the U.S. dollar, the euro, the Japanese yen, and the British pound. And the currency that is increasingly popular is the Chinese yuan. So that’s one half of my question. The other half is about this interesting report that was published in the Financial Times, and it’s titled “Russia Sanctions Threaten to Erode Dominance of Dollar, says IMF.” And the FT interviewed the IMF’s first deputy managing director, Gita Gopinath, who acknowledged that the sanctions imposed on Russia over its military intervention in Ukraine could lead to what she says “fragmentation at a smaller level.” And she did say that the dollar is eroding influence, but “would remain the major global currency.” So, that’s a two part question. I’m wondering if you could talk about the decline in U.S. dollar hegemony and how the sanctions will potentially erode that. And then the other half of the question is, can you comment on the declining use of dollars in foreign exchange reserves? MICHAEL HUDSON: Well, this is what my book “Super Imperialism” was all about. When I first published it in 1972, I could see how the whole thing was unfolding for the next 50 years. And we just published last year a third edition of it, bringing it up to date. Dollar hegemony means America’s entire balance of payments deficit in the ’50s, ’60s, and ’70s was military. So the dollars that were being pumped into the world economy were the result of military spending. But the dollars would end up in foreign central banks, especially from Asia to France, Germany, others. What were they going to do with it? Well after 1971 they could not buy gold anymore, so all they could do was buy U.S. Treasury securities. IOUs. And so they re-lent to the Treasury all the money that America was spending militarily. And the more money America spent in waging its cold war militarily against the world, the more money central banks would lend to the U.S. government to finance the U.S. deficit that was spent largely on the military-industrial complex and foreign military operations. So dollar hegemony was a free lunch financing America’s almost 800 military bases across the world, to fight against communism, defined as any country that doesn’t let American industry and finance buy control of its raw materials, agriculture, resources. And this has now come to an end. Right now America has grabbed Afghanistan’s, and Russia’s gold. All of a sudden it’s obvious that, this summer, there’s going to be an enormous squeeze on Third World countries, on the Global South. Their energy prices are going to go way up, and that’s going to hurt them just like the oil shock of 1974 and 1975 did. They’re going to have to pay higher food costs, because of food prices are going to go way up now that the Ukraine war is erupting. And a lot of their foreign debt, dollarized debt service, is coming due. And they’re facing a choice: if they pay the foreign debt, they can’t afford to buy the oil and energy that they need to run their factories and heat their homes. They can’t afford to buy the food to feed their people. Whose interests are they going to put first? Well of course their leaders are going to put America’s interests first, and their own interests second, because their leaders, if they’re a client oligarchy, are put in power by the U.S. military, as sort of miniature Pinochets, throughout Latin America and other countries. So suppose other countries decide, well, we’re going to feed ourselves and we’re not going to wreck our economy just to pay foreign bondholders. We’re a sovereign country. We’re going to put our national interests first. Well, then the United States can say, aha, we’re going to grab all of your foreign assets in the United States. Well, other countries can say, oh, they’re going to do to us just what they did to Afghanistan and Russia. Let’s move our money out of the United States quickly. If we don’t have dollars, well, it’s true, we can’t pay our dollar bondholders, but at least we can, in international markets, we can buy the food and the energy we need. And so the tensions, the disruption of world prices, and inflation, and trade that is a result of the NATO attack on Russia, now threatens to drive all of the southern hemisphere countries into an alliance with Russia, China, India, and all the rest. So America basically is creating a new Berlin Wall, but the wall is isolating itself from other countries, and driving other countries all together into what I hope will be a happy, self-sufficient, non-U.S. globalized economy. BENJAMIN NORTON: Well, I want to thank you, Professor Michael Hudson. It’s always a real pleasure having you. I know you’re very busy, so thank you for giving us so much of your time. I’ll say that the comment section here on YouTube has been very vibrant, with some interesting conversation. And what’s nice is there are people from all over the world, from the U.S., Latin America, Europe, and from Russia. So it’s good to see a mix of people. And for anyone who wants to listen to this, you can check out the podcast version if you look up Multipolarista on Spotify, and iTunes, and all the other podcast platforms. And I’ll just say, while I wrap up here, that today we were talking about, at the beginning of this discussion, a new book that Michael Hudson is publishing this week. It is called “The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism.” It’s a very good book. I had the privilege of getting a review copy early. So definitely check out that book. You can also find all of Professor Hudson’s writings at michael-hudson.com. Thanks, Professor Hudson. MICHAEL HUDSON: It’s really good to be here. It was a good discussion.

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banks, capitalism, de-dollarization, dollar, economics, Geopolitical Economy Hour, imperialism, Michael Hudson, neoliberalism, Radhika Desai

Economists Radhika Desai and Michael Hudson discuss de-dollarization, the global drive to drop the US dollar, and the transition away from financialized neoliberalism toward a new economic system. In this episode of their program Geopolitical Economy Hour, Radhika Desai and Michael Hudson discuss de-dollarization, the global drive to drop the US dollar, and the transition away from financialized neoliberalism toward a new economic system. You can find more episodes of Geopolitical Economy Hour here. (What follows is an edited transcript.) RADHIKA DESAI: Hi everyone, welcome to this eighth Geopolitical Economy Hour, the fortnightly show on the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And this will be the fourth and final show on de-dollarization. As you know, we initially decided to do a couple of shows on de-dollarization, but Michael and I have written lots about it, both jointly and individually. And we have lots to say. So it eventually became three programs, and even then it wasn’t over. So today we are into the fourth and final program. And as you know, we’ve divided our discussion into several questions: So there are the 10 questions, and we’ve dealt with the first nine. And today we’ll be dealing with the final question, which is: What are the dimensions of the crisis of the dollar system today? And of course, as the Chinese saying goes, every crisis is an opportunity. So Michael and I also want to talk very much about: What are the opportunities contained in this current crisis for a policy paradigm, which is much kinder and better for development and for the prosperity of ordinary people around the world than has been possible over the last several decades of dollar dominance? So that’s what we are going to talk about, isn’t it, Michael? MICHAEL HUDSON: Yes, we’re going to talk about how really, it’s not simply moving out of the dollar, it’s de-neoliberalization. It’s really a whole creation of a whole different economic system that is necessary. RADHIKA DESAI: Some people often talk about the contrast between the so-called Washington Consensus and the so-called Beijing Consensus and much of what we say will have to do with that. So I think of what drives de-dollarization as being at least composed of two very different parts: WITHIN U.S.: CONTRADICTIONS MOUNT OUTSIDE U.S.: ALTERNATIVES BEING CREATED So one is, one set of developments is occurring within the dollar system, the US financial system, which really forms the base upon which, then, the dollar tries to mount its contradictory, volatile and never-entirely-successful role as the world’s money. So we look at how the contradictions are mounting there. And then we will see that as the contradictions are mounting within the dollar system, outside there are a whole stream of possibilities and alternatives that are being created, centered, of course, around China, but also entailing the activities and policies and the new policies of other countries. And of course, as you know, all these developments have been rapidly accelerated by the current conflict in which so many contradictions have been really maturing. So if we look at the left hand side, the mounting contradictions of the dollar, we see that first of all, as we’ve talked about many times throughout this past several shows on de-dollarization, the dollar system after 1971 essentially rested on creating, on expanding, financial activity, dollar denominated financial activity in such a way that the rest of the world, holders of money of the rest of the world, would hold that money in dollars in order to take advantage of the opportunities for financial profit being created by the dollar system. And what’s really interesting is that this inflow of dollars that has been central to keeping up the value of the dollar, to counteracting the downward pressure on the dollar that the US deficits and the declining US economy would create, this inflow has actually gone down considerably. You will see in the graph that inflows grow faster, and as you can see, the inflow of dollars, the growth of dollars, the growth of the gross cross-border capital flows, the bulk of which are in dollars, you see them going up sort of in a series of peaks up to the really big peak of 2007. And as you can see, that was like the mother of all asset bubbles. And after that, you see that the cross-border capital flows fall, and then they recover. But as you also see, the recovery has remained essentially at levels that are less than half of the 2007 peak. So that’s the real point. So these inflows are declining. Michael, did you want to add anything? MICHAEL HUDSON: Yes, the important thing is that what we’re talking about here, and what actually determines the relative exchange rates of currencies, is not trade. In the newspapers, they talk about using the dollar for oil and for food and for other basic needs, but the actual change that is responsible for the up and down zigzagging are capital flows, mainly into the stock market and into the bond market. And this is very largely a function of interest rates. And the exchange rates are really a function of financial markets, not trade particularly, especially foreign debt service. Why do Global South countries need dollars to pay their dollar denominated debts? And this is what the papers leave out. And once you begin to look at these factors, the capital flows that Radhika just mentioned and that we’re charting right now, you realize that if you’re having a system that’s not based on investment in each other’s private capital markets, but on a mixed economy with governments, we’re not talking about a market economy anymore. Suppose we’re 10 years from now and we’re looking back at the chart that Radhika had just put up. Well, right now it looks up and down, but in 10 years, all this will be just a little squiggle and then there’ll be just a completely different world. RADHIKA DESAI: Well, exactly. And you know, Michael, you raise a really interesting point. But before we get to that, let me also add one other thing. What Michael says is that, this entire dollar system is organized not around production, not around trade, which is basically what ordinary people need in order to make their living. But it is essentially organized around finance. That is to say, in the indebting of ordinary individuals, businesses, productive businesses and governments. And it is centered around creating speculative asset markets. Not only does this not feed anybody apart from making a few people very rich by transferring income from some people to others, but it also strangulates production. And in addition to that, by creating such a demand for the dollar, which essentially is a demand that mainly rich people and big institutions engage in that they supply, what this system has also done is it has brought the exchange value of most currencies other than the dollar down. That is to say, the dollar is overvalued in relation to all these other currencies, which means ordinary people in poor countries not only have to work hard in order to earn dollars, they have to work unreasonably hard because the dollar is unreasonably overvalued. And of course, as Michael says, this is what they need to do in order to pay the debt, which is also the other net on which this resides, because governments of the Third World and increasingly also businesses of the Third World are indebted to the dollar system. So now, Michael also mentioned one other thing, which is that for this so-called market system, we are always told that the market is operating freely and the dollar’s value is the value determined by the free market. But actually, there’s something really fishy going on. So if you see here, basically what we are also arguing is that the Federal Reserve has had to step in in a big way and support asset markets. So here you see simply a graph of the dollars, the Federal Reserve’s balance sheet. And you can see that from being at about a trillion dollars before 2008, it sort of jumped to twice the amount soon thereafter. And then in the process of quantitative easing, it went up to about four trillion dollars. And then in the last two or three years, given the pandemic crisis and the need to hold up asset markets, you can see it doubled again in size. So today, the value of the Federal Reserve’s balance sheet is over nine trillion dollars. Why are we showing you this? This is the amount of money, which in addition to all the other shenanigans, including low interest rates, et cetera, that the Federal Reserve is using in order to prop up asset markets. Why does the Federal Reserve need to prop up asset markets? Because foreign money is no longer coming in to the same extent that it would need to in order to keep asset markets up. And if these asset prices were to fall, which they would without the intervention of the Federal Reserve, then of course the wealth of the richest US and world elites would be wiped out. And the Federal Reserve is indebted to nobody other than these elites. So that’s the next thing we wanted to show you. MICHAEL HUDSON: One thing about this, the Federal Reserve, by doing the quantitative easing, has painted itself into a corner. And the corner is what you saw a few weeks ago with Silicon Valley Bank and now the other San Francisco banks that are going under. If interest rates were to rise, then the banks would become insolvent because the value of stocks or bonds is discounted by the exchange rate. I know that may sound technical for some people, but when interest rates rise, it’s basically a repayment period. And so the Federal Reserve has a problem. And it seems to have just discovered this now, that if you have a zero interest rate, then people are going to buy stocks and bonds. And one of the reasons that the dollar has remained strong is that the American stock market has gone up so fast and compared to other markets, including Japan and Europe, that foreign investors, the billionaires all over the world, are putting their money into riding the stock market rise. But if the Federal Reserve now decides, wages are beginning to go up and we’ve got to create unemployment and bring on a depression so that we can lower the wages and make even bigger profits, then you’re going to have the banking system here and in Europe going insolvent. And that’s what you’re seeing right now. So the system has reached an insolvable crisis. It’s not a problem. It’s a quandary. There’s nothing the Federal Reserve can do. And the whole dollarized system is breaking right now in the United States. It’s paralyzed. It can’t raise the interest rates without making all the banks look like Silicon Valley Bank, insolvent and on the balance sheet where the assets lower their value below the deposit liabilities. Banks owe depositors money. The banking for these deposits are the banks’ holding of stocks and bonds. If interest rates go up and stock and bond prices and real estate prices go down, then the banks no longer can cover their reserves. The nine trillion dollars that Radhika just mentioned is the insolvency of the bank. Within one month, the government would have to create another nine trillion dollars to give to the banks to cover the deposits. And that’s crazy. RADHIKA DESAI: Well, absolutely. In fact, you know, it’s both. It’s this vast inflation of the US Federal Reserve’s balance sheet that, as Michael says, represents the insolvency of banks. But I would add one other thing. It represents the illiquidity of asset markets. That is to say, you know, an asset market is only liquid if whenever you want to sell your holding of that asset, there is a buyer for it. And that is no longer so, which is why the Federal Reserve has stepped in to act as the buyer of last resort for these asset markets. And the quandary that Michael talks about, this is absolutely key. And we have talked about this actually for several years, including in our 2020 paper “Beyond the Dollar Creditocracy” and even going back before it. And this has also been my argument, actually going back even more years. Essentially throughout the 21st century, and certainly since 2008, the Federal Reserve, in order to prop up a declining financial system and an increasingly volatile and vulnerable financial system, has been pursuing a zero, or very low, interest rate policy. And this has not only supported the banking structure, which was already vulnerable, but by supporting it in this way, the Federal Reserve papered over the vulnerabilities of this banking system. And of course, it also inflated the value of financial assets. And now the resurgence of inflation, which the Federal Reserve cannot combat or will not combat, I should say, through any other means but by raising interest rates, the Federal Reserve is caught between a rock and a hard place. If they raise interest rates, the whole financial house of cards comes crashing down. And if they don’t raise interest rates, inflation will bring down the dollar and also have an effect and act as a drag on the economy, on the financial system, et cetera. So in this way, essentially, the return of inflation is a crisis of the dollar system itself. And I would also add that it is a crisis of the imperial system in the simple sense that one of the key foundations of imperialism is to keep the resources that come to rich countries, particularly the United States, cheap. And as the dollar goes down in value, as inflation goes up, these things are no longer cheap and they can no longer essentially keep the cost of living down and the cost of production down in these countries. The next contradiction is that in fact, the inflation of course is eroding the dollar. And we’ve also talked about how the Federal Reserve cannot reverse it without collapsing asset markets. So we’ve done that. But the next problem is that US assets, including US treasuries, are becoming less attractive. So if we go to the next graph, what’s very clear is that the US share of global reserve currencies has declined quite substantially. So you see here right up to the end of the 1970s, it is very high, at about 85% of the dollar’s share of global reserves. Then it falls as a result of the crisis of the late 1970s, which Paul Volcker had to react to by massively raising interest rates. And this saved the situation, but the dollar’s share of global reserves kept falling. And then in the 1990s, it went up. And that’s also a really interesting story. It went up because of a series of financial crises that afflicted other countries, largely thanks to their participation in this volatile dollar system. And in reaction to this, in order to keep capital accounts open, remember: In the 1990s, the Clinton administration had gone on a big drive to get all the countries of the world, but particularly what they called the big emerging markets of Eastern Asia. It had been on a drive to get them to lift capital controls, telling them that they would get necessary investment money coming in, investment funds coming in. But in reality, all that came in was what’s called hot money, short term money that invests in asset markets and leaves at the drop of a hat. And indeed, this is the kind of money that had caused the great East Asian financial crisis and a whole slew of other crises in different markets before then. Around this time, what then happened is that these countries, unfortunately, rather than impose capital controls, they elected to keep their capital accounts open, but also accumulated reserves in order to have the ammunition with which they could intervene in markets if there was any downward pressure on their currency. So for example, the Korean Central Bank would keep vast reserves so that if there was a downward pressure on the Korean won, it would use the dollars to buy Korean won and hold up the value of the won. Of course, this meant that they had to increase their dollar reserves. So the share of the dollar reserves went up. MICHAEL HUDSON: Well, you’re right. People had to hold dollars in order to interfere with exchange, to regulate exchange markets. And this is what England did for many years. If you import more because you’re in a boom, the currency would go down if you didn’t have reserves to sell against the dollar. So the dollar was the main measure. The chart that Radhika just showed actually understates the problem because there’s a little trick there. The trick [is, in the chart, the] dollar is [shown as] a percentage of currency reserves, but foreign reserves are not only in currency, they’re in gold. And if this chart would have shown central bank reserves, it would have shown that gold, especially in the last two years, has shown a rising percentage of currency values. And that that really is what countries are moving into. They don’t sell gold back and forth to stabilize their foreign exchange markets, as they used to do in the 1920s. But they’re looking for a kind of an economic system where they don’t want to have to stabilize exchange markets by having the financial system determine exchange rates, but they want to establish stable trade relations among themselves without the financial sector interfering and causing the whole long-term distortion that we’re describing. RADHIKA DESAI: And that’s a really good point, Michael. And I just want to make one other point about that graph. So then we talked about how in the 1990s these reserves went up and then what we see is that basically in the new century there has been essentially a decline in the share of dollars as a reserve currency. And Michael already pointed out one little thing that is ignored by this chart. But some people are pointing out that charts like this also ignore one other thing. This chart generally takes the reserves at the nominal value. But if you factor in the fact that the dollar has also been losing its value over the same period, then in fact you see much more drastic falls. So not just say from a high of 85% or so to now a high of about 60% or just below 60%, but you would see them coming down to below 50% and even less if you accounted for the actual market value of the dollar. So, in this way, one indicator is that the share of dollars in global reserves is going down. The market in Treasuries is storing up trouble https://t.co/6mYQOPW5Tj | opinion — Financial Times (@FT) October 20, 2022 So, now you also see stories like this in various financial newspapers. So, this is from the Financial Times. Just one example, “The market in US Treasuries is storing up trouble”, is what Gillian Tett says. And if we look at the following quotes in that story, she makes a series of points which are really worth noting: More striking still, these trends recently prompted Janet Yellen, US Treasury secretary, to take the rare step of admitting in public that she is “worried about a loss of adequate liquidity in the market”. On Friday her staff did something remarkable: in a regular market survey, they asked the Treasury Bond Auction Committee (the bankers who run bonds sales) if the government should start buying less-liquid Treasuries, to prevent them freezing up. … However, the Treasuries market is also plagued by particular challenges. One is size: US government outstanding issuance has almost doubled since 2015 and quadrupled since 2007. US Treasury market growth has significantly outpaced the growth in bank capital since 2008. This is a remarkable — and little noticed — shift. Another problem (echoed elsewhere) is that quantitative tightening is raising questions about who will buy government bonds as the Fed stops buying Treasuries. As a punchy paper by economists including Raghuram Rajan and Viral Acharya recently noted, with masterly understatement, this QT is “not likely to be an entirely benign process”. Investors are skittish. The third problem is market structure. Previously, the primary dealers (ie big banks) kept the treasuries market liquid in a crisis by acting as market makers. But after 2008, a string of regulatory reforms made it expensive to play this role — most notably by demanding reserves against Treasury holdings. As a result, primary dealers’ transactions are now just 2 per cent of the market, down from 14 per cent in 2008, TBAC data shows. So, first of all, this is just from a couple of months ago [in October 2022]. And she says that Janet Yellen, the US Treasury Secretary, had to take the rare step of admitting in public that she’s worried about a loss of adequate liquidity in the market. And once again, just remember, loss of liquidity is simply a polite way of saying that people don’t want to buy US Treasuries. So, that’s the first thing. And then a couple of other points Gillian Tett makes here. First of all, the US Treasury market is also plagued by particular challenges. One is size. The US government’s outstanding issuance has almost doubled since 2015 and quadrupled since 2007, something we know very well. And as you know, of course, the quality of that debt has already been downgraded a couple of times in the recent past. So, essentially, the idea that US Treasuries are the ultimate safe asset is taking a drubbing. And then finally, you know, a third problem is that the very rules that after 2008 were brought into play in order to make the US banking system more resilient are also essentially ensuring that the US financial institutions are not stepping up to buy US Treasuries. Because every time they step up to buy US Treasuries, this is taken as a form of lending, which it is, and the banks have to show adequate reserves against that lending, which means that they are not, by the rules, able to buy more US Treasuries, which really shows you that the US financial system is increasingly like the serpent that’s eating its own tail. Its own contradictions are multiplying. So, Michael, I think you probably want to add something more. MICHAEL HUDSON: No, no, this is technical and I want to get beyond the technical. RADHIKA DESAI: Okay, fine. So, another graph: I think this is a final point here, which is that, in order to talk about the strength of the US dollar as the world’s money, one of the things that people constantly refer to is, “Oh, you know, Japan and China are the biggest holders of US dollars”. There’s a little problem there. They’re not the biggest holders of US dollars. They are the biggest foreign holders of US dollars, and the share of foreign holders among total holders of US dollars has historically been about 30% or so. But today, with the recent rise in the US debt, which you see at the top of the top line there, you see that there has been a big rise in the US indebtedness. But foreign holders have not correspondingly increased their holdings, which means that as the US continues to get more indebted, what you’re looking at is that the foreign holders’ share, and including the Chinese and Japanese share, of dollars is actually going down as a proportion of the total. So, Michael, did you want to add anything? MICHAEL HUDSON: There’s an important reason for all of this. A lot of high-income money in the United States has moved out of the stock market, out of the bond market, into treasuries because they know that the government can always print the money. There’s no question that US treasuries are the safest of all investments for Americans and for friendly Europeans. The problem is, while the United States can always print dollars, and you’re safe if you’re an American, safer than holding stocks that are going up and down, if you’re a foreigner, the Federal Reserve cannot print foreign currencies. If you’re a foreigner and you’re saying, — Look at the volume of US debt. There’s no way that the American economy ever in 100 years can repay the existing debt. — The Treasury debt that America owes to Americans is “good debt” because they can print it. The debt by the treasury that Americans own to foreigners is “bad debt”. It cannot be paid. Foreigners have done the financial analysis and realized, — Well, wait a minute, the United States can’t export more because it’s de-industrialized. It can’t really create more of a stock and bond market growth because it’s already at zero interest with $9 trillion propping it up. — There’s no way we can ever be repaid. Let’s get out of the dollars into something that we know can be repaid. That’s why they’re moving into gold. That’s why they’re moving into each other’s currencies. That’s why they’re trying to think there must be a different system, which is what we’re going to be talking about for the balance of this show. RADHIKA DESAI: Yes, indeed. I would say that there’s only one final point that I’m sure we want to cover before we go on to talking about the different system. That is that, of course, the final problem with the US dollar within the dollar system is the weaponization of the dollar system, which is essentially a whole slew of things. Most recently, of course, we’ve seen how the US financial system was used as an instrument through which to essentially sequester, essentially steal Russia’s reserves. Before that, as you know, Afghanistan’s and Venezuela’s reserves had been stolen. There is also another problem, which is that already some years ago, people were complaining about the weaponization of the dollar system vis-a-vis Argentina, where the old rules of bankruptcy and essentially dealing with degraded debt. Which was that some vulture funds buy them up for pennies and they try to get a few more pennies on top of that by reclaiming the debt. But the fact is that a New York court ruled that the vulture funds were entitled to the entirety of the debt that they had bought for pennies. And even the Financial Times had to complain that this is not how the rules of the debt markets work. MICHAEL HUDSON: Argentina’s debt cannot be paid. Zambia’s debt cannot be paid. Sri Lanka’s debt cannot be paid. And the American debt cannot be paid. So what’s broken is not simply the dollar as a political currency, that it can grab your money; the whole financial system in the West has reached its limit. The debts can’t be paid. And the question is, how are they going to be paid? RADHIKA DESAI: Exactly. That’s the reality. MICHAEL HUDSON: Janet Yellen said that China should pay them. The American position is let China, if only China will give up all its debts, then these countries can afford to pay the bondholders. And then you have bank lobbyists such as Bono saying, well, if only the governments will give up their debt, then the little money that the Global South makes can be used to pay the dollar holders. Let governments subsidize the dollars by giving up their debt. Let China give up its debt. And this is what politicizes the whole issue of international finance and trade and currency. RADHIKA DESAI: Now you can have as full a picture as we can draw of the mounting contradictions of the dollar system. So the dollar system is collapsing under the weight of its own contradictions. On the other hand, alternatives are emerging. And we’ve talked off and on about the various alternatives, bilateral arrangements between different countries to trade in their own currencies, multilateral arrangements like the Chiang Mai Initiative, the Shanghai Cooperation Agreement, the New Development Bank, the [BRICS] Contingency Reserve Agreement, the creation of new payment systems like the MIR systems and the SIP systems of Russia and China, respectively. The increasing interest in central bank digital currencies, which will allow countries to ease monetary transactions, particularly those that are intimately involved with what the rest of the world is primarily involved with, which is the expansion of their productive system and their trading relations. And of course, their mutual productive investment relations. These countries are not interested in expanding unnecessarily the financial system, as in debts and asset markets or unproductive debt and asset markets. So central bank digital currencies will enable this to happen more easily. So as these things multiply, what is increasingly going to happen is that the dollar and its value will matter to an ever-narrowing circle of primarily US-based dollar holders. So that’s where we are at. And in this context, what we then have is the possibility that the rest of the world will fashion a completely new financial system. Because one of the things that everybody asks is, — OK, so if the dollar is no longer going to be the world’s currency, what will be the world’s currency? And our answer has always been that it’s not going to be another national currency modeled either on the pound sterling or on the dollar. One of the things we’ve pointed out is that both of these systems were based on foundations that are no longer possible. And in fact, the dollar system was always, as a result, too unstable and volatile. So what we are going to see is the replacement of this broken system with a brand new system based on quite new principles. MICHAEL HUDSON: That’s the whole point. It’s not a de-dollarization as such. It’s a de-neoliberalization. And obviously, the countries are going to still run imbalances with their trade and some investment, tangible capital investment, not stock market investment. But how are they going to settle the fact that all economies work on credit? You need some basis for the credit system, but you don’t want it to be a foreign currency. So the solution is obviously going to be: you create an artificial currency. We’ve said before, it’s like paper gold, except it’s not gold. It’s something that will be politically defined by the member countries as something like Keynes’s bancor or a kind of credit that can only be used among central banks, among governments for their own purpose. And this is what the United States is really afraid of. Right now, if you were to look at the charts that we’ve just been showing, the United States can say, — Well, so what? What’s the alternative? The problem is for other countries to create an alternative. And to create an alternative, you need to have an ideology. You need to have an idea of: What is an economic system? How does the world economy work in a way that is going to benefit us and be mutually beneficial without being centered on any particular economy benefiting at the expense of the others by just printing its currency as a free lunch? That’s the task that other countries are facing. And yet, they’re not facing it. They’re not really describing the kind of economic system that would be an alternative to the US-based bank-financed neoliberal system. I think, in all of the shows that we’re doing here, we’re trying to provide an outline for what this kind of a future can look like if it’s not the kind of a financialized system that we’ve had in the past. In fact, it’s: How do we move towards a socialist system? RADHIKA DESAI: Well, exactly. A couple of different points. So as Michael pointed out, the way to think about what will replace the dollar system, one of the best ways to think about it is to think about the principles underlying Keynes’s proposals for bancor and the International Currency Union (ICU), which is why we discussed it at some length in a previous episode. We will not realize an ICU or a bancor immediately, chiefly because it requires the US as one of the larger economies to play ball. And as long, you know, for the foreseeable future, we don’t see the US as agreeing to anything like that. In fact, the United States, in its quest for making the dollar the world’s money, nixed Keynes’s original proposals in the first place back in 1944. And it’s not about to subordinate itself to this system. And one of the key reasons why the US will not subordinate itself to this system is very important and interesting from the point of view of what Michael was just saying. It involves a completely different conception of the economy. The US government essentially acts as the representative of big private corporations. It is their power that it seeks to advance. Whereas if you accepted the principles of bancor and the International Currency Union, the idea is not to add to the power of big private corporations, including big financial corporations, but on the contrary, to underline the fact that economies are supposed to be run to focus on production, productivity, and the creation of a broad-based prosperity, full employment, et cetera, which is exactly the opposite of what the US wants to do. So the United States’ pursuit of the interests of big corporations is not served by agreeing to such a system. So we will not see that. But we will see regional equivalence of that, partial equivalence of that, and the principles involving the bancor system are very important. One of the first ones is, the whole issue of balanced economic growth and investment and trade versus imbalance. The dollar system, because it’s based on essentially the US running current account deficits, rests systematically on the generation of imbalances. The bigger the imbalance is, the more liquidity that is provided to the world system, which then means that there is a fundamental volatility in the system. Keynes, on the other hand, had designed the ICU and Bancor, and we’ll see that the regional arrangements will also have to eventually see the wisdom of this, in order to reduce imbalances. Yes, the bancor was created in order to settle imbalances, but the way the ICU was designed was to ensure that imbalances did not persist. And the more balance you have in world trade, in world investment relations, what that does is it actually reduces the need for the use of any currency, because if there is no imbalance to settle, there is no need for the money. And it also creates an incentive. For example, imagine if the relations between Germany and the rest of the EU were run on bancor-like principles, Germany would have to invest in the productive development of Greece in order to bring Greece up to the level at which it would be able to buy as much of German products as it sold to Germany and vice versa. So the trade between these countries would grow. It would increase the well-being of Germans and Greeks, but it would do so in a balanced fashion so as to not store up problems for later. MICHAEL HUDSON: Well, Germany has been investing in Greece, but not in a way that has increased balance. When Greece was in financial trouble, Germany bought out the electric utilities and some others and has been charging monopoly rents. The German objective is to impoverish Greece to the maximum degree possible in order to create profits for the German firms. When Keynes talked about reducing imbalances, he didn’t mean reducing instability. Any economic system, even under a reformed system that the world is bringing about, is going to polarize. Any economy, the natural tendency is to polarize, especially because of debt. We’ve talked before about how debt grows faster than the economy. That polarizes. Keynes accepted the fact that there was going to be continuing imbalance that was, in fact, going to grow. What he wanted to do was not deny this imbalance, not create a system of balance, because that’s really not possible. But, when it’s imbalanced, you would actually cancel the accumulation of debt by the creditor countries, and you would wipe out the debt of the debtor countries so that they weren’t reduced to having to live like Argentina had to live. They’re not imposing austerity on themselves. The result of the imbalance will be wiped out. The imbalance itself won’t be cured, but the results of the imbalance will be wiped out, so that the world can have some restoration of order, some restoration of normalcy and solvency. You have to maintain some way of keeping economies solvent, and under finance capitalism, under any financialized system, the tendency is for the financial sector to take over the real economy and the only solution, Keynes said, is to wipe out the debts that are built up by the financial creditors. You wipe out the debts and at the same time the creditors’ claims on others, and that’s what the bancor systems did, and that’s why the United States rejected this claim in 1945, because they said, — Well, wait a minute, over the next five years, by 1950, we’re going to increase our holdings of gold, as indeed they did. — We’re going to increase other countries’ debt, of England and Europe, as indeed it did. — We don’t want to wipe it out. We want to use this to consolidate our power. That’s what our power is. So Keynes’ system is designed to prevent any country from achieving the kind of power that the United States achieved as a creditor nation. The fact is, if you had a bancor, this would mean that if China becomes a major investor in the major economy, yes, it can continue to develop, to build up credits, but at a certain point, the accumulation of Chinese financial claims on other countries, namely other countries’ debt to China, will simply be wiped out. And Keynes had a mechanism to wipe this out after a given number of years. So governments have to avoid trying to profit at other governments’ expense. That’s the problem that really has to be solved by governments getting together and creating the kind of alternative to neoliberal financialization that we’re talking about. RADHIKA DESAI: Yeah. I would just put it, the point you were making about balance and imbalance, Michael, in a slightly different way. I would say that Keynes, of course, knew that imbalances could not be entirely wiped out. But what he did was he ensured that imbalances would not persist. There would not be persisting imbalances. You would not have the situation that we’ve had for the last so many decades of US current account deficits continuing to grow exponentially, essentially, and of course, capital flows also continuing to grow. He proposed to correct that, essentially, by focusing on the productive economy. It was not merely a financial correction. He basically created incentives for countries that were accumulating surpluses. Remember also that one of the key principles of Keynes’s system was that adjustment should not be imposed only on the debtor and deficit countries, but also on the surplus and creditor countries, so that [both countries are always involved]. Because one country’s trade surplus is another country’s trade deficit, or vice versa. So all the countries involved should look for win-win solutions. And by the way, it’s not surprising that the Chinese government in particular keeps using this expression because it is indeed the opposite of what the US system offers. The US system is a zero-sum game. Somebody wins and somebody loses, whereas it is possible to devise rules of the game that are win-win. So, no persistent imbalances. And yes, the devising of a bancor, a multilaterally created currency to be used only by central bankers and therefore not to be used, as I always like to say, by the likes of you and me to buy a bar of chocolate, but also not to be used by wealthy individuals to accumulate wealth, to indebt others, and so on and so forth. So that’s one principle. So it is designed in such a way as to essentially prevent precisely the type of financialization that hangs like an albatross around the neck of the world economy today. There are a couple of other principles as well. From the start, in these de-dollarization programs, we’ve emphasized that the idea that any national currency can easily be the world’s currency is very problematic. We’ve explored the problems with the sterling system, with the dollar system, et cetera. So it therefore follows logically from this that, going forward, we should not expect that this should be replaced by the yuan or any other currency. In fact, you will be seeing these other arrangements. And key, another very important principle of this for Keynes, I think it was practically sacrosanct, was the institution of capital controls or what we call capital account management. Because without capital controls, the type of productive economy that Michael is referring to, and that we both believe should really be what all countries strive for, is not possible. If you allow the rich people of your country to take money in and out of your country whenever they like, you are tying yourself to a form of economic management, which is the opposite of economic management for productive expansion, for egalitarian economies, and so on and so forth. I’ll make one final point and then we’ll probably draw this program to a close. I’m sure Michael will have lots to add. Let me start winding down by saying that, of course, in the near future, we will witness internationalization of the yuan for sure and maybe some other currencies as well. But if you are going to keep to the sorts of principles that underlay Keynes’s ingenious proposals, then you will not see the yuan being internationalized on the model of the dollar. I always get so intrigued that people don’t get things. Every other day you will read a story saying, — Oh, the yuan will never replace the dollar because it will never be internationalized like the dollar. Well, you’re darn right it won’t be internationalized like the dollar, and it should not be. Because if it were internationalized like the dollar, the Chinese productive economy would suffer the fate of the American productive economy, which is essentially going down the drain. So internationalization of the yuan will proceed, but on very different principles. So the yuan will not become the foundation, for example, of new types of financial bubbles or new types of unsustainable indebtedness that Michael is always talking about when he says that debts that can’t be paid won’t be paid. So Michael, please go ahead. MICHAEL HUDSON: Well, changing a financial system requires changing the whole economic system. And if the purpose we’ve been discussing is: How are you going to make the countries that today are indebted, the Global South countries, how are you going to enable them to get to the future? Well, there’s only one way that you can have them revive, and that is to create a mixed economy. Government is going to have to play a major role in reviving these economies through government infrastructure. The key is that basic natural monopolies, transportation, communications, health care cannot be financialized. They’re going to be done by the government. That is the reason. That is how China has been able to make the amazing gains that it’s made over the last 30 to 40 years. So what we’re talking about is how do you make the whole world have the kind of success that China has had for 40 years and not have the kind of dependency and austerity that the US dollar system has had? Well, you’re going to have to have government taking a lead. This is why the United States is fighting so viciously to prevent this from happening. It’s not simply preventing an alternative to the dollar as a currency. It’s preventing the financial system from being outmoded and replaced by a mixed public-private economy. I want to quote one thing that Janet Yellen, the militarized Treasury Secretary said. She’s sort of in the line of Madeleine Albright and Hillary Clinton and Ms. Rice. The most vicious American supremacists all seem to be women these days. Here’s what Ms. Yellen complained about last week. I’m going to quote. “China has long used government support to help its firms gain market share at the expense of foreign competitors.” In other words, it succeeded in developing. That’s called at their expense. “But in recent years, its industrial policy has become more ambitious and complex. China has expanded support for its state-owned enterprises and domestic private firms to dominate foreign competitors.” In other words, a mixed economy and government support works. That’s why the United States has been subsidizing its computer chip [industry] so much. She said, “It has done so in traditional industrial sectors as well as emerging technologies. This strategy has been coupled with aggressive efforts to acquire new technological know-how and intellectual property. That must be blocked.” Well, imagine the American plan is to gain control of the number of sectors that Ms. Yellen indicated, the information technology, computer chip making. The United States insists that only the United States can control computer chips, so that it can sell computer chips not simply for the cost of production, but for a huge monopoly rent that economists call international property rent. In the last few days, you’ve had the Korean president meet with President Biden, who said, — We want to make sure that you are not going to sell computer chips to China. We are trying to prevent China from having technology. That’s how the dollar system works. The dollar system is based on concentrating all natural monopolies in the United States, the monopoly of ownership of oil and gas reserves, the monopoly of computer technology, the information technology, pharmaceutical and health technology. The dollar system is really a concentration of monopoly rents in the United States dollars, which is supposed to create a huge increase in the stock market value of Amazon and Google. And they’ve been leading last week’s stock market boom. The Americans say, we can create all other countries to be not only financially dependent on the dollar, but trade dependency. And that’s the key. You can’t understand the financial system of dependency without understanding the trade dependency that America has tried to create for oil and gas, for food exports, blocking Russia, for technology exports. This is the whole system that has to be taken on. And the amazing thing is that, unlike 50 years ago, you had other countries describing the benefits of their system. China has not come out with any attempt to proselytize its economic plans, its economic philosophy, that has enabled it to develop as an alternative to US philosophy. It has simply done it. So it’s really the job of other countries. Other countries are now going to have to be very explicit. Yes, we need government investment. What should the government invest in? Natural monopolies and research and development, just as the United States has done. And in fact, China has simply been following the policies that made America rich. And the idea of a new financial system is that all countries will have this government support in stabilizing. So we’re really talking about not only a financial alternative to the dollar, but a mixed economy as contrasted to a finance bank-driven economy. RADHIKA DESAI: You know, Michael, you so well described the new economic system that’s possible now, as the dollar system goes into its twilight phase, and you see the emergence of international monetary and financial structures which are more conducive to a new type of economic paradigm. And I was reminded, I often think of the type of economy that you see today in the United States or in the UK, for example, which are all chasing after existing assets in a way that is actually undermining the real economy, which is the production of new goods and services, which is absolutely vital to the maintenance of life. So I think of the US system today as a necrophilic system, based on the love of the dead, the already-dead labor that is already-produced assets. Whereas I think what we want to see is an economic system which is “vitaphilic”, that is to say, based on a love of life, that is about creating full employment, ensuring that all the productive capacities of the society get their expression. Historically we know that free market systems have tended not to produce these kinds of economies, but state interventionist systems have. In the post-Second World War period, in practically all countries, in socialist countries throughout, until today, we have had systems involving planning, focusing on full employment, involving substantial state ownership, creating welfare states. And based fundamentally on financial repression, which is ultimately about stopping this necrophilia and creating a type of bank industry relations, which we also talked about earlier, that Hilferding described as being based on finance capital, that is to say a financial system able to drive forward productive expansion rather than strangulating it, the type of financial system which basically China more or less has today. And which it should preserve rather than undermine, and we are pretty sure it will, even while it may allow, for example, a certain amount of internationalization of the renminbi, et cetera. So I think we can bring this show to a close by just perhaps reminding you of some of the works in which we’ve talked about this. Over the last four de-dollarisation shows, we’ve talked a lot about the international monetary systems, the history, its present, and Michael and I have written a number of things. There’s my Geopolitical Economy, then there is Michael’s Super Imperialism, and there is also Michael’s The Destiny of Civilisation: Finance Capitalism, Industrial Capitalism, or Socialism, very important in talking about what Michael was just talking about just now, the different types of economic systems that we need to see developing now. And then finally my most recent book, Capitalism, Coronavirus and War. And sorry, there’s one more thing, Michael and I wrote a common article, “Beyond the Dollar Creditocracy“, which also talks about all of this. So hopefully this has been very interesting to you all. Next week we hope to talk about the political economy of the conflict over Ukraine, looking at the political and geopolitical economy of both what’s happening in Ukraine, in Russia, in Europe, in the rest of the world, in the United States, et cetera. So we hope you’ll join us, and for now we’ll just say goodbye.

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David Sacks, Elon Musk, Fed, Federal Reserve, inflation, Jerome Powell, PayPal Mafia, Peter Thiel, Silicon Valley, Silicon Valley Bank, SVB

The US Federal Reserve printed $300 billion in a week to save collapsing banks and bail out Silicon Valley oligarchs. 93% of Silicon Valley Bank’s deposits were uninsured, over the FDIC limit of $250,000, but the government still paid them. 56% of SVB’s loans went to venture capitalist and private equity firms. The US government printed $300 billion in a week to save collapsing banks and bail out Silicon Valley oligarchs and venture capital firms, paying them all of their uninsured deposits. Meanwhile, some of the very same Silicon Valley tycoons who benefited from this bailout have tried to cynically rebrand themselves as subversive populists, claiming they are fighting against the big Wall Street banks with which they have closely collaborated. Three banks collapsed in the United States in the span of one week in March 2023: Silvergate Bank, Silicon Valley Bank, and Signature Bank. Silicon Valley Bank was the 16th-biggest bank in the country, and the second-largest bank to go under in US history. It had $209 billion in assets, and went down in the biggest bank run ever. Signature Bank was the third-largest bank to collapse in US history, with $118 billion in assets. In the week between March 8 and March 15, 2023, the Federal Reserve effectively printed a staggering $300 billion to stabilize the banking system – and bail out Silicon Valley Bank’s and Signature Bank’s uninsured depositors. Bank deposits in the United States are insured up to $250,000 by the US government’s Federal Deposit Insurance Corporation (FDIC), which was created during the Great Depression as part of President Franklin Delano Roosevelt’s New Deal. More than 93% of the $161 billion in deposits at Silicon Valley Bank (SVB) were above this FDIC limit, however, meaning any amount above $250,000 in those accounts was not insured by the government. Similarly, 90% of Signature Bank’s deposits were uninsured, surpassing the FDIC limit. Despite this, the Fed made the depositors whole. The Associated Press reported that $143 billion of the $300 billion that the Fed printed went to holding companies for Silicon Valley Bank and Signature Bank, which were being managed by the FDIC. (The AP added, “The Fed did not identify the banks that received the other half of the [$300 billion in] funding or say how many of them did so”.) “The money they borrowed was used to pay their uninsured depositors”, the AP noted. In doing so, the government has essentially conveyed the message that all deposits in banks in the United States are insured, well above the $250,000 FDIC limit. This encourages depositors to put their money in risky banks that offer much higher rates of interest, like SVB and Signature did. US President Joe Biden and Treasury Secretary Janet Yellen claimed that the government was not bailing out these banks, but their comments were deeply misleading. The banks’ shareholders were not technically bailed out, but their wealthy depositors were. Silicon Valley Bank and Signature Bank are insolvent, but as collateral for the $143 billion in “loans”, the Fed accepted their Treasury bonds at par – meaning significantly more than they are actually worth on the market, using the face value written on the securities when the banks purchased them, before Fed interest rate hikes caused bond prices to crash. “This is a subsidy, this is why I called it the real bailout”, economist Daniela Gabor wrote in exasperation, adding, “in my 15 years of researching central banks collateral I have never heard one single central banker contesting this common wisdom: never, ever par value”. Gabor referred to this as a kind of “regime change”, explaining, “The real bailout story is the regime-change in the Fed’s treatment of collateral: Par value goes against every risk management commandment of the past 30 years. It turbocharges the monetary power of collateral”. forget about SBV liabilities for a second, the real bailout story is the regime-change in the Fed's treatment of collateral: par value goes against every risk management commandment of the past 30 years. it turbocharges the monetary power of collateral pic.twitter.com/7T0M8QUrrn — Daniela Gabor (@DanielaGabor) March 13, 2023 In addition to the bailout of wealthy, uninsured depositors at Silicon Valley Bank and Signature Bank, the Fed gave $153 billion through its “discount window” to stabilize other banks. The AP reported that this was “a record level for that [discount window] program“, noting that, “Typically in a given week, only about $4 billion to $5 billion is borrowed through this program”. Many media reports have presented Silicon Valley Bank as a financial lifeline for start-up companies, but this portrayal is misleading. Venture capitalist and private equity firms were SVB’s main customers, making up 56% of its loan portfolio at the end of 2022. Only around 20% of the bank’s loans went directly to start-ups and tech companies. SVB’s “chief business was making loans through fund subscription lines to venture capital firms“, MarketWatch reported. “The same venture capital investors that the bank had supported for years ended up killing it”, the website summarized. Forbes cited an analyst who explained, “SVB is also not your average regional bank… They are a niche bank catering to the venture capitalist crowd and are not a traditional everyday consumer bank”. Like SVB, Signature Bank worked closely with venture capital and private equity firms. Another important customer base consisted of cryptocurrency companies, which made up around 20% of total deposits. The financial website Wall Street on Parade explained that Silicon Valley bank “was a financial institution deployed to facilitate the goals of powerful venture capital and private equity operators, by financing tech and pharmaceutical startups until they could raise millions or billions of dollars in a Wall Street Initial Public Offering (IPO)”. Wall Street on Parade analysts Pam Martens and Russ Martens went even further, documenting how SVB was in essence bailed out by the US government throughout 2022, before it crashed. They wrote (emphasis added): To put it bluntly, this was a Wall Street IPO machine that enriched the investment banks on Wall Street by keeping the IPO pipeline moving; padded the bank accounts of the venture capital and private equity middlemen; and minted startup millionaires for ideas that often flamed out after the companies went public. These are the functions and risks taken by investment banks. Silicon Valley Bank – with this business model — should never have been allowed to hold a federally-insured banking charter and be backstopped by the U.S. taxpayer, who was on the hook for its incompetent bank management. We say incompetent based on this fact alone (although there were clearly lots of other problem areas): $150 billion of its $175 billion in deposits were uninsured. The bank was clearly playing a dangerous gambit with its depositors’ money. Adding further insult to U.S. taxpayers, the Federal Home Loan Bank of San Francisco was quietly bailing out SVB throughout much of last year [2022]. Federal Home Loan Banks are also not supposed to be in the business of bailing out venture capitalists or private equity titans. Their job is to provide loans to banks to promote mortgages to individuals and loans to promote affordable housing and community development. According to SEC filings by the Federal Home Loan Bank of San Francisco, its loan advances to SVB went from zero at the end of 2021 to a whopping $15 billion on December 31, 2022. The SEC filing provides a graph showing that SVB was its largest borrower at year end, with outstanding advances representing 17 percent of all loans made by the FHLB of San Francisco. Despite the fact that SVB was linked with a virtual economic umbilical cord to Wall Street, some Silicon Valley oligarchs like David O. Sacks have cynically tried to portray the US government bailout as a blow to the big banks. Sacks is a member of the infamous PayPal Mafia, which The Telegraph newspaper described as “the richest group of men in Silicon Valley“. In a soft-ball interview on the Jimmy Dore Show, Sacks claimed the Fed bailout was needed to save a “vibrant regional banking system” from the big four banks that the government has deemed “systemically important” (JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo). Sacks did not mention that he has made many investments in Silicon Valley companies that stand to benefit from the Fed bailout. .@DavidSacks tells @jimmy_dore that all the money would have ended up in the hands of the four largest banks if the Federal Reserve didn't support regional bank depositors: "The person who is licking his chops over this whole thing, who doesn't want a bailout of the regional… pic.twitter.com/1YfmPyIHd5 — kanekoa.substack.com (@KanekoaTheGreat) March 16, 2023 Sacks has been a key investor in Silicon Valley giants like Facebook, Uber, and Airbnb. His net worth is not publicly known, but he is estimated to have hundreds of millions of dollars in wealth, at the very least. In 2021, Sacks bought a $23.2 million mansion in Hollywood Hills, Los Angeles. He also has a San Francisco mansion valued at more than $44 million. After selling another $22 million mansion in Silicon Valley, Sacks purchased an additional $17 million mansion on Florida’s Miami Beach. Sacks was an early investor in the CIA-backed data mining company Palantir Technologies. Palantir was co-founded by Sacks’ longtime friend, and fellow PayPal Mafia member, Peter Thiel, a far-right billionaire who was a major funder of Donald Trump’s 2016 presidential campaign. Palantir’s clients include Wall Street banks, the CIA, FBI, and National Security Agency (NSA), the notorious US government body that engages in mass surveillance – which is quite ironic, given that Thiel and Sacks often use civil libertarian rhetoric to rail against statist “authoritarianism”. Today, Thiel is a top donor to the Republican Party. Sacks is also a significant campaign contributor to so-called “populist” GOP politicians, like J.D. Vance and Blake Masters – both of whom worked for Thiel. Thiel, Sacks, and their Silicon Valley oligarch friends have spent decades advocating right-wing culture war propaganda. In 1998, Sacks co-wrote a book with Thiel, titled “The Diversity Myth: Multiculturalism and Political Intolerance on Campus”. The two Stanford graduates recalled their experience at the elite university and the supposed “anti-Western zealotry that masquerades as legitimate scholarly inquiry”. After graduating from Stanford Law School, Thiel began his career at a Wall Street law firm closely linked to the CIA, Sullivan & Cromwell, where the Dulles Brothers got their start. Similarly, David Sacks kicked off his career working at McKinsey & Company, the notorious consulting firm that is so close to the CIA, the spy agency paid McKinsey more than $10 million to help it with reorganization. Another major Silicon Valley company that Sacks has invested in is SpaceX, founded by billionaire oligarch Elon Musk, a personal friend of his – and, again, fellow PayPal Mafia member. PayPal Mafia members have spent years advocating for right-wing Ayn Randian libertarian ideology. Thiel declared in the libertarian publication CATO Unbound, “I stand against confiscatory taxes, totalitarian collectives, and the ideology of the inevitability of the death of every individual”. Despite this, many PayPal Mafia oligarchs have enjoyed billions of dollars of contracts with US government agencies, as well as billions more in state subsidies. Musk is the perfect example of this hypocrisy. In a 2015 exposé titled “Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies“, the Los Angeles Times noted that SpaceX, as well as Tesla and SolarCity, received billions in state funds. One entrepreneur (Elon Musk). Three companies (Tesla, SolarCity and SpaceX). $4.9 billion in government support: http://t.co/uW062mPz7V — Los Angeles Times (@latimes) June 1, 2015 Musk’s companies benefited from a “variety of government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It also includes tax credits and rebates to buyers of solar panels and electric cars”, the Times wrote. The level of US government support for Musk has only increased since 2015. Musk has provided his Starlink satellite internet technology to Ukraine, helping NATO wage a proxy war against Russia. Musk has also put his Starlink tech in Iran, in a blatant violation of the country’s sovereignty, as part of a US government-backed regime-change operation. This came after Musk personally had meetings with the Biden White House. The White House has held discussions with Elon Musk about putting Starlink internet terminals on the ground in Iran to aid protesters, according to CNN, turning to Musk despite reported national security concerns over his recent threat to cut off Starlink service to Ukraine. pic.twitter.com/4gG2o4UGpB — Forbes (@Forbes) October 21, 2022 After a US-backed, far-right coup against a democratically elected socialist government in lithium-rich Bolivia in 2019, Musk declared on Twitter: “We will coup whoever we want! Deal with it”. What all of this shows is that Silicon Valley is inextricably linked to the US government, and specifically the national security state. While avowedly preaching right-wing political ideology and libertarianism, waxing poetic on the importance of capitalist entrepreneurship and individual responsibility, these Silicon Valley oligarchs are essentially the biggest welfare recipients in US history – alongside the military-industrial complex. Peter Thiel, whose investment fund helped set off the bank’s collapse, said, “I had $50m of my own money stuck in SVB” when it collapsed. The Federal Reserve printed hundreds of billions of dollars to make sure that oligarch depositors like Thiel didn’t lose a penny. In contrast, the cost of ending homelessness in the United States has been estimated at $8.1 billion per year. Similarly, the United Nations reported, “To end extreme poverty worldwide in 20 years, economist Jeffrey Sachs calculated that the total cost per year would be about $175 billion. This represents less than one percent of the combined income of the richest countries in the world”. The Fed’s bailout was a stark reversal of the quantitative tightening policies that the US central bank had been pursuing for a year, in an attempt to reduce the money supply and fight consumer price index (CPI) inflation. The Fed’s interest rate hikes have caused economic hardship for workers in the US and around the world. But these humble people don’t get bailouts. In fact, Federal Reserve chairman Jerome Powell made it clear that the US central bank’s mission is to reduce the purchasing power of workers. The Fed hopes “to get wages down”, Powell admitted in a press conference in May 2022. He complained, “Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years”. While the Fed blames worker compensation, nevertheless, real wages have been declining in the US, falling by -0.9% in the first half of 2022. Skyrocketing rent is the biggest driver of US consumer price index (CPI) inflation (core services include rent) Pandemic supply chain issues caused goods inflation, but it's mostly resolved. Energy prices are dropping. Food inflation is still high, but rent is the largest factor pic.twitter.com/Dsqh2tnp8G — Ben Norton (@BenjaminNorton) February 22, 2023 The biggest driver of CPI inflation is not wages; it is in fact skyrocketing rent, followed by the monopoly prices set by food corporations. Rent in the US increased by 8.6% in 2022 alone. Housing inflation is rising at the fastest rate since the record highs of the 1980s. "Housing inflation has been an outsized driver of price growth" in the US. Rent prices increased 8.6% over the last year. "That’s the fastest pace in more than 40 years" — close to the all-time highs registered in the 1980s.https://t.co/ADSubzF9Qr pic.twitter.com/cPcdNzCC6w — Ben Norton (@BenjaminNorton) February 22, 2023 At the same time, the Fed has additionally intervened to make sure that there is not more government regulation of the commercial banks. The New York Times reported that Powell “blocked efforts to include a phrase mentioning regulatory failures in the joint statement” on the SVB crash that was published jointly by the Fed, Treasury, and FDIC. “Some administration officials wanted to include that lapses in bank regulation and supervision had contributed to the problems that helped fell the bank”, but “Powell pushed to take the line on regulation out of the statement”, the Times wrote. Similarly, NBC News noted that neoliberal “Senate Democrats who voted to loosen regulations on midsize banks in 2018 are standing by their votes in the wake of Silicon Valley Bank’s collapse, joining Republicans in resisting enhanced scrutiny for financial institutions“. It added that these conservative Democrats “voted with Republicans in 2018 to ease regulatory scrutiny of banks with assets of $50 billion to $250 billion after an array of banks, including Silicon Valley Bank, lobbied for the relief”. So not only were Silicon Valley Bank and Signature Bank and their wealthy depositors bailed out by the government, but there will be no increased regulation to prevent this kind of crisis from happening again. The very politicians in Washington whose electoral campaigns are heavily funded by the financial sector have made sure that the system will continue as before, with two separate sets of rules: one for wealthy capitalists in Silicon Valley and Wall Street, who get bailed out when they’re in trouble; and one for everyone else, who always get told to pull themselves up by their bootstraps.

Write an article about: US bank bailout benefited billionaires, exposing corruption: ‘I understand why Americans are angry’. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Barney Frank, David Sacks, Elizabeth Warren, FDIC, Fed, Federal Reserve, inflation, interest, Martin Gruenberg, Michael Hudson, Peter Thiel, Sherrod Brown, Silicon Valley, Silicon Valley Bank, SVB, Wall Street, Wall Street on Parade

Before it collapsed and its billionaire depositors were bailed out by the US government, Silicon Valley Bank successfully lobbied Congress to remove regulations on it. A senator admitted, “I understand why Americans are angry, even disgusted”. When current US Treasury Secretary Janet Yellen served as chair of the Federal Reserve in 2017, she confidently predicted that there would not be another financial crisis “in our lifetimes”. Less than six years later, in March 2023, three US banks collapsed in just one week. Silicon Valley Bank and Signature Bank were the second- and third-largest banks to go under in US history. And after they crashed, the government immediately bailed out their wealthy depositors. Among the main beneficiaries of this bailout were billionaires and big corporations. The government’s Federal Deposit Insurance Corporation (FDIC) insures US bank deposits up to $250,000 per customer. More than 93% of Silicon Valley Bank’s deposits and 90% of Signature Bank’s deposits exceeded this FDIC-insured limit. The average deposit at Silicon Valley Bank (SVB) was around $5 million. The 10 largest accounts at SVB, together, held a staggering $13.3 billion. Despite the fact that these billionaire accounts were thousands of times larger than the FDIC-insured limit, the US government paid all of the uninsured deposits. The oligarchs and huge corporations who knowingly held billions of dollars of uninsured funds in the banks were not forced to take a haircut; they didn’t lose a cent. Geopolitical Economy Report previously noted how the US Federal Reserve printed $300 billion in one week to stabilize the banking system. According to the Associated Press, $143 billion of that $300 billion was borrowed by FDIC-managed holding companies for SVB and Signature Bank and used to pay their uninsured depositors. On March 28, a hearing organized by the Senate Committee on Banking, Housing, and Urban Affairs provided even more information about this scandal. In written testimony for the hearing, the chairman of the FDIC, Martin Gruenberg, revealed (emphasis added): At SVB [Silicon Valley Bank], the depositors protected by the guarantee of uninsured depositors included not only small and mid-size business customers but also customers with very large account balances. The ten largest deposit accounts at SVB held $13.3 billion, in the aggregate. … The FDIC estimates that the cost to the DIF [Deposit Insurance Fund] of resolving SVB to be $20 billion. The FDIC estimates the cost of resolving Signature Bank to be $2.5 billion. Of the estimated loss amounts, approximately 88 percent, or $18 billion, is attributable to the cost of covering uninsured deposits at SVB while approximately two-thirds, or $1.6 billion, is attributable to the cost of covering uninsured deposits at Signature Bank. As journalist David Dayen noted, this means that more than $13 billion of the $18 billion (over 72%) that the US government paid to bail out uninsured Silicon Valley depositors went to these 10 huge billionaire accounts. This is from FDIC chair Gruenberg's testimony tomorrow. Combine the previous with this bit:$13 billion of the $18 billion in uninsured deposit losses came from 10 billionaire accounts. pic.twitter.com/b96D30sRuO — david dayen (@david_dayen) March 28, 2023 The chair of the committee, Senator Sherrod Brown, a relatively progressive Democrat from Ohio, stated in the hearing, “I understand why Americans are angry, even disgusted, at how quickly the government mobilized when a bunch of elites in California were demanding it. People have a pretty good sense of whose problems get taken more seriously than others in this town [Washington]”. Brown noted that Silicon Valley Bank went nearly a year without a chief risk officer, and Signature Bank allowed fraudster Sam Bankman-Fried of the failed cryptocurrency exchange FTX to open multiple accounts. “It’s all just a variation of the same theme, the same root cause of most of our economic problems: wealthy elites do anything to make a quick profit and pocket the rewards. And when their risky behavior leads to catastrophic failures, they turn to the government asking for help, expecting workers and taxpayers to pay the price. And too often, workers do”, Brown said. “It appears that, when there is a bank crash, there are no libertarians in Silicon Valley”, he added. The populist rhetoric in the Senate today stands in stark contrast to the Congress of just six years ago, which happily gave in to lobbyists and cut regulations on some of the very same banks that are failing today. In 2018, both Republicans and Democrats passed legislation that deregulated medium-sized banks. This was a partial reversal of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which was approved in response to the financial crash of 2008. Former President Donald Trump had criticized the increased post-2008 regulation of the financial sector and pledged to “do a big number on Dodd-Frank”. Breaking News: Congress voted to repeal part of the Dodd-Frank law passed after the 2008 financial crisis. The move eases rules on all but the biggest banks. https://t.co/2TDxCEhk51 — The New York Times (@nytimes) May 22, 2018 Although the 2018 regulatory rollback was pushed largely by the Republican Party, which controlled the government at the time, it also had the support of many neoliberal Democrats. The New York Times described the “rare demonstration of bipartisanship” as “a substantial watering down of” Dodd-Frank, noting the “legislation will leave fewer than 10 big banks in the United States subject to stricter federal oversight, freeing thousands of banks with less than $250 billion in assets from a post-crisis crackdown”. In an Shakespearean twist, one of the banks that had successfully lobbied Congress for the lifting of these regulations was none other than Silicon Valley Bank. Today, many of the neoliberal Democrats who joined with Republicans in rolling back Dodd-Frank in 2018 are opposing calls for new regulations in the wake of the latest banking crisis. Moderate Senate Democrats who voted to loosen regulations on midsize banks in 2018 are standing by their votes in the wake of Silicon Valley Bank’s collapse, joining Republicans in resisting enhanced scrutiny for those financial institutions. https://t.co/RenU7PgNzs — NBC News (@NBCNews) March 16, 2023 Perhaps the most shocking symbol of the systemic corruption in Washington is the namesake of the Dodd-Frank law himself: former Democratic House Representative Barney Frank. In 2015, two years after he left Congress, Frank accepted a lucrative position on the board of Signature Bank, which crashed this March in the third-biggest bank collapse in US history. The Financial Times interviewed Frank after the collapse, and reported that “the Democrat said he had no regrets about joining Signature’s board“. Frank defended his decision by simply stating, “I need to make some money”. The newspaper calculated that Frank made $2 million for sitting on the bank’s board. The Times added, “While Frank never officially registered as a lobbyist, he had publicly argued that Dodd-Frank’s $50bn threshold for triggering greater regulatory oversight was too low”. The 2018 legislation that his Congressional successors approved axed that $50 billion threshold. Barney Frank defends role at Signature Bank: ‘I need to make money’ https://t.co/Ed5U4ODDmP — Financial Times (@FT) March 15, 2023 In the March 28 Senate Banking Committee hearing, Democratic Senator Elizabeth Warren acknowledged the cozy relationship between the government’s Federal Deposit Insurance Corporation and the banks it is supposed to regulate. Warren fumed at the FDIC chairman, Martin Gruenberg, “Once the Fed began torching rule after rule in 2018 for big banks, the FDIC under your predecessor [Jelena McWilliams] joined in on the fun and also started weakening FDIC rules across the board, capital and liquidity requirements, stress tests, you name it”. “In fact, your predecessor explicitly told these banks that if FDIC bank examiners were asking too many questions that they should ‘let us know'”, Warren added. “Now there’s a banking regulator who makes it clear that she is there to serve the big banks instead of the American public”. Warren was referencing information disclosed in a 2018 Wall Street Journal report, titled “Banks Get Kinder, Gentler Treatment Under Trump“. The article revealed that the Trump administration had appointed two top officials, FDIC chair Jelena McWilliams and Federal Reserve vice chair for supervision Randal Quarles, who aimed “to change policy in a subtle but significant way and reshape regulators’ relationship with banks, which officials have said was too contentious”. McWilliams and Quarles “spent several months touring the country, visiting bank examiners in regional offices and asking them to adopt a less-aggressive tone when flagging risky practices and pressing firms to change their behavior”, the Journal wrote. Foreshadowing the crisis that would come just over four years later, the report noted, “Critics say friendlier examiners could blunt the effect of postcrisis rules, giving banks more freedom to engage in riskier practices”. Trump-appointed regulators have asked bank examiners to adopt a less aggressive tone when working with firms https://t.co/9PqSfYQ89U — The Wall Street Journal (@WSJ) December 12, 2018 In another ironic twist, the Journal added in the December 2018 article that the “Fed plans to remove a key liquidity requirement for midsize banks with $100 billion to $250 billion in assets”. Commenting on this scandalous example of regulatory capture in the wake of the March 2023 banking crisis, the Yale University School of Management’s Program on Financial Stability wrote (emphasis added): The failure of Silicon Valley Bank (SVB) after a run by uninsured depositors has focused attention on bank liquidity regulation in dramatic fashion. Less than four years ago, the US bank regulators, following an Act of Congress, ruled that most banks with between $50 billion and $250 billion in assets would no longer be subject to the liquidity coverage ratio, or LCR, or other enhanced prudential standards that they apply to the most systemically important banks. … The LCR rule requires banks to hold sufficient high-quality liquid assets (HQLA) to manage expected net cash outflows in a 30-day stress scenario. Under the original 2014 version of the rule, banks with $250 billion in assets or $10 billion in foreign exposures had to maintain their LCR ratios above 100%. SVB would have been subject to that ratio because its foreign exposures met the threshold. We reviewed SVB’s public financials and concluded that its LCR would have been 75% at the end of 2022, substantially below the threshold. This result suggests that the [Federal Reserve’s] 2019 tailoring rule was complicit in the run and failure at SVB. Of course, if the bank were subject to the rule, its supervisors would not have allowed its LCR to fall so far. Supervisors shouldn’t just react when a bank breaches a limit—they should act when limit breaches become foreseeable. Even under its existing regulatory framework, SVB’s supervisors should have identified the liquidity risks the company faced due to its high concentration to, and run-inducing dependence on, a specific type of corporate depositor. In response to the March 2023 US banking crisis, the former chief of the UK’s central bank, Mark Carney, said the scandal will “require some rethinking of the assumptions behind liquidity coverage ratio, the net stable funding ratio”. Reuters noted that the Basel III international regulatory banking standards that were put in place after the 2008 crash were only applied to the largest banks in the United States. Carney commented, “It’s a good idea to actually put in place the net stable funding ratio. That was one of the reforms not applied fully in the U.S. and, you know, with some cost”. Geopolitical Economy Report previously showed how supporters of the US government bailout of Silicon Valley Bank, such as right-wing tech oligarch David Sacks, cynically tried to portray the institution as a kind of community bank. According to their narrative, the bailout was necessary to save regional banks and the small businesses they supposedly serve. But SVB’s main clients were in reality venture capitalists, not mom-and-pop stores. More than half of SVB’s loans (56%) went to venture capitalist and private equity firms. Analysts Pam Martens and Russ Martens at the financial news website Wall Street on Parade described SVB as “a Wall Street IPO pipeline in drag as a federally insured bank”. Like SVB, among Signature Bank’s most important clients were venture capital and private equity firms, as well as cryptocurrency companies, which made up roughly 20% of its total deposits. An example of a billionaire oligarch who benefited from the US government bailout was far-right Donald Trump donor Peter Thiel, who said “I had $50mn of my own money stuck in SVB” when the bank went down. Ironically, Thiel helped initiate the bank run on SVB in the first place, but he reportedly did not think it would collapse. While his administration bailed out these wealthy depositors, US President Joe Biden claimed it was not a bailout, stating “no losses will be borne by the taxpayers. Let me repeat that: No losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund”. This claim is misleading. The FDIC’s Deposit Insurance Fund (DIF) is based on fees paid by all FDIC-insured banks (not just SVB and Signature Bank) – essentially taxes that the banking system pays in order to have the backing of the US government. But where does the money come from that those banks pay to fill the DIF? Ultimately it is the banks’ customers who pay for it – that is to say, mostly average working people, who are the taxpayers. So while this DIF money used to bail out SVB’s billionaire depositors is not direct taxpayer money, it still ultimately comes from the taxpayers. It’s not like commercial banks in the United States are losing money. On the contrary, since 2021, banking profits have been at record highs. The FDIC reported that the banks that it insures made a staggering $263 billion in net income in 2022, and an even more stratospheric $279.1 billion in 2021. (Net income is a firm’s profits after subtracting all taxes and other expenses from revenue. It is even higher than a firm’s gross profits, which do not include taxes or other expenses.) These massive profits are not only made by investing depositors’ money in interest-bearing securities; they are also made through a growing number of fees. US banks suck billions of dollars per year out of poor people through overdraft fees. As Bloomberg reported in 2022, “Customers who pay overdraft fees again and again—who typically have no more than a few hundred dollars in the bank—are responsible for over half the profits from mass-market consumer checking accounts at the biggest US lenders”. Even smaller banks make hundreds of millions of dollars per year in overdraft fees. By 2008, the year of the financial crash, US banks made roughly $34 billion annually just in overdraft and related fees. Commercial banks in the United States make so much money, the fees they have to pay into the FDIC’s Deposit Insurance Fund are minor. It’s just part of the cost of doing business. Workers also end up paying the costs of the US government bailout in terms of inflation. Banks have been the beneficiaries of the Fed’s 15 years of quantitative easing and loose monetary policy, which fueled record asset-price inflation, making the capital gains-earning rich even richer and leading to a skyrocketing increase in rent, the burden of which is borne by wage-earning workers. Although the Fed has restricted its monetary policy and raised interest rates since March 2022, ostensibly in order to combat consumer price index inflation (but mostly to try to “get wages down” and decrease the economic power of workers), the US central bank interrupted its quantitative tightening in March 2023 by printing $300 billion in one week to save the banking sector. The fall of SVB and Signature Bank could be the beginning of an even bigger collapse. At the financial news website Wall Street on Parade, veteran analysts Pam Martens and Russ Martens warned that “the banking crisis is far from over“. They cited a “stunning” graph that FDIC chair Martin Gruenberg included in his written testimony for the Senate Bank Committee hearing: The Martens explained: [The graph] shows that the unrealized losses on investment securities at federally-insured U.S. banks during the 2008 financial crisis were less than $75 billion while at the end of the fourth quarter of 2022 they were over $600 billion. You are no doubt asking yourself how 2008 could have been the worst financial crisis since the Great Depression if banks had less than $75 billion in unrealized losses on their investment securities. That’s because the mega banks on Wall Street were highly interconnected, understood how highly leveraged each one was, and backed away from extending credit as the panic started to spread. Gruenberg admitted that these “elevated levels of unrealized losses on investment securities” constitute “a key weakness” in the banking industry, and he contributed it to a “rapid increases in market interest rates”. This is a clear demonstration of how the Fed’s rising interest rates have popped the asset-inflation bubble it fueled through 15 years of quantitative easing. As economist Michael Hudson explained: Now, the rising interest rates have created a systemic crisis because the Federal Reserve, by saving the banks’ balance sheets by inflating the prices for capital assets, by saving the wealthiest 10% of the economy from losing any of their money, by solving that problem, they’ve boxed themselves into a corner. They cannot let interest rates rise without making the entire economy look like Silicon Valley Bank.

Write an article about: Russia leaves neoliberal West to join World Majority – Economists Radhika Desai and Michael Hudson explain. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

dollar, economics, Geopolitical Economy Hour, Michael Hudson, Radhika Desai, Russia, sanctions, trade, Ukraine

Economists Radhika Desai and Michael Hudson discuss Russia’s economic transition away from the neoliberal West and integration with what it calls the “World Majority” in the Global South. In this episode of their program Geopolitical Economy Hour, economists Radhika Desai and Michael Hudson discuss Russia’s economic transition away from the neoliberal West and integration with what it calls the “World Majority” in the Global South. You can find more episodes of Geopolitical Economy Hour here. ​RADHIKA DESAI: Hi everyone, welcome to the seventh Geopolitical Economy Hour, a program about the political and geopolitical economy of the fast-changing world of today. ‘m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And as some of you know I just got back from Russia which is why we are doing this show with a week’s delay. Of course it’s been a really interesting time there. I attended many conferences, talked to loads of people: economists, political observers, commentators, etc. Michael and I thought that what we’d do today is talk about my impressions, and also weave them into a broader discussion about how the world order is changing towards multipolarity. So many things have happened. President Xi went to Russia, and President Macron went to China, and so many things are going on. So we’ll weave all of that into a broader discussion about my impressions from Russia. So what Michael and I thought we’d do is focus on two particular points that we thought were interesting that I picked up when I was in Russia is that during the whirlwind of conferences that I was at, at which some very prominent Russians spoke, the one thing that I heard that was really interesting is a decisive statement coming from some of the most influential speakers, that essentially Russia is moving away from the West and will never return. And the second idea, which is also very fascinating, is that increasingly the Russians are now thinking of themselves as part of a “World Majority.” Right, Michael? To us these are the two most interesting things. MICHAEL HUDSON: The important point is that once you break away from the West, what are you going to break to? And while you were in Russia talking about how they wanted something new, the whole West was in a turmoil. We’re really at a turning point of a civilization, probably the biggest turning point since World War I. Where, in order to not follow the West, there has to be a whole new set of institutions that are non-Western. A new kind of International Monetary Fund (IMF), meaning some kind of a means of financing trade and investment among the non-Western countries. Some kind of a new World Bank. Well so far we have the Belt and Road Initiative for a new kind of investment. And what we’re really talking about, since a theme of our talk all along has been Biden saying that this split is going to go on for twenty years, we’re really talking about the split between Western finance capitalism and the global majority moving towards socialism. RADHIKA DESAI: Exactly. And it seems as though there has been an increasing consciousness of this in Russia. So, just to elaborate on the first point, which is of Russia turning away from the West. I was at a conference at the Higher School of Economics, and it’s important to underline this is a very prestigious, post-communist institution which was designed in order to essentially develop and entrench neoliberalism in Russia. And in the hallowed halls of this institution, which by the way is very beautiful. It was a former military academy. They have an annual conference every year on economic policy and so on. And this is where, in a [panel] on the “World Majority”, as it was entitled, I heard Dmitri Trenin make a really interesting statement. Now, Demitri Trenin is also interesting and important. He used to be, again, part of this larger pro-Western, pro-neoliberal group of people. He headed the Carnegie Institution in Moscow and interestingly particularly after 2014, and after 2022, when many people of his ilk had left Russia, he has decided to stay and he is still very much in the forefront of the commentariat in Russia. He said, “When the war is over, Russia will not strive to be part of the West.” That chapter, he said, is over. So that’s really fascinating. That somebody like he should say that. And just as a matter of settled fact. And this is interesting because if you sort of cast your mind back, you know, Lenin, from the earliest days of the Russian Revolution, and even before realizing that Russia’s fate was tied up with the East. But then in particular, after the Second World War and Khrushchev all that, you saw an increasing turn to the West and Russia has remained very oriented to the West. And now this is over. And the chair of the session was an elderly professor called Sergei Karaganov. And he had been one of the founders of the Valdai Club. Again, the Valdai Club, which is sort of the equivalent of the Council on Foreign Relations in the United States. The Valdai Club was also set up as a way in which Russian intellectuals would meet Western intellectuals and think about Russia as part of the West. But Sergei Karaganov also concluded the session by reiterating, and he said, “Russia will never come back to the West. It’s done there,” he said. So I thought this was really fascinating. MICHAEL HUDSON: Well the interesting thing there is that while you’re talking about what Russia’s future is with China, Iran, and the rest of the Shanghai Cooperation Organization, there was a sort of frantic talk in Washington, especially at this week’s meetings with the IMF and the World Bank about — well, if Eurasia goes that way, what is going to happen to what we call the Global South. What’s going to happen to Latin America and Africa? Well you’ve had the first Mr. Blinken of the US, and then Vice President Harris go to Africa and to say, “We want to make sure that we have your cobalt, we have your raw materials, and that you leave all of the US and NATO investments in place and do not give any of the cobalt or lithium or other raw materials to China and Russia and Eurasia.” So, essentially, the southern hemisphere countries are being faced with a choice. What’s so interesting is what makes this choice different from what it was in, say, 1945. After World War II, the United States had all sorts of economic arguments as to why capitalism was going to offer prosperity to the whole world, including the southern hemisphere. And Soviet Russia at that time was pushing communism. Well, there’s no ideological discussion today. On the one hand, the West doesn’t have any attempt to justify joining the US and NATO bloc. All it says is, — If you don’t join us, we’re going to do to you what we did to Libya, and we’re going to do to you what we did to Ukraine. Use pure force. The question is now what the global majority and what Eurasia is going to say. — Well, we’re not going to force you. We’re not going to attack you. We’re not going to have a color revolution. But here is the economic future and the way of organizing the international trade and investment market that is going to help you. Well, you can just imagine if Jesus had come in and tried to found Christianity by saying, —We’re going to kill everybody who disagrees with this. That would not have ever taken off. I think that the neoliberal plan today has about as much chance of taking off. You’re not going to get the world to follow you just by threatening to bomb it, but that’s all that America and NATO have to offer: refraining from bombing other countries if they don’t leave things the way they used to be. RADHIKA DESAI: Exactly. All the West has to offer is sticks. Whereas China comes loaded with all the carrots that you can imagine. The juiciest carrots that you can imagine. So this World Majority concept that’s come up is essentially all the non-Western world, the World Majority, can see these carrots, they are responding to these carrots. And the other interesting thing is that these carrots are not neoliberal carrots. This is the other thing that is very clear. But let me just first deal with this World Majority thing, because again, at the same conference, it turned out that the session was titled “Development for the world’s majority”. And so the the chair of the of the meeting, Professor Karaganav, also said that this idea had actually come up at the Higher School of Economics in some kind of a brainstorming session in which the purpose was to say, — Okay, Russia is not the Third World, Russia is not the developing world, so Russia is part of the post-communist world, so how do we conceive of a single entity of which Russia is now very active part, and is going to be one of the leaders of this? And so, having brainstormed a lot, somebody came up with this idea of the World Majority. So increasingly, the Russians are thinking of themselves, not as being part of the West, whose attractiveness is shrinking and whose borders are also rather small if you think about it. The bulk of the GDP and people in the world are outside the West. And this is also becoming increasingly clear. The West now accounts for about 30% of world GDP, so this is the rest of the 70%. And it’s only going to grow. Meanwhile, the West’s neoliberal policies are accelerating the decline of this. And Michael, we’re going to talk about these institutions in a second, but let me just say one other thing about the domestic policy which you touched. Then we’ll move over to the institutions that the world majorities work to create. And that is that, we attended another conference as well at the start, that’s where we arrived, the St. Petersburg Economic Forum]. And the St. Petersburg [International Economic Forum] is another annual event. And what really struck us this time, we attended the plenary session at which a lot of very important people, including Sergei Glazyev, who is leading the Eurasian integration process in Russia, spoke. The President of the Free Economic Society of Russia spoke. A number of important ministers and others also spoke. And at this conference, what was remarkable is that, barring the one or two diehard neoliberals who also spoke at the main plenary session, the overwhelming majority of the speakers voiced an anti-neoliberal consensus. Neoliberalism is finished in Russia. The overwhelming consensus is that behind some sort of a developmental state that is going to engage in a fairly effective, high degree of state intervention to ensure that Russia does not lag behind technologically. That Russian industry is revitalized. That Russia, in trade terms, is in a winning situation. Basically, across the board there was a consensus against neoliberalism which I thought was really remarkable. MICHAEL HUDSON: Well, the problem in what you say is the word “finished”. It’s one thing to say, “We are going to have a new non-neoliberal new order.” And of course that’s what Russia, China, and Iran, and the other countries, India, are all trying to do. But the problem is that there still is a neoliberal world order that covers a lot of the World Majority. And what are we going to do about the survival of these neoliberal institutions? What are we going to do about all the massive foreign debt that’s owed to the West by what we can call here the Global South, because that’s really who owes the debt, not the World Majority. And that’s really what has been under discussion in the United States while you were in Russia. How do they use this carryover, this legacy of debt, as a stranglehold on the Third World countries? Well, there have been a lot of articles about what China has to say about this. The Americans and NATO are all in agreement. South America and Africa can of course pay their debts if they don’t pay China. They’re blaming China for everything, who’s the last newcomer of all and is the least neoliberal. China says, “Well wait a minute, we are not going to write down our debts to Africa and South America just so they can afford to pay you, the bondholders, for your loans that have gone bad. A loan that has gone bad is a bad loan and should be written off.” But there isn’t any system for government bankruptcy because the whole purpose of having a financialized world order and finance capitalism is, you never let other countries declare bankruptcy and wipe out their debts like you can do in America and Canada and other domestic countries. You want to keep this debt forever as an irreversible burden so that an indebted country can never break away from the US and NATO. So the question is: How will these new organizations, these alternatives to neoliberalism for trade and investment, that you’ve been hearing them talk about, how are they going to deal with countering this legacy? President Biden says, “You’re either with us or against us.” So how are the rest of the countries going to choose which bloc they want to join? RADHIKA DESAI: Well I think that the whole issue of debt, world debt in particular, has become a really important issue at this point, and it’s become an important issue because precisely now China is such a large part of the scene. I remember going back to the earliest days of the pandemic when Third World debt had also figured as a major issue. Already at that point, the key reason why the debt issues were not going to be settled is because the West could not come to terms with the fact that it had to deal with China, and that it had to deal equitably with China. Because what the West wants to do is precisely to get China to refinance the debt owed to it so that Third World debt repayments go to private lenders. And China is basically questioning the terms of all of this, because for example China is saying, “Why should the IMF and the World Bank have priority? Why should its debt not be canceled?” And the West is saying, “But this has always been so.” And China is saying, “Well, if you don’t want to reform the IMF and the World Bank, then we are not going to accept their priority. If we have to take a haircut, they will also have to take a haircut.” They simply do not accept that these institutions, the Bretton Woods institutions, have any sort of priority. And this is part of the undermining, as you were saying. This is one of the biggest changes since the First World War. And part of these changes is that the world made at the end of the Second World War by the imperialist powers, who are still very powerful, is now increasingly disappearing. MICHAEL HUDSON: You and I have been talking about this since Covid began in 2020, and it’s only right now that finally the IMF and the World Bank meetings are getting around to finding this out, three years too late. They didn’t want to confront that finance capitalism has a problem. The debts ultimately cannot be paid. The debts mount up faster, especially on the Third World. And the reason we discussed it and they didn’t was they didn’t want Africa and South America to deal with the problem. They wanted the problem just to go on and get worse and worse. So now the IMF has published charts saying, “Wait a minute, most of the Third World countries are now in crisis.” They are not attributing the crisis to the sanctions against Russian oil and food exports. They’re not attributing it to the increase in the dollar’s exchange rate by the Federal Reserve. They’re just blaming statism. Well obviously, the one thing the characterizes the new global World Majority order is a mixed economy where other countries will do what China has done. They will make money and land, meaning housing, and employment into public rights and public utilities instead of commodifying them and privatizing them and financializing them as has occurred in the West . So we’re really talking about, in order to move away from the dollar-NATO-sphere, we’re not really talking about just one national currency or another. It’s not going to be a question of the Chinese yen and the Russian ruble and other currencies replacing the dollar. It’s a whole different economic system. That’s the one thing that is not permitted in the mainstream media to discuss. They’re still on the “There Is No Alternative” Margaret Thatcher slogan, instead of talking about: What is the alternative going to be? Because obviously things cannot last the way they are now. RADHIKA DESAI: Absolutely. And I think that we want to talk about exactly what these new institutions are, because the thing is that you see two very different things going on. On the one hand, there are a number of bilateral and multilateral arrangements being made on a regional basis, whether it’s the BRICS or the Shanghai Cooperation [Organization] and what have you. These arrangements are being made. But on the other hand, people are also talking about trying to create some sort of universal system, some kind of bancor or International Clearing Union arrangements. But the problem with them is that of course, at the moment, precisely because the West is taking the position that it’s taking, it is not going to cooperate in anything universal, and without that we will not have a universal agreement. And in that sense, what we will see is necessarily the emergence of regional agreements, maybe quite substantial, but nevertheless they will still be regional. MICHAEL HUDSON: Well, the question then is: What kind of a revolution is there going to be? Pepe Escobar just wrote an article a few days ago saying that what’s happening now is, the world’s in another 1848, meaning a revolution. But the 1848 revolution was a bourgeois revolution. It was the progressive force of industrial capitalism against the landlords, and against the banks, and against the rentier class that had survived from feudalism. What was needed is a further revolution, obviously, a 20th century revolution, in order to not only free capital from the landlord and the banking class, but to free the whole population from the capital class in general. That’s what nobody dares talk about. And obviously you’re not having China proselytize. It’s not coming out and saying, — Here’s our economic system as opposed to yours. And yet all of this philosophy is going to be implicit in any kind of restructuring that they’re going to have. And so the question is: What will be the guidelines behind this? To what extent are they going this far in the discussions you heard? RADHIKA DESAI: That’s a really interesting point. I wanted to also say that, the impression one got when in Russia was: you didn’t get the impression that this is a nation at war. There was no jingoism. There were hardly ever any of those “Z” signs to be seen. Maybe I saw a total of two or three of them, maybe perhaps all total during my travels around Russia. And in many ways, support for the war is there, and it’s a very quiet kind of support. Whatever view one may have, everybody can see that Russian victory is absolutely essential, that a NATO victory would be disastrous for Russia and the rest of the world. All of this is very clear. And in many ways it is a criticism of the Putin administration made by those who are some partisans of his developmental state. It is that the Putin government has not used the opportunity created by sanctions to move more decisively. On the one hand, to mobilize for war more decisively, both in terms of mobilizing troops as well as economic mobilization, in order to win the war. And then as part of the economic mobilization, the point that people would make, and some critical economics have made, is that the Putin administration is still leaning a little too much in the direction of neoliberalism. For example, capital controls aren’t as extensive as they should be. Monetary policy is far tighter than it should be. The state has not tried to intervene in sectors other than defense production in order to try to increase production. In all of these ways there is a criticism of the Putin administration. It comes from the fact that he has not been decisive enough. So I would say that a couple of things emerged from this. On the one hand, sanctions have definitely created the objective conditions in which anti-neoliberal direction of policy and developmental state direction of policy has become a necessity. And I think that this is most important to remember: I think most countries will find that, if they wish to create any kind of development, they will have to adopt anti-neoliberal developmental policies. So in that sense there are residual effects of neoliberalism, but circumstances are going to ensure that neoliberalism is essentially finished, because any successful attempts at creating development will have to involve the kind of state interventionism which is sort of “this far” away from socialism. MICHAEL HUDSON: Well, while you were there both President Putin and Foreign Minister Lavrov have been using the same word over and over again, and that is “multipolarity”. But multipolarity, that’s the sort of modern world for the 1648 [Peace of] Westphalia that ended the Thirty Years’ War. The Westphalian system was that no nation should interfere with the policies of other nations. And that was the law that governed basically all international relations until 1945 when the United States said, — Well, we get to interfere with every other nation, but no nation has any authority over us. And we will never belong to any organization in which we do not have veto power, as America has in the UN, IMF and the World Bank. You can see the first stage of this. Countries are trading with each other. The recent deals between Saudi Arabia, China, Russia, to denominate their trade in their own currencies. Well, this means that countries are going to hold, in their foreign reserves, each other’s currencies. And the first question is: What will this mix of foreign currencies be? Well I think the natural solution would be for the mix of currencies to reflect the proportions in which a country’s foreign trade is in. Because China is the major trader of so many countries, obviously the Chinese currency is going to play a major role. But as we’ve talked about before, this does not mean that China’s currency is going to replace the dollar. No currency will replace the dollar because there will never be a dollar standard again. There will never be anything like one country controlling other countries with the ability to grab their money at will to cause a crisis by cutting them off from the SWIFT bank clearing system, from doing the things that the dollar did. But much more than just holding each other’s currency, there’s the whole superstructure of how the economy is going to be structured behind that. You and I have talked before about, given the fact that many countries now are having difficulty, to put it mildly, paying their foreign debts, the countries that agree to join with Russia and China and Eurasia are going to have access to a new kind of international bank. And this international bank will create something that, in one sense, is like gold, in the sense of being a currency, a vehicle, that countries can use to pay debts to each other. That governments can use with each other. Not to be spent domestically. Under the gold exchange standard, nobody was paying [domestically] in gold in the 1930s and 40s, or 1950s and 60s, but gold was used amongst central banks. So we’re going to see something like the Keynes’s bancor currency that you and I have discussed so much, or like the International Monetary Fund’s SDRs, except that the new international bancor will not be created just to give to military countries to wage war against countries that the United States doesn’t like. RADHIKA DESAI: Exactly. Moving towards that sort of situation, the bancor-like situation, would be very helpful. Because if you think about the principles that Keynes took into account when designing the International Currency Union and bancor and so on, what were some of the key things? I would say the first and most important thing is that countries would implement capital controls. Which is why central banks would retain their power to settle balances with this multilaterally-agreed international currency, which is not the domestic currency of any country. So capital controls are also important because look at it this way. One of the key reasons why a kind of sensible economic policy of the sort that you and I would endorse, a developmental economic policy, one that is designed to create a productive economy and a broadly-based prosperity, one of the key hindrances to this is the excessive financialization of the dollar system, and all the elites in various Third World countries and the World Majority countries, including Russia, that participate in this dollar system. So I would say that imposing capital controls would be critical. Another really important thing that comes out of this system is that Keynes’s system, the International Currency Union, was designed to minimize imbalances, persistent imbalances. Countries would never have persistent imbalances in terms of trade or investment or anything. There would be no persistent export surpluses, no persistent trade deficits. This is also the opposite of what we have right now. The US dollar-based system in fact relies on the systematic creation of imbalances in which the United States must run current account deficits in order to provide the world with liquidity. And of course the United States and the Federal Reserve have also, in order to make the dollar more acceptable, sponsored the massive financialization of the dollar system generally. And it would also therefore be a more stable system, and it would also be one in which the development of some parts of the world, and the underdevelopment of other parts of the world, does not become a perpetual part of the system. Because what does balanced trade mean? If one country starts generating too much export surpluses, and this is discouraged by taxing their earnings at the level of the International Clearing Union, then this creates an incentive for the country that is the most successful to invest in the success of other countries so that trade rises, but it does so in a balanced fashion. So that is another principle. And a final point I would like to make is that this new currency order that will be created, and I’m sure that when it’s already coming into existence the question is only: To what extent can it become a universal order? But this new currency order will have one very important advantage, which is that the dollar system has always rested on the systematic devaluation of the currencies of other countries, which means that the rest of the world has to work its guts out in order to export vast volumes to First World countries, which is of course one of the key reasons why inflation has been so low in Western countries in the neoliberal period. So they have to work harder and harder to export vast volumes and earn tiny amounts in value terms. So the discrepancy in the volume and value of Third World exports, or World Majority exports, is massive. If the rest of the world, if the World Majority, starts getting a better value for their exports and starts enjoying a better exchange rate, essentially, then it will be better remunerated for its efforts. And I think this is going to be very important for so many World Majority countries. MICHAEL HUDSON: Well you’ve made the key point right there. The dollar system has produced austerity. The international financial system’s result is austerity, and one way that it locked this in is in forcing other countries to devalue. They try to throw more and more of their currency onto the world market to pay their foreign debt. Now, when a country devalues, what’s really devalued? The price of raw materials isn’t devalued. There’s a common world price for all raw materials. There’s a common world price for oil and energy. There’s a common world price for food. There’s a common world price for machinery and capital goods. When you devalue, only one thing is devalued: the wages of labor, and domestic rents. So when the IMF talks about austerity, what it really means is, our class war against labor to make sure that we can increase profits in the US-NATO core by continually reducing what we have to pay for labor that’s paid abroad. And of course the sin of China was not letting its labor be devalued, but instead using industrialization, and even its financial links to the West, to build up and increase living standards, not roll them down. So if you realize that the whole point of the financial system is: How do you make a financial system that doesn’t result in debt peonage and degradation of labor? Well then, you may not want to use central banks. Central banks are created by the commercial banks, against the rest of society. It’s the central banks that have helped destroy industrial capitalism in the West. You really only need the treasury, which is what you had before central banks, and what China uses. Its Bank of China is really an extension of the treasury. It’s not an American- or European-style central bank whose job is to support real estate prices and make housing more expensive so that the domestic labor has to go into debt to buy more and more debt-leveraged housing, and that’s not to push up stock and bond prices of the 1%. The treasury would represent the population as a whole. Now, this used to be called democracy. But President Biden calls it autocracy. So “autocracy” is supporting labor. What he calls “democracy” is the financial war against labor, just to get the Orwellian vocabulary straight. RADHIKA DESAI: Absolutely. Michael, you know better than me that the very origin of the word “tyrant” comes from the fact that debt crises in Rome regularly led to the election of rulers who ruled in the interests of the majority of the people, the debtors, and against the interests of the small number of creditors, which is why the creditors ended up calling them tyrants. In fact, apparently the word tyrant does not mean anything bad, but it’s come to mean something bad because basically we live in a world in which our vocabulary tells us that anything that is against the interests of a tiny minority is somehow against everybody’s interest. But of course this is not so. Michael, what you say makes me think of several things. Just one tiny clarification, and that is of course you’re absolutely right that the central banks as we have in the United States and most European countries are totally agents of big financial capitalists. I agree completely and that’s how they have behaved. In a sense, the idea of a central bank is precisely to act as a buffer between the internal domestic economy and the external economy in a way that it acts as a kind of shock absorber, that if there are external shocks that the vast majority of the people are not to suffer them. And that should be the case. Of course, this is subverted, but therefore central banks are important. As you say, they should become arms of a broader financial system which is aimed at creating productive growth, stable growth, of course in our time ecologically sustainable growth. So just a small clarification about central banks. But then three quick points. Number one, you were pointing to how the dollar system bakes austerity into our system, and of course, again, Keynes’s design of the International Clearing Union and bancor was also interesting from this perspective because its thrust was the opposite. Of course, capital controls was a keystone of the system. You have to have capital controls, and the purpose of doing that was to ensure that all governments, if they so wish, that is to say, if they were so inclined, they could run their economies for full employment with as much state intervention as necessary with as big a role for the government and the economy as necessary. And this could be done because of capital controls. And this also brings me to my second point. It has been very fashionable, in our neoliberal era, to talk about the so-called trilemma of policy, which is that there are three goals which are considered by neoliberalism to be desirable, namely, having a stable exchange rate, having an autonomous monetary policy, and free capital flows. They say you can only achieve two of these at any given time. But my point is, actually it is not a trilemma at all. It is an absolute no-brainer. If you have capital controls, then you can have both an autonomous monetary policy and a stable exchange rate. There is no need to worry about it. It is only by adding free capital flows as a desirable end to this mix that you create this artificial trilemma. It’s a completely artificial trilemma. And my final point. If currencies were really valued realistically rather than this strange overvaluation of the dollar that we have all suffered from for so long, then in fact there would be even less need, even among the rich people of any country, would not feel such a big pressure to hold their money in dollars as they do today, because they only wish that because their own currencies are so subject to the vagaries of the dollar system. The Fed decides to jack up interest rates, then all the money that has hitherto been flowing into these non-Western economies flows right out, creating currency crises, debt crises, trade crises, and all of these sorts of things. The currencies of the rest of the world, of the countries of the World Majority, would also be more stable and that would actually decrease the attractiveness of dollars to even the elites of these societies. MICHAEL HUDSON: Well I think you’re quite right about capital controls. When I went to work in international finance in the 1960s, there were dual exchange rates. The IMF every month would publish the exchange rate for normal trade in goods and services, and a different exchange rate for capital transactions, for debt and investments. So you had two exchange rates. And that’s because there were capital controls. The United States, via the IMF, got rid of capital controls so that other countries could not protect themselves. Only the United States could protect itself. That’s the double standard. Also, as we discussed before, Keynes wanted to solve this by something that is very interesting that the US fought like anything not to accept. Keynes said, “How do you make an international financial system that is not going to be dominated by the strongest currency, by one currency swamping the others? In other words, how do we avoid the disaster and world depression that the United States has brought on?” He said, “If one country continues to run a balance of payment surplus and has enormous claims on other countries, and other countries accumulate a deficit, we can’t let them just be painted into a corner or we’re going to be back to the position of Germany and France in the 1920s.” The country that has the major currency has it because it’s refusing to import from other countries. It’s refusing to help create an international, equitable world order, and so the dominant currency’s claims will be written down. Well of course the United States knew that Keynes was talking about the dollar that was going to grow. But just imagine today if China could say, — We thought about the discussions that took place at the end of World War II shaping how the world financial system developed and, yes, I know that the US and NATO say, — Well China’s going to dominate the whole area and end up being another America. Well, China can say, — We’re in agreement with Keynes’s principle. If we really get so many export surpluses and so many claims on the rest of the country that they can’t pay, of course we’re going to write it down in order to maintain stability. Imagine if the United States had done this in 1945 and accepted what Keynes did. Imagine how the whole world’s development would have been different for the last 75 years. That, I think, would be a great ploy by China. RADHIKA DESAI: Absolutely. Remember that at the 1944 Bretton Woods conference, Keynes had gone there with these proposals for bancor, for International Clearing Union, and they were nixed by the United States because the United States wanted to impose the dollar on the rest of the world. By contrast, by the way, you should know that in China there is quite a lot of interest in Keynes’s proposals for bancor and so on, for a couple of different reasons. One thing I remember very vividly is I was precisely writing an article about Keynes and bancor and so on around the time of the 2008 financial crisis. So I wrote it in the fall of 2008, and it was published in early 2009, and just before it went to press, the governor of the People’s Bank of China issued a short paper in which he recalled that Keynes had proposed a bancor and we need to return to those principles, and so on. And thankfully I just managed to stick a reference to that into the article just before it went to press which was really lucky. So the Chinese have a lot of interest. And that’s one thing. I think you have to understand that the Chinese know the price that the Western economies, the American economy in particular, has paid for making the dollar the world’s money, which is an undermining of its own productive capacity, the financialization of its financial system in such a way that it is geared towards predatory and speculative activity rather than being geared towards financing productive investment. So in all of these ways, actually all of the Americans have paid a huge price for making the dollar the world’s currency, which is only a good thing for the cream of the American elite and not for anyone else. The second thing I wanted to say is, this idea that the national currency of any country can easily, stably, reliably, in a good way, be the currency of the world has become naturalized in our time, but it is a completely false idea. And you see, Keynes’s career is very interesting from this perspective. I’ve written about this as well. When Keynes started his career in the teens, he was fresh out of college, he went to work for the India Office, and there he learned how the British financial system worked, because as we’ve talked about before, it was so reliant on British India. So his first book, published in 1913, was called “Indian Currency and Finance”, and it is widely regarded as the primer. If you want to understand how the gold standard worked, read “Indian Currency and Finance”. And of course, why would a book like “Indian Currency and Finance” be the primer on the gold standard? Because British India was critical to its functioning. Anyway, if you read this book, it’s full of praise for how wonderfully the system works. Keynes was completely uncritical. And then over the course of the rest of his life which, if you think about it, Keynes’s career spanned the First World War, the thirty years’ crisis. The First World War began it, and the Second World War more or less ended it. He died in 1946. So over this period, Keynes was witness to the steepest fall in the international standing and economy of any country he’d seen. Britain went from being the head of the empire on which the sun never set, to essentially being on the cusp of losing that empire and being turned into a weak, industrially declining, medium-sized economy. So Keynes designed bancor. Keynes, over the course of his life, became a critic of the gold standard, its deflationary character, the costs it exacts on other countries. He absorbed all this. And of course towards the end of his life he proposed a replacement for what used to be this gold-sterling exchange standard, which was a complete contrast. Which would not impose austerity. Which would not create financialization. Which would allow countries to run their economies for development, for prosperity, for full employment. MICHAEL HUDSON: Well, you can say that Eurasia today is picking up the strain of world history where the world left off in 1913 and 1914. World War I changed the whole direction of the world. It stopped the evolution of industrial capitalism into socialism, with the Russian Revolution and the great fight against the Soviet Union. And it replaced industrial capitalism with finance capitalism. And today, over a century later, now finally Eurasia is taking the lead in rejecting this retrogression into neo-feudal finance capitalism and picking up where the world was evolving from industrial capitalism into socialism, which seemed to be the wave of the future for everybody who was writing until World War I was such a shock that it traumatized history. We’re only right now getting over it with Europe and America fighting against it. They don’t want the world to continue the way it was going in 1914. That’s why they sent all the troops into Russia to try to overthrow the revolution. They’re doing everything they can to prevent it and the rest of the world’s task is to fight for civilization against the forces of reaction. RADHIKA DESAI: That’s so interesting. And I would say, Michael, that even Europe is probably going to get off this crazy pro-American track that it’s been on since early last year since the military operations began in Ukraine. I mean, Europe’s position is definitely suicidal, I think increasingly there are voices emerging that are counseling against that. It is not a surprise that Macron, on his visit to China said, his words, not ours, — Europe should stop being a vassal of the United States. I think that it’s very possible, although certainly the bloody-mindedness and crazy policies of European leaders are not giving us much hope, but nevertheless statements like Macron’s point to the fact that Europe is not in a very comfortable place and it’s going to have to, if only for its own economic survival, break these crazy attachments to US policy. So that’s one thing. But I’ll say a couple of other things as we should probably wind down soon. One thing is that, I completely agree with you. I’ve even written stuff about this, for example in this article about Keyes and bancor. The last section, which looks at the US role in all of this, for example in nixing Keynes’s proposals and trying to exert its dominance over the rest of the world, which I have argued was never successful. I argued this in my “Geopolitical Economy”. Anyway, the point is the section was entitled “The Strange Afterlife of Imperialism”, in the sense that the United States, in its desire to recreate the kind of dominance that Britain had enjoyed in the 19th century, the 20th century, that the US would enjoy the same sort of dominance. This attempt managed to, of course, influence world history, but even still it was not successful. But now the story of that attempt is also at an end. It can no longer realistically even try to create this sort of dominance. And that means that the anti-imperialist tide that had begun with the outbreak of the First World War and in the thirty years’ crisis of 1914 to 1945, that anti-imperialist trend is now resuming in a bigger way after being sort of held back a bit by American attempts. But you have to understand that even though the United States wanted to exert its power over the world, in the post-Second World War period it was never entirely successful for the simple reason that the communist world existed. The communist world stretched from Prague to Pyongyang. It was huge. The United States was not the master of this world. Its existence put serious limits on what the United States could do. In that sense, what you have seen is that only after the end of the Soviet Union you saw this hubristic attempt on the part of the United States to try to now finally exert its dominance over the world, but that has as we know ended really badly. There is no unipolarity. Instead there is multipolarity, and the United States has reacted to this very badly and has therefore been engaged in nonstop wars since then. MICHAEL HUDSON: Well, you’re right to point out Macron’s statement that Europe is caught in the middle. He’s sort of France’s Donald Trump. He’ll say whatever he thinks is going to be popular, and then he’ll just turn around and say to another side the exact opposite. But Europe was in the middle after World War I. It agreed to pay the inter-ally debts, and that’s what forced it to impose the reparations on Germany that wrecked all of its development. It was so rigid in holding to the old financial system in which a debt has to be paid, that it could not break. But right now Europe is in the middle again, America’s war against Russia being fought in Ukraine. I think that when Macron made his statement, that maybe Europe should go its own way, he’s trying to take the voting power away from the right wing of France. The irony is it’s the right wing in almost every European country, the nationalistic wing, that is breaking away from the US, leaving the left way behind. So the irony is that the left is not playing a role in creating an alternative to neoliberalism. The left has embraced neoliberalism ever since Tony Blair and Bill Clinton. So it’s very unique that we’re seeing civilization, a new path of civilization, being developed without any reference to the past discussions at all. I think it would be nice to have a discussion of classical economics, of the political economy of Adam Smith and John Stewart Mill and Marx about value and price. I think they were on to the important things in the 19th century. It’s as if there’s a kind of technocratic class that is trying to reanalyze the world without really any reference to history at all, and I think that’s what you and I are trying to do in our lectures here. We’re trying to provide a basis in history to say, — All this has happened before. What can we learn from the experience of what to do and what to avoid? RADHIKA DESAI: Absolutely. And Michael, maybe we should bring this to an end, but I totally agree with you. And indeed this is much of the argument of my book “Capitalism, Coronavirus, and War”. It tries to explain why it is that the left has essentially failed to understand imperialism, and this failure today accounts for the fact that it has uniformly become a cheerleader for the West’s disastrous policies against Russia, against China. Whereas what I find really interesting, particularly in recent foreign policy statements, major statements that have come out of China and come out of Russia, is that they have put imperialism, and the understanding of imperialism, at the center of their understanding. Every time I read these I’ve been like, this is astonishing. This is what we have been arguing for such a long time. And now the leaders of these major countries, the governments of these major countries, are essentially behind this, which is really so important. I think that if the West finally wakes up and realizes what it needs to do, I think this can only be a very good thing for us here, because otherwise we are going to be in some sort of spiral of political dysfunction for a very long time. MICHAEL HUDSON: Well the West may wake up, but the Western leadership of politicians won’t wake up. America has had its own color revolution by Wall Street here, and you can say that Europe had its color revolution. RADHIKA DESAI: I like that. That was a very good way of putting what’s happening in Europe right now. Europe has been subject to a color revolution by the United States. We’ve come up to nearly an hour. This has been a great discussion Michael. Next time we are going to decide what exactly to talk about, but we have a couple of pending topics. One of them is of course to examine in greater detail the political and geopolitical economy of the conflict in Ukraine, its effects on the various parts of the world, including Russia and Ukraine and the United States and Europe. And of course we still have to finish our dedollarization final program. If you have any other suggestions for topics, please let us know. Thanks for your attention, and see you in a couple of weeks.

Write an article about: China ‘counters US dollar hegemony’ with gold reserves, Argentina yuan currency swap deal. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Alberto Fernández, Argentina, Brazil, China, currency swap, de-dollarization, gold, Lula da Silva

Advancing global de-dollarization, China’s central bank is boosting its gold reserves while signing currency swap deals in yuan with countries like Argentina, encouraging the use of renminbi instead of US dollars. China’s central bank has taken a series of steps to accelerate the global drive toward de-dollarization, challenging the hegemony of the greenback. The People’s Bank of China is increasing the share of gold in its foreign-exchange reserves, bucking the US dollar, which has for decades been dominant in international central bank holdings. This January, China also signed an agreement with Argentina’s central bank for a currency swap deal, in which Beijing will provide 130 billion Chinese yuan (roughly $19 billion USD) to help Buenos Aires stabilize its currency and economy. The South American nation said it is “committed to deepen the use of the RMB [renminbi] in the Argentine market for bilateral exchange”. (Renminbi is the official name of the Chinese currency, and is often used interchangeably with yuan, which is the unit of account of that currency.) China’s semi-official newspaper Global Times commented that the deal makes it “likely that more Latin American countries will increase the use of Chinese yuan in order to counter the US dollar’s hegemony, and strengthen economic ties with China”. These moves show how China is responding to the new cold war that the United States is waging against it. Concerned that the aggressive sanctions that Washington has already imposed could expand into an all-out economic war, Beijing is decreasing its holdings of dollars in reserves and encouraging the use of its currency in trade with other nations – thereby chipping away at the global reserve currency. Meanwhile, Russia’s central bank has pledged to buy yuan in the foreign-exchange market to hold in its reserves. And Beijing is already purchasing oil from Moscow in its national currency. In December 2022, the People’s Bank of China publicly disclosed for the first time in three years that it was increasing the share of gold in its foreign-exchange reserves. Bloomberg noted at the time that “China’s purchases may be part of a plan to diversify its reserves away from the dollar“. In January 2023, Bloomberg followed up indicating that the People’s Bank of China had again boosted its gold reserves. The media outlet speculated that Russia is filling its reserves with gold as well. China and Russia are not alone. Bloomberg reported that central banks around the world are buying gold, reaching a record of close to 400 tons in the third fiscal quarter of 2022, compared to 241 tons in the same period in 2018. Central banks in many countries are increasingly worried that they could be targeted by unilateral Western sanctions. The United States and European Union have frozen or seized hundreds of billions of dollars and euros from the foreign reserves belonging to the central banks of Russia, Iran, Venezuela, and Afghanistan. This has pushed many nations to look into diversifying their foreign reserves – not only governments targeted by the West for regime change, but even long-time allies such as Saudi Arabia, Egypt, and Türkiye. Central banks look to China’s renminbi to diversify foreign currency reserves https://t.co/skJm1aKmmW — FT Economics (@fteconomics) July 1, 2022 The Financial Times reported in June 2022 that central banks across the planet “are looking towards the renminbi to diversify their foreign currency holdings, in a sign that geopolitical flare-ups could chip away at the dollar’s dominance”. A staggering 85% of central bank reserve managers have expressed interest in investing or already are invested in renminbi, the newspaper noted. It quoted the head of strategy for global sovereign markets at top Swiss bank UBS, Massimiliano Castelli, who said: “We’re seeing a gradual erosion of the dollar… The picture that emerges is one of a multipolar currency system”. The newspaper added, “Four-fifths of the central bankers surveyed said they believed that a move towards a multipolar world — away from a US-centric system — would benefit the renminbi”. The US-dominated International Monetary Fund (IMF) has made similar warnings. In March 2022, it published a research paper on the “stealth erosion of dollar dominance“. The US-dominated International Monetary Fund (IMF) has warned of an “erosion of dollar dominance” Use of Chinese yuan in global central bank reserves is increasing And Western sanctions on Russia could weaken the dollar, strengthening other currencieshttps://t.co/weF255asil — Ben Norton (@BenjaminNorton) March 31, 2022 The financial institution observed a marked rise in the use of “nontraditional currencies” in global central bank reserves. The Chinese yuan has driven this increase. From 2000 to 2021, the percentage of foreign reserves held in US dollars dropped from a bit over 70% to just under 60%. Thus far, the shift has been slow. But as the United States escalates its new cold war on China, the ensuing geopolitical conflict is likely to accelerate the move toward de-dollarization. Argentina has struggled for centuries with odious debt owed to colonial and neo-colonial powers. Today, the South American nation is trapped in $44 billion in dollar-denominated debt with the IMF. Seeking to fortify its sovereignty and weaken US control, Argentina has strengthened its relations with China and Russia. China is already Argentina’s second-biggest trade partner, after Brazil, and the ties between the countries are growing. In February 2022, Buenos Aires joined Beijing’s massive global infrastructure project, the Belt and Road Initiative. Argentina has also applied to join the expanded BRICS+ bloc, alongside Brazil, Russia, India, China, and South Africa. This January 8, the president of Argentina’s central bank met with his counterpart from China. The Argentine central bank reported that the two countries “committed to deepen the use of the RMB [renminbi] in the Argentine market for bilateral exchange”. The swap offers 130 billion in Chinese yuan (roughly $19 billion USD), with an additional “special activation” of 35 billion yuan (approximately $5 billion USD) for interventions in the foreign-exchange market. The president of Argentina’s central bank, Miguel Pesce, meeting with his Chinese counterpart, Yi Gang Argentine President Alberto Fernández had met with Chinese President Xi Jinping at the G20 summit in November 2022, where they discussed the currency swap. The Argentine central bank has an account in its own currency, the peso, at the People’s Bank of China. China’s central bank has an account in yuan at Argentina’s central bank. Buenos Aires must pay Beijing back the 130 billion yuan, with interest. But the advantage is that dollars are not involved. According to the Argentine central bank’s most recent report, from November 2022, its total reserves sum to $38 billion USD. This means that the yuan currency swap represents roughly half of Argentina’s reserves. This will have a massive macroeconomic impact. The newspaper Global Times, which is linked to the Communist Party of China and has a nationalist perspective, explained the thinking of some officials in Beijing, arguing that the currency swap deal “help the Latin American country hedge against shocks brought about by the US’ financial policy tightening while promoting its own industrial development”. “It is likely that more Latin American countries will increase the use of Chinese yuan in order to counter the US dollar’s hegemony, and strengthen economic ties with China”, the semi-official media outlet added. #China-Argentina currency swap expansion reflects Latin American country's determination to seek closer cooperation with China: experts say.https://t.co/gz1YAp9sn0 pic.twitter.com/g0Ra0XA1dn — Global Times (@globaltimesnews) January 9, 2023 Argentina is a significant agricultural producer, and its top exports include corn, soy products, and wheat. Two-thirds of Argentina’s exports to China consist of soy beans, with an additional 7% of soy oil. Argentina also exports to China smaller amounts of beef, crude petroleum, and shrimp and prawn. Most of what China exports to Argentina is various forms of advanced technologies, including phones, TVs, and machines. Exports, especially from the agricultural sector, are one of the only ways Argentina can get access to foreign currencies – or more specifically dollars, which it needs to service its dollar-denominated debt with the IMF. Normally, if a company in a country like Argentina needs dollars, or if a bank needs foreign currency for a loan, these firms would buy it on the foreign-exchange market. In contrast, swap lines cut out the middleman and create direct relationships between the central banks of countries. The Chinese swap line deal could help Argentina hold on to dollars to service its debt, while using yuan to buy products from China. Perhaps even more importantly for Buenos Aires, which suffers with high rates of inflation, it could also use yuan instead of dollars to stabilize the ever-weakening Argentine peso by intervening in the foreign-exchange market. China began conducted currency swaps with Argentina back in 2009, under left-wing President Cristina Fernández de Kirchner. Deals have been repeatedly renewed since then. But the South American nation is not the only country that has worked out a system like this with the East Asian giant. In December, the Wall Street Journal reported that Beijing’s central bank is using an “unusual channel”: “currency-swap lines to support governments that borrowed heavily from Chinese banks”. The People’s Bank of China (PBOC) has given hundreds of billions of dollars worth of yuan to dozens of countries in exchange for their domestic currencies, the newspaper reported. Among these recipients are Pakistan, Sri Lanka, Argentina, and Laos — all nations that struggle with external debt, much of it denominated in US dollars. Hungry for foreign currency to shore up their dwindling reserves, some countries have turned to an unusual source of funds: The People's Bank of China https://t.co/QgmRnRdewt — WSJ China Real Time (@ChinaRealTime) December 12, 2022 The Wall Street Journal explained, “By replenishing other countries’ reserves, the PBOC may be helping some of the world’s most indebted countries avoid rising borrowing costs”. While the newspaper portrayed this as a cynical effort by China to “prop up” members of its Belt and Road Initiative, the media outlet acknowledged that Beijing is also using the currency swaps to accelerate the de-dollarization of the international financial system. “The PBOC says the swap lines are there to help grease the wheels of international trade, ensure financial stability and further the adoption of the yuan in a world where trade and finance are dominated by the U.S. dollar”, the Wall Street Journal wrote. It added: “The PBOC’s swap network is the largest of its kind, according to the World Bank. The PBOC said in a 2021 report that it has swap facilities with 40 countries with a combined capacity of almost 4 trillion yuan, or about $570 billion”. While Buenos Aires is collaborating more closely with Beijing (its second-largest trading partner), Argentina has simultaneously pushed for stronger ties with Brazil (its largest trading partner) and economic integration of Latin America. Brazil’s left-wing President Lula da Silva returned to power on January 1. Two days later, Argentina’s Ambassador Daniel Scioli met with Brazil’s Economic Minister Fernando Haddad. Scioli said his government’s top priority was “the agreement on deep Argentina-Brazil integration” that the countries’ Presidents Alberto Fernández and Lula da Silva are due to sign at the summit of the Community of Latin American and Caribbean States (CELAC) in Buenos Aires on January 24. ???? | Avanzamos con el nuevo ministro de Economía de Brasil, @Haddad_Fernando, en 3 temas prioritarios de la agenda bilateral: 1⃣ El acuerdo de integración profunda Argentina-Brasil que firmarán @alferdez y @LulaOficial en la próxima reunión de la CELAC en Buenos Aires. pic.twitter.com/T0ZbawtCnJ — Daniel Scioli ?? (@danielscioli) January 3, 2023 The Argentine ambassador likewise revealed that his government is in talks with the state-owned Brazilian Development Bank to receive financing to advance construction of a pipeline, named after former President Néstor Kirchner, which will provide a steady supply of gas to Brazil. Argentina has the world’s second-biggest reserves of shale gas and the forth-biggest of shale oil. Scioli added that Argentina and Brazil look to increase their exports and trade with each other, “conserving the reserves of both countries in the framework of the system of local currencies”. 3⃣ El financiamiento del BNDES a las próximas etapas del gasoducto Néstor Kirchner, que permitirá el abastecimiento sustentable de gas a Brasil y equilibrar nuestra balanza comercial. Más integración con Brasil es más crecimiento, trabajo y divisas para la Argentina. — Daniel Scioli ?? (@danielscioli) January 3, 2023 Scioli’s hint that Argentine-Brazilian trade will be done with local currencies led to international speculation that the countries are moving forward with Lula’s proposed plan to create a sovereign Latin American currency for regional trade. This frightened some foreign investors, and was reported in the financial press with a heavy dose of concern – and condescension. Haddad downplayed the reports, saying, “There is no proposal for one currency for Mercosur”. But his words were careful: The Brazilian economic minister said there was not yet a proposal; he didn’t deny that the potential currency was discussed. It was likely that Haddad was merely trying to reassure foreign investors. In his inauguration speech, Lula pledged more robust social spending to fight poverty and hunger and vowed to reverse the privatizations carried out by previous far-right President Jair Bolsonaro. These policies are overwhelmingly popular among the Brazilian people, but they scared some investors in Brazilian stocks, who sold off shares, leading to market instability and a slight drop in the value of the country’s currency, the real, against the dollar. Recebi do vice-presidente China, Wang Qishan, uma carta do presidente Xi Jinping com seus cumprimentos e vontade de ampliarmos a cooperação. A China é nosso maior parceiro comercial e podemos ampliar ainda mais as relações entre nossos países ???? ?: @ricardostuckert pic.twitter.com/Z8FAmn4yyW — Lula (@LulaOficial) January 2, 2023 In the mean time, Brazil’s new government, like that of Argentina, has vowed to deepen its alliance with China. On the day after his inauguration, Lula met with China’s Vice President Wang Qishan. The statesman gave the Brazilian leader a letter from President Xi Jinping, which called to boost Chinese-Brazilian ties. Lula tweeted, “China is our biggest trading partner, and we can even further expand the relations between our countries”.

Write an article about: Super Imperialism: The Economic Strategy of American Empire with economist Michael Hudson. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, dollar, imperialism, Michael Hudson, Russia

Economist Michael Hudson discusses his book “Super Imperialism: The Economic Strategy of American Empire” and the financial motivations behind the US new cold war on China and Russia. Economist Michael Hudson discusses the update of his book “Super Imperialism: The Economic Strategy of American Empire” and the financial motivations behind the US new cold war on China and Russia. Hudson has published a new, third edition of his book Super Imperialism that updates his analysis for the 21st century, discussing the new cold war on China and Russia and the ongoing transition from a US dollar-dominated financialized system to a “multipolar de-dollarized economy.” Hudson explains how the strategy of US economic hegemony has evolved since World War One. BENJAMIN NORTON: Hello, everyone, this is Moderate Rebels live. I’m Ben Norton. As always, I’m joined by my co-host, Max Blumenthal. And today we have back one of our most popular guests, one of our favorite guests, Professor Michael Hudson. People probably know who he is. He is a prominent economist, a very unique thinker. He has written several books not only on economics, but also on history and human society. He’s an expert on balance of payments, and debt, and a lot of topics. And today we’re going to talk about a new edition of his book that was just published. We actually had Professor Hudson on over a year ago to talk about his legendary book Super Imperialism. He actually just published a new edition of it. You can see here, Super Imperialism: The Economic Strategy of American Empire. And he just published the third edition. It just came out. So we wanted to have him on to talk about why Professor Hudson updated this book that he published back in the 1970s. This is now the third edition. The second edition was published in 2002 or 2003, at the beginning of the so-called War on Terror. And I think it’s pretty appropriate, Professor Hudson, we can begin with this – I think it’s pretty appropriate that your first edition of Super Imperialism was published after Richard Nixon took the dollar off of gold in the early 1970s. And then the second edition was published after 9/11 and the beginning of the War on Terror, which represents a kind of new phase of imperialism. And then finally, your third edition here was just published, and your new edition encompasses the new cold war. The final chapter talks about the increasing economic competition between the US on one side and China and Russia on the other side. And you talk about the move toward a “de-dollarized multi-polar economy.” So can you talk about the differences in the editions and how they reflect the changes in US super imperialism, the system that you described back in the 1970s? MICHAEL HUDSON: Well, the first edition was published in September of 1972, 13 months after President Nixon took the dollar off gold. And everybody was worried that, oh, without gold, how are we going to control the world? How are we going to control Europe? Because we’re losing all the gold. Because the entire balance-of-payments deficit in the 1950s and the ’60s and early 70s came from military spending. And they thought that if you had to lose your gold stock, which was the source of world power, as a result of military spending, how can you control the world? Well, what I wrote was that there was a new means of controlling the world and going off gold had actually locked in America’s control, because now that it had forced other central banks not to buy gold, what were they going to do? All they could do was recycle the dollar surpluses they were getting into U.S. Treasury bonds. Because that’s what central banks bought; they would buy Treasury bonds. So then what I said was that all this deficit coming from the military spending abroad is going to be recycled to the United States by central banks who have to recycle their money into dollars, otherwise their currencies are going to go way up, and that will price their exports out of the market, and it’ll make their economies basically overvalued. So to keep down the value, they buy U.S. dollar securities, and America would not let some by big companies; it wouldn’t let them buy anything important, only U.S. Treasury bonds. So the irony is that the larger the balance-of-payments deficit became, the more money was recycled into financing the U.S. budget deficit, which also was largely military. Well, I thought that this was going to be a warning to other countries. And indeed, there was a very quick Spanish translation and Japanese translation. But the main purchases, as we’ve talked about a year ago, were the CIA and the Defense Department. Immediately Herman Kahn hired me to the Hudson Institute and gave a very large grant for me to explain to the government how imperialism was working. And the U.S. government used this as a how-to-do-it book. Well, it went out of print, and Pluto Press offered to make a new addition, but it had hundreds and hundreds of typographical errors, and I didn’t like the reset. And I was going to live with that until I began to work in China, 10 or 15 years ago, and the Chinese government wanted me to do a new version to upgrade it as a key to how they can de-dollarize. And from their point of view, they want to see how they can decouple not only from the United States, but from the West. They don’t look at there as being any competition between China and the United States, certainly not industrial competition. The United States decided it was going to de-industrialize, because its corporations could essentially hire cheaper labor abroad than they could hire in the United States. The United States has got so debt-oriented and so privatized. Since the Reagan Revolution, the American economy was Thatcher-ized, and that made it a high-cost economy. The cost of housing has gone way up. The cost of medical insurance has gone way up. The debt burden has gone way up. And America has now priced itself out of the market. So China and Russia look at America as an object lesson, as how do we avoid here having the dynamic that occurred in the United States. It doesn’t have anything to do with capitalism versus socialism or other isms. It has to do with the basic dynamics of debt. And China realizes that, ok, we’re going to do make our economy productive in the way that the United States and Germany did in the 19th century. It’s a mixed economy. And as a mixed economy, we’re going to have the government provide the basic utilities at a subsidized rate, instead of letting them be privatized, so that we can have a low-priced economy. And the most important public utility to China, as it was to Russia, is to keep money creation, banking, and credit in the public domain. So right now, you’ve seen the problems and the news about the Chinese company [Evergrande] getting into trouble. And in America, if the largest real estate corporation like BlackRock were to go under, that would bring down the banks; it would bring down everything. It doesn’t doesn’t have a ripple in China, because the the debts are owed to the government, and the government can simply write down the debt. It can decide what to do, to protect the home buyers who put money into buying apartments low. It can tax away the land rent to prevent the housing from being essentially financialized. So China is trying to de-financialize its real estate, de-financialize its industry. It’s not a rivalry with the United States; it’s a rejection of the whole neoliberal structure that the United States has put in place. And what I discuss and Super Imperialism is how the World Bank and the International Monetary Fund were created as a means of imposing a neoliberal, anti-government structure on the world to prevent other countries from regulating their industry or from regulating their agriculture. The function of the World Bank basically was to make Third World countries, the Global South, dependent on the United States for their food supply, by only funding export agriculture, export plantation crops, not growing their own food. The function of the IMF was to use debt leverage to force other countries to impose austerity on their populations, and to essentially say we will control what government you have, because if your government does something that the United States officials don’t like, we’re just going to raid your currency, force of austerity on you, and you’ll be voted out of power. So essentially, the United States, what it calls the international organizations, as if this is a world organization, is actually a very nationalistic tool of the United States to distort the agriculture and industry and commercial development of other countries, to serve U.S. interests and specifically U.S. financial interests. And the mode of control, obviously, is not military anymore; it’s financial. And Super Imperialism is about how America is different from European colonialism by controlling the world financially and covertly, politically, not by military force. And yet all of this requires an enormous subsidy of foreign countries that are now decoupling from the dollar and no longer giving America the free ride that it has been getting since 1971, when all governments could do with their balance-of-payments surpluses were to buy Treasury bonds. Now they’re buying gold. They’re buying each other’s currencies. They’re doing everything except holding dollars. And that’s the big change in the world. So when the Chinese ask me to rewrite this book for their audience – and I spend a lot of time with China – I thought, well, I’m going to fix up Super Imperialism; I’m going to re-edit it; I’m going to include some episodes that I didn’t include before; and I’m going to show how the framework of international relations has been transformed in a way that isn’t being discussed in the press. BENJAMIN NORTON: Professor Hudson, you said something there that, not necessarily to push back, but to complement your analysis, you said that it’s no longer about military domination, but financial. I would say it’s both, and that they are kind of two sides of the same coin that reinforce each other. One of the points that you make throughout the book is that the U.S. military occupies many parts of the world, including it has occupied Japan since 1945, Korea since the 1950s, the early 1950s; there are troops in Germany and many other countries. So the US military presence clearly in Afghanistan and Syria right now and Iraq, it’s still a huge part of it, but complementing that, you point out in your book, is that those U.S. military occupations are essentially paid for by the country that is being occupied by the U.S. military. Can you explain how that works? And how that that scheme – you keep calling it in your book, again and again, a free lunch, that the U.S. has a free lunch; it has accomplished an economic scheme that no other country was able to accomplish. Can you explain how that still operates today? MICHAEL HUDSON: Well it’s not that the country that is hosting the troops is paying; it’s the payment-surplus countries in general. It’s Saudi Arabia; it’s Germany; it’s the prosperous countries that are paying. Here’s what happens. And here’s what happened during the Vietnam War. And here’s what was not in the Vietnam Papers that McNamara asked for. When the United States spent money in Vietnam, or when it spends it now in the Near East or the 800 military bases it has, these dollars go into the domestic economy. And when you’re in Japan and Korea, what do you do? You turn these dollars, you make an export, you get the spending – you turn it in for domestic currency to your central bank. The central bank now ends up with these dollars that are thrown off by American military spending. And what is the central bank going to do with the dollars? Well, central banks – America told Japan already in the 1970s, when Japan was basically funding, 22 percent of the entire U.S. budget deficit was funded by Japan in 1986. And America said, look, we’re not going to let you buy any major company. We’re going to let other, former whisky sellers, the Seagram people buy DuPont, but we won’t let you buy DuPont, because you’re Japanese. We’re not going to let you buy a company. You can buy Rockefeller Center, and lose a billion dollars on it. You can buy a Pebble Beach golf course. But really, you’re going to have to take the money that you’re getting in Japan for the US exports, and you’re going to have to invest it in Treasury bills. Otherwise, we’re going to impose punitive tariffs against you and we’re going to do something you don’t like. Because remember, you Japanese, you’re the yakuza, you’re the crooks that we put in power to fight the socialists to make sure Japan didn’t go socialist. You’re the gangs. You’re going to do what we say. And Japan did exactly what the United States told them to do, recycled its auto export earnings and electronic exports to help finance the US balance-of-payments deficit and the US budget deficit simultaneously. So it was Japan, Germany, France, other countries that ended up with all these dollars that are spent abroad. For instance, the money America spent in Vietnam, because that was French Indo-China earlier, the money was all sent to French banks. And General de Gaulle would turn in the dollars being thrown off by the army in Vietnam to buy gold every month, much to their embarrassment. Germany did the same thing with this dollars. So basically, America wants the ability to say we have one power, we can wreck your economy. If you don’t do it, we say, we can make you look like Libya, we can make you look like Iraq, and we can tear you up. We can make you like Afghanistan. We have one power. We don’t have economic power. We don’t have productivity. We don’t have competitive power. But we can destroy you, and we’re willing to destroy you, because otherwise we’re going under. And we’re not going to feel safe unless we have the power to destroy you and prevent you from having the power to fight back and protect yourself. So it can only do this if it can control the financial system that recycles all of this military spending abroad in the United States, otherwise America would have to either print the money or tax its corporations and people, which would make it even more high cost. So America essentially has painted itself into a corner as a result of its military spending. It has lost its industrial advantage. It has lost its international competitiveness. And the only thing that it has left to do is the power to destroy, if other countries don’t essentially surrender their economies to control by the US, pretending to be objective and non-nationalistic by saying, we’re not controlling you, the the World Bank is controlling you, the IMF is controlling you, the international organizations are controlling you. But it’s a double standard. And my book shows how this double standard has perverted these seemingly international organizations into nationalistic arms, basically, of the Defense Department and State Department. MAX BLUMENTHAL: Professor Hudson, you write in Super Imperialism about how the United States, coming out of World War Two, was facing a balance-of-payments problem. It had a surplus and it managed to resolve this problem through a cold war, in which it moved into deficit spending in order to promote foreign export markets and world currency stability. I wonder if you can expound on that and maybe take us into the new cold war and the economic rationale for a very different United States, arguably a declining empire that has agitated a new cold war. MICHAEL HUDSON: Well, in 1944 and 1945, it was apparent that the war was going to be over, and the United States had gained power since World War One, essentially by staying out of war and by building up its own industry. So the United States essentially structured the post-war world so that it would increase its economic power. And indeed, from 1945 to 1951, the United States increased its balance, its gold supply, to three-quarters of the world’s gold, monetary gold, all in the United States. Well, this was a problem for the US, because Europe and other countries said, well, wait a minute, we’ve been on the gold standard now for a century, but we’re not going to be impoverished if you can have all the gold, but we’re going to go in a different standard. This is what the discussion between John Maynard Keynes and the American Treasury was all about at the end of World War Two. Europe said if you’re going to have all the gold and control the money, we’re not going to operate without money, we’re just going to go off gold. That’s how we de-dollarize, by going off gold, and the dollar was as good as gold. So the United States then decided to go to war in Korea, and the Korean War, from 1950 to 1951 onwards, every single year, the balance-of-payments deficit got worse and worse, and the entire balance-of-payments deficit was military. So American military spending was actually welcomed by other countries because they said, oh, now we don’t have to create a new monetary system and go it alone. Now we can still earn enough dollars that we can finance our own economic growth. And they were amenable to staying in the American economic orbit. BENJAMIN NORTON: Professor Hudson, sorry to cut you off really quickly, but I just want to underscore a point that you make in your book that I think is crucial to understand this transition you’re talking about. You say in the book that, before World War Two, and immediately after World War Two, around that time period, from the 1920s into the 1940s, the U.S. was a global creditor. But then the point you make is that after the Korean War, when the Cold War began getting hot, and the U.S. began waging these these proxy wars against the Soviet Union and China and other socialist and communist forces, in Korea and Vietnam and other parts of Southeast Asia, your argument is that from the ’50s on, the U.S. went from being the global creditor to the global debtor, so a major shift. MICHAEL HUDSON: Yes. The difference is that the American debt to foreign countries is a debt that it never expects to pay, because how is it going to pay? The debt is owed by the U.S. government to other governments. BENJAMIN NORTON: In the form of treasuries, Treasury bonds. MICHAEL HUDSON: Treasury bonds. Yeah, exactly. And this debt is basically created by military spending. So America has been able to control other countries by issuing its money. The debt that America has is the money of other countries. The central bank reserves that they hold in dollars in Treasury bonds is counted as their monetary reserves for their own economy. So just like the American dollars you have in your pocket are technically a debt of the U.S. Treasury, these dollar bills or five dollar bills or 50 dollar bills, nobody expects them to be repaid, because if they were repaid, they wouldn’t be any more money. BENJAMIN NORTON: And no one can force the U.S. to repay them because of the U.S. military. So at the end of the day, the reason that the U.S. can have this global debtor status is because no one can invade it. MICHAEL HUDSON: That was the case until recently. Well, you know, it’s true that the United States cannot repay its debt because it doesn’t have enough gold to repay. And it’s not going to repay in the way that Latin America or other countries repay, by selling its industry. It’s not going to pay its foreign debt by saying, ok, why don’t you take that Amazon? Why don’t you take General Motors? Why don’t you take Boeing? You know, we’ll pay by giving you the industry just like we’ve made you countries give us your industry when you’re in debt. America simply isn’t going to do that. But other countries don’t have to ask to get repaid for their dollars. They can say, ok, we’re not going to hold dollars. So China has decided we want to just minimize our holdings of dollars, except for what we need for trading on the foreign-exchange markets to keep the exchange rate stable. Russia is avoiding dollars. Iran is the avoiding values. Obviously, Venezuela is avoiding dollars, because anything that Venezuela holds, the U.S. can simply grab their accounts. So other countries are afraid to have their gold in the United States. Even Germany has said send us back the gold that we have on deposit at the Federal Reserve. We don’t trust you anymore. Give us our gold. Everybody is dumping the dollar, and nobody wants to be repaid. The dollar now is like a hot potato, and nobody wants to hold it except pliant satellite economies of the United States that don’t want to upset the United States because of the power, bribery power if nothing else, that the United States has over European politicians, Asian politicians, all the overt support that the United States can wield. But other economies are just dumping the dollar. And so all these dollars are being turned in to hard currency, each other’s currencies, gold, each other’s industry, real economic means of production. And so now we’re winding down the whole free-lunch system of issuing dollars that will not be repaid. It’s as if you’re going to the grocery store and you give them an IOU and then they ask, well, you know, you ran up a bill last month and you owe us 50 dollars. We have your IOU. And you say, well, you give this IOU to your dairy suppliers, or your vegetable suppliers, just use it as money, we’ll pay someday. And somehow your IOU that you got something for just gets used as other people’s money. Well, that’s what the United States does on a global scale. BENJAMIN NORTON: Professor Hudson, another point that that you addressed recently, a few minutes ago, also in your book you call food imperialism, is the role of the International Monetary Fund, the IMF, and the World Bank in trying to make other countries dependent on U.S. food exports. In the new chapter, in your updated Super Imperialism book, you refer to this as “U.S. food imperialism versus a new international economic order.” So can you explain your argument? MICHAEL HUDSON: Well, the World Bank ideally was supposed to make loans for other countries to earn dollars. In other words, so they could buy American exports of things. But the most central element of American diplomacy for the last 80 years has been to promote U.S. farm exports. So the World Bank did not make any loans to Chile or Venezuela or Latin America to increase their own food supply. You have to buy your grain and your basic food from the United States. We want to develop your agriculture, but we will only develop export crops because you are a tropical country that can be exported, that we can’t grow in the United States, palm oil or whatever, coffee, bananas. We’re going to promote plantation crops, not food supply, so that countries have become more and more dependent on the U.S. for food. And that means that the United States can do to other countries what it tried to do to China after Mao’s revolution. It can say, well, you had a revolution, we don’t like. We’re going to put sanctions on you and we’re not going to export any more food to you. Now, you can starve if you don’t reject Mao’s revolution and thank Chiang Kai-shek. Well, Canada broke that. Canada said, well, if America won’t sell you the grain, we’re going to sell you the grain. So that that broke it. Other countries are now realizing in order to be independent and prevent the U.S. from “Your money, or your life” threat, they’re all growing their own food. They’re all being independent. The United States two years ago, more than two years ago, thought that it was going to really hurt Russia by putting sanctions on agricultural exports to Russia, and said, boy, now you’re going to suffer. So all of a sudden, the Baltic countries couldn’t export cheese or other things to Russia. What Russia did was say this is the most wonderful thing that has happened. Now we can develop our own agriculture. Russia is now producing its own cheese, that it used to get from Lithuania. Russia is now the largest agricultural exporter in the world, and displaced the United States. So the result of the United States trying to hurt Russia and make it a dependent has actually forced Russia to become independent in food and immune from the U.S. food threat. It still has the food threat over Latin America. And that’s why when Hillary went down to Honduras and the Honduran president [Manuel Zelaya] wanted to develop Honduran agriculture, immediately Hillary had a coup d’etat, had the army take over in a coup d’etat and establish a dictatorship that promised the United States not to grow its own food, but to remain dependent on the United States. So the United States could feel secure, secure that it could starve Honduras to death if Honduras didn’t do what it wanted, and was dependent on the U.S. for food. That’s the kind of food strangulation that the United States has sought through every country. And it has used the World Bank and the IMF and the international banking system to impose sanctions, and to only make loans for industries and agriculture and sectors that do not compete with the United States, but actually end up serving the U.S. economy as inputs. So other countries are turned into economic and trade satellites of the United States. That’s the aim of the U.S. control of the World Bank, the IMF. And that’s why the United States will not join any organization in which it does not have veto power. It insists on being able to veto any policy of other countries acting in their own interests independently of the United States, or in ways that do not actually enable the United States to be the main beneficiaries of foreign countries’ growth. MAX BLUMENTHAL: That’s what we call the “rules-based order.” MICHAEL HUDSON: Right. That’s exactly right. MAX BLUMENTHAL: We make up the rules, and order everyone around. Mafia rule. And ironically, after Hillary’s sort of instrumentalized coup in Honduras, her husband – or right before Hillary entered the State Department, her husband had apologized for destroying Haiti’s indigenous food economy, basically its ability to produce rice, so that they would import rice from his home state of Arkansas. So yeah there’s a certain irony there. We also saw, in WikiLeaks cables, Hillary go down to Haiti and demand that they cancel a massive pay hike of sweatshop workers from something like 37 cents an hour to 45 cents an hour, which is consistent. We’ve also seen the release of Meng Wanzhou, I guess she is the CFO or COO of Huawei, a Chinese tech firm. And I think this is relevant to the conversation here. A key facet of the U.S. great power competition with China revolves around tech. And you write how, you describe how in the post-war period, the U.S. sought to foster dependency not only with food, but also with military wares and specifically technology. And now you have a situation where the U.S. is being outpaced by China in 5G and demanding that the U.K. ban 5G. So what is happening here? How will the U.S. fare in a world where it can no longer foster dependency on its own technology? And what will it do to remedy the situation? MICHAEL HUDSON: Well when you say technology, what you really mean economically is economic rent, monopoly rent. And America cannot compete on the basis of cost for industry. It can’t compete in a profit-making industry because there aren’t profits. You can’t make a profit if your labor costs, and your economy, and your transport costs, and your health costs are so high. But you can make a monopoly rents. And the function of technology for the United States is to make other countries obliged to pay anything that the the large information technology and high tech companies can charge. So the technology sector is really a monopoly sector, and it wants to keep it monopolized. The problem is that no country for the last 5000 years has been able to keep a monopoly. You remember that maybe 3000 years, 2000 years ago, China had a monopoly in silk. And then Marco Polo and Catholic priests brought back silkworms to Italy and began the Italian silk. I guess that was 1000 years ago. So you can try to get a temporary monopoly on technology, like from Google or from Apple, but ultimately, you can’t really prevent other countries from doing it. So the United States essentially has not been doing much innovation. Let’s take IBM as an example. IBM was really the first high-tech company that was made a monopoly, but it wasn’t very imaginative. It had to be told by insurance companies to go and begin making computers in the late ’30s and to develop it. By the 1960s, IBM was using about $10 million a year to buy back its own shares. And Google and Amazon are spending hundreds of billions of dollars every year now to buy back their own shares, not to invest in new technology, in research and development, in developing new technology and 5G technology, and the other technology that China is developing. But when China is a mixed economy, the public and private sector together, when it is trying to develop the technology sectors that are the mirror image of Google and other things, like TikTok replacing Facebook, they’re doing it much better because they’re not trying to make capital gains in stocks. The purpose of technology, to China, isn’t to increase the price of the stock in the companies that make it. They’re trying to lower the cost of production and develop new technologies to develop their technology better. So obviously, China is getting a lead. The United States has made a policy decision: We don’t need a lead; all we need to do is establish a monopoly rent. And let China get way ahead of us. Let it be more efficient. Let it be more lower cost. Let it be more modern. As long as we have enough satellites in Europe and Latin America, and in Asia, to promise only to buy U.S. goods, they’ll buy high-cost, less efficient, American 3G or 4G technology, and let China and its Belt and Road Initiative countries develop 5G. So we’re really having a technological divergence in the world. America, living in the short term, wants to have high-priced, hit-and-run, very quick profits for Facebook and Google and the others, while China’s trying to look at the long run and develop an actual technological economy that will create a new non-dollar trading and currency area, that will be independent of U.S. Threats. And America in 10 years can tell China, well, we are not going to let you use Facebook or Google anymore. China can say that’s fine. We have our own systems. They work much better. We’ll go our own way. BENJAMIN NORTON: Professor Hudson, there’s another really interesting part of your book Super Imperialism, well you talk about this throughout, but specifically one of the arguments you make is that one of the primary U.S. economic competitors after World War One, well, during and after World War One, and then leading to World War Two, leading to the end of the British Empire, was England, was Britain, the British economy. Can you talk about how essentially the U.S. helped to collapse the Sterling Area? And for people who don’t know, explain what the Sterling Area is, how the U.S. helped to collapse that. And then also, the point you make in the book in the last chapter, is how the U.S. did something similar to another so-called ally, to Japan, how in the 1980s, the U.S. basically waged a kind of economic war against the Japanese economy, which permanently crippled it. Japan had had been one of the largest economies in the world, and it has never really, truly recovered from that. So can you talk about how the U.S. has waged economic war not only against its adversaries, but even so-called allies like Britain and Japan? MICHAEL HUDSON: The number one U.S. enemy has always been its closest friend, its closest rival. It fought against England, and then France. And they were getting a free lunch through the Sterling Area and the Franc Area in the following way: England’s colonies had to do their banking in England. They had to keep the savings in England. The government had to keep all of its revenues in England. So when World War One broke out, England simply told the government, give us a gift of all of your money. Mass famine in India, mass starvation, because England just grabbed the money that India had in sterling. Well, during World War Two, there wasn’t much international trade, and so raw materials producers – India, Argentina, and other countries – had maintained close connections with England. And there weren’t many consumer goods to buy. Countries had to be self-sufficient. But India, Argentina, and the Sterling Area countries had to keep all of their money in sterling. The United States insisted that, number one, that sterling balances that were held by India and other countries be allowed to be spent outside of sterling. You couldn’t tie the sterling balances to say they have to be spent in England. And that was what the sterling balances were before. England says, ok, you’ve got a lot of savings here in England in sterling; you have to spend that money on British goods and British companies. You have to keep within the English economy. Not only did the Americans say, first of all, no country can limit its spending to say you have to keep the money in your former colonial power. But it insisted as a condition to lending England the British Loan – in 1944, England was desperate by the last year of the war. It needed food. It needed supplies. It needed industry. And America said, we’re going to make you a loan, called the British Loan, but as a result, you’re going to have to keep your own pound sterling at five dollars a sterling. You’re going to have to keep it at a high price. You’re not going to be able to devalue it in order to compete with us. And England, as a result, from 1945 to about 1950, had to take this huge overvalued sterling, so that there was no way that English companies could compete with American companies. And America was able to undersell England and grab the Indian market, the Argentine market, the market for almost all the countries that had been within the Sterling Area, and undersell it. So America had essentially gained control of Britain’s domestic financial policy by insisting that this policy be set in Washington, not in London. So it asked England to commit economic suicide, and England said, well, we don’t have a choice, otherwise we’re going to starve. And it threw its lot in with the United States, hoping the United States would protect it. And in the new edition of Super Imperialism, I quote the debates that occurred in the House of Lords, when the House of Lords saw exactly what was going to happen. They said, wait a minute, the United States is treating us as if we’re Germany; it treated us as if we’re the defeated party in World War Two. Are we really going to go along with this? And they saw just what was happening, and they said, well, we really don’t have a choice. We surrender; we’re going to let our policy be run by the United States. The same thing in Japan. In 1985, when there was the famous Plaza Accord, you had Reagonomics going full blast. And Secretary of State James Baker said, what is Reaganomics? It means we want low interest rates; we want to cut taxes on the rich, and even though we’re going to cut taxes, we’re going to have a huge budget deficit. Somebody is going to have to fund this. And in the past, countries running a budget deficit, which Reagan and Bush quadrupled America’s foreign debt from 1981 to 1992 – who is going to buy this debt? Because if we make Americans buy this debt, we’re going to have to pay high interest. So it told Japan, we want you to agree to buy a big chunk of our foreign debt. England and Europe said, ok, we’re going to go along and we’re going to buy a big chunk of it too. So essentially, America forced Japan not only to buy the debt, but to revalue its currency. And its currency went from 240 yen per dollar to 200 yen, meaning a dollar would only buy 200 yen. And then finally, America would only buy 100 yen. And all of a sudden, car prices, electronic prices in Japan, export prices doubled; it lost the market. And essentially went broke. And that was what was called the bubble economy. The Reagan economy was a bubble economy in America, but the bubble was felt or absorbed by Japan, by England, and by Europe. That was the the genius of Reaganomics, to make other countries bear the costs of the American tax cuts. BENJAMIN NORTON: Professor Hudson, this is an article I have up here in The Wall Street Journal in 2018, titled “The Old U.S. Trade War with Japan Looms Over Today’s Dispute with China.” Do you think there are parallels? I mean, clearly Japan has been a key U.S. ally since World War Two, whereas China has become a serious adversary. So the political relationship between the U.S. and Japan and the U.S. and China is very different. But do you see parallels between the U.S. policy, economically, toward Japan in the ’80s and now with China? MICHAEL HUDSON: There was a lot of discussion recently in China about the Plaza Accord and the Louvre Accord. There’s no parallel at all. They’re looking at this as an object lesson. They say, we saw what the United States did to Japan. We’re not going to let the United States do it to us. We’re not going to inflate our economy and create a bubble here just so that we are as inflated as the US economy is. We’re going to lower our prices. We’re not going to make a financial boom and a real estate boom. We’re going to do just the opposite. Instead of letting banks getting rich on real estate loans, like to Evergrande, we’re going to let Evergrande go under. We’re going to let the bondholders of Evergrande go under. We’re going to let the stockholders of Evergrande go under. And we’re going to create a basic tax system and public support system to minimize the cost of housing. So that, while the American middle class and political parties think that they’re getting rich, as their housing prices are going up, the Chinese people think they’re going to get rich as housing prices go down, and they can afford more and more housing at a lower and lower price, while their wages go up. So there is no rivalry at all there. They’re looking at the United States and deciding we want to go in a different direction. We’re looking at what’s happening with Japan, and we’re never going to be like it. And there are Japanese too – every company in Japan, as I was told when I visited Nippon Steel years ago, the heads of the companies are all very pro-U.S. And they have to work with the United States importers and corporations in order to succeed. But the number two person or someone else is going to be an option number two, and option number two is we can make a step function, all of a sudden we can switch. Do we want to reorient our economy toward China instead of the United States? This is the nightmare of the United States. What if Japan and Korea and other countries decide to throw in their lot with with China instead of with the United States? And now that America is putting the squeeze on Japan and other Asian countries to support its military spending and its trade deficit even more, these countries are saying, what do we get out of the U.S. relationship? Wouldn’t we be better if we can make a deal with China to say, ok, about the South China Sea, we’re going to make a map that all of us get to share in the South China Sea oil and gas reserves? We’re going to have peace, and that includes Taiwan. Most of the Taiwanese officials, including central bank officials that I used to meet with, all say, you know, ultimately we want to, we plan on rejoining China. We’re going to try to take as much of a business position in mainland China as we can. But ultimately, the economy is going to re-merge. It’s just a question of when we can get a better deal from China than we get in the United States. And as the United States is in a state of rapid shrinkage of its economy right now, all of a sudden other countries are saying that very quickly, well, let’s rethink our position and maybe we’re going to do better off not following the neoliberal plan of the United States. Let’s have a mixed economy where the government and industry and labor work together to develop the economy instead of a polarized, financialized, Reagan- and Thatcherized economy that you’re having in the United States and England. MAX BLUMENTHAL: Yeah, maybe you can address the U.S. economy right now, which is in a state of catastrophe, but which might actually be kind of a controlled demolition, if you consider the discussions that began prior to the pandemic, in late 2019. BlackRock was calling for just massive printing of money from the Fed. And they’ve just been doping the economy ever since, to stave off inflation. But now Biden’s worst problem, the greatest problem Biden faces now, is inflation, high food prices; gas prices are going up. The U.K. is seeing record gas prices, too. And global supply chains are what we would call verkakte. And I don’t know if you want to address that, but the U.S. economy is just seeing massive, massive amounts of workers being financially disempowered, a downwardly mobile middle class, endless printing of money, and more wealth for this very – I mean, it’s not even the 1 percent; it’s like the 0.1 percent percent – and it’s beginning to plague Biden through inflation. MICHAEL HUDSON: Well that is happening, but not in the way you described. The Federal Reserve has hardly spent any money into the economy at all. MAX BLUMENTHAL: Well in the banking sector. MICHAEL HUDSON: It’s printing trillions and trillions of dollars, more money, more essential credit than ever before, but all of this credit has gone into the stock market and the bond market and the packaged loan market. It’s all gone for assets that the 1 percent of the economy hold. It has financed asset price inflation, not domestic inflation. The domestic inflation is something that comes not from an increase in the money supply, but from supply shortages. And this is a result of the neoliberal management philosophy that corporations have. In order to increase their reported profits, they have cut costs wherever they could. And one way they found of cutting costs is to minimize inventories. 80 years ago, every company would have enough inventory on hand so that if there was an interruption in its imports, in its raw materials, in the supplies that it needs, it has enough to get by. But the corporate managers said let’s have something called just-in-time inventory. That is, if we need a part, we’re not trying to order it six months in advance and hold it in a warehouse; we’ll just pay for it that day and order it. And all of the companies together in the United States thought, the economy is going to shrink, we don’t need any inventories, because everybody is going to be poor. They thought they were going to be poor, because they were making the economy poor, by predatory practices that they were following. They were getting rich by impoverishing the economy. They thought the economy couldn’t buy what they produce, so they didn’t need any inventories. Well, all of a sudden, they ran out; they depleted all of the inventories. And there were huge, huge orders, in China, in Asia, in Japan, in Korea, for electronics exports, for chips, for everything else. And now you see, the price of shipping has multiplied tenfold. It costs 10 times as much to ship a container from China to New York today than it did a year ago. So what is happening is a shortage from just the neoliberal, really socially incompetent management of American corporations. Other companies throughout the rest of the world have tried to, they keep inventories; they’re not having this problem. This is unique only the United States is not. It’s not people are richer and have so much more money; it’s that there’s a shortage. In the case of housing, which has gone up – it’s the most rapid increase, over 10 percent in the last year, that’s essentially because BlackRock has said, the era of rising into the middle class by getting home ownership is over. Our ideal here at BlackRock is the 19th-century ideal; really, it’s the 14th-century ideal. It’s the landlords. We want to turn the American economy away from a home ownership economy into a renter’s economy. And if we had BlackRock and our fellow landlords can monopolize the control of housing, and bid it all the way, we all of a sudden will have a monopoly in housing costs. We can raise it 10 percent this year, 10 percent next year. And the banks are going to lend to us to buy out all of this real estate at 1 percent or 2 percent, and they’ll charge 3 or 4 or 5 percent to other people. All of a sudden you’re going to have a concentration of home ownership in the hands of large corporations. And the middle-class ideal of home ownership is going to be squeezed out. The other major growth is in pharmaceuticals and medical care. It’s way up, medical insurance, 10 or 15 percent. The one thing that corporations in America are willing to fight to the death for is to prevent socialized medicine, to prevent public health. Because they realize if we can prevent public health in America, then workers, the American population is going to have only one way of getting health care and avoiding the threat of bankruptcy if they get sick. They’ll have to go to work for an employer. Because the health is going to, insurance is going to come from the employer. And if they don’t go to work for the employer, they won’t get health care, and they can go broke very easily. And if they go on strike, they lose their health insurance, and then they’ll go broke. If they complain about the job, they’ll get fired, they’ll lose the health insurance. The new way of controlling labor, the class war in the United States, is to privatize pharmaceuticals and health care and prevent people from having access to health care and pharmaceuticals, unless it’s through their employer. And that’s why wages have not gone up. Because this is what Alan Greenspan called the traumatized worker syndrome. They’re powerless. They’re afraid to complain against the job. They’re completely dependent on the employer for everything they have. And in some cases, it may be like a Soviet Russia, they’ll even become dependent on their employer for housing, as it was in Russia, because they can’t afford houses of their own, which are now all corporately owned. BENJAMIN NORTON: Well the difference, of course, was that in the Soviet Union, it was public housing and it was provided to everyone as part of the government, whereas now we’re talking about feudalism, neo-feudalism, where your landlord is your boss and you’re treated like a serf. But you made an important point, Professor Hudson, about short-term versus long-term thinking. And this actually, I think, is related to the energy crisis we have seen in Europe. And it really reflects this idea you’re talking about of this neoliberal mentality that, we can just get everything we want right here in the market in the short term. And that’s this crisis now where the European Commission canceled all of these long-term contracts that it had with Russia for importing gas and also oil from Russia. So the EU had access to all of this Russian energy. And then as a political protest against Russia, as part of the new cold war, they canceled all of these long-term contracts, and instead, they were just buying Russian gas and oil on the spot market, in the short term. And then the price of gas and also oil just skyrocketed recently. And now there’s a huge demand in Asia, and largely because countries in East Asia have for the most part recovered from the coronavirus pandemic. So now Europe has a huge shortage of gas and oil, and they’re of course blaming Russia, and they’re doing all the typical things that they do. But the irony is that it’s the same kind of short-term neoliberal philosophy that you’re talking about, where the bankers who run the European Commission said, we don’t need contracts; we don’t need long-term deals; we can just buy everything short term every single day by day or week, week by week in the spot market. MICHAEL HUDSON: Well, I think you’re talking also about the Nord Stream Two pipeline that the Germans and the Europeans were blocking. So when a European politician said we would rather all starve in the dark than have to buy from the Russians, what they mean is, we would rather take the bribes that we’re getting into our bank accounts from the Americans. We would rarely get the high prices and all of the support from the Americans, and let our 99 percent of the population starve, so that we can get rich off what the Americans are paying us to starve the Europeans of energy and freeze in the dark, just so that Russia won’t get get the payment for this. So obviously, Russia is thinking, well, it can now sell all the gas that it wants to China. At some point, it’ll decide, if Europe doesn’t want to buy our gas, if it’s not going to open the Nord Stream Two pipeline. The pipeline is all there. All they have to do is open the pipeline, and the price of gas will come down. And the Europeans are – what Putin recognized, and [Foreign Minister Sergey] Lavrov have been saying is, the European Commission does not represent Europe; Brussels works for Washington. Brussels is an arm of the U.S. State Department. It has nothing to do with the European population. Europe is not a democracy; it’s an oligarchy. But it’s also a militarized oligarchy controlled by the United States. And so Europe is acting, is willing to have its houses freeze, its pipes freeze over, floods in houses, just in order to please the Americans. How long can this go on without there being a revolution? The amazing thing is that protest is coming from the right, not from the left. You have the Alternative für Deutschland party on the right, and Die Linke, the Left Party, has fallen. The socialists have not taken an anti-American stand because America has gained such has control, has made the European socialist parties, just like it has made the British Labor Party under Tony Blair. The socialist parties and left-wing parties of Europe are all pro-American. And they’re not talking about economics. They’re not talking about welfare. I can’t even summarize what they’re saying, because it’s a mush. But the irony is that it’s the right wing that is becoming the nationalistic power in Europe to break away from the United States, not the left. And I don’t see Europe ending up as much more than a dead zone. And I think President Biden feels the same way. He is obviously pivoting towards Asia and has left Europe, and England, and Ukraine, and the Baltics just to go their own way. And no matter how bad things look in the United States, I think things look worse for Europe right now. MAX BLUMENTHAL: Well, you see the same dynamic at play with the protests in Italy and France against the green pass, and the construction of what, in my opinion, is a kind of digital authoritarianism, just exploiting the emergency atmosphere of the pandemic. The right is gaining power. A nationalist right is gaining power. And there are workers and unionists involved in these protests. Trieste, the Italian port city, is seeing dock dockworkers rise up. But the left is, I mean, it seems to be largely absent. And the same in the US, with the protests against government mandates. Whatever you think about them, we need to make this objective observation and determine what it means for left-right dynamics when workers are being intimidated. This all is being guided, this policy, is being guided in many ways through the World Economic Forum. And there is a vocabulary out there about a Great Reset, which is something that Klaus Schwab, the president of the World Economic Forum, has openly proposed in his latest book about the pandemic. But it has been denounced as a conspiracy theory by Naomi Klein in The Intercept. And I think a lot of what we have been talking about is kind of consistent with how people understand the Great Reset, you know, pivoting towards a kind of feudalistic and authoritarian capitalism that is highly digitized, in order in order to manage an impoverished middle class. What are your thoughts on the Great Reset? Is it a conspiracy theory? Is it something real? And if so, what does it mean to you? MICHAEL HUDSON: It would love to be a conspiracy, but not all conspiracies are successful. They’re hoping that they can bamboozle the world into believing rhetoric instead of reality. And they’re hoping that people will think that the future is something that has never been in the world before. And what they’re calling democracy is a country without government. There are only two kinds of governments possible in the world. One is the usual kind that you have had ever since Sumer in Babylonia: a mixed economy, with the government providing basic services, and the public private sector doing the trade and the innovation. The other is something that you had briefly in Rome before it collapsed, and you’re now idealizing in the United States: it’s an economy with no government at all. You get rid of all government power to regulate or tax business. You want all of the planning – you want a centrally planned economy, much more centrally planned than you have in China and even in Russia. But the central planner is going to be Wall Street, and the city of London, and the Paris Bourse. You’re going to have financial planners take over the planning, and they’re going to do it with the corporations as a means basically of subduing, of squeezing out more and more of a surplus out of the people who produce it, labor, basically, and other countries that produce raw materials. And that is the dream. Can they convince, can Klaus [Schwab] and the attendees who go to these [World Economic Forum] meetings really convince people that you can get along without government and let the neoliberals do to the world economy what Margaret Thatcher did for England, and somehow think that you’re getting richer? Because the cost of your housing is going up, and your salary is going up, but even more than it goes up, you have to pay it for medical care, for housing, for your debt service, and for just the cost of living. How do we convince the world that they’re getting better and better when actually they’re getting poorer and poorer, and we’re concentrating more and more of the wealth in our own hands? Now you can call that a conspiracy. I think it’s sort of a pipe dream if they think they can get the rest of the world to go along with it. And I guess it’s the Abraham Lincoln statement, you can fool some of the people some of the time, some of them all, but you can’t fool China and Russia, and Iran, and India, and North Korea, and South Korea all the time. MAX BLUMENTHAL: Yeah, I mean, it could be a conspiracy, but that’s in many ways how history is dictated. I’d refer to Michael Parenti’s lecture on capitalism and conspiracy and class power from 1993, where he makes the case that history is really not an accident. And now more than ever, it’s being decided in Davos. So I think that on that point – well I guess I’ll just pitch to Ben here. I know Ben as a question. BENJAMIN NORTON: Yeah, this is this is a good question from [a viewer]. This is for Professor Hudson. What do you think of Richard Werner and Henry George, and about Jeff Snider’s assertion that demand for U.S. debt is due to its value as collateral in the eurodollar system as opposed to the petrodollar? MICHAEL HUDSON: Richard Werner has been a friend of mine and a colleague for many years. I think what he’s writing on money creation is wonderful. We’re good colleagues. We’ve had some of the same students. I thoroughly applaud and support him. I loathe Henry George, because he essentially was an anti-socialist and a right-winger of the late-19th century, and he spent his life fighting against socialism. He wanted to basically get rid of government. And his followers, essentially, George spent his time going, and George’s followers, for 20 years before World War One, going around the country debating with socialists over, is the future of the economy going to be socialist, or is it going to be the Ayn Rand-type economy that Henry George wondered. Well once the Russian Revolution occurred, the Georgists turned into anti-Bolsheviks. And the followers of George in the United States basically became an anti-Semitic group, very friendly to the Nazis, to the Nazi Party. And in Germany, the Georgists were among the first to join the Nazi Party. So I’m all for land taxation. That is a socialist policy. That’s the policy of Adam Smith, John Stuart Mill, the whole 19th-century political economy aimed at getting rid of the landlord class and getting rid of economic rent as unearned income. Henry George did not have a theory of value and price, and without that you don’t have a concept of economic rent. So the Georgists today around the right wing of the political spectrum. I had some contact with them at one point, and I was just appalled that they were the feeders, one of the feeder organizations into the Ayn Rand movement. So I can’t think of anyone more opposite from Richard Werner than the Henry George people. BENJAMIN NORTON: And the other part of his question was about the eurodollar system as opposed to the petrodollar. MICHAEL HUDSON: Oh, they’re both the same system, the petrodollars, the deal was – and this was what was done in the aftermath of my publication of Super Imperialism. I went down to the White House and met with the Treasury officials and the State Department officials, and they said, we have told Saudi Arabia – this is when the price of grain was quadrupled, and Saudi Arabia quadrupled the price of oil in response. So the Treasury told Saudi Arabia, you can keep charging whatever you want for the oil, but all the export proceeds you have, you have to invest back in the United States. You can invest it in the stock market. You can’t buy American companies. You can buy stocks and bonds, and especially government treasury bonds to finance things. So petrodollars were a means of recycling oil export proceeds into the American banking system and into the U.S. government budget. The eurodollars were the same thing, but slightly different. Russia really created the eurodollar market, because it was afraid to hold dollars in the United States in the 1950s, because the United States could simply grab the money, like it did with Venezuela. And so it held them in England. And so what happened was Citibank and Chase Manhattan Bank found that they could then borrow these dollars from their London branches. And Chase’s largest depositor, when I was working for it, as their balance-of-payments economist in the 1960s, was the eurodollars from the London branch. So all of these dollars that other countries would accumulate and be afraid to invest in the United States were put into British banks, that sent this money to the head offices back in the United States to essentially liquefy the American economy. And there were no reserve requirements on eurodollars. So if Chase or Citibank would get a regular deposit from somebody, and make a loan against it, they’d have to keep reserves against it. But you didn’t have to have any reserve requirements for the eurodollar deposit. So the eurodollar system was a free lunch for the commercial banking system in the United States in the 1950s and ’60s. MAX BLUMENTHAL: I wanted to go back to some comments you made earlier about the U.S. and Japan and how the U.S.’s best allies are often it often get treated as its worst enemies. This kind of reminded me of the AUKUS deal and France. The former French ambassador to Washington, I think his name is Gerard Araud, commented that after this deal, where France was basically stabbed in the back – it had what, like I don’t know the dollar sum, BENJAMIN NORTON: Over $60 billion. MAX BLUMENTHAL: Over $60 billion in diesel subs to Australia. And the deal was canceled after it was inked, apparently because the U.S. just stepped in with more advanced nuclear subs. And Araud said we need to return to a de Gaullist policy; we need a neo-de Gaullist policy. I wanted you, professor, to weigh in. Just give us your thoughts on AUKUS, on the deal, what it signals for the new cold war, but also for U.S.-French relations and the U.S. treatment of Europe. And maybe you could remind us what happened when de Gaulle tried to collect on what he was owed. MICHAEL HUDSON: Well, the English language is an enormous language, and it’s always expanding the words. And one of the new terms that is come into the English language about two years ago, a year or two ago, was a translation from the Russian: non-agreement capable. In other words, just like a Trump wrote the bestseller The Art of Breaking the Deal, that’s become the American policy: we can break any deal we want, because we can make our own reality. That’s what the neocons said: We make the deal, but we can make our own reality. So the United States, and Australia – U.S. satellites would have a deal with France to say we’re going to buy a submarine. But the Americans could say, wait a minute, buy our submarines, because we need our companies would rather make profits in dollars than have you order something from France that will make profits for French companies. So without telling France at all, it told Australia, just break the deal. And Australia essentially – it is not well known, but the prime minister actually lives in a basement of the Pentagon in Washington. MAX BLUMENTHAL: I thought they just kept his brain there in a jar. MICHAEL HUDSON: Well it is in a jar. MAX BLUMENTHAL: What exists of it, anyway. MICHAEL HUDSON: At any rate, Australia has never been known to do anything that America or London didn’t want. Well, once Australia actually elected a socialist prime minister, and all of a sudden the British representatives said, no, you’re not allowed to elect anyone the queen of England doesn’t recognize; you have to cancel the election. And they did. They didn’t say we want to be free of England. They said, oh, ok, who should we elect? And America told England to tell Australia to elect. So Australia is hopeless. But at any rate, this led France to say, we have been double crossed again. We want to look at, just like Germany, we want to look at making better deals with Russia. We can see that one part of the world is growing: China, Russia, the mixed economies, not the oligarchy, the financialized economies. So they’re shifting. And when you say what happened to de Gaulle – well, in May, I guess, was it [1968] – de Gaulle had been cashing in the dollars he was getting from America’s spending in Southeast Asia, he was cashing them in for gold. So America, the CIA, bragged that it had organized the big May riots in Paris. And the riots led to de Gaulle being replaced by a more left-wing party that was thoroughly under the control of the United States. So obviously, the French are worrying, ok, if we try to follow a policy of turning east, of turning towards Russia, China, and the mixed economies, with active governments instead of banks, America is going to try to do to us what it did not only to de Gaulle, but it did to Italy after World War Two, getting rid of the communists; Greece after World War Two, assassinating the communist leadership; essentially just coming and in every country, trying to interfere and meddle in elections. So they’re trying to prevent the United States from using the Green Party in Germany’s turn, following the U.S., with a very nationalistic anti-Russian, pro-American position. So Europe is realizing, breaking away from dependence on the United States, breaking away from letting the United States have all of the European surplus, and telling us to freeze in the dark and to impoverish ourselves, just so that U.S. neocons can create a world – breaking away is not going to be a pretty sight. They’re going to do to us what Hillary did the Honduras, and what and what Obama did to Libya. And we have got to be prepared for that. But at a certain point, we we just get tired of surrendering. At a certain point, we just can’t live this way anymore. And that’s the point at which Europe is maybe five years away from realizing. BENJAMIN NORTON: Well, that’s a good image, and I think it’s important to stress that point, that these policies that Washington carry out abroad always come back home, they always come back home. And just wrapping up here in the last few minutes. But that this actually reminded me, Professor Hudson, have you heard of this book by this French executive, Frederic Pierucci, who wrote this interesting book called The American Trap: My Battle to Expose America’s Secret Economic War Against the Rest of the World? It’s a very interesting book. This guy Frederic Pierucci, he was previously was an executive at the French transport company Alstom. And the U.S. government accused him of so-called corruption. And he was kind of the first case of like a Meng Wanzhou, before Meng Wanzhou, a few years before her. He was arrested actually in the United States, and he was held as what he claimed to be an “economic hostage.” And this is the beginning of this campaign we now see against Alex Saab from Venezuela, Meng Wanzhou from China, and also there’s a North Korean businessman whom the U.S. is trying to imprison. And what’s interesting is the Washington Post did a story about this book. Here’s the Washington Post article; it’s titled “An unlikely winner in the U.S. trade war: A French businessman’s book about his battle with the DOJ.” And here’s the translation of The American Trap. So I haven’t read this book; I want to get a copy of it. But essentially, from the summaries that I’ve read about this book, The American Trap, he argues that the U.S. has been carrying out a kind of economic war against French companies, in the same way it carried out those policies you explained against Japanese companies in the 1980s. MICHAEL HUDSON: That’s probably true. I have not heard of the book; nobody sent me a copy. I don’t know about it. But it seems that that’s the American modus operandi. It tries to prevent any real competition. People talk about the Thucydides problem as if there’s a competition. The United States wants to prevent any competition. And the real competition isn’t among countries; it’s economic systems. And the economic system, as I said, is one of finance-centered oligarchy, as opposed to a government promoting rising living standards and technology, and increasing our productivity. And I think America has joined the wrong side of history. And it’s a result of the combination of neoliberalism and the neocon military plan that somehow thinks that military force can force other countries to submit to what you called neo- feudalism, which indeed it is. And the question is – that has never worked over time. It’s very short term. But then these people think, well, they’re probably in their 50s or 60s now; they only have 20 years to live. All they care about is getting rich for the next 20 years. They don’t care if they leave a bankrupt America in their place. That’s their business plan. The business plan is to load the country down with debt, shrink the economy – but they’ll take their money and run. And the question is, where are they going to run to? If the rest of the world is going its own way, that they’re driving the world to grow its own way. That’s the dynamic that is at work. MAX BLUMENTHAL: Ben, maybe we can put Professor Hudson’s book on screen now and tell everyone where they can find it, the new edition. MICHAEL HUDSON: I guess it’s easier to buy books on Amazon now than it is in the bookstores. So it’s up there now. BENJAMIN NORTON: And do you know if there’s going to be an e-book version? Because I’ve only seen physical copies. MICHAEL HUDSON: I don’t know how to make e-books. I just don’t know if there will. The paperback will be out on, I think, [October 18 or 19]. BENJAMIN NORTON: Oh, great, there’s going to be a paperback out? MICHAEL HUDSON: Yeah, but I don’t know about e-books. BENJAMIN NORTON: Excellent, well, I would highly recommend checking out this book. Fortunately, he sent Max and me a copy. It’s incredible reading. As someone, I’m certainly not an economics expert, this book for me is just really eye-opening. I had a copy of the second edition that I would go back to regularly. I use it kind of like a textbook, because there’s just so much good information in there. There’s a lot of history. In fact, something that Professor Hudson talks about in his book is that one of the main differences, well, one of the several differences – there are many differences between the way he teaches economics and other mainstream economists – is that he actually talks about economic history. And in your book, Professor Hudson, you say that very few economists these days teach economic history because – at least in U.S. economics departments – because if you actually studied economic history, you would see how different it is from all of the neoliberal textbooks. MICHAEL HUDSON: That’s right. There’s been a rewriting. America got rich by being a mixed economy, where the government took an active role in subsidizing basic infrastructure. And all this changed in the 1980s. And the neoliberalism has sort of pretended that Adam Smith was an advocate of basically the neoliberalism of Ayn Rand, instead of being anti-landlord, anti-monopoly, and not really thinking very much of the ethics of businessmen. BENJAMIN NORTON: And then there’s one final question here, Professor Hudson: Are you thinking of doing an audiobook version? MICHAEL HUDSON: No, I don’t know anybody who does audio books. BENJAMIN NORTON: Well, maybe we can talk about it. MAX BLUMENTHAL: Who should we get to read it? Is James Earl Jones still around? I always have actors read my books, and I don’t know who they are. And I always ask the publisher, can I please just, once, read the book? And they won’t let me in. Then they bring these D-list actors in. And it’s just so bizarre to listen to it. They read it so concisely. And I hate it. So don’t. Sometimes you want to avoid an audio book. Don’t wish for it, because you just might get it. MICHAEL HUDSON: You’ve got to read, Because sometimes you want to look at the previous page. I’m really old fashioned. MAX BLUMENTHAL: No really, with this book, you really do want to read it. It’s the kind of book you want to read several times. As Ben said, it’s sort of like a textbook that has a rich narrative arc that courses through every page. And then you might want to check the citations as well. I mean, every historical episode could demand its own book. So I’m really benefiting from it. I have benefited a lot from, I guess this is our third conversation, so I really hope he can make these kind of a running series. I’m actually at the tail end of three hours of livestreaming because I just did my own live stream. So I’m sort of hallucinating. I really have nothing else to say. BENJAMIN NORTON: And yeah, well, we’ll end on that. Do you have anything to add, Professor Hudson, before we leave? MICHAEL HUDSON: Yeah. It is a textbook in China. And as I said, they asked me to update it. So if you want to see what China’s strategy is vis-a-vis the United States, this explains what is on their mind. BENJAMIN NORTON: Great, well, on that note, I would say anyone who wants to check out Professor Hudson’s work, they can go to Michael-Hudson.com. He has a lot of good resources. I read his columns regularly, because I’m not an economics expert, so his columns are very digestible. And he talks about current affairs and the new cold war. So it’s always a pleasure to have you, Professor Hudson, thanks for joining us again. MICHAEL HUDSON: Thanks a lot for the discussion.

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debt, Geopolitical Economy Hour, Michael Hudson, neoliberalism, Radhika Desai

Political economists Radhika Desai and Michael Hudson discuss the massive explosion of debt in the US and around the world, and how neoliberal economics leads to large bubbles based on speculation and asset-price inflation. Political economists Radhika Desai and Michael Hudson discuss the massive explosion of debt in the US and around the world, and how neoliberal economics leads to large bubbles based on speculation and asset-price inflation. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to the 21st Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. Welcome also to a new year that promises to be nothing but rocky, so let’s help rock it in the right direction. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: There’s an old saying, money makes the world go around. Like so many other truths, neoliberalism has subtly but decisively altered this one too. The adage of the neoliberal age can be said to be “debt makes the world go around”. Indeed, debt is not just making the world go around, it is making it spin madly. So madly that the possibility that it will spin out of control is ever present. Everywhere you look, there’s a debt crisis. There’s a student debt crisis, the mortgage crisis of 2008 never really went away, there’s the commercial real estate crisis, there’s a government debt crisis, and of course, there is the crisis of housing, I mean credit card debt, auto debt, etc. To keep the debt cycle going, the Federal Reserve is even changing its decade-long tolerance of intolerance of inflation. For the Federal Reserve, inflation is acceptable at 3.5%, according to some reports. It would rather tolerate 3.5% inflation than sacrifice the asset markets that keep going up thanks to which have kept going up thanks to low interest rates, and it doesn’t want to take interest rates beyond a certain level. Raising interest rates at this point means making it harder for asset markets to go up and stay up, and that’s why the Federal Reserve is going to cut interest rates no matter whether it’s managed to solve the inflation problem or not. So today, we are going to continue our closer look at more than four decades of neoliberal policy and how they’ve changed our economy by focusing on the triangle of debt, real estate, and financial instability. In short, we are going to talk about how in these decades while incomes have stagnated, debt has expanded such that households, governments, and businesses have all become indebted to the gills. Today, one of the reports shows that debt servicing itself has gone up by 50% and today accounts for almost a sixth of total government spending in the United States. How both residential and commercial real estate have become bound up in the vortex of financialization is another thing we want to talk about because it is not producers but rentiers who benefit from this type of economy, and even rent is being converted by the alchemy of financialization into interest. So at the end of the day, even land ownership and home ownership no longer matter. What matters is how much money you’ve got and how you can make your money make more money. So finally, we are going to talk about how even though all of this has benefited the financial sector, given its very nature, the expansion of the financial sector can only lead to crisis, and so how the mountain of debt today threatens the stability of the US financial sector and by turn of the US economy, and as Michael and I have discussed so many times, the dollar system itself. So let’s start looking at this chart. This is the chart of total indebtedness in the United States. So you see here, this is simply the aggregate level of indebtedness. The kind of blue bits at the bottom are business debt, this green bit here is household debt, this purple bit here is federal debt, and then on top, you have state and local government debt which of course as people will know has been restricted by constitutional, by legal means. So what you have here is debt from the 1960s onwards, and you can see clearly that really the debt, the accumulation of debt begins to take off only out in the neoliberal era from the 1980s onwards, and it really begins to take off around the 2000s when of course the United States Federal Reserve first experimented with low-interest policies, and of course, which then resumed after the 2008 financial crisis. MICHAEL HUDSON: Well, you can look at the basic sweep which is an up sweep, an exponential growth. Any debt is a doubling time, and there’s something very unique about this kind of slope. The economy doesn’t grow like that, the economy grows in business cycles, up and down. What you don’t see here is very much of a downswing, and that is because the growth of debt continues to mount up by compound interest. The creditors, the banks, simply reinvest all of the interest that they get in making new loans, which is exponential, and they can create their own money simply on their own computers. So, this chart really should be juxtaposed with one of the business cycles, then you’ll see that any debt that grows this rapidly exceeds the ability to be paid, and that is the distinguishing feature of debt for the last 5,000 years. The natural tendency of debt is to exceed the ability to be paid. Now, this chart simply shows debt by the sector that owns it, the household sector, business. What it does not indicate is what this debt is for. What is it collateralized for? Well, almost all of the household debt is for real estate, and the same thing with commercial bank debt. 80% of bank loans for this debt are real estate loans. And the blue chart of government debt really doesn’t matter that much because the government simply creates the debt. And it’s debt that doesn’t ever expect to be repaid. Households and businesses have to pay the debt. That’s what’s causing the problem. Nobody ever got into trouble running into debt. The government doesn’t run into trouble running into debt because it can simply print the money to pay. But individuals, families, and corporations have to pay. And when they can’t pay, that hurts the banks, and the banks go under. And the purpose of the Federal Reserve is to make sure that this debt keeps on growing despite the fact that it is stifling the economy and leading to depression. The role of the central bank is to impose austerity on the whole rest of the economy to make us look like a Third World country in paying the debt, because this is exactly the same kind of sweep that you have for the global south countries owing their foreign debt and for every country in the west. So the whole West, Europe, the United States, has a chart just exactly like this, and they’re all slowing down, and they’re all in what’s called a debt deflation right now. RADHIKA DESAI: Well, you know, I’d just like to add a few more points because this chart is really kind of more interesting than might appear at first sight. Of course, there is the upsweep that you talk about, Michael, but there is also the fact that if you look at the period from essentially from about 1950 till the end of the 1970s, there is an upsweep, but it is not so pronounced. What you see now in the neoliberal era after 1980, and particularly after about 2000, that’s when you see the really exponential increase in debt. And I think that that, as I say, coincides with two very important things. Number one, the repeal of the Glass-Steagall Act, which meant that this was essentially permission for the U.S. financial sector to simply enter into the most breakneck competition with one another in order to lend more and more, speculate more and more, and so on. So that’s what you’re looking at. And of course, the other part is the historic decision after the 2000 crash, the dot-com bubble crash, when the Federal Reserve first began experimenting with low interest rates. So you had sort of one, between one and two percent interest rates from about 2000 till about 2004-5, when because the dollar was coming under a lot of pressure, the Federal Reserve was forced to start raising interest rates. And that graduated series of interest rate increases was, of course, what eventually pricked the housing and credit bubble. So, I mean, that’s one thing. The second thing as well is that United States government debt as well. You know, at one level you can say that, yeah, sure, the government debt doesn’t have to be paid off. But the thing is, it’s not as though the government debt does not matter. At the end of the day, even when the U.S. government, or when even the U.S. government borrows a lot, it does suffer. Because today, the U.S. government is having to pay much more money in return for its debt in order to borrow from the market than it used to have to. So, and even in the era of low interest rates, U.S. government paid a higher premium, higher interest rates on its debt than, say, a country like Germany, for example. So in that sense, I think that what you see here, which is particularly after the increase in the debt in the neoliberal era, this initial increase here you see up to 2008, is basically created out of essentially giving tax cuts to rich people. So that expanded the federal deficit, even though you had cutbacks in Social Security and so on. And today, a very large part of U.S. debt is actually going to paying interest rates, paying interest on U.S. government debt. So in that sense, it’s important. And then finally, of course, the expansion of household debt, which again, you see it increases, it increased a little bit in the 1980s, then it sort of slowed, but then you see it particularly increasing in the 2000s with the housing and credit bubble. Then it slows again, and then once again, it is increasing. And this increase, of course, is almost entirely because of the difficulties in which U.S. households find themselves. So on the one hand, at the top end of the borrowing, of course, you have borrowing in order to consume more, in order to spend more in one or the other way, including in order to speculate more in stock markets. But on the other hand, you also have a lot of distressed borrowing. So this is what we are looking at. And finally, this increase in business debt is also because essentially what has been happening over the last several decades is that companies are bought by other companies. And then what these companies do is they burden every business they buy with as much debt as they can get in order to essentially use the money for other purposes, including giving fat dividends to owners and so on. But this is what you’re looking at. So we’re looking at a highly, highly indebted world. MICHAEL HUDSON: Well, there are a number of points also in that chart. After 2000, a lot of that government debt was the war debt, the Iraq War debt. From 1950 through about 1980, almost all the growth in government debt was military spending abroad. And this debt is not only owed to the United States holders and the Federal Reserve, but the foreign government. So that is not included in the chart, but that’s much of the growth. The interesting thing also is that you see this acceleration of debt after 2008, and yet that was the period of zero interest rate policy. When the Obama crash occurred, the Federal Reserve said, the one thing we have to make sure is that families bear the brunt of this enormous financial fraud and bad lending and junk mortgages that have taken place. We want to save the banks and we want to sacrifice homeowners for it. We want to make the public pay to the banks to make sure that homeowners lose their home and lose money. Businesses go bankrupt, but the banks continue to get richer and richer with this debt, and this debt will not get wiped out by bankruptcy. It’s going to grow and grow, just like student loan debt has grown. And you see a lot of this business debt going up, and yet this business debt was almost interest free, very low. What the chart should be correlated with, if we really had a group of charts, was all of this debt was spent not on producing goods and services, not in building factories and means of production, not in employing labor, but in buying stocks and bonds and speculating. It was all used to buy companies, load them down with debt. And so this corporate debt that’s going up is a result of the mergers and acquisitions, the corporate raids, the corporate takeovers, and treating corporations in a way that would make money for their stockholders and their private owners, but not for the economy at large. So a company would make money, suppose you take over Sears or Toys R Us, the private capital that would take over, they would borrow the money, hardly any interest from a bank, 100%, buy out Sears or another company. The first thing they’d do is say, okay, now we’ve taken over the company, could be the Chicago Tribune, let’s take the pension funds that’s invested in stocks and let’s borrow against that. Let’s let the pension funds lend the money to the company, and let’s borrow more money from the banks to the company. And the money that we borrow, we will then pay out a special dividend to ourselves. So the money goes from the banks to the owners without having any positive effect at all, but having a very negative effect. It leaves the company so deeply in debt that it goes bankrupt, like Sears or Toys R Us or all of the other companies that have been essentially going bankrupt. And when they go bankrupt, they’re sold to larger and larger companies. And so this debt has the effect of concentrating ownership within the sector. And the household debt has gone up because as you increase the amount of money that banks will lend against housing, banks have competed. Who can lend the most money against homes for new families wanting to buy a home? Well, the banks compete to lend so much money that if you’re a family buying a home, you have to borrow more money than your rival who’s borrowing from their bank, and the banks have just created a new real estate bubble. And that’s what we’re in now. The real estate prices have gone up so high, the rental price is so high that one of the byproducts of this is a rise in homelessness. And with all of this debt, somehow people don’t have enough money to buy goods and services, and standards of living have gone down. We’re living in a increasing Third World austerity plan as a result of this upsweep in debt. RADHIKA DESAI: No, absolutely. And you know, what you say reminds me that we’ve already said that one of the reasons why especially poor households borrow is because they basically cannot make ends meet. They have to borrow, and so they are becoming indebted. But there’s another reason, and that is, you know, why has there in the neoliberal decades been such a huge explosion in student debt? It’s because government cutbacks have stopped funding universities to the same extent. So fees go up. And of course, the cost of living goes up for students because of course you can’t rent anything half decent, or even indecent, unless you pay a lot of money. And so all of these things drive up the cost of an education, which then means that students have to get a loan, and so on. So essentially, cutbacks in social services, including, by the way, we haven’t talked about medical debt. A lot of the debt is incurred because people have to borrow money if they want to pay for certain medical procedures. So all of these things just goes to show that once again, under neoliberalism, it’s ordinary people, the working people, and the poor people who get really shafted. There’s another way in which these people get shafted. When you have a low interest rate fueled competition for buying houses, buying homes, typically the sharpest competition is happening at the lower end of the market. So that the lower end market, that is to say the kind of houses and homes that first time buyers will buy, tend to see the most appreciation in prices as a result of competition among the lower end buyers. And this is what prices out so many people. But a final thing I want to say is this expansion of debt is also interesting because it has taken place exactly in that era when the government, right at the beginning of the 1980s, committed itself to restricting money supply, it committed the Federal Reserve to restricting money supply in order to slay the dragon of inflation. But what that has meant essentially is to have an economy in which people are making less money but incurring more debt. And essentially debt becomes the way in which money is issued into the economy. And of course the Federal Reserve itself has kept up a policy going back to 1987 where no amount of money creation is too much if it is to bail out the financial sector. So from 1987 onwards, when you had the 1987 crash, Greenspan first engaged in this kind of liquidity provision in order to bail out the financial sector. It was called the “Greenspan put”. Now over the years it has become a Federal Reserve put. And the result is, you know, we just showed you the chart of indebtedness. And according to the Federal Reserve, the total debt or non-financial debt in the United States is now close to three times U.S. GDP. It has doubled since 1980. There is another point that is really interesting. These charts, the chart we showed you, does not include the vast amount of debt which the Federal Reserve has itself created in order to bail out the financial sector. And the top end of the corporate sector, starting in 2020, on which the financial sector relies for its best assets. So essentially, and this was very surprising to me, in 2008, a scholar called James Fulkerson from your university, Michael, from UMKC (University of Missouri-Kansas City), showed that the Federal Reserve could not cope with the 2008 crisis by just playing its normal role of lender of last resort, by providing ample liquidity, slashing interest rates, etc. It slashed interest rates at that time from 5% to 0%. But this did not function to stabilize the system and even made it worse. And then, according to Falkerson, the Federal Reserve engaged in a host of unconventional measures, unprecedented in terms of size or scope and of questionable legality. They’re his words. And the goal of these was to explicitly improve market conditions. And this program, according to him, amounted to a total of 29 trillion dollars. MICHAEL HUDSON: You’ve gone very quickly over that, and I want to show how revolutionary this was. Until from the founding of the Federal Reserve to 2008, there was a basic philosophy of central banks going all the way back to the Bank of England and to the rules that people discussed in the 1880s and 1890s. The idea of central banks, you used the words “lender of last resort”. That means everybody realized that sometimes when there would be a business downturn or a shift in interest rates, people would have very sound property. The buildings weren’t destroyed when they became insolvent. Companies weren’t destroyed. But the problem is there was a temporary downturn in the business cycle. So banks are supposed to only borrow for short term and at a high penalty rate. Every central bank in the world followed the policy. You don’t subsidize rates for credit for banks. Since 2008, the banks have taken control of the U.S. Treasury and taken control of the Federal Reserve to get all the money that they want for nothing. Actually, they’re paid to borrow. After 2008, the Fed said, we’ve got to make bankers richer. Despite the fact that they’re paying themselves more than any other sector, they don’t have enough money to keep on lending. We will give them all the money they want. The way we’ll do this is the banks will make loans to corporations for takeovers, make loans for commercial real estate. They will transfer these IOUs to the Federal Reserve in deposits. The Federal Reserve will lend them money in exchange for this. The banks have put all of their bad loans and shaky loans into the Federal Reserve. The Federal Reserve pays them interest on these deposits. The banks make interest not from the corporate borrowers, but the Federal Reserve is creating the interest to pay the banks to make this huge upsweep in loans. You can look at that as an arm of Chase Manhattan and Citibank. Essentially, they’ve taken control of the Federal Reserve. That’s really the libertarian ideal of a centrally planned economy planned by the banks. When the libertarians say, let’s get the governments out of business, let’s get the governments [to not] run a deficit, that means if the government doesn’t run a deficit, it’ll cut taxes, it’ll cut spending. That means that all the credit that people need, the economy needs, will be produced by the banks. The Fed has said, now we’re going to really turn up the screws. We’re going to let the banks make 5% of the money. All of a sudden, this growth in the blue, the government debt that you saw, is going to soar. The interest rates are going to be such a large proportion of the government spending that they’re already talking about, we’re going to have to cut back Social Security and Medicare. That’s what [Nikki] Haley, the Republican nominee, says. The Republicans want to say, if there’s a choice between paying Social Security and Medicare or paying interest to the banks and bondholders, the bondholders come first because they’re our campaign contributors. You don’t get campaign contributors from people who are broke because they don’t have the money that the banks have. Of course, we’re going to bail out our campaign contributors. The government itself has been privatized. That’s what neoliberalism is. That’s what the anti-government libertarianism is. It means liberty for the banks and debt system for the population at large. That’s what these charts imply. RADHIKA DESAI: Absolutely. I would say just one thing. Of course, most people will know this, but in case people don’t, the Federal Reserve is peculiar among the central banks of the world in being still privately owned. In that sense, I think that what Michael says is very relevant. Essentially, what the Federal Reserve has done is over the last many decades, it has transformed the U.S. economy into an economy in which the primary way, the best way, the fastest way to make money is by essentially speculating, not by investing in the production of goods and services that ordinary people need, but by inflating the value of goods and services already produced. Those of you who know a little bit of Marxism might appreciate it, but if Marx was around, he would have called it a very peculiar form of necromancy. What do I mean by that? Because already produced goods and services contain the dead labor that has gone, it is now dead, it is no longer living, that has gone into producing it and you are inflating the value of that. Whereas, as you do that, you are disvaluing the living labor, much of which may remain unemployed, and all of which is necessary to produce the new goods and services which every year, in every period, ordinary people need. We need more food, we need more clothing, we need more transportation, we need more housing, etc., etc. And these are the things that are strangulated. Living labor is strangulated while dead labor goes up. Because there’s something very peculiar. Remember, as Michael pointed out, and as I pointed out, a lot of this debt has been incurred. In fact, most of it has been incurred to speculate, to inflate the value of already existing assets. And there’s something very peculiar about it, because imagine a house that goes up in price by 30%, 40%, 50%. Nothing in it may have changed, but it goes up in price anyway. Nothing is produced, but it goes up in price. So, this is the kind of economy that has been created. And I just also want to show you one other outcome, just my last point this time around, but one other outcome of this vast increase, this vast federal government program to bail out the financial institutions. So, you see here, this is a chart of the total assets on the Federal Reserve balance sheet. And you see here, from up until the 2000s, it was basically hovering at about just below $1 trillion. In the 2008 financial crisis, it doubled, a little more than doubled actually, to over $2 trillion. Then over the course of the decade that followed, thanks to quantitative easing in which the federal government essentially started a program to buy the worthless assets of the financial institutions for good money. This was quantitative easing, and so it piled on, it increased its own balance sheet while essentially making good the damaged balance sheets of the very financial institutions that had caused the 2008 financial crisis. And then it was beginning to reduce its balance sheet when 2020 came, the pandemic came, and then you see that you have seen an absolutely unprecedented increase to $9 trillion of assets in the federal government. And this is the result of that $29 trillion worth of effort that the Federal Reserve made to bail out the financial sector. So, please, Michael, go ahead, yeah. MICHAEL HUDSON: When you use the [phrase] “worthless assets”, they weren’t exactly worthless if you could get 100% from the Federal Reserve. The word that was used by Marx and almost everyone in the 19th century and today was “fictitious capital”. In other words, all of these debts and bank assets were counted as an asset. If a bank makes a loan to a large corporate property owner in an office building, the bank has that as an asset. But as we’re seeing today, these asset prices can’t be realized. In other words, what if the bank said, okay, now your mortgage is just falling due because it’s a balloon mortgage, you have to pay that. Every few years, you have to pay the entire amount or re-borrow it. Well, all of a sudden, if it’s lent $100 million against an office building, and the office building is now worth $40 million, why would a bank lend $100 million to an owner of a $40 million office building? That’s the situation we’re in today. Now, look at these two jumps. The first jump that you have after 2008, that’s the junk mortgage jump. All of these loans were against fictitious mortgages, mortgages that pretended that there was value there, but there were mortgages mainly to Black and Hispanic borrowers by banks who cheated them, who over-evaluated the prices. The banks in general discovered a new way of making money after about 2004. They could make money by charging racial minorities much higher rates, almost double the rates that they charged white people. There were whole banks and brokers that specialized in this, and this was basically the junk mortgage group. Countrywide, Financial was the most obvious beneficiary of this. There were a number of notorious banks that ended up being merged. Bank of America was one of the crooked banks. Citibank was one of the most crooked banks, as has been very well documented. Randall Wray at the Levy Institute and Kansas City published a big explanation of who were these $29 trillion, $27 trillion of loans for. It ended up many of these loans were rolled over and reloaned, so the net amount was not $27 trillion, but that’s how much was given to the banks with this huge jump. Instead of sending the bankers to jail, they made them billionaires. They rewarded them. That was the Obama policy, and that is what makes them one of the most viciously racist presidents in modern American history. The Democratic Party became committed to returning to its pre-Civil War racist policies. Well, the next group is you see in 2020-21, this huge jump in bank loans. What were they from? The Federal Reserve began to raise interest rates. When the Federal Reserve raises interest rates from less than 1% to 5%, this means all of a sudden debtors had to pay 10 times as much interest as they did before. What that did was that reduces the price of an asset. It’s an inverse proportion to the interest rate. All of a sudden, the stocks and the bonds held by the banks that went under were fictitious. In fact, although Silicon Valley Bank and New York Bank went under, all of the banks, especially Citibank and Chase Manhattan, had all of the loans that they had. All of a sudden, they were not worth anywhere near what they carried them on the books. The banks were insolvent. Now, here was a wonderful opportunity. The Federal Reserve could have taken them over by the government and said, you’re insolvent. We’re going to wipe out the stockholders and the bondholders because you’ve made bad loans. Instead, the Federal Reserve said, well, instead of making the banks insolvent, let’s make the economy insolvent. That’s the policy we’re in today. This increase in Federal Reserve loans has been to support this upsweep of credit that is increasing the burden. All of this upsweep in credit is far in advance of the wages and salaries that people are getting. Somehow, all this increase in interest charges and amortization charges and penalty fees end up impoverishing the economy by leaving less to spend on food and clothing and other consumer spending. If consumer spending is going up, it’s because of the inflation. RADHIKA DESAI: A small correction. This big increase, of course, was increased because the Federal Reserve started a new, massive liquidity provision program, quantitative easing program, when the pandemic hit. And the one that you’re talking about, where essentially they were bailing out Silicon Valley Bank, etc., this is the small increase here, which is what happened after interest rates started rising. But throughout this period, right up until about here, interest rates remained at historic lows. And just one other thing I wanted to say about this before we close this chat, which is that, you know, around 2013, about here, essentially, the Federal Reserve decided that it was going to try to decrease the size of its balance sheet. So you can see, you know, it was still only about three and a half trillion, not the nine trillion that it is today. But you know what the financial institutions and the financial sector did? The financial sector at the time, in 2013, threw a “taper tantrum”. The Federal Reserve was threatening to taper its balance sheets essentially, you know, to decrease it. And they said, we’re not having it. You’ve got to keep supporting us and you’ve got to buy our assets. And so essentially, the Federal Reserve humored them in their tantrum and they continued to expand the balance sheet. And then, as we saw in the pandemic, did even more so, etc. So that’s the thing we’re looking at. And the other thing I just wanted to point out, of course, is that, you know, I completely agree with everything that Michael said about just how racist the system is, because at the end of the day, you know, people think that debt is a market relationship. Debt is not a market relationship. It’s a relationship between, on the whole, relatively privileged people, one of which decides to lend money to the other. So the idea that somehow, by passing a piece of legislation, you can make the poor people of the United States, the black people of the United States, the Hispanic people of the United States into homeowners, this was always a bit problematic. And in the end, the whole 2008 financial crisis, the vast buildup of debt that preceded it, only a tiny fraction, which happened towards the very end of that vast increase, was actually loans to subprime borrowers. The financial institutions only began lending to the subprime borrowers once they had filled the prime borrowers to the gills with all the debt they could take, and only then they moved. And so, in many ways, the subprime borrowers came last, and they were also, of course, the ones to suffer the most. So, yeah, I mean, I think these are really, so really we are living in an economy that is awash with debt, as we were just saying, and it really is the opposite of the sort of economy we ought to have. And Michael, you know, one of the things about the whole classical conceptions of land and rent and interest and so on is, of course, that classical political economy always looked down on things like this, like interest and rent, because it saw it as unearned income, isn’t it? MICHAEL HUDSON: Well, I could have a whole hour on that, but I want to follow up with some charts on the racial element of this. We’ve talked about how the volume of debt is too large to be paid, but I want to say there’s another aspect of debt, and if you could show the racial, that’s right, that chart is very interesting. One of the results of debt is to create a bifurcated economy, and that means that we’re in a kind of apartheid economy. We’re in a financial apartheid economy. 10% of the population owns over 75% of the stocks and bonds in the population, and they’re almost entirely a white population. We’ve talked about mortgage debt being 80% of the overall debt burden. I want to show what has happened long before the chart begins in 2002. I want to begin in 1945 at the end of World War II. That’s really when the houses had not been built during the Depression because people, there wasn’t a market for them. They weren’t being built during World War II because all of the raw materials were going to the war effort, and debt for the whole economy was very, very low debt in 1945 because there was nothing to borrow money for. You couldn’t borrow money to consume because everything was rationed anyway. But finally, they began to make loans, and what had spurred the American takeoff and that of other countries. All countries of Europe, America, and elsewhere were rebuilding after the war, and most of this rebuilding was rebuilding for housing. That was when the great housing was taking place. Here in Queens, you had major developers, not only Trump’s father, but all the famous experiments and group housing were made. There was only one thing. White people were able to buy houses for maybe $10,000 was a typical price of a house that now costs a million dollars. The problem is that banks would only, in order to buy a house, you had to take out a mortgage. Nobody has enough money to buy the whole value of a house, and if wages were maybe $3,000 or $4,000 a year back in 1945, you couldn’t even buy a $10,000 house. Nobody had that. You had to go to the banks. Banks, until about 2000, 2001, would only make mortgage loans almost entirely to white people, unless you were a very, very wealthy black person or a Hispanic. What you created was a bifurcated society. The people who bought the houses in 1945—they returned from the war. They took civilian jobs. They bought a house, and many of them died of old age, but they left the houses to the children. And you had one generation after another generation of white people leaving the house to the children, leaving them enough inheritance to have a house of their own and an education of their own. So what you had was a home-owning, educated white class, but this was not available to non-whites in this country. So what’s the depth of the restriction of credit to the prime human beings, not to the unprimed borrowers? We’re talking about a pretty racist policy. It was very responsible for the fact that you’ve had now 75 years—well, longer than that, 75 years since World War II—you have a disenfranchised, non-white class in the United States of hereditary homeowners who can get into college because their parents and grandparents went to an Ivy League university. And there’s a monopoly of housing and education and wealth at the top of the economic pyramid, and the rest of the economy is essentially disenfranchised as if we’re in our own financialized apartheid economy. RADHIKA DESAI: Yes, and there’s a couple of other points. By the way, in this chart, I should just explain that the top line here is essentially showing the home ownership rates, that is about 75 percent, of non-Hispanic whites in the United States. The red line, which is at the bottom here, is of black people alone in the United States, and then the green line is of Hispanics of any race in the United States. So that presumably includes, for example, if you were a relatively white Hispanic, and they do a little bit better. But you can see that the rate of ownership of black people from the early 2000s till today has really not budged. If anything, it’s slightly worse today than it used to be back then, and became considerably worse just before the pandemic, reaching a very low level of below, like around 40 percent, in fact. So anyway, that’s the thing. But in addition to these things, the kind of financialized economy in which we live, increasingly owning of houses and land, etc., does not necessarily, because of mortgages, the ownership of land or houses does not necessarily confer on you any privilege, because homeowners find that they are paying interest to banks, and even landlords typically are highly leveraged, so the bulk of what they are collecting in rent actually ends up as interest to banks. So in a certain sense, what we are trying to say is that the Federal Reserve has engineered an economy in which not only profits and wages have become essentially in hock to pay interest, are used to pay interest, but so is rent. So that interest has become sort of the prime form of income, at the top of the income pyramid, so to speak. And this is a result of changes also in the tax structure. So for example, in the U.S. taxation system, earnings from interest and rent are treated a lot more softly, a lot more favorably than our earnings from work. This is a huge problem. MICHAEL HUDSON: That sort of goes back to the value theory that I think requires a separate discussion altogether, because it’s so fundamental. The whole idea of classical economics and the free market was a market to be free from rent, rent being unearned income. Rent is what landlords make in their sleep. Rent is not created by labor, and most people don’t realize what’s called the labor theory of value that is based on Ricardo and Marx and the whole 19th century. The idea was to separate value, which is created by labor, from economic rent, which is created by hereditary, by privilege, by property ownership, by owner, by banking, and by monopolists, and by landlords who make their money, economic rent, by owning a rental property, or by lending money and making interest, or by having a company, a monopoly. And you just raise prices, and much of the inflation, as Radhika mentioned at the beginning of the talk, they call it profit inflation, meaning a company just decides, let’s raise the price of drugs. For instance, my wife is on an employer, United Healthcare plan. The price that she has to pay, local drugstores went up quintupled on January 1st, because the healthcare insurer said, we can make money by quintupling the price. Drug companies have been raising the prices all across the board, not by producing more, not because their costs have gone up, which would be, ultimately, the cost would be a cost of production, labor, and materials, but simply because they’ve become a monopoly. And the Democratic Party has always been the great protector of monopolies, because they’re campaign contributors. And if you look at who heads the health committees and the others in Congress, related committees in Congress, their campaign contributors come from the pharmaceutical and drug industry. So you have the governments representing their campaign contributors, the military and state department desks at the Senate and House are subsidized and paid for by the military industrial complex, the health departments from the drug companies, and so on and so forth. So we’re that part of the problem of what has made America a failed economy. And it’s a failed economy because of the austerity that this debt apartheid has created. RADHIKA DESAI: And we should probably soon shift to talking about solutions. But let me just add a small point to what you were saying, which is that, of course, if you look at the US economy today, you will see that over the neoliberal period, what has happened is that it has become dominated, of course, by the financial sector, the so-called FIRE sector, finance, insurance, and real estate. And on top of that, if you look at what are the other sectors of the US economy, which are really important and lucrative, you will see that they are the military industrial complex, they are the big pharma, and they are information and communications technology. And in pretty well all of these cases, these sectors are characterized by a high degree of monopoly, a high degree of rent-seeking in the sense that a military industrial complex, for example, essentially relies on vast government contracts, which are risk-free in which they get to mark up costs as much as they like. And big pharma and information and communications technology rely on intellectual property rights in order to secure their monopoly. So in all of these ways, this has created an economy which is very undynamic, it is not very efficient, but at the same time, it is very lucrative for those who own it, which of course puts an added burden on ordinary Americans. MICHAEL HUDSON: Well, one of the problems of it being undynamic is you’re having a decline in office space, in commercial real estate. We’ve been talking about homeownership rates and how unfair that is, but you remember back in 2008 when there was the property price crash, you had what was called “jingle mail”. You would have buyers, especially in Nevada and Florida, where there was a huge run-up in housing prices, they’d say, okay, I owe $500,000 for this house, but now the house just like it next door is selling for $300,000. I’ll just mail back the keys to the bank and say, okay, I’m defaulting, you can have the house, I’m just not going to pay, I’m going to take out a new loan and buy the house next door. Well, that phenomenon is now happening for businesses. Apparently [only] 40% of the US commercial properties are occupied. In other words, since COVID, and most of all, since the economy began to shrink as a result of this debt deflation, businesses have been going out of business. Even those who are in business, you have people working from home. Now, if you have the average occupancy rate of buildings being only 40%, how is the owner going to have the money to pay for the bank? Well, because the banks have lent almost 100% of the value of the building to the homeowner who’s willing to pay all of the rents as interest, rent is for paying interest, that’s the basic motto. What they want is the capital gain in the price of the building. They realize they’re not going to be a capital gain. This was all fictitious capital, it’s going down, we’re mailing our keys back to the bank and we’re walking away from the building. This year and next year, there is such an enormous trillions of dollars of commercial real estate falling due, not only here, but in England and other countries, that the banks are all of a sudden going to be left with mortgages that are unpaid. Against these mortgages, they have liabilities to their depositors, to their bondholders, and most of all, they want to pay millions of dollars to the, I think Jamie Dimon, the head of Chase Manhattan, gets $29 million a year for running a company that’s gone bankrupt and is kept alive because he gives some of that $29 million to the politicians who continue to appoint Federal Reserve people who will bail them out. That’s what you call a circular flow. What are you going to do when all of a sudden the banks should be going under? Well, normally, if they’ve made a bad loan, somebody has to suffer. Who’s going to suffer? As Bill Clinton said when he was told you have to do what Alan Greenspan says and support the banks, Clinton said, oh, it’s all about the bondholders. In 2009, when Obama came in and decided to bail out the banks, Sheila Bair, the head of the Federal Deposit Insurance Corporation, said, wait a minute, we have a crooked, incompetent bank. There’s one bank in America that’s more crooked than all the others and more incompetent. That’s First National City Bank. Let’s take it over. Let’s make it a public bank. You can’t let this bank destroy the whole economy by being so greedy that it makes loans way in excess of the value of property and keeps expecting to be bailed out so it can make more interest and pay its officers more. Let’s drive it under. And Obama and his Treasury secretary, Tim [Geithner], said it’s all about the bondholders who own the bank. So the question is, what will the banks do when all these mortgage loans go under? Well, wipe out the stockholders. But the bondholders are the wealthiest 1% of the population. They’re the ones who own most of the bank bonds. Who do you think the government is going to support? Is it going to support the economy or the stockholders or the 1%? That really is the way in which you should think about an economy being an apartheid economy, not simply ethnically and racially, but financially. That’s the real apartheid between creditors and debtors that I think all of our shows are examining from different perspectives. RADHIKA DESAI: Well, I’d just like to add a couple of points to what you were saying, Michael. This is very interesting because if you look at commercial real estate, there’s no doubt for the last many months there have been headlines about how there is a collapse of commercial real estate prices. It’s coming. In fact, it’s already happening. As Michael says, the fall in the value of commercial real estate is already ongoing from what we read in the financial press. The really big prestige buildings may not be affected, but the next layer and down, all these buildings will be affected. Everybody who has walked around a big city in North America or for that matter elsewhere in Europe will see that commercial space is essentially going down. So many are boarded up. So many are empty and so on. And according to one measure, about 10% of US bank assets actually rely on the value of commercial real estate. Now, Michael asks, you know, when the crisis comes, well, the crisis is already here. So who is the Federal Reserve going to help? But you know what, I’m not even sure. And the US government, who are they going to help? Who are US authorities going to help? I’m not even sure they’re going to be able to help them because the fact is that as the value of these assets decline, banks already have to report them if they are publicly listed on an ongoing basis, which means that their shares will already go down. And there is no doubt that a crash will come. And when it comes, yes, the Federal Reserve will once again, as you saw with the Silicon Valley Bank, essentially, in fact, there was another point that I wanted to make there. Essentially, Ms. [Janet] Yellen stepped forward and said, we are going to guarantee all depositors, even if their deposits are higher than $250,000. Now, you might think that this is somehow a very democratic thing. But on the contrary, if you look at what kind of bank Silicon Valley Bank was, essentially, it was like a club in which a select group of rich people who are all connected with one another lent each other vast quantities of money. Now, what does lending mean? It means that I go to my friend and, you know, Silicon Valley Bank and say, you know, please give me $5 million. I’m going to have a startup. You don’t even look at whether my startup is worth supporting. You just say, okay, I’ll give you, I’m going to show a deposit of $5 million in your account. These are the deposits that Ms. Yellen was protecting. This is not even the money that they have deposited in the bank. This is money that is in a deposit in my name because it has been lent to me. So, if you think about just how huge is the boondoggle that is protecting the interests of the tiny minority of the very wealthy, I hope in this program we’ve given you some idea of the lengths to which US authorities have gone to protect the wealth of this minority. And in our next show, maybe what we’ll do is we are going to devote it entirely to talking about what needs to happen if we are going to move away from this kind of economy. MICHAEL HUDSON: That’s a good way to end it. There’s so much that it’s leading into. And the last thing that the Federal Reserve wants is for—what if banks reported the actual market value of their assets? When you have a balance sheet, assets and liabilities, they’re holding the assets at the price that they made the loan for, say $100 million for a building. But what if they reported their assets as only $40 million for the building? You would have bank assets here and the liabilities here. They’d look just like most people in America. 50% of Americans don’t have any assets, but they have a big debt. That’s an interesting bar chart to show, assets, liabilities. And you can look at it by income group. The Federal Reserve does not produce believable statistics on debt as a proportion of income. If you look at the Federal Reserve statistics of debt to income by percentile, 10%, 20%, nothing has changed in the last 50 years. Nobody’s run into debt at all. Because they say, let’s assume that debt is constant for the last half century. The statistics are fictitious. And they’re fictitious because that protects the fact that most of this, what passes as bank capital is fictitious. I mean, we’re in a fictitious economy. It’s sort of like trying to read about international affairs in the New York Times. That’s about as realistic as the Federal Reserve statistics are. RADHIKA DESAI: Exactly. I mean, it’s basically the rich people of the United States and the big financial institutions of the U.S. are in a situation in which, you know, they make a bad investment, they make a loss and they go, oops. And then the Federal Reserve, which is their sugar daddy, essentially comes and makes good all their losses. It gives them more money to plug the holes in their balance sheets that they have themselves created out of their own greed and misjudgment and bad judgment. So there we have it. It’s this kind of economy that, unfortunately, the United States is laden down with today. And so the question naturally arises, what kind of economy do Americans need in its place? MICHAEL HUDSON: I want to add one point out there. The important thing is that these rich people who are not paying their debts do not have to pay penalty rates. The large businessmen who owe debts don’t pay penalty rates. You know that if you’re a family and you’re running a credit card debt, if you miss a payment in your electric bill or anywhere, your rate goes up from 19 percent to 30 percent or more. That’s not the case if you’re rich people. There’s one set of interest rates and penalties for 99 percent of the population, another set for the wealthiest 1 to 10 percent of the population, and you’re not in it. RADHIKA DESAI: And that’s what we call financial apartheid. So I think with that, Michael and I will say goodbye and hope to see you in a couple of weeks and we’ll talk about what kind of economy we need instead. Thanks very much for joining us, and see you in a couple of weeks. Bye bye.

Write an article about: US now world’s top LNG exporter, as Europe boycotts cheaper Russian gas. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

energy, Europe, gas, LNG, Russia, Ukraine

The USA has rapidly become the world’s biggest exporter of liquefied natural gas (LNG), tied with Qatar. Europe replaced Asia as the top market for US LNG in 2022, boycotting cheaper Russian energy over the proxy war in Ukraine. The United States has rapidly become the world’s biggest exporter of liquefied natural gas (LNG), tied with Qatar. A significant reason for this meteoric increase is because Europe replaced Asia as the top market for US LNG in 2022, as Brussels pledged to boycott Russian energy over the proxy war in Ukraine. Among the principal importers of US LNG are France, Spain, Britain, the Netherlands, and Italy. Europe is now paying significantly more for expensive US LNG than it had previously for Russian pipeline gas. As of 2022, Europe had the highest energy prices on the planet. This was a key factor in fueling an inflation crisis that spread worldwide, and hit Europe especially hard. Bloomberg reported that the “US tied Qatar as the world’s top exporter of liquefied natural gas” in 2022, calling it “a milestone for the meteoric rise of America as a major supplier of the fuel.” The outlet added that the United States, “which only began exporting LNG from the lower-48 states in 2016 and has seemingly overnight become a dominant force in the industry.” A graph from the Energy Information Administration (EIA) illustrates the monumental shift in US LNG exports in just six years. S&P Global reported in September 2022 that European imports of LNG made up the “lion’s share” of US exports in the first six months of 2022. Global imports of US LNG nearly doubled from $10.8 billion in the first half of 2021 to $21.2 billion in same period in 2022. “Many U.S. LNG export cargoes departed for Europe in the first half of 2022 as the war in Ukraine prompted a scramble for LNG supplies,” S&P Global wrote, adding that “LNG market experts have warned that shipments of LNG cannot quickly replace curtailed pipeline imports from Russia and that the region’s need for significant LNG volumes will remain strong.” The market intelligence unit stressed that Europe has the highest gas prices on Earth. Its benchmark energy price hit a historic high of roughly €320 per megawatt hour in August. S&P Global followed up with another report in November, stating that the “European energy crisis has put US natural gas in high demand and in a position of acute geopolitical relevance.” The financial information firm used the same language, that the “lion’s share headed to Europe following Russia’s invasion of Ukraine in February” and the escalation of the NATO-Russia proxy war. The industry monitor LNGPrime reported that France, Spain, the Netherlands, Japan, and Italy bought nearly half (46.4%) of total US LNG exports in May 2022. Reuters noted in December 2022 that US LNG prices had approximately doubled in the previous year. It added that US LNG exports to Europe increased by a staggering 137% in the first 11 months of 2022, compared to 2021. The news wire added that “the United States will remain the primary supplier of LNG to Europe for at least 2023. This will likely generate even greater revenue for U.S exporters after a record 2022, which totaled $35 billion through September, compared to $8.3 billion over the same period in 2021.” This massive spike in energy prices is causing economic chaos in Europe. Politico published an article in November 2022 titled “Why cheap US gas costs a fortune in Europe.” It pointed out that US LNG is almost four times more expensive in Europe. And it is not just North American corporations that are profiting from this substantial markup, but also European importers and resellers. Even France’s right-wing President Emmanuel Macron, a former investment banker, complained to French industrial executes, “In today’s geopolitical context, among countries that support Ukraine there are two categories being created in the gas market: those who are paying dearly and those who are selling at very high prices… The United States is a producer of cheap gas that they are selling us at a high price… I don’t think that’s friendly.” Politico added, “Macron’s dig conveniently ignored that the largest European holder of long-term U.S. gas contracts is none other than France’s own TotalEnergies.” In 2018, the CEO of Austrian fossil fuel company OMV estimated that Russian pipeline gas was 50% cheaper than US LNG. The corporate executive, Rainer Seele, said, “I think it is about 50% difference between LNG and Russian gas.”

Write an article about: British empire killed 165 million Indians in 40 years: How colonialism inspired fascism. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Britain, capitalism, colonialism, famine, fascism, genocide, India, Shashi Tharoor, UK, United Kingdom, Utsa Patnaik, Winston Churchill

A scholarly study found that British colonialism caused approximately 165 million deaths in India from 1880 to 1920, while stealing trillions of dollars of wealth. The global capitalist system was founded on European imperial genocides, which inspired Adolf Hitler and led to fascism. British colonialism caused at least 100 million deaths in India in roughly 40 years, according to an academic study. And during nearly 200 years of colonialism, the British empire stole at least $45 trillion in wealth from India, a prominent economist has calculated. The genocidal crimes committed by European empires outside of their borders inspired Adolf Hitler and Benito Mussolini, leading to the rise of fascist regimes that carried out similar genocidal crimes within their borders. Economic anthropologist Jason Hickel and his co-author Dylan Sullivan published an article in the respected academic journal World Development titled “Capitalism and extreme poverty: A global analysis of real wages, human height, and mortality since the long 16th century.” In the report, the scholars estimated that India suffered 165 million excess deaths due to British colonialism between 1880 and 1920. “This figure is larger than the combined number of deaths from both World Wars, including the Nazi holocaust,” they noted. They added, “Indian life expectancy did not reach the level of early modern England (35.8 years) until 1950, after decolonization.” Hickel and Sullivan summarized their research in an article in Al Jazeera, titled “How British colonialism killed 100 million Indians in 40 years.” They explained: According to research by the economic historian Robert C Allen, extreme poverty in India increased under British rule, from 23 percent in 1810 to more than 50 percent in the mid-20th century. Real wages declined during the British colonial period, reaching a nadir in the 19th century, while famines became more frequent and more deadly. Far from benefitting the Indian people, colonialism was a human tragedy with few parallels in recorded history. Experts agree that the period from 1880 to 1920 – the height of Britain’s imperial power – was particularly devastating for India. Comprehensive population censuses carried out by the colonial regime beginning in the 1880s reveal that the death rate increased considerably during this period, from 37.2 deaths per 1,000 people in the 1880s to 44.2 in the 1910s. Life expectancy declined from 26.7 years to 21.9 years. In a recent paper in the journal World Development, we used census data to estimate the number of people killed by British imperial policies during these four brutal decades. Robust data on mortality rates in India only exists from the 1880s. If we use this as the baseline for “normal” mortality, we find that some 50 million excess deaths occurred under the aegis of British colonialism during the period from 1891 to 1920. Fifty million deaths is a staggering figure, and yet this is a conservative estimate. Data on real wages indicates that by 1880, living standards in colonial India had already declined dramatically from their previous levels. Allen and other scholars argue that prior to colonialism, Indian living standards may have been “on a par with the developing parts of Western Europe.” We do not know for sure what India’s pre-colonial mortality rate was, but if we assume it was similar to that of England in the 16th and 17th centuries (27.18 deaths per 1,000 people), we find that 165 million excess deaths occurred in India during the period from 1881 to 1920. While the precise number of deaths is sensitive to the assumptions we make about baseline mortality, it is clear that somewhere in the vicinity of 100 million people died prematurely at the height of British colonialism. This is among the largest policy-induced mortality crises in human history. It is larger than the combined number of deaths that occurred during all famines in the Soviet Union, Maoist China, North Korea, Pol Pot’s Cambodia, and Mengistu’s Ethiopia. "This is among the largest policy-induced mortality crises in human history. It is larger than the combined number of deaths that occurred during all famines in the Soviet Union, Maoist China, North Korea, Pol Pot’s Cambodia, and Mengistu’s Ethiopia." https://t.co/eTGQzRkTyn — Dr. Prerna Bakshi (@bprerna) December 4, 2022 This staggering figure does not include the tens of millions more Indians who died in human-made famines that were caused by the British empire. In the notorious Bengal famine in 1943, an estimated 3 million Indians starved to death, while the British government exported food and banned grain imports. Academic studies by scientists found that the 1943 Bengal famine was not a result of natural causes; it was the product of the policies of British Prime Minister Winston Churchill. The Bengal famine of 1943 killed 2-3 million people, when Bengal was part of British-ruled India. There was food — but Winston Churchill ordered it be exported and stockpiled in case Europe needed it as the war dragged on.https://t.co/rIs4vz1yWG pic.twitter.com/ue1H4gBkfZ — Sasha Alyson ??? Karma Colonialism (@TrojanAid) September 2, 2021 Churchill himself was a notorious racist who stated, “I hate Indians. They are a beastly people with a beastly religion.” In the early 1930s, Churchill also admired Nazi leader Adolf Hitler and the Italian dictator who founded fascism, Benito Mussolini. Churchill’s own scholarly supporters admitted that he “expressed admiration for Mussolini” and, “if forced to choose between Italian fascism and Italian communism, Churchill unhesitatingly would choose the former.” Genocidal colonialist Churchill "expressed admiration for Mussolini" Churchill's own hagiographers admitted, "if forced to choose between Italian fascism and Italian communism, Churchill unhesitatingly would choose the former" In 1935, Churchill praised Hitler for his "courage" https://t.co/kTkoaaOW5g — Ben Norton (@BenjaminNorton) September 29, 2022 Indian politician Shashi Tharoor, who served as an under-secretary general of the United Nations, has exhaustively documented the crimes of the British empire, particularly under Churchill. “Churchill has as much blood on his hands as Hitler does,” Tharoor stressed. He pointed to “the decisions that he [Churchill] personally signed off during the Bengal famine, when 4.3 million people died because of the decisions he took or endorsed.” Award-winning Indian economist Utsa Patnaik has estimated that the British empire drained $45 trillion of wealth from the Indian subcontinent. "Over roughly 200 years, the East India Company and the British Raj siphoned out at least £9.2 trillion (or $44.6 trillion)… To put that sum in context, Britain’s 2018 GDP estimate is about $3 trillion" https://t.co/1iyV3oXrjJ — AnnieZaidi (@anniezaidi) November 19, 2018 In a 2018 interview with the Indian news website Mint, she explained: Between 1765 and 1938, the drain amounted to £9.2 trillion (equal to $45 trillion), taking India’s export surplus earnings as the measure, and compounding it at a 5% rate of interest. Indians were never credited with their own gold and forex earnings. Instead, the local producers here were ‘paid’ the rupee equivalent out of the budget—something you’d never find in any independent country. The ‘drain’ varied between 26-36% of the central government budget. It would obviously have made an enormous difference if India’s huge international earnings had been retained within the country. India would have been far more developed, with much better health and social welfare indicators. There was virtually no increase in per capita income between 1900 and 1946, even though India registered the second largest export surplus earnings in the world for three decades before 1929. Since all the earnings were taken by Britain, such stagnation is not surprising. Ordinary people died like flies owing to under-nutrition and disease. It is shocking that Indian expectation of life at birth was just 22 years in 1911. The most telling index, however, is food grain availability. Because the purchasing power of ordinary Indians was being squeezed by high taxes, the per capita annual consumption of food grains went down from 200kg in 1900 to 157kg on the eve of World War II, and further plummeted to 137kg by 1946. No country in the world today, not even the least developed, is anywhere near the position India was in 1946. Patnaik emphasized: The modern capitalist world would not exist without colonialism and the drain. During Britain’s industrial transition, 1780 to 1820, the drain from Asia and the West Indies combined was about 6 percent of Britain’s GDP, nearly the same as its own savings rate. After the mid-19th century, Britain was running current account deficits with Continental Europe and North America, and at the same time, it was investing massively in these regions, which meant running capital account deficits too. The two deficits summed to large and rising balance of payments (BoP) deficits with these regions. How was it possible for Britain to export so much capital—which went into building railways, roads and factories in the U.S. and continental Europe? Its BoP deficits with these regions were being settled by appropriating the financial gold and forex earned by the colonies, especially India. Every unusual expense like war was also put on the Indian budget, and whatever India was not able to meet through its annual exchange earnings was shown as its indebtedness, on which interest accumulated.

Write an article about: Understanding money and the dollar system’s contradictions with Radhika Desai & Michael Hudson. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

capitalism, de-dollarization, debt, dollar, Geopolitical Economy Hour, Michael Hudson, money, Radhika Desai

Economists Radhika Desai and Michael Hudson explain the relations between money and debt, their role in imperialism, and the rise of the US dollar system. Economists Radhika Desai and Michael Hudson explain the relations between money and debt, their role in imperialism, and the rise of the US dollar system, in this episode of their show Geopolitical Economy Hour. You can find more episodes of Geopolitical Economy Hour here. Radhika Hello and welcome to this third Geopolitical Economy Hour. I’m Radhika Desai. Michael And I’m Michael Hudson. Radhika As many of you know, in this collaboration with Ben Norton’s Geopolitical Economy Report, Michael and I will present every fortnight a discussion of the major trends and developments that are so radically shaping our world. This includes issues that involve not just politics and economics, but, as Michael and I and Ben like to put it, political economy and geopolitical economy. Thanks also to all our viewers for your interest and engagement. We would like to say that we do read all the comments with great interest, so please keep them coming, including your suggestions for future shows. So, as we advertised last time, today we are going to deal with de-dollarization, and this for us is a really big theme, and we are going to take our time dealing with it. We will probably do at least two shows, maybe even a bit more. But in any case, since it’s such a big thing, let’s just get started. Michael, what does de-dollarization actually refer to? What are people talking about when they say de-dollarization is occurring? Can we make an inventory of the main things people are referring to? Michael Well, President Putin and President Xi have both been talking about de-dollarization. So that has put it right in the center of the discussion. Basically, it’s a response to the fact that the United States has weaponized the dollar. It’s become a political tool in today’s Cold War. For one thing, the dollar is no longer a safe haven. The United States had Britain confiscate Venezuela’s gold supply in England, and the United States and Europe have confiscated all of Russia’s foreign exchange holdings in dollars and euros. So that has made countries realize: if the United States is going to say that it is the world banker, and the world banker is going to just take our money, we’ve got to find another banker. And that means finding another currency. Radhika This is certainly one of the ways in which the sanctions have boomeranged. And then there are also other indicators. For example, the level of dollars, the share of dollars in the reserves of central banks around the world, is going down. It had been some 70%, now it’s 60%. It’s still quite high, but it is going down. And there are also a couple of other things going on. Michael mentioned all these discussions that the Chinese and the Russians and other people are having. There’s also a huge spread of bilateral agreements between countries, particularly over the last year, with sanctions on Russia and so on. They have been proliferating. So India and Iran, Russia and Iran, China and Iran, et cetera — various countries are agreeing to accept each other’s currencies in their mutual trade. And then there is also the new payment systems they are creating. So when the United States said that they were going to kick Russia out of the SWIFT international payments information system, everybody sort of got the message. In fact, as Michael said just now, the fact of the matter is that the weaponization of the dollar system didn’t start in 2022 with the conflict over Ukraine. It’s been going on for a while. Michael mentioned the confiscation of Venezuela’s reserves and now of course, Russia’s reserves. But remember also there was that huge and scandalous episode of the vulture funds in Argentina, in which basically the American legal system, completely contrary to the rules of the international game, ruled in favor of vulture funds and against Argentina, which also showed you the casino the United States is running — it is totally loaded in favor of the house, even more than normally. But there are also a couple of other things that we should probably mention. One is of course the availability of alternative sources of finance, particularly from China, but also the emergence of other institutions like the New Development Bank (NDB) which was created by the BRICS and so on. Finally, there is also this whole issue of central bank digital currencies which increasingly being named as being quite important as a way of displacing the dollar from its centrality hitherto in the world monetary system. Is there anything I’ve forgotten, Michael? Michael Quite a bit actually. The point that we’re going to be making throughout this whole discussion is that the dollar really isn’t an international currency, it’s a national currency. And being that, it reflects American self-interest. One of the problems is that right now countries find they have to support the dollar. When they get a dollar inflow, they’re worried about their currency going up against the dollar. The Global South countries are worrying about the fact that, since raw materials — oil and gas and food and other minerals — are denominated in dollars, now that the United States is raising its interest rates — in order to prevent wages from rising and causing a slowdown — that makes these materials more expensive in the local currencies of South America, Africa and Asia. Countries want to say, “How can we make these prices of the raw materials — for instance, oil that we’re importing from Russia — how can we make it stable and not going up just because the dollar is raising its interest rates and making it more expensive to pay for oil?” That’s why they’re doing just what you described: making agreements among themselves to transact their oil sales and other sales in domestic currency. That the Saudi Arabia agreements with Russia, with China — in order to price in their own currency — India is joining the crowd. People are realizing: We’ve got to have something that is more objective and not subject to national manipulation. Radhika And whims. Exactly. In fact we will be discussing all of these things in even greater detail towards the end of this set of de-dollarization shows. Michael, we should also tell people why both you and I have been writing about this for eons. You certainly have a long head-start on me. Why don’t you tell people a little bit about your own work, particularly Super Imperialism, very briefly, before we go on to our show. And then I’ll say something about my work. Michael Well, Super Imperialism is different from the old form of colonialism. Colonialism was all based on military occupation, essentially by force and by blocked currency areas. But Super Imperialism is how the United States has gotten a free ride from the rest of the world — how the United States has dominated other economies, not by the old colonialist form, not by having a military force in many countries, but in monetary forms. So the new form of imperialism is essentially monetary and financial in character. It works via the American control of the International Monetary Fund and the World Bank, which oblige other countries to focus their economies on helping the United States balance of payments, financing the US. military spending abroad, financing American takeovers, and being willing to balance their foreign exchange by privatizing and selling off their public infrastructure to American and foreign investors. The new form of imperialism is financial much more than military. And even the military force of American policy has become financialized. Radhika Yes. So Super Imperialism is really one of the foundational texts to really try to understand why the dollar system is tottering right now. Because if you’ve always been saying that the dollar system is perfectly fine, then it’s difficult to understand it’s unraveling. So what Michael did in Super Imperialism was important for me. I elaborate on this argument in my Geopolitical Economy, which was published in 2013. In this book, I basically show — one of the best ways of introducing this book is like this: You may have heard people say that the dollar was once hegemonic and it is no longer so. You may have heard other people say that the dollar has always been hegemonic and will always remain so. But you’ve never heard people say that the dollar never really managed stable hegemony. And that is the argument of Geopolitical Economy. So Geopolitical Economy exposes the clay feet on which the United States giant actually stands. It exposes the contradictions of the dollar system. Since then, Michael and I have also elaborated both on his own views, which have developed over the decades. Michael has done a lot of other work on this matter. My own work has continued to develop, particularly vis-a-vis trying to understand how the sterling system, to which the dollar system has always been compared, actually worked. We put together in a very short form the summary of our work in a paper entitled “Beyond the Dollar Creditocracy: A Geopolitical Economy.” This is a short version of our argument. Those of you who are interested, please take a look. We will be sharing the links to all these things in the notes to this show. This is why we really have a lot to say about dollarization, which is the flavor of the month. We’d like to share our understanding in this show and the next of what the dollar system really was. What were its contradictions exactly? What are the ways in which these contradictions are now maturing? How is the dollar system unraveling today? This is also interesting because the dollar system has always been very unstable and shaky, so it has always had its doomsayers. But the fact is that until recently, the dollar system has somehow managed to keep on top of things. There has always been this way of dismissing those who talked about the problems of the dollar system, saying that the dollar’s doomsayers are a dime a dozen and they are never proved right. But now, all the problems to which they are pointing are maturing. So it really helps to have been a critic of the system. And what’s happening now, very interestingly, is that there are people in high places who are talking about de-dollarization. Let me just give you a couple of prominent examples. One of them is Zoltan Pozsar. Zoltan Pozsar is the Global Head of Short Term Interest Rate Strategy at Credit Suisse, and he has also formerly worked for the US Federal Reserve, as well as the US Treasury Department. Earlier last year, around March 2022, he wrote a fairly controversial piece that made the news called We Are Witnessing the Birth of a New Monetary Order. He wrote this a week after the United States seized the Russian reserves, as we were discussing just now. And what is the reason that he gave for why there will be a birth of a new monetary order? From the start, Pozsar has pointed to one critical thing — which we will come back to towards the end of the show when we return to discussing the crisis of the dollar more fully — he focused on commodity prices. He said that commodities are becoming more attractive than the money that is produced by the US financial system. More recently, very interestingly, in an article last month in the Financial Times (“Great power conflict puts the dollar’s exorbitant privilege under threat“) he also added the emergence and the increasing proliferation of central bank digital currencies, particularly in countries that are outside the imperial core of the world system. He named that as another major factor. So that’s Zoltan Pozsar. Now, a second important and prominent person who is pointing to the demise of the dollar is Nouriel Roubini. Some of you will remember that Nouriel Roubini was called Dr. Doom because, in the run up to the 2008 financial crisis, when the bubble was still inflating, Roubini was predicting its bursting. And actually you can probably still find videos on YouTube where people are laughing at him when he predicts the inevitable crash, which in fact happened in 2008. Roubini is fingering geopolitics for de-dollarization. In a quite recent article entitled “A bipolar currency regime will replace the dollar’s exorbitant privilege,” he mentions that the emergence of central bank digital currencies outside the imperial core are importantly contributing to de-dollarization. As Michael has mentioned, in the context of boomeranging sanctions, we also hear it widely reported that President Putin wants to develop an alternative currency system and has appointed one of his advisors who is really big on Eurasian integration, Dr. Sergei Glazyev, as the lead organizer of this system. These are some of the indicators that something quite important is going on. However, Michael and I also feel that we need to have a more systematic discussion of this, because the fact of the matter is that the story of de-dollarization — that is to say, the dollar system itself — has been such an ideological and deeply flawed discourse, one of whose purpose was precisely to always talk up the dollar, which was always on shaky foundation. So there was always a big industry of people talking up the dollar. Those who are trying to criticize also end up being like scholars who are the blind scholars who are looking at the elephant — the one who’s holding the tail thinks it’s long and skinny, and the one who’s holding the leg thinks it’s big and thick and so on. So there’s different parts of the story we want to put together. We look at the history and the fundamental instability of the system. Both Michael and I have done that. We will, in fact, begin by understanding why it’s unstable, why a national currency cannot be a world currency. And we are also going to look at the sterling system. So the fact is that the discussion of the dollar’s career as the world money has been dominated by US scholars who have been professional boosters. One of the key examples of this is Charles Kindleberger. This is the guy who proposed what’s commonly — or what’s in the literature called — Hegemonic Stability Theory (HST). He basically said that, in the interwar period, there was a big crisis. The Great Depression occurred because the United Kingdom was no longer able, and the United States was not yet willing, to provide leadership to the world system and providing the world with a currency, with its national currency as the world’s currency, was one of the elements of this leadership. So this discourse has tended to naturalize the dollar’s role partly by naturalizing sterling’s role. And we are going to show that none of this is natural. In fact, we’d like to structure our discussion in terms of a very clear set of questions. We have ten of them, and we think that we are going to be able to get through the first five in this show and the next five in the next show. So we will be beginning by discussing: 1. What is money? Why does it appear to take national forms? Can there be world money? 2.  What is the relation of money and debt? Michael in particular has done a lot of work on this and we want to talk about this. 3. Is money a commodity? We want to talk about whether money is a commodity. I’ve shown, for example, that Polanyi said money is not a commodity and Marx would have agreed with him. 4. What is the ‘theory’ of how the dollar has served as the world’s money? 5. Was the dollar system like the sterling system? What was the sterling system? Since that theory relates to the sterling system, and always refers back to the sterling system, we need to show how the sterling system actually worked, or rather did not work, and what were its instabilities. In the next show, we want to talk about: 6. How did that sterling system end? 7. What really happened between the World Wars? Michael gave you a flavor of that just now. 8. How did the dollar system really work, both in the Bretton Woods system between 1945 and 1971, and after the dollar’s gold link was broken in 1971? What were the real dynamics? 9. Then we want to ask: Was there really a ‘Bretton Woods II’ system after 1971? 10. As to the crisis today: What are its main dimensions? We want to come to the big crisis as it is unfolding today and ask, What are the major elements of it? What does it have to do with the rise of China, the rise of other economies, central bank, digital currencies, commodities, etc.? That is our agenda. Michael, I’ve spoken for a long time and you probably have a few things to add, so please. Michael Well, the common denominator of what we’re saying is: We focus on the political instabilities and what used to be called internal contradictions. Radhika is right when she says that the people like Triffin and Kindleberger have treated the dollar’s supremacy as if it’s natural. And if it’s natural, it’s inevitable. And really, there’s nothing you can do to change all of this. But if you look at the international monetary system as political, then you realize it’s all about change. That’s what politics is all about. And if you’re writing for the kind of audience that Mr. Roubini and the others wrote for, you can’t really come out and talk about what Radhika and I are saying. We’re talking about ‘that which must not be said’ in the major media — about the causes of the instability being exploitative. People talk about: Wouldn’t it be nice to have commodities as a basis of world trade? Well, nobody’s going to have central bank reserves held in the form of grain or oil. They will hold it in gold because for the last 4,000 years, that’s something that everybody can agree upon is an objective physical thing beyond the ability of individual countries to affect. But the whole idea is that if we’re talking about money and money is political, you want something that is political — that countries can influence. The question is: How are you going to influence money, and in whose interest? That’s why we’re explaining this historically in the sequence that Radhika has described, so that you can see — if you understand that historically — what the fight has been all about for the last 100 years, Radhika That’s really great, Michael. Let’s deal with the first question, which is: What is money? Why does it appear to take national forms? Can there be world money? Michael Well, all money is debt. The dollar bills in your pocket are technically on the liability side of the US Treasury. And if the US Treasury would get out of debt, it would have to redeem all the money, presumably for gold or something else. And there wouldn’t be any money, but there wouldn’t be any debt. So basically, if money is debt, who is going to be the beneficiary of the debt? Who is this debt going to be owed to? Well, most money — the government owes debt to the economy, if we’re talking about physical money — the physical currency, the greenbacks. Well, most greenbacks are $100 bills stuffed in the mattresses of drug dealers and arms dealers and people all outside of the United States. Most American currency is held out of the United States, not in it. But, if you look at what monetary theorists are saying about money, money is what you have in the bank. It’s not only physical currency, but it’s demand deposits. It’s bank credit. Banks create credit and banks create money. And what do they create money for? Well, they create it electronically. You go into a bank, you say you want a loan to buy a house. The bank creates a bank deposit in your name. And in exchange, the bank has a liability. You sign a note saying, I promise to pay the bank and I pledge my house as collateral and anything else the bank can grab in case I can’t pay the loan. So bank credit is money. And the difference between bank credit and government credit is: when governments create money, they spend it on something that’s supposed to be in the public interest. World War III is America’s main private interest now. So most of the budget deficit is to fight in Ukraine to start World War III. There’s a little bit of social spending in there too for Social Security and Medicare. But when banks create credit, and we have a chart about this, they create it to buy houses for mortgage credit. They create it essentially against collateral in the form of assets that are already in place because they want something to grab. The money that banks create is used to buy houses and that bids up their prices, which is why housing prices have gone up so much. Or banks create credit to enable corporate raiders to buy a company and load it down with debt. So the money that’s been created has gone hand in hand with a huge expansion of debt. The problem with this is that the debts grow faster than the economy. The rate of interest for the last 100 years has been higher than the rate of economic growth. And that’s been the case ever since the Babylonian era 5,000 years ago. The rate of interest grows faster than the economy. Then the debt grows more and more and more. And what people think is: Well, there’s more money to buy houses, more money to buy stocks and bonds under quantitative easing. But it turns out that all this money is debt. The internal tension of all of this is: How can economies pay debts that grow faster than the economy is growing? The long picture that we’re talking about is that debts tend to grow faster than the ability to pay. Most people think of a business cycle as going very smoothly, like a sine curve, steadily — as if somehow the economy can keep chugging along. But that’s not how economies work. Over time, every recovery in the United States and Europe since World War II has started from a higher and higher and higher debt overhead. And right now, America has reached its limit. Well, that’s the problem that America is posing for the world economy. How can a country that is deindustrialized, that’s in debt, that is shrinking, dominate the whole rest of the world simply by saying: We’re going to write IOUs and you have to support it? That’s what makes the nature of money the essence of the kind of financial imperialism that we’re seeing. Radhika Yeah, that’s great, Michael. What you’ve said is that basically money is debt. Money is debt that is owed to somebody. And I’d like to add to that, because Michael’s already alluded to the fact, that you can have the debt created by a privately owned financial system or a financial system whose financial institutions are privately owned, in which case the money — that is necessary to create and is necessary to create as debt — also becomes the source of private profit for a small number of people. Historically, we have known other kinds of money where the state issues money, where the money that is created is a liability of the state. Practically all well-organized financial systems — ones that are not prone to crisis, that are not prone to predatory lending, in which debt does not expand exponentially far beyond the capacity to pay — are actually run by states that heavily regulate the financial system, prevent them from going into a speculation, and so on. So Michael’s already sort of waded into the relation between money and debt. Returning for a minute to the question of: What is money? I’d just like to say that it is very common, actually, both among mainstream as well as critical thinkers, to tend to talk as if money is a commodity. You will even find many Marxists who say that Marx thought money was a commodity. In reality, money is not a commodity. Money is actually an ancient social institution. It arises from old practices of keeping accounts: keeping accounts of who owes what to whom, keeping accounts of debt, et cetera. So that’s the first thing one should think. The second thing is that — and this is very relevant to our present conversation — money is necessarily national. It’s not some kind of quirk of history that means that in the United States, we have dollars, in the UK we have pounds sterling, and so on, all the different national currencies. The fact of the matter is that capitalism itself tends to create not a single world empire, no matter how strong the United States is — rather, it necessarily creates a world of competing national states, if they are all capitalist. In more recent times, over the past century and more, we’ve also seen the rise of socialist states. So this tremendously changes the nature of money. I’m going into the third question as well, that is: Is money a commodity? But let me just say that that is one thing money is not. It is not a commodity. What is true, however, is that capitalism needs to impose upon the functioning of money some commodity-type dynamics, particularly by making it artificially scarce. Or, as we have seen in the recent past, when it has been issued in abundance by central banks, like the Federal Reserve, it has been issued in vast quantities, obscene quantities, astronomical quantities, but chiefly so that a small elite can use this money in order to inflate asset markets and benefit from that. It has not been for ordinary people. For most ordinary people, money has to be kept scarce. In that sense, that is the only relation money has to commodities. So money necessarily takes national forms. Now, this is often explained, particularly these days, when Modern Monetary Theory (MMT) has become so fashionable, by saying that all money requires a state which will not only issue it, but will also accept it in the payment of taxes. And that’s what gives money its currency. But I think this is not the only thing. There is an additional thing, because this MMT model is almost like a neoliberal model, where the state only performs this night watchman function, which in this case includes the provision of money. In fact, most economies are objectively national. I mean, take just a simple example of Canada, which is a 10th of the size of the United States, sitting right next to the United States. But the Canadian economy is distinct from the American economy. The 2008 meltdown didn’t happen in Canada, even though in so many other ways, the economies are so interconnected. So there are more reasons that our national economies — on the whole, the bulk of the economic transactions within an economy take place within national economies. In that sense, money must also take national forms, precisely because there is no world state. In fact, in capitalism, we will not see a world state. Precisely because of that there is no world money, which has a big implication for understanding the dollar’s world role, which is that the attempt to impose a national currency on the world is bound to be extremely unstable, volatile, and contradictory. Michael, maybe you can add anything you like on the first three questions. What is money? What is this relationship to debt? And we have more to say about whether money is a commodity. Michael What makes money not a commodity is that it doesn’t have a cost of production.  Gold has a cost of production. Silver does. But a commodity is created electronically. And banks can create a million dollar loan to buy a house simply with a click of the computer keyboard. So there’s no inherent value, but there is a debt. And the debt’s very important. So money becomes, for the banks, a rent-extracting privilege. An interest on this credit is like economic rent. Basically, banks have the privilege of just creating their own money, meaning they’ve created their own product — debt — for the rest of the economy. And at a certain point — and we’ve reached that point today in the United States and much of Europe — a point comes where the debts can’t be paid. If we’re talking about international money, the dollars that are held in the foreign exchange reserves of China, Russia, and other countries — there’s no way that the United States can pay off the Treasury IOUs that it owes foreign central banks, if foreign central banks say, “OK, we want to cash it in.” What are they going to cash it in for? They can’t get gold anymore unless they just sell the Treasury Bills on the open market, and that’ll push gold prices way up. What can they do? The United States can’t even pay its domestic debt, but nobody expects governments to pay off their own money. Nobody expects the US or England or Canada to say, “OK, we’re going to pay off the debt. There won’t be any dollar bills anymore because money is debt.” Internationally, it’s different. Governments do expect their foreign exchange reserves to have some real value, as if it were a commodity. But it’s not a commodity, it’s a debt, and the creditor has all of the power in this case. The United States, with Super Imperialism, is dominating the economy, not as a creditor, now, but as a debtor. It owes so much money to foreign central banks that it can say, “Well, if you want your dollars to have any value and you don’t want us to grab the dollars, like we grabbed Russia’s dollars, you’d better follow what the International Monetary Fund and the World Bank — which are right close to the White House — tell you to do.” Radhika I further wanted to add that as well. Another way of thinking about it is, if money is debt, then money is a relation. It’s not a commodity. It is not a single object or entity or anything like that. And, as most of you will appreciate, money is also a system. But I wanted to add a couple more points about why and how money is not a commodity. Because gold has played such an important role in the recent and modern history, or monetary history, of the world, people think that gold and silver were money. Gold and silver were not money. Gold and silver were money material. Let me just give you a small example. You may have had a regime of gold coins in which gold coins circulated, but they did not circulate as gold [per se]. If they had circulated as gold, every time you accepted a gold coin, you would have had to test whether it is actually gold, whether it has the right gold content, what its exact weight is. And this is not how money ought to function. Money ought to function as: you are given a piece of money and you accept it because it is valid, legitimate, et cetera. Gold functioned as money because it was minted by a sovereign authority. The depiction of the head of the king or the queen that was on the gold coin basically gave you the freedom, the license, to use it as though it were worth what it said it was worth. Because if it was not — supposing you found that the gold coin that you had just received was faulty –  you went to the mint and you exchanged it for a proper gold coin, a gold coin that was worth everything it was supposed to be worth. So what made it money was the minting and the imprimatur of the sovereign. As Marx says in one of his writings, in this form, these coins were already symbols of themselves. And it was a short trip from here to understanding that money is a symbol and money is sort of circulating as “value-less” pieces of paper, or eventually coins that really did not embody value, they just were pieces of metal. But the most important thing about them was the symbol. So the first thing you have to understand is that, even when gold and silver circulated, it was not gold and silver that was money. They were the opposite of money. They were commodities, because you always exchange commodities for money. And so you exchange it for a commodity which is not any old commodity, but something that can be used to buy all other commodities. This is what money is. The second point I want to make about money — which is really interesting because again, we are encouraged to think that everything that is bought and sold in capitalism is in fact a commodity, but that is not true — a commodity is something that is produced to be sold. Karl Polanyi pointed out that there are three things that capitalism likes to treat as commodities, which are not commodities. And the attempt to treat them as commodities causes a lot of problems. Those three things were land, labor, and money. Nobody produced the land. Land is just there. It is the common heritage of humankind, the earth on which we live. And yes, different societies have historically occupied different pieces of the earth. But at least within those societies, land is the common heritage of all. And ultimately, the whole earth is the common heritage of humankind. It is not a commodity. Secondly, labor. We don’t have kids so that we can sell them to somebody. We have kids because they’re part of our families. They’re part of our affection and all those things. Yes, capitalism then treats our ability to work as a commodity. That creates a lot of problems, et cetera. And finally, money. Money has no cost of production. Money is essentially, like I said, an institution. Yes, in capitalism, we are encouraged to think that money is bought and sold, or at least borrowed and rented and so on. But this is, again, a whole different set of dynamics, which we would examine more fully. And another thing that’s important about money is that it does not have a cost of production. And you know what’s really interesting, and not do any of these other things. What’s really interesting is that in classical political economy, before we all became subject to neoclassical economics, classical political economy spent a lot of time trying to discover the special laws that govern the prices of land, labor, and money. Because their prices are not governed by the same dynamics as the prices of ordinary commodities. So in those ways, money is not a commodity. Michael That’s a very important point that you made about money being like land. Land doesn’t have a cost of production. But if you privatize it, there’s an access price that you have to pay for access to the land. And that’s economic rent. Similarly with money, it doesn’t have a cost of production. But you have to pay in order to get access to it. And interest is charged for that access. Now, in the 19th century, the great fight of political economy was to say, “We don’t want to have — the role of capitalism, certainly industrial capitalism, is to free economies from this legacy of feudalism. We don’t want a landlord class that owns the land on a hereditary basis where you have to pay rent to it in order to have a house on it. We don’t need that. Land should be public in character. And people should have to — if there is a ‘rent of location’, because some sites are more valuable than others, the government should get it, not individuals.” “Same thing with money. You have access to money. You shouldn’t have to pay bankers who make loans for really pretty bad purposes, as we saw in 2008. You had the whole American banking system, basically corrupt, making loans that couldn’t be paid. So instead of having money as a private ownership, it should be a public utility.” That’s really what Karl Polanyi was talking about. “And the same thing with labor, of course. You don’t have slavery anymore. You don’t have to buy your freedom. The government should protect labor.” So we’re looking at things in terms of a balance sheet. And what is the charge for access to something that really is not a commodity and doesn’t have a cost of production, but is going to be a free lunch for somebody? Should this free lunch be for the government in the public domain, or should it be for some private, privileged class, the 1%? Radhika Michael, you said something really interesting there. And I just want to add that, just as you said, money has to be regulated in a way that works best for society and for its productive activities, and labor has to be regulated in similar ways — you can’t have slavery, you can’t have overexploitation, et cetera. Similarly, land also has to be regulated, not only so people do not make unreasonable, rentier incomes out of land. Rent is in fact unearned income. And, as Michael said, classical political economy waged a big campaign against this sort of unearned income. Also, very importantly for our times of the ecological emergency of climate change, of pollution and biodiversity loss, that you cannot manage the land at the end of the day unless you have some sort of public ownership of it. Marx has a wonderful little aside, way back in the latter part of the 19th century when he was writing Capital, he says, in his sections on rent, you cannot have rational agronomy while you have private property in land. What he meant by rational agronomy is simply the rational management of the land, its resources, et cetera. So this is all really important to reflect on. But maybe Michael, we can now go to the fourth question, which is really: What is the theory of how the dollar has served as the world’s money? What would you say are the main things that are trotted out to justify that the dollar can and should serve as the world’s money? Michael Well, there was a great reluctance of countries to break free of the power of the banking sector. Of course, the banking sector wanted to treat money as a commodity, because they controlled the money supply. And they said, “If you think of the money we create as a commodity, then we deserve everything we get for it, because we have it and you don’t. And we can put a fence around it and you have to get through.” So essentially, the United States, if it didn’t have all the money, at least it had all the credit. And without really giving any money to Europe, it said, “Well, we’ve given you arms and now you have to pay. You have to somehow pay in the money that we’ve created, US dollars. How are you going to earn the dollars in order to pay the inter-ally debts?” Well, Europe said, We’ll collect it from Germany. But how was Germany going to pay the dollars? Well, this is the point, that there was a great argument between  John Maynard Keynes and Harold G. Moulton, and the right-wing Austrians. Keynes said, “America, if you’re going to say that Germany has to keep the whole financial system afloat by paying the allies to pay America, then you’re obliged to import from Germany enough material, so that you spend dollars buying German manufacturers. They spend the dollars in paying the allies. The allies paid you. And there’s a circular flow. There has to be a balance of some kind of money, no matter how you look at money.” Instead, America said, “Well, we don’t want any competition with Germany.” They raised the tariffs against Germany and against countries with depreciating currencies and said, “We’re not going to let Germany earn the money to pay the allies. We’re going to force you all into bankruptcy.” That’s essentially what started the depression that led to World War II. America forced other countries to try to get dollars, but didn’t give them any way of earning these dollars. And so it broke the whole essence of international money, which is that there has to be an economy that’s able to support this flow of payments and debts, and purchases, and sales. All of that was broken. And the ability of America to act as a wrecker is what made it the central power, as a wrecker financially, not without having to [unintelligible] Europe or Germany until World War II. Radhika Very interesting, Michael. So if I had to answer this question of, What is the theory of how the dollar served as the world’s money, I would name a bunch of different elements in this theory. Perhaps the best place to begin is to begin with Charles Kindleberger. So in the 1970s, and what’s really interesting is that he doesn’t come up with this theory when the United States really, according to him, emerges as the hegemon of the world, the provider of the world’s money after the Second World War. The theory actually emerges when this dollar system is in deep crisis and the dollar’s gold link has been broken. Nevertheless, what he says at this point is that, “You see, once upon a time, Britain was the most powerful country in the world. It provided the world with money. And so the whole world capitalist system can only function when there is a leading country which provides the leadership, which provides the public services, including the money and all those things.” So he comes up with that. He says that this system then had become broken by the First World War. And then you had this sort of interregnum. According to him, the book is actually entitled The World in Depression. And funnily enough, you can see how ideological this guy is. Because he says he’s providing an explanation of the Great Depression, not the explanation. But if it is an explanation, how does it relate to all the other explanations? That means it’s just fudging. Nevertheless, he just wants to use the depression as a peg on which to hang his thoughts. And hang his justification for why the dollar should be the world’s money. So he says that the Great Depression happened because the United Kingdom was no longer able — and the United States, thanks to all the isolationists who dominated the United States, was not yet willing — to give leadership to the world economy. And after 1945, everything was fine. America was the biggest country in the world. It provided leadership and so on. We are also told that the United States economy at the end of the Second World War accounted for half of the world’s production. I mean, think about that. It did account for half of the world’s production, but not because of the inherent productive dynamism of the world economy. But as we’ve said in previous shows, because the war destroyed the rest of the world economy, giving a massive boost to the American economy as the supplier of all sorts of world arms material. While Europe was at war, all the gold of the world fled to the United States. And the United States was sitting on top of a heck of a lot of gold reserves After the Second World War, another argument that is often used to say that the United States is entitled to — and that it is totally natural that the dollar should be — the world’s money, is that the United States was providing a security umbrella to the rest of the world. We should actually call it an insecurity umbrella, if anything, because what the United States was doing was in fact increasing the insecurity of the world, not increasing its security. So these are the main elements of this system. Because the analogy with the UK is so important, it’s really time now to address the final question of today’s show. And as you know, we are going to do another five questions later on in the next show. But in today’s show, we have to answer the question: What was the sterling system really like? And what was the problem with it? Most people [associate the sterling system with gold]. They call it the gold standard system. It prevailed roughly between 1870 to 1914. And people think that it was the link between sterling and gold that gave great stability to the system, and it prevented the system from suffering too much inflation and currency movements and so on. But in reality, the gold peg was not perhaps the most important element of it. The system did not work because of gold. The system worked because of empire. And this was also made very clear in two books that I’d like to refer to. One was really interesting— Keynes’s Indian Currency and Finance, which is often regarded as the primer for the gold standard. In Indian Currency and Finance, which was published in 1913, it was Keynes’s first book, we see how the gold standard really worked. But people rarely ask themselves, Why should a book or Indian currency and finance be regarded as a primer on the gold standard? And the answer is very simple. Because India, the jewel in the crown of the British Empire, played a disproportionate role in [the functioning of the gold standard]. This is further corroborated many decades later by another book, which is also worth reading, by Marcello De Cecco, titled Money and Empire. Marcello De Cecco lays bare the relation between money and empire. So what was the sterling system? If we look at that Figure 3.1 again, I can explain to you very clearly exactly what the sterling system was. So basically, in the sterling system, we are told that the UK in particular exported a lot of capital to the rest of the world. How did it get this capital? The UK is a tiny economy in relation to the rest of the world. Well, it got this capital because it extracted surpluses. So you can see here the blue arrows show all the money going from the Caribbean, from Africa, but principally from British India, which at that time of course included Pakistan, Bangladesh and also Burma and so on. So the British Empire income went — all of this was centralized in the UK — and essentially the surpluses came from taxing the empire. Equally importantly, they came from the massive export surpluses that the Empire ran with the rest of the world, where these poor people, impoverished people in the Empire, were working their guts out to produce the cotton, the tea, the coffee, the rice, the wheat, etc., which was exported to the rest of the world. Quite often people starved. This is not the least reason why you had regular famines in places like India and so on, and it was exported to the rest of the world, earnings for Britain the surpluses which are then exported, we are told, to the rest of the world, but it ain’t so. If you look at the red arrows, they show you where the capital exports really went. They went to North America, they went to southern Africa, particularly South Africa and to the colonies, and they went to Europe. So they basically went to other parts of what we would call the imperial world. And without this ability to export capital, Britain would not have been able to maintain the gold standard. Michael, perhaps you want to add a couple of things here as well. Michael Well, there were many books about Europe, the world’s banker,  of Britain, the world’s banker, and then Triffin in his time  talked about America as the world’s banker. Europe – the World’s Banker Gold Dollar Crisis I don’t think there is a book called Britain, the World’s Banker. But what does it mean to be a banker? Well, banks produce debt. That’s what credit is. The real question is, Do you really want bankers to run the world economy? Do you even want bankers to run the domestic economy? Right now, you could say that bankers run Britain’s economy and you saw what happened since Margaret Thatcher turned it over to the city of London. You saw what bankers have done running the American economy since Obama’s administration in 2008. Bankers run an economy in order to take wealth from it and put that wealth into their own profits, which is what Britain did to India. And then it uses profits, as you said, to send on to North America and other industrial countries. Neither Britain nor America as the world banker really help the world grow. And so what you need, since money is political, after all, is not to let financial bankers decide who is going to get what resources in the world and how do we develop the whole world. But you’re going to have some kind of government say, the public interest is more important than the interest of the 1% of the population that are the financial bankers of the world. The 99% should run the world in the public interest, including fixing global warming and the other things that we’ve talked about, not simply making more money financially by loading economies down with debt. That’s the big context. Radhika Absolutely. And, when you mentioned banking, understanding the sterling system fully also involves understanding that, at this time, there were actually two quite different financial systems that were operating. So the British system, which was really the linchpin of the whole sterling system, which operated the inflows of surpluses from the empire, the outflows to Europe and the European offshoots. This system really was basically the kind of financial system which was inherited from the feudal world. And this financial system basically ran on a short term basis. It gave short term credit for commercial reasons, for speculative reasons, etc. Though Britain did export capital on a slightly more long term basis, it viewed these investments merely from the point of view of its interest income and rentier income. Meanwhile, countries like the United States, Germany, and other parts of the world, borrowed this money and invested it productively, which is the reason why this period of the gold standard saw immense industrialization in areas outside Britain. This industrialization also contributed to the de-industrialization of the United Kingdom because it progressively lost a share of the world market to these other competing powers. Now, these two different systems, which, by the way, Rudolf Hilferding explained in his book Finance Capital — he basically saw these other financial systems, like the German in particular, and to some extent the United States, as systems that were the opposite of the British system. They were not based on short term credit. They provided long term industrial credit for industrial investment. And these banks had an interest in creating long term relationships and making sure these industrial enterprises succeeded in the long run. They were not for the immediate gain and speculative gain. They were happy to take a stable share of a productive income. This is a very important point that one has to remember. So this archaic system, the short term system, very interestingly, we will see when we discuss the dollar system, is that particularly after 1971, this short term financial system has been recreated in the United States. The US had, as Hilferding said, this better type of financial system, a productively oriented one. And of course depression era regulation made it even more so. But from the 1970s onwards, you saw a long process of deregulation, which culminated in the repeal of the depression era Glass-Steagall Act in 1999, which began to convert this system into this more British style system. This coincides with the so-called Bretton Woods II period, the post-1971 period of so-called dollar hegemony. And we will discuss the dynamics of that later. But I just wanted to draw that connection for now. Michael What you say, about finance living in the short run, is very important. There was an alternative and I have a chapter about that in my Killing the Host. And the alternative was Germany and central banks. The banks worked with the government and heavy industry to take a long term view of the economy. And this isn’t something abstract. When WWI broke out in 1914, there were articles written in the British press about why Britain was likely to lose the war, and it was likely to lose because they said, “Our financial system is quasi-feudal. It lives in the short run. When a stockbroker in England buys stock, they want to use the company to pay out all of its income and dividends. They don’t want the company to reinvest. They want to make the stockholders rich by paying out dividends and stock buybacks.” The Germans, with the government, use their dividends to reinvest in capital formation, and they said that because of the Reichsbank in Germany and other Central European practices, it’s likely that Germany and its allies are going to be able to outlast England because English finance is self-destructive. The difference you’re talking about is between industrial capitalism and the old feudal finance capitalism. But after WWI, it turned out that instead of having the productive, socialized German system, you had finance capitalism or neo-feudal money under the direction of the United States, which has always followed the British system, short term, hit-and-run, grab. The more you can impoverish the debtor, the more money you have in your own hand — as opposed to public banking. This is all important, as is money and credit. We’re back to: Is it going to be a public utility run in the public interest by governments, or is it going to be run by bankers (whose objective is to impoverish the economy in order to enrich themselves)? Radhika We’ve been going on for quite a while now. We have certainly passed an hour. Maybe we’ll wrap up. I just want to make one point in wrapping up. In trying to use the justification that “the sterling system works, so does the dollar system” — we’ve already seen that the sterling system rested on empire — which the Americans do not have, so we will see next week what implications that had. But there is another point, which is, we are told that the sterling system worked fine until the First World War broke it down. But then the question arises: If that was the case, why wasn’t it recreated after the First World War. [The answer is:] because in fact it was already weakening. One of the arguments that I particularly appreciate about Marcello De Cecco’s book is, he says that there is a tendency, in discussing world monetary systems, to try to understand the world monetary system in Ricardian terms, or in terms of free trade, as though [there is a] single, seamlessly-unified world economy. But in fact, he says, we have to understand it in Listian terms — referring to Friedrich List, who emphasized the centrality of national economies — and De Cecco  says, one of the things that is very interesting, which is important to understand, is that what we call the gold sterling system was actually quite a congeries of different entities doing different things for their own reasons. For example, some countries accepted the gold standard because they simply wanted to have loans from the United Kingdom and so on. Other countries actually remained on a silver standard because they felt that, since silver was depreciating at that time, that it would be useful because their exports would be cheaper, and these these countries were feudal countries who exploited their own peasantry so that they could export. And of course India was kept on a silver standard —  there’s a whole big story about that. But the main point is that some other countries that joined the gold standard, like Germany — they did not do so because they thought, Oh, the British were running a great system and we should subordinate ourselves to it. On the contrary, they made the German mark convertible into gold as potentially a competing currency. The sterling gold system was already becoming destabilized well before the First World War. There was one final point that one should make. This was the external reason for destabilization —  is the industrialization of rival powers, contender powers, like Germany. A second reason for the destabilization was domestic. The increasing organization of the working class was no longer going to accept the sort of punishment that was regularly meted out to a less organized working class in order to maintain the external value of the currency. If you have a gold parity and then you have some problems, then you have to essentially impose — austerity when your currency is facing downward pressure — you have to essentially raise interest rates in such a way that you are imposing a recession on your economy — something that’s also very relevant today. So, as working people became more and more organized, it became more and more difficult to impose the discipline of unemployment on working people, which is the other reason why a gold standard was never going to work. So that’s something that we should always underline. Michael Yes, I agree. Radhika Okay that’s great. I think, Michael, we’ve covered the main points of the first five questions, and I’m really looking forward to discussing — now that we’ve laid the foundation of understanding the basis of our critique of the dollar system — next time we’ll get to the dollar system in a proper way. Beginning with the questions of exactly how the sterling system ended. What really happened in the interwar period? What was the so-called Breton Woods I — between 1945 and 1971. What was the so-called Bretton Woods II, since 1971. And then finally: What is the nature of the unfolding crisis today, what are the main elements? So really looking forward to that conversation Michael. Thank you and thanks to all our listeners and thanks also to Paul Graham who you cannot see but who helps with the technical recording and editing [and many other things]. Thank you to Paul as well. And thank you to Ben Norton of Geopolitical Economy Report for hosting our show. Thanks everyone. Until next time. Bye.

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CARES Act, Covid-19, Donald Trump, economics, Michael Hudson, Steven Mnuchin, Treasury

Economist Michael Hudson says the US Congress’ CARES Act is not a Covid-19 pandemic bailout for the people, but a $6 trillion giveaway to Wall Street, banks, and stockholders. Facing the Covid-19 pandemic, the US Congress rammed through the CARES Act — which economist Michael Hudson explains is not a “bailout” but a massive, $6 trillion giveaway to Wall Street, banks, large corporations, and stockholders. Hudson discusses the enormous financial scam, and reveals how the economy actually works, with the Federal Reserve printing money so rich elites don’t lose their investments. (Interview recorded on April 13, 2020) Part 2: “How USA makes countries pay for its wars: Economics of American imperialism with Michael Hudson” (Teaser – 0:03) MICHAEL HUDSON: Just think of when, in the debates with Bernie, Sanders during the spring, you had Biden, and Klobuchar keep saying, ‘What we’re paying for Medicare-for-All will be $1 trillion over 10 years.’ Well here the Fed can create $1.5 trillion in one week just to buy stocks. Why is it okay for the Fed to create $1.5 trillion to buy stocks to prevent rich people from losing on their stocks, when it’s not okay to print only $1 trillion to pay for free Medicare for the entire population? This is crazy! The idea that only the rich should be allowed to print money for themselves, but the government should not be allowed to print money for any public purpose, any social purpose — not for medicine, not for schools, not for personal budgets, not for full employment — but only to give to the 1 percent. People hesitate to think that. They think, ‘It can’t possibly be this bad.’ But those of us who have worked on Wall Street, for 50, 60 years in my case, that’s what the numbers show. And that’s why you don’t have the media talking about actual numbers. They talk about, you know, just words, and they use euphemisms, and it’s the kind of Orwellian vocabulary, describing an inside-out world that they’re talking about. (Intro – 1:58) BENJAMIN NORTON: The world is suffering right now from one of the worst economic crises in modern history. Definitely the worst crisis since the 2008 financial crash. And many economics experts are saying that we’re living through the worst recession actually since the Great Depression of 1929. Well joining us to discuss this today, we have one of the best contemporary economists, who is really well prepared to explain what has been going on in this global recession during the coronavirus pandemic. And specifically today we’re gonna talk about the $6 trillion bailout package that the US Congress has passed. The Trump administration is basically taking Obama’s corporate bailout on steroids, and injecting trillions of dollars into the corporate sector. And today to discuss what exactly the coronavirus bailout means, we are joined by the economist Michael Hudson. He is the author of many books. And in the second part of this episode we’re gonna talk about his book “Super Imperialism: The Economic Strategy of American Empire.” So that’ll be much more in the vein of kind of traditional Moderate Rebels episodes, where we talk about imperialism, US foreign policy, and all of that. Michael Hudson is also a former Wall Street financial analyst, so he’s very well prepared to talk about just the financial thievery that goes on on Wall Street. And he is a distinguished research professor of economics at the University of Missouri, Kansas City. So Michael, let’s just get started here. Can you respond to this global depression that we’re living through right now amid the Covid-19 pandemic? And what do you think about this new bailout that was passed? (3:50) MICHAEL HUDSON: Well the word bailout, as you just pointed out, really was used by Obama, and the bailout only applies to the banks. The word coronavirus is just put in as an advertising slogan. Banks and corporations, airlines, have a whole sort of wish list that they have their lawyers and lobbyists prepare for just such an opportunity. And when the opportunity comes up — whether it’s 9/11, with the Patriot Act, or whether it’s today’s coronavirus — they just passed a coronavirus onto an act which is shouldn’t be called giveaway to the big bank banking sectors. Let’s talk about who’s not bailed out. Who’s not bailed out are the small business owners, the restaurants, the companies that you walk down the street in New York or other cities, and they’re all shuttered with closed signs. Their rent is accumulating, month after month. Restaurants, and gyms, and stores are small markup businesses and small margin businesses, where, once you have no sales for maybe three months, and rent accruing for three months, they’re not going to have enough money to earn the profits to pay the rents that have mounted up for the last three months. The other people that are not being bailed out are the people, the workers — especially the people they call the prime necessary workers, which is their euphemism for minimum-wage workers, without any job security. There have been huge layoffs of minimum-wage labor, manual labor, all sorts of labor. They’re not getting income, but their rents are accruing. And their utility bills are accruing. Their student loans are accruing. And their credit card debts are mounting up at interest and penalty rates, which are even larger than the interest rates. So all of these debts are accruing. And the real explosion is going to come in three months, when all of a sudden, this money falls due. The governor of New York has said, “Well we have a moratorium on actually evicting people for three months.” So there are restaurants and other people, individuals, wage-earners, who are going to be able to live in their apartments and not be evicted. But at the end of three months, that’s when the eviction notices are going to come. And people are going to decide, is it worth it? Well especially restaurants are going to decide. And they’re going to say, well there is no way that we can make the money to pay, because we haven’t had the income to pay. And they’re just going to go out of business. They’re not going to be helped. The similar type of giveaway occurred after 9/11. I had a house for 20 years in Tribeca, one block from the World Trade Center. And the money was given by the government to the landlords but not to the small businesses that rented there — the Xerox shops and the other things. The landlords took all of the ostensible rent loss for themselves, and still tried to charge rent out to the xerox shops, and the food shops, and ended up collecting twice, and driving them out. So you’re having the pretense of a bailout, but the bailout really is an Obama-style bailout. It goes to the banks; it goes to those companies that have drawn up wish lists by their lobbyists, such as the airlines, Boeing, the large banks. The banks and the real estate interests are going to be the biggest gainers. They have changed the real estate law so that the real estate owners, for a generation, will be income tax free. They are allowed to charge depreciation, and have other fast write-offs, to pretend that their real estate is losing value, regardless of whether it’s going up and up in value. Donald Trump says that he loves that depreciation, because he pretends that he’s losing money, and gets it is a tax write-off, even while his property prices go up. So there’s a lot of small prints. And the devil is all in the small print of the giveaway. And then President Trump has his own half-a-trillion-dollar slush fund that he says he doesn’t have to inform a Congress or be subject to any Freedom of Information Law, that he gets to go to his backers in the Republican States. And even for the money that is going out to states and municipalities, they’re left broke. Imagine New York City and other states. Most states in the United States, and cities, have balanced budget constitutional restrictions. That means they’re not allowed to run a deficit. Now if these states and cities have to pay unemployment insurance, have to pay carrying charges on the schools and public services, and are not getting the sales taxes, not getting the income taxes, from the restaurants and all the businesses that are closed, or from the workers that are laid off, they’re going to be left with a huge deficit. Nothing is done about that. There has been no attempt to save them. So three months from now, you’re going to have broke states, broke municipalities, labor that cannot, whose savings was wiped out. As I’m sure you’ve reported on your show, the Federal Reserve says that half of Americans do not have $400 for emergency saving. Well now they’re going to be running up thousands of dollars of rent and monthly bills. So the disaster is about to hit. They will not be bailed out. But no investment, investor, really will lose. And you’ve seen last week, the stock market made the largest jump since the depression — the largest jump in in 90 years. And that’s because Trump says, “The economy is the stock market, and the stock market is the 1 percent.” So from the very beginning, his point of reference for the market and for the economy is the 1 percent. The 99 percent are simply overhead. Industry is an overhead. Agriculture is an overhead. And labor is an overhead, to what really is a financialized economy that is writing the whole bailout. It’s not a bailout — it’s a huge giveaway that makes them richer than they ever were before. (10:48) BENJAMIN NORTON: Yeah and Michael, related to that — you mentioned that fine print is important. But I also have a kind of bigger question. And I don’t really know where exactly these numbers come from. Officially the bailout is $2 trillion. Many media outlets reported it as effectively $4 trillion. But actually, according to Larry Kudlow — who is the director of the US National Economic Council, he’s the Trump administration’s kind of chief economist — Larry Kudlow is now saying that it’s actually $6 trillion in total, which is a quarter of all of US GDP. And that includes $4 trillion in lending power for the Federal Reserve, as well as $2 trillion in the aid package. So there is discussion of this aid package, but actually the aid package of $2 trillion is actually half the size of the $4 trillion that is given to the Federal Reserve. What exactly is that $4 trillion that the Federal Reserve has? Is this some kind of slush fund, or how does it work? (11:52) MICHAEL HUDSON: No, the Federal Reserve was given special powers to create 10 times as many loans or swaps as others. So the Federal Reserve says we’re in — the Federal Reserve represents the commercial banks and the commercial investors. Now here’s the problem: a lot of companies were issuing junk bonds. They were going way down in price, especially junk bonds for the fracking industry. The Federal Reserve says, “We’re going to be backed up by the Treasury. We can just create — as you know, Modern Monetary Theory — we can just create money on a computer, and swap. So we will, say, ‘Give us your poor.’ It’s like the Statue of Liberty: ‘Give us your poor, your oppressed,’ or Aladdin’s old lamps for new: Give us all your junk bonds, and we will give you a bona fide Federal Reserve deposit.” So the Federal Reserve has been pumping trillions and trillions of dollars into the stock market. That’s what’s been pushing up the stock market, the Federal Reserve. The bailout has gone to the stock market. As if the stock market got coronavirus! Stocks don’t get coronavirus! They don’t get sick on the virus! And yet it’s the stock market that’s going up through the Federal Reserve. There’s also another $2 trillion dollars, $2 to $4 trillion that the US government has, over and above the $2 trillion that’s going to the people. So most of the calculations that have been published cite it as a $10 trillion bailout. Of which the newspapers, to avoid embarrassing Mr. Trump, only refer to the money given to the the wage earners. And they’re sort of embarrassed that the vast majority are given to the financial sector that doesn’t need a bailout, but that doesn’t want to lose a single penny from the virus. So when you see the stock market recovered almost to what it was before the virus, while the economy is going down, you realize, wait a minute they’re saving the 1 percent, or the 10 percent of the population that own 85 percent of the stocks and bonds. They’re saving the banks. They’re not saving the people, and they’re not saving the economy; they’re not saving industry; and they’re not saving small businesses. So it’s an amazing hypocrisy that the mainstream press is not discussing, which is why your show is so important. (14:29) MAX BLUMENTHAL: Yeah and here in Washington, DC, we got I think $500 million from the, I guess what you accurately describe as the stock market bailout. And that’s a lot less than a number of red states that are less populous than Washington, DC got. So there’s a massive shafting here. And then the city has only been able to provide for certain parts of the economy. Undocumented immigrants, who do a lot of work here, got nothing from the city. Vendors, which are a big part of the informal economy in DC, even though they have to be regulated, got nothing. And then you mention all of these sectors of the economy — young people, college-educated young people who are deep in debt, and therefore less inclined to spend — are getting shafted here. So you have called for a solution — well I guess, knowing so many of those people, they contribute so little to the economy because they can’t; they’re just putting all their money into debt. So you have called for a debt jubilee. You say that debts that can’t be paid won’t be, and this is the best way out. Maybe you can explain to our viewers and listeners what that is and why it would be the best remedy? (15:42) MICHAEL HUDSON: Well here’s what happens if you don’t write down the debts that are just going to accrue in the next three months: If you don’t say, “The rents will not have to be paid, and workers will not have to pay the debts that mount up,” if you leave those debts on the books, and you make the workers liable to keep paying the student debts, and the other debts, and the mortgage debts, and the rents, then they’re not going to have any money left to buy goods and services. When it’s all over, they’re going to get their paychecks, and off the top is going to be the wage withholding, and the tax withholding, and the Medicare, and if they don’t want to get kicked out of their houses, they’re going to have to pay all of this money that’s accrued while they’re not making an income. So you’re going to have a shrinkage of the economy, a vast shrinkage. How can they afford to buy anything but the most basic necessities, the cheapest food, the necessary transport? Obviously they’re not going to buy the kinds of goods and services that are supposed to be part of the circular flow. The whole of economics textbook say employers pay the workers so the workers can have enough money to buy what they produce. But the workers don’t spend their income only on what they produce. They spend most of their income on rent, on debt service, on taxes, on finance, insurance, and real estate. And this is the only part of the economy that is being enabled to survive. So how can you have the superstructure of rents and debts, of insurance charges, on an economy that doesn’t have the income to buy goods and services? And if they can’t buy goods and services, you’re going to have the stores closing down, because people can’t afford to buy what the stores are selling. You’re going to have a whole wave of closures. And you’re going to go down the streets, and certainly in cities like New York, or where I live in Queens, just outside of Manhattan, where block after block, they’re going to be “For rent” signs. It’s going to be empty. And the only way to avoid that is for a debt write-down. Now you’ve had this occurring for 5,000 years. I’ll give you an example that may be easy to understand. In Babylonia, we have the Laws of Hammurabi, in 1800 BC. One of the laws says that, if — in Babylonia you only had, when you would buy beer or other things, they would write it on a tab in the bar, in the ale house, and all the debts were owed when the harvest was in. You’d pay the debt seasonally. Well Hammurabi said, if there’s a drought, or if there’s a flood, then you don’t have to pay the debts. Most debts were owed to the palace, and others. And he said, “The reason we’re doing this is, if we don’t do that, then you’re going to have these debtors become debt servants, bond servants to the creditors; they’re going to owe their labor to the creditors; they’re going to lose their land to the creditors; and they won’t be able to work on public infrastructure projects; they won’t work for Babylonia; they won’t serve in the army, and we can be invaded; and they won’t be able to use their crops as taxes, because they’ll owe the crops as debts. So we’re going to write it down.” So the whole idea for thousands of years, of every Near Eastern ruler starting his reign by writing down the debts, was to begin everything in balance. Because they realized, just mathematically, debts grow at compound interest. You’ve seen the coronavirus increase at an exponential rate. That’s how debts accumulate interest, at an exponential rate. But the economy grows in an s-curve, and then it tapers off. The American economy, the GDP since the Obama bailouts of 2008, the entire growth of the GDP has only accrued to 5 percent of the population. 95 percent of the GDP, the population for 95 percent, the industry, agriculture, that’s actually gone down. So we’re already in a 12-year depression, the Obama depression, that they like to call a recession, because most of the media are Democratic Party people. But you’re going to have this recession turn into a genuine depression, and it will continue until the public debt, that is state local debts, written down; the mortgage debts written down; and the personal debts written down, starting with the student loans, the most obviously unpayable debt. And the choices, do you want to depression, or do you want the banks to be able to collect all the economic surplus for themselves? Well Donald Trump, supported unanimously by the Democratic Congress, says, “We want to protect the banks, not the population, not the economy. Let the economy shrink, as long as our constituents, the donor class, are able to avoid making a loss. Let’s make the loss borne by the 99 percent, not our donor class.” (21:17) BENJAMIN NORTON: Yeah, and Michael, you mentioned something, getting back to the Federal Reserve and understanding how this whole system works. I mean frankly it seems to me to kind of be a house of cards. But you mentioned this idea of Modern Monetary Theory and just kind of creating money out of nothing. Can you talk more about that? You know this is a term that’s become more prominent, especially on the left: MMT, modern monetary theory. There are socialists who argue in support of MMT and then there are others who are kind of skeptical of the whole notion that you can just print all this money to fund these social programs that you want to create, and that it won’t create inflation. But at the same time, you and other people point out that that’s exactly how the economy already works. Where for instance, you want to fund a war, there’s never — you know frequently when someone on the left asks for universal health care or free public education, members not only of the Republican Party but many neoliberal Democrats often say, “Well yeah, where are you gonna get the money from?” And the response of some of the MMT supporters is, “Well we just fund the program, and we just create the money because we control the creation of the dollar.” And we see that same attitude used actually by the Federal Reserve right now, but to bail out Wall Street. “Yeah we’re just gonna print” — they printed $1.5 trillion, and then just gave it, they just injected it right into Wall Street. So does that not create inflation, or what exactly is happening economically there? I mean to me, it seems like a scam; it seems like totally a scam. (22:59) MICHAEL HUDSON: Since 2008, you have had the greatest inflation of money in history. And you have also had the greatest inflation in history, but it’s entirely asset price inflation. You’re absolutely right: the money has gone into the stock market and the bond market, to hold down bond prices, meaning you’ve had the biggest bond boom in history. You’ve had a huge stock market boom. But consumer prices have gone down. So here you have an enormous amount of money creation, and consumer prices and real wages have been drifting down. So they are really two economies. The question is, are you going to create money for public purposes by spending it into the economy, on industry, agriculture, and the goods and service production and consumption economy, or are you going to put it into the financial economy? Well if you put a bank loan — the whole way of our banking system is that banks create credit. If you go into a bank and you take out a loan, you say, I’m gonna borrow $5,000 for something. The banker doesn’t go and say, let me see if we have any money to loan you; he says, okay I will write a loan on my computer. I will credit your deposit with $5,000, and you will sign this IOU, and we have an asset. And the asset is $5000, on which we’re going to charge interest on what we pay you. So it’s just done by computer, on a balance sheet. And as long as money is created on a computer, the only cost is the electricity used to make that debt record. Now the banks, when they make a loan, they very rarely make loans just against — here’s just free money. They say, okay if we’re going to make a loan, well 80 percent of their loans are against real estate. So they say, in case you can’t pay, you’re pledging your real estate, the home you’re buying, or the commercial building you’re buying as collateral. So we’ll lend you up to 80 percent, maybe 100 percent, of the value of what you’re buying, and that’s the collateral we have. So we lend against collateral. Well if you lend the money against collateral to buy a building, or to buy stocks and bonds, which are the other collateral, then obviously this money you’re creating to buy houses, or commercial real estate, or stocks and bonds are going to bid the price up. Banks don’t give loans for people who say, I want to go shopping and buy more goods because I need the money. That may be a little bit, that’s what credit cards are for, but that’s a small portion of the overall money supply. So banks don’t make loans to buy goods and services; they make loans to buy assets that obviously inflate the price of assets. And the more money that you pay for houses that are rising in price, or medical insurance, or stocks and bonds, to make a retirement income for your pension fund; the more money you pay for houses that are inflating in price because of bank credit, the less money you have to buy goods and services. So actually the more money they create, the more consumer prices for goods and services fall. It’s the exact opposite of the usual theory. I have on my website I have many articles about that, and I have something today in Counterpunch on that, it’s on sort of how the economy works the opposite of the way the textbook says. Now unfortunately the left-wing doesn’t really study finance and money much. The whole discussion of finance and money has been monopolized by the right-wing, so left-wingers think, they don’t realize that they’re picking up a kind of junk theory of monetary relations and debt relations that’s all picked up from the right-wing of the political spectrum. It’s a kind of parallel universe. That’s not how the economy really works, but in a way that sort of is easy to understand. And it’s very easy to make an erroneous, oversimplified view of the world easy to understand. And when it’s repeated again and again and again, in the media, the New York Times and MSNBC, people really think that, well, maybe that’s how the world works — more money is going to push up prices, so we better not push for it, we better go along with trickle-down theory. And most of the left believes in trickle-down theory. The Democratic Party leadership is absolutely convinced, if you just give enough money to the top 1 percent, or 5 percent, or Wall Street, it’ll all trickle down. (27:49) BENJAMIN NORTON: Well of course the Democratic Party is not the left. MICHAEL HUDSON: That’s right, but it pretends to be. And it has crowded out the left. It has — you can see in the recent election primaries that its job is to protect the Republican Party from any critique by the left, interjecting itself in between the Republican Party and any possible reform movement. BENJAMIN NORTON: Exactly. (28:20) MAX BLUMENTHAL: Well they stood up really strongly against the bailout — I mean what was it, 96 to nothing? And in the voice vote, I was listening to the voice vote last night in the House; I didn’t hear AOC’s voice against it. MICHAEL HUDSON: They did a voice so that nobody — everybody could say, “Oh it wasn’t me!” MAX BLUMENTHAL: No, no! So you mentioned that foreclosure king Steve Mnnuchin gets like a $500 billion slush fund. I haven’t heard much discussion about that. What will he do with this sort of opaque slush fund, and how will this — I mean it’s a leading question, but how will this kind of reinforce or consolidate inequality for the next generation? (29:10) MICHAEL HUDSON: Well gee, I hope he gives some of it to Kamala Harris, who was the attorney general who let him do all of this, and who thoroughly backed him and led the foreclosure, was the iron fist behind his foreclosure program. So I’m sure he’ll press for Kamala to be the vice president on the ticket. The Democrats have a problem. How can they guarantee that they have their candidate win? Their candidate is Donald Trump. How can they make sure that they have such a weak candidate that he’s sure to lose to Donald Trump? And the choice is, we’ll get a vice president that’s so unpopular that they’re sure to lose. Now it’s a race between Kamala Harris and the Minnesota lady. MAX BLUMENTHAL: Klobuchar? The one who throws staplers at her staff. She seems very charming. MICHAEL HUDSON: Uh, I don’t know about that. But my wife can’t even look at her on television. But I think that the pretense is that she’ll help get Minnesota, as if Minnesotans, where I’m from, are so dumb just to vote for somebody from there. But by getting Minnesota, they’ll lose the whole rest of the country. So I think she’ll be the vice president, because that guarantees a Trump victory. And that will enable the Democrats to say, here — they’ll have the president they want, that is for their donor class, but they can say, “That’s not us; that’s the Republicans.” So that’s the Democratic strategy. MAX BLUMENTHAL: Right, then they can raise loads of money for the “Resistance,” and all of the outside think tanks. And that was the old Republican, William F. Buckley strategy, is we’re better throwing rocks out side the building and raising a ton of money for the National Review than actually having to govern. And that seems like the Democratic strategy. But I guess I was asking about how you see the economy transforming, because the Obama bailout sort of transformed it or consolidated the gig economy, where everyone has to work three to five jobs, and what was supposed to be a highly educated middle class is deeply in debt. Where do you see it after this next tranche of stock market bailouts? (31:29) MICHAEL HUDSON: Ok, let’s look at three months from now. Smaller companies are going to be squeezed, because all of their expenses are going to go up. Small companies have had to run up debts, and they have all sorts of other problems, and their earnings, their prospective profits, are not going to look that good. Because there’s not going to be a market for the things that they sell, because of the debt deflation that I talked about. So what’s going to happen? You’re going to have a bonanza for private equity capital. The liquid, the 1 percent that have access to bank credit, and I have their own equity capital, are going to come in and pick up a lot of real estate that’s going to be defaulted on — just like they did after Obama evicted his constituency, the mob with pitchforks, and evicted them. They’re going to pick up, Blackstone will pick up more real estate. Big companies are going to pick up small companies. So you’re going to emerge with a highly monopolized economy, much more centralized. The important thing to realize about free-market economics and libertarianism, is libertarians advocate central planning; the Chicago School of monetarists advocate central planning; the free marketers want central planning. The banks are the planners, not the government. They want to exclude the government from planning, except to the extent that they can take over the government, as Trump has done, and plan all of the income to be transferred to themselves from the rest of the economy. So we’re going to have a much more centrally planned by a coalition of monopolies and the government. In the 1930s, that was called fascism. MAX BLUMENTHAL: It’s what we call a “public-private partnership” or something. MICHAEL HUDSON: Right. MAX BLUMENTHAL: Just really quickly, and maybe we can kind of transition after this, but you mentioned Blackstone. I think this is one of the key components of the bailout. They own so much stake in so many of the companies getting bailed out. Can you just describe their role and what they are? (33:38) MICHAEL HUDSON: It’s appropriate that they were put in charge of bailout. So if they’re the largest company buying up defaulted real estate and buying, picking up the weak — it’s called moving assets from the weak hands to the strong — then they might as well be put in charge, because they’re going to be the company doing all the grabbing. So of course they’re in charge of it. It’s called grabitization. That was their word for privatization in the 1990s. So grabitization is I think a better word than public-private partnership. It’s not really a partner; it’s sort of a one-way partnership; there’s one subsidiary partner. It’s really financialization and grabitization. MAX BLUMENTHAL: Right, just the looting of state assets. BENJAMIN NORTON: Going back one step here, Michael, you were talking about the way that people should think about how the economy actually works. And I mentioned MMT. Can you kind of just walk through that again? Because you were talking about how actually, when the Fed creates — I mean really to me, as someone, I’m definitely not an economics expert, I just don’t understand really how this whole process works, because to me it just seems simply like, they’re literally just creating money and just giving it to banks, and corporate elites, and rich people. I mean maybe that’s what it is. But I don’t understand, this is like the biggest scheme I can imagine, where the Federal Reserve is creating all of this money, printing — they’re physically printing money is my understanding. And then they’re just giving it to these banks, to bondholders. And then, but you said that what does is, instead of actually creating inflation, all that does is, if I understood correctly, it boosts the value of assets like real estate, while at the same time deflating wages and commodity prices. So if that’s the case, then how should people who are advocating for socialized programs like Medicare for All, free public education, and maternity leave, and childcare, and all of these programs that the Bernie Sanders campaign and movement have been advocating for, how should we talk about the way to pay for all of those programs, if the reality of the economy is that the Fed is printing trillions of dollars, and then just giving that cash to banks? (36:11) MICHAEL HUDSON: Well I think the reason you’re having trouble understanding MMT is because what you described is what’s happening, but you think, “But that’s unfair!” And there’s a tendency to think, if it’s unfair — MAX BLUMENTHAL: It’s not just unfair. It’s the biggest scheme I can imagine. There’s no other word other than just a con scheme. MICHAEL HUDSON: Yes, and the brain recoils from thinking, “Can the government really be doing that to us?” Well, yes it can. And just think of when, in the debates with Bernie, Sanders during the spring, you had Biden, and Klobuchar keep saying, ‘What we’re paying for Medicare-for-All will be $1 trillion over 10 years.’ Well here the Fed can create $1.5 trillion in one week just to buy stocks. Why is it okay for the Fed to create $1.5 trillion to buy stocks to prevent rich people from losing on their stocks, when it’s not okay to print only $1 trillion to pay for free Medicare for the entire population? This is crazy! The idea that only the rich should be allowed to print money for themselves, but the government should not be allowed to print money for any public purpose, any social purpose — not for medicine, not for schools, not for personal budgets, not for full employment — but only to give to the 1 percent. People hesitate to think that. They think, ‘It can’t possibly be this bad.’ But those of us who have worked on Wall Street, for 50, 60 years in my case, that’s what the numbers show. And that’s why you don’t have the media talking about actual numbers. They talk about, you know, just words, and they use euphemisms, and it’s the kind of Orwellian vocabulary, describing an inside-out world that they’re talking about. They will buy stock; they’ll say we’re going to buy a million shares of Boeing; they’ll just write a check, and the check will be Federal Reserve, and people will get the money, and the Federal Reserve — you can create a deposit, just like a banker will write you a loan when you go in and borrow, and there will be a computer, the Fed can do the same thing. Stephanie Kelton, my department chairman for many years at the University of Missouri at Kansas City, describes this. The University of Missouri’s website, New Economic Perspectives has a description of it. So if people want to google either her, UMKC, or what I’ve written, or Randall Wray at the Levy Institute, you’ll get, it’ll walk you through. And it’s something that you have to — if you’re not already thinking in terms of balance sheets, which most people don’t, you have to sort of just do it again, read it again and again and again, and then all of a sudden, “Ah, now I get. It’s a ripoff! It’s created out of nothing. Now I get it.” BENJAMIN NORTON: It’s just a house of cards. To me it proves the kind — there used to be this kind of very blunt orthodox Marxist view that the economy strictly follows politics, and it seems to me this is a case where the economy is just created by politics. MICHAEL HUDSON: That’s true, and that’s not an un-Marxist position. Marx did distinguish between oligarchies and democracies, and finance capitalist economies and industrial capitalist economies. MAX BLUMENTHAL: Right. And the $17 billion for “urgent national security measures” was straight into the pockets of Boeing, which had its 737 maxes falling out of the sky, and had been clamoring for this bailout for a long time. I mean you saw 3M, the maker of these masks which are suddenly unavailable, gained a total exemption from lawsuits, if the masks that it mass-produced now somehow failed. So all of these things stuffed into the bailout were what industry and finance had been clamoring for for years. And they finally had the opportunity to do it. (Outro – 40:38) BENJAMIN NORTON: All right, we’re gonna take a pause there. That was the end of part one of our interview here with the economist Michael Hudson. He is a Wall Street financial analyst, a distinguished research professor of economics at the University of Missouri Kansas City, and of course the author of many books on economics. You can find some of his work at michael-hudson.com. We will link to that in the show notes. He has interviews with transcripts and articles. You can also find some of his economics work and the work of some of his like-minded colleagues at the economics department at the University of Missouri Kansas City website. I will link to that as well in the show notes. You can find the show notes at moderaterebels.com. In part two of this episode, we’re going to continue our discussion of the house of cards that is the international financial system, the economic system. And in the second part we’re going to talk about his book “Super Imperialism: The Economic Strategy of American Empire.” This is an incredible book. You know here at Moderate Rebels, Max and I frequently talk about the political and military side of imperialism. Michael Hudson just spells out, in easy-to-understand terms, how imperialism works at an economic level, how the US government and the Treasury, through the backing of military force, force countries around the world to buy US bonds, Treasury bonds, and how there’s basically just a con scheme where countries pay for their own US military occupation through buying US Treasury bonds. Michael Hudson explains that all in really simple terms. And we also talk about the rise of China, and how China does pose a so-called threat, in scare quotes, to not the American people but rather to the hegemony of the US financial system — and the main financial instruments, the weapons that the US uses to maintain that hegemony, the International Monetary Fund, the IMF, and the World Bank. And Hudson describes how, in his terms, the IMF, and the World Bank, specifically, are some of the most evil institutions that are really maintaining the American dictatorial, authoritarian chokehold on the global financial system. If you want to support this program, Moderate Rebels, and the kind of independent interviews we do like this, giving a platform to some of these voices who you’re never going to hear in mainstream corporate media, you can go to Patreon.com. Please consider supporting us. And definitely join us in part. See you soon.

Write an article about: Richest 1% took 2/3rds of global wealth since 2020 – twice as much as 99% of population earned. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

inequality, Oxfam, poverty, taxes

In 2020 and 2021, the wealthiest 1% of the world’s population took nearly two-thirds of all new wealth – six times greater than the wealth made by the poorest 90% of workers. And while billionaires get richer, global poverty is increasing, Oxfam warns. In the past decade, the richest 1% of people on Earth sucked up half of all new wealth. In 2020 and 2021, the richest 1% took nearly two-thirds of all new wealth – six times greater than the wealth made by the poorest 90% of the global population. “Since 2020, for every dollar of new global wealth gained by someone in the bottom 90%, one of the world’s billionaires has gained $1.7 million”, wrote Oxfam. In the meantime, global poverty is getting worse, not better. These shocking statistics were published in “Survival of the Richest“, a report authored by Oxfam, an international humanitarian organization dedicated to fighting poverty and hunger. The document details how, while billions of working people across the planet suffer from hunger, insecurity, rising costs of living, and decreasing wages, “The very richest have become dramatically richer and corporate profits have hit record highs, driving an explosion of inequality”. Oxfam wrote: The report was published on January 16, to coincide with the beginning of the World Economic Forum (WEF), an annual meeting that brings together the world’s capitalist elites. Oxfam explained, “As billionaires, government leaders and corporate executives jet in to meet atop their mountain in Davos, Switzerland, the world faces a dramatic, dangerous and destructive set of simultaneous crises. These are having a terrible impact on the majority of people” on the planet. According to the United Nations Development Program (UNDP), human development is decreasing in more than 90% of countries. In 2022, the human development index declined for two years in a row – the first time ever, since the UNDP began calculating it 32 years before. In its “Survival of the Richest” report, Oxfam asserts that the “very existence of booming billionaires and record profits, while most people face austerity, rising poverty and a cost-of-living crisis, is evidence of an economic system that fails to deliver for humanity”. Oxfam argues that one of the main reasons for this breath-taking increase in inequality is a big decline in taxation. Since the rise of the neoliberal phase of capitalism in the 1980s, taxes on the rich have significantly dropped all across the world, in Western countries, Asia, Africa, and Latin America. Today, billionaire oligarchs pay almost no taxes. Elon Musk has paid a tax rate of just 3.2% in recent years, while Jeff Bezos paid less than 1%. “Top rates of tax on income have become lower and less progressive, with the average tax rate on the richest falling from 58% in 1980 to 42% more recently in OECD countries”, Oxfam reported. “Across 100 countries, the average rate is even lower, at 31%”. “Rates of tax on capital gains – in most countries the most important source of income for the top 1% – are only 18% on average across more than 100 countries”, the humanitarian organization added. The data clearly show that, as taxes on the rich declined, the percent of income that went to the top 1% increased. Fewer taxes mean the rich get richer. Oxfam noted, “Taxes on the richest used to be much higher. In the United States, the top marginal rate of federal income tax was 91% from 1951 to 1963; top inheritance tax rates stood at 77% until 1975; and the corporate tax rate averaged just above 50% during the 1950s and 1960s. There were similar levels of tax in other rich nations”. It pointed out that “these high levels of tax … existed side by side with some of the most successful decades of economic development we have seen”. The humanitarian organization called for governments around the world to boost taxes on the rich, and to invest more money in social services and programs that help working people. “To break the discredited cycle of never-ending billionaire wealth accumulation, governments need to address all the many ways in which the economy is rigged in their favour, including on labour laws, privatization of public assets, CEO compensation and much more”, Oxfam urged. It also highlighted how inequality exacerbates the global climate change crisis. Oxfam said its research shows that “a billionaire emits a million times more carbon than the average person, and billionaires are twice as likely as the average investor to invest in polluting industries like fossil fuels”.

Write an article about: West’s neoliberal ‘age of abundance’ is over, as war and sanctions boomerang home. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

capitalism, China, economics, Emmanuel Macron, France, neoliberalism, podcast, Russia

France’s President Macron warned of the end of “an era of abundance.” Western wars and sanctions are boomeranging back at home. The neoliberal phase of capitalism is collapsing, having lost cheap Russian energy and cheap labor and consumer goods from China, and with regime-change ops failing. France’s President Emmanuel Macron, a former banker, warned that “we are living the end of what could have seemed an era of abundance,” calling it “a kind of major tipping point or a great upheaval.” Western wars and sanctions are boomeranging back at home. The neoliberal phase of capitalism is collapsing. Neoliberalism has lost the key pillars it was built on: cheap energy and raw materials from Russia, cheap labor and consumer goods from China, an unsustainable bubble of household debt, low to zero interest rates, and Washington’s ability to organize regime-change operations in any country where a government tried a socialistic or state-led economic model. Russian gas exports to Europe, by country, from 1970-2005, via ResearchGate China’s GDP per capita from 1978–2017, via Unicef US household debt from 1945 to 2018, via the New York Federal Reserve US household debt from 2000 to 2021, via Statista

Write an article about: Most important stories of 2023: Gaza, Ukraine, China, BRICS, dedollarization, bank crises, inflation. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Argentina, Brazil, BRICS, China, crypto, de-dollarization, debt, dollar, Donald Trump, Egypt, Ethiopia, Fed, Federal Reserve, Gaza, Gina Raimondo, Imran Khan, India, interest, Iran, Israel, Janet Yellen, Javier Milei, Jerome Powell, Joe Biden, Lula da Silva, Narendra Modi, Pakistan, Pedro Castillo, Peru, Russia, Sam Bankman-Fried, Saudi Arabia, SBF, UAE, United Arab Emirates

These were the most important geopolitical and economic issues of 2023, including the wars in Gaza and Ukraine, US-China tensions, BRICS expansion, growing de-dollarization, inflation crisis, crypto fraud, bank crashes, European de-industrialization, and more. These were the most important geopolitical and economic issues of 2023, including Israel’s brutal war on Gaza and NATO’s failure to defeat Russia in Ukraine, expansion of BRICS and growth of the de-dollarization movement, inflation crisis and rising interest rates, crypto fraud scandals and several bank collapses, stagnation and de-industrialization in Europe amid an escalating US tech war on China, and much more. Journalist Ben Norton reviews the chaotic year. Washington Post: “More than 20,000 dead in Gaza, a historic human toll” Geopolitical Economy Report: “Gaza is one of the most heavily bombed areas in history: Israel has turned Gaza into one of the most heavily bombed areas in history, according to a report in the Financial Times. Top UN experts warn that the Palestinian people are at risk of genocide” United Nations: “Two Thirds of Gaza War Dead Are Women and Children, Briefers Say, as Security Council Debates Their Plight” Save the Children: “Gaza: 3,195 children killed in three weeks surpasses annual number of children killed in conflict zones since 2019” Reuters: “Gaza war ‘most dangerous ever’ for journalists, says rights group” Wall Street Journal: “More U.N. Workers Killed in Israel-Gaza War Than in Any Single Conflict” Office of the United Nations High Commissioner for Human Rights: “Gaza: UN experts call on international community to prevent genocide against the Palestinian people” Haaretz: “‘We’re Rolling Out Nakba 2023,’ Israeli Minister Says on Northern Gaza Strip Evacuation” South Africa’s Department of International Relations & Cooperation: “South Africa approaches the International Court of Justice under the Genocide Convention with respect to acts committed by Israel in the context of its attacks on Gaza” READ | The Republic of South Africa institutes proceedings against the State of Israel and requests the Court to indicate provisional measures. pic.twitter.com/du9DaHUF0H — DIRCO South Africa (@DIRCO_ZA) December 29, 2023 Geopolitical Economy Report: “US blocks Gaza peace proposal at UN for 3rd time, holding world hostage: The US government has paralyzed the United Nations, voting against the rest of the world and preventing peace in Gaza by vetoing three different resolutions in the Security Council. Meanwhile, Washington continues giving weapons to Israel” Wall Street Journal: “U.S. Sends Israel 2,000-Pound Bunker Buster Bombs for Gaza War” Washington Post (2022): “U.S. wants Russian military ‘weakened’ from Ukraine invasion, [Defense Secretary Lloyd] Austin says” New York Times (2022): “Commando Network Coordinates Flow of Weapons in Ukraine, Officials Say: A secretive operation involving U.S. Special Operations forces hints at the scale of the effort to assist Ukraine’s still outgunned military” The Economist (2023): “Putin seems to be winning the war in Ukraine—for now” The Telegraph (2023): “Ukraine is losing, but the UK must stand by it” AFP / France 24 (2023): “‘We’re losing’: Ukrainians reel from war chief’s stalemate warning“: “The frontline between the Ukrainian army and Russian forces occupying the east and south of the country has barely moved since last November [2022]” Geopolitical Economy Report (2023): “Ukraine war is frozen, no territorial changes expected, says Council on Foreign Relations chief, while dismissing peace talks: The president of the US government-linked Council on Foreign Relations, Richard Haass, said the proxy war in Ukraine is frozen and he expects no territorial changes in the next year of fighting. At the same time, he dismissed the possibility of peace negotations” Geopolitical Economy Report (2023): “West sabotaged Ukraine peace deal with Russia, admit Zelensky official and Germany’s ex leader: Russia wanted to sign a peace deal with Ukraine in March 2022, but NATO countries sabotaged it, according to Germany’s former Chancellor Gerhard Schröder and the parliamentary faction leader of Zelensky’s political party, Davyd Arakhamia” To the last Ukrainian: People with "amputated limbs, practical blindness, absence of one lung or eye and bilateral deafness" can be conscripted into military based on draft of new law on mobilization. "The large draft law on mobilization exempts from military service on the… pic.twitter.com/c1yS7P1Wui — Ivan Katchanovski (@I_Katchanovski) December 25, 2023 Geopolitical Economy Report (2023): “US/France threaten intervention in resource-rich Niger: Fears of war in West Africa: The US and France have threatened intervention to re-install a pro-Western regime in Niger, which produces uranium needed for nuclear energy, has untapped oil reserves, and hosts strategic US drone bases and French troops. This follows coups led by nationalist, anti-colonial military officers in West Africa” Geopolitical Economy Report (2023): “Burkina Faso’s new president condemns imperialism, quotes Che Guevara, allies with Nicaragua, Venezuela, Cuba: Burkina Faso’s new President Ibrahim Traoré has vowed to fight imperialism and neocolonialism. Pledging a ‘refoundation of the nation’, invoking revolutionary leader Thomas Sankara, and quoting Che Guevara, his government has allied with Nicaragua, Venezuela, and Cuba” The Economist (2023): “After Niger’s coup, the drums of war are growing louder“: “Canvassing by Premise Data, a polling firm, for The Economist in the first survey conducted since the coup found that 78% of respondents support the actions of the junta and that 73% think it should stay in power ‘for an extended period’ or ‘until new elections are held'” Geopolitical Economy Report (2023): “Richest 1% took 2/3rds of global wealth since 2020 – twice as much as 99% of population earned: In 2020 and 2021, the wealthiest 1% of the world’s population took nearly two-thirds of all new wealth – six times greater than the wealth made by the poorest 90% of workers. And while billionaires get richer, global poverty is increasing, Oxfam warns” Oxfam (2023): “Survival of the Richest” report When you exclude China's remarkable growth, the economic gap between "emerging and developing" countries in the Global South and rich imperialist countries in the North has not changed in over a decade. Global inequality is not getting better over timehttps://t.co/Jd70GJOB3F pic.twitter.com/9kIYCSGP5T — Ben Norton (@BenjaminNorton) June 14, 2023 Geopolitical Economy Report: “BRICS expanding into economic powerhouse: Petrodollar under threat: In its South Africa summit, BRICS invited six new members: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. The bloc now represents 37% of global GDP (PPP), 40% of global oil production, and roughly 1/3rd of global gas production, challenging the US petrodollar system UPI: “Argentina’s Milei says his nation won’t join with China, Russia in economic alliance” Geopolitical Economy Report: “BRICS New Development Bank de-dollarizing, adding Argentina, Saudi Arabia, Zimbabwe as members: The BRICS bloc’s New Development Bank, an alternative to the US-dominated World Bank, is de-dollarizing its loans, promoting local currencies, and adding new members: Argentina, Saudi Arabia, and Zimbabwe” Geopolitical Economy Report: “‘World becoming more multipolar’, Western hegemony declining, admits European Central Bank: European Central Bank President Christine Lagarde acknowledged “the tectonic plates of geopolitics are shifting faster” and “we may see the world becoming more multipolar”, with the decline of US dollar hegemony, war in Ukraine, and rise of China” CNBC: “Calls to move away from the U.S. dollar are growing — but the greenback is still king” Foreign Policy: “A BRICS Currency Could Shake the Dollar’s Dominance: De-dollarization’s moment might finally be here” Geopolitical Economy Report: “Countries worldwide are dropping the US dollar: De-dollarization in China, Russia, Brazil, ASEAN: The global de-dollarization campaign is gaining momentum, as countries around the world seek alternatives to the hegemony of the US dollar. China, Russia, Brazil, India, ASEAN nations, Kenya, Saudi Arabia, and the UAE are now using local currencies in trade” Bloomberg: “Dollar’s Share in Central-Bank Reserves Declines, IMF Data Shows” Geopolitical Economy Report: “‘Dollar suffered stunning collapse in 2022’: Share of global reserves fell to 47%, decreasing at 10 times rate: ‘The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency’, largely due to US sanctions, falling from 73% of reserves in 2001 to 47% in 2022, according to economist Stephen Jen. Countries in the Global South are seeking economic alternatives in a multipolar world” Geopolitical Economy Report: “US Congress plots to save dollar dominance amid global de-dollarization rebellion: The US Congress held a hearing titled ‘Dollar Dominance: Preserving the U.S. Dollar’s Status as the Global Reserve Currency’, as countries around the world join the de-dollarization rebellion against Washington’s ‘exorbitant privilege'” Geopolitical Economy Report: “Sanctions ‘undermine hegemony of dollar’, US Treasury admits: US Treasury Secretary Janet Yellen admitted to CNN that Washington’s unilateral sanctions on countries around the world ‘could undermine the hegemony of the dollar'” Washington Post: “U.S. intensifies push to use Moscow’s $300 billion war chest for Kyiv: Considerable amounts of Kremlin funds are frozen in Western nations, and the Biden administration is increasingly interested in using them to benefit Ukraine” New York Times: “U.S. and Europe Eye Russian Assets to Aid Ukraine as Funding Dries Up: Despite legal reservations, policymakers are weighing the consequences of using $300 billion in Russian assets to help Kyiv’s war effort” Wall Street Journal: “Central Banks Look to Increase Gold Reserves as Geopolitical Worries Mount: Up to 24% of central banks were looking to raise gold holdings in 2023, according to a new survey from the World Gold Council” St. Louis Fed: Federal Funds Effective Rate data and chart Geopolitical Economy Report (2022): “US Federal Reserve says its goal is ‘to get wages down’: US Federal Reserve chairman Jerome Powell said his goal is “to get wages down,” complaining workers have too much power in the labor market. Economist Michael Hudson says this is “junk economics,” and corporate monopolies are driving inflation, not wages” The Guardian (2023): “Greedflation: corporate profiteering ‘significantly’ boosted global prices, study shows: Multinationals in particular hiked prices far above rise in costs to deliver an outsize impact on cost of living crisis, report concludes” Geopolitical Economy Report (2023): “Corporate profits were biggest driver of inflation in Europe, IMF admits: Rising corporate profits have caused 45% of inflation in Europe, compared to 40% for rising import prices and just 15% for workers’ wages, according to research by IMF economists” UN Global Crisis Response Group (2023): “A world of debt: A growing burden to global prosperity” report Economists Anis Chowdhury and Jomo Kwame Sundaram Development and Change journal (2023): “Chronicles of Debt Crises Foretold” The Economist (2023): “Africa faces a mounting debt crisis: Rising rates are hurting some of its brightest economic stars” Reuters (2023): “Debt squeeze leaves sub-Saharan Africa’s governments in fiscal bind” Reuters (2023): “Ethiopia becomes Africa’s latest sovereign default” France 24 (2023): “G77+China summit in Cuba calls on Global South to ‘change the rules of the game‘: The G77+China, a group of developing and emerging countries representing 80 percent of the world’s population, kicked off a summit in Cuba Friday with a call to “change the rules of the game” of the global order” DW (2023): “G77 summit in Cuba calls for new global order: The G77 is a bloc of countries from the Global South representing 80% of the world’s population. At the summit, UN Secretary-General Antonio Guterres said the world is failing developing countries” Geopolitical Economy Report (2023): “4 US banks crash in 2 months: Banking crisis explained by economist Michael Hudson: Economist Michael Hudson discusses the collapse of four US banks in two months, giant JP Morgan Chase taking over First Republic Bank, and how government regulators are in bed with the bankers”. American Banker (2023): “Dramatic collapses made 2023 the biggest year ever for bank failures” New York Times (2023): “3 Failed Banks This Year Were Bigger Than 25 That Crumbled in 2008” The Guardian (2008): “Greenspan – I was wrong about the economy. Sort of: Former Fed chief admits ‘mistake’ over regulation”. “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” said Greenspan. Reuters (2017): “Fed’s Yellen expects no new financial crisis in ‘our lifetimes’“: “Would I say there will never, ever be another financial crisis?” then Federal Reserve Chairwoman Janet Yellen said. “You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be”. UBS (2023): “UBS completes Credit Suisse acquisition” Geopolitical Economy Report (2023): “US government bailout of Silicon Valley and banks is $300B gift to rich oligarchs: The US Federal Reserve printed $300 billion in a week to save collapsing banks and bail out Silicon Valley oligarchs. 93% of Silicon Valley Bank’s deposits were uninsured, over the FDIC limit of $250,000, but the government still paid them. 56% of SVB’s loans went to venture capitalist and private equity firms”. Geopolitical Economy Report (2023): “US bank bailout benefited billionaires, exposing corruption: ‘I understand why Americans are angry’: Before it collapsed and its billionaire depositors were bailed out by the US government, Silicon Valley Bank successfully lobbied Congress to remove regulations on it. A senator admitted, ‘I understand why Americans are angry, even disgusted'”. Reuters (2023): “Crypto scam: Inside the billion-dollar ‘pig-butchering’ industry” The Block (2023): “Crypto users lost $1.8 billion in 2023 hacks and scams, Immunefi says” NPR (2023): “FTX founder Sam Bankman-Fried is found guilty of all charges including fraud” MarketWatch (2023): “Here are the politicians who received money from FTX’s Sam Bankman-Fried” The Guardian (2023): “Eurozone economy shrinks by 0.1%, putting it at brink of recession: Ireland posts biggest decline, while Germany contracts by 0.1% and France grows by 0.1%” Political economists Charlotte Sophia Bez and Lorenzo Feltrin at LSE (2023): “Why Europe must address the problem of ‘noxious deindustrialisation’” European Council on Foreign Relations (2023): “The art of vassalisation: How Russia’s war on Ukraine has transformed transatlantic relations“: “Russia’s invasion of Ukraine has revealed Europeans’ profound dependence on the US for their security, despite EU efforts at achieving ‘strategic autonomy’… Europe becoming an American vassal is unwise for both sides” Geopolitical Economy Report (2023): “US blew up Nord Stream pipelines connecting Russia to Germany, journalist Seymour Hersh reports: Pulitzer Prize-winning journalist Seymour Hersh reported the US government destroyed the Nord Stream pipelines that delivered Russian gas to Germany. The Biden administration approved the CIA operation, which used explosives and Navy divers, with help from NATO member Norway” Geopolitical Economy Report (2023): “Facebook censors journalist Seymour Hersh’s report on Nord Stream pipeline attack: Facebook censored a report by Pulitzer Prize-winning journalist Seymour Hersh on the sabotage of the Nord Stream pipelines between Russia and Germany, forcing users to instead read a website funded and partially owned by NATO member Norway” Geopolitical Economy Report (2023): “German lawmaker denounces Ukraine ‘proxy war’ and US ‘terrorist attack’ on Nord Stream pipelines: In this interview, German Member of Parliament Sevim Dağdelen, of the Left Party, Die Linke, condemned the NATO ‘proxy war’ in Ukraine, saying EU members are acting as US ‘vassal states’. She also denounced the destruction of the Nord Stream pipelines as a ‘terrorist attack'” Reuters (2023): “IMF upgrades China’s 2023, 2024 GDP growth forecasts“: “China’s economy is set to grow 5.4% this year, having made a ‘strong’ post-COVID recovery, the International Monetary Fund said on [November 7], making an upward revision to its earlier forecast of 5% growth, while expecting slower growth next year”. Bloomberg (2017): “Housing Should Be for Living In, Not for Speculation, Xi Says” Caixin (2020): “Regulators’ Three Red Lines on Debt Spur Property Developers to Curb Leverage” This is probably one of the most important charts right now about the Chinese economy. To offset the collapse in the real estate sector, Beijing has managed to surge credit to the manufacturing sector, which has helped prevent a total collapse of domestic credit growth and demand pic.twitter.com/YPa0LQYYjZ — Shanghai Macro Strategist (@ShanghaiMacro) October 9, 2023 For example, Chinese production of solar cells and EVs have absolutely gone through the roof. pic.twitter.com/eZslX9HniV — Shanghai Macro Strategist (@ShanghaiMacro) October 9, 2023 Reuters (2023): “China to lead global renewable growth with record installations – Woodmac” Wall Street Journal (2023): “China’s Green Revolution Is Quietly Succeeding” BBC (2023): “China overtakes Japan as world’s top car exporter” People’s Republic of China’s State Council (2020): “New development plan for NEVs unveiled: The State Council on Nov 2 issued a circular aimed at boosting the high-quality development of new energy vehicles (NEV) from 2021 to 2035″ Bloomberg (2023): “Chinese Carmaker Overtakes Tesla as World’s Most Popular EV Maker: Elon Musk once scoffed at the notion that BYD could compete with his company. Now, the automaker run by billionaire Wang Chuanfu is poised to be the new No. 1 in electric vehicles” In 2011, Elon Musk scoffed at the idea of BYD competing with Tesla in a Bloomberg TV interview. Now, the Chinese carmaker is set to become the world's No. 1 EV maker https://t.co/Ilio0p6mYG pic.twitter.com/EX4mwqbdq7 — Bloomberg (@business) December 27, 2023 Los Angeles Times (2015): “Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies” Business Insider (2021): “Elon Musk is speaking out against government subsidies. Here’s a list of the billions of dollars his businesses have received” NBC News: “Air Force general predicts war with China in 2025, tells officers to prep by firing ‘a clip’ at a target, and ‘aim for the head’” Geopolitical Economy Report (2022): “US waging ‘unilateral’ economic and tech war to halt China’s rise, DC insiders say openly: The Biden administration’s aggressive sanctions aim to ‘kneecap’ China’s tech sector. A former Pentagon official acknowledged it is a ‘disproportionate’ and “unilateral” attack, a ‘form of economic containment'” Geopolitical Economy Report (2023): “Chinese balloon was not spying, US gov’t admits months after manufactured crisis” Reuters (2023): “Biden calls Xi a dictator after carefully planned summit” Politico (2023): “Raimondo chides Congress on China tech threat“: US Commerce Secretary Gina “Raimondo defends export controls: Gina Raimondo over the weekend said China is ‘the biggest threat we’ve ever had’ and that the Commerce Department’s Bureau of Industry and Security needs a bigger budget to help the United States outpace the country’s technological innovation. ‘We cannot let China get these chips. Period,’ she said at the Reagan Defense Forum, a symposium of government and industry officials in California” CNBC (2021): “U.S. needs to work with Europe to slow China’s innovation rate, [Commerce Secretary Gina] Raimondo says“: “If we really want to slow down China’s rate of innovation, we need to work with Europe,” Raimondo said. Financial Times (2023): “How Huawei surprised the US with a cutting-edge chip made in China: The inside story of how the country’s flagship tech company kept its edge in the semiconductor war despite sanctions” Economic Times (2023): “From India to UK, here are the countries that have ban on TikTok” Geopolitical Economy Report (2023): “US woos India’s far-right PM Modi to help wage new cold war on China: The US government is trying to divide the BRICS bloc and recruit India for its new cold war on China. Biden doesn’t care that far-right Prime Minister Modi is closely linked to fascistic Hindu-supremacist groups that violently oppress minorities” Geopolitical Economy Report (2023): “Europe pays more for banned Russian oil, resold by India – as EU wages fall: The EU sanctioned Russia and boycotted its oil, yet is still buying it indirectly from India, at a higher price. This is fueling both de-dollarization and inflation in the Eurozone, where workers’ real wages dropped 6.5% from 2020 to 2022″ Financial Times (2023): “The west’s Russia oil ban, one year on: How a shadow fleet undermined the price cap” A “shadow fleet” of secretively run tankers has helped Russia avoid the oil price cap imposed by the G7. Flows of Russian oil to Europe have almost run dry, going instead to India, China and Turkey. @FT graph. https://t.co/ySvukY0drj pic.twitter.com/wVudgQMZWV — EU Energy News (@EUEnergyNews) December 11, 2023 The Intercept (2023): “Secret Pakistan Cable Documents U.S. Pressure to Remove Imran Khan: ‘All will be forgiven,’ said a U.S. diplomat, if the no-confidence vote against Pakistan Prime Minister Imran Khan succeeds” The Guardian (2023): “Exiled Bolsonaro lives it up in Florida as legal woes grow back home: Ex-Brazilian president faces criminal inquiries, including an investigation into his alleged role in the Brasília uprising” El País (2023): “Brazilian military caught in the crossfire after failed coup attempt against Lula’s government: The Armed Forces is facing a slump in popular credibility amid the requirement to punish those possibly responsible for backing an attempt to annul the result of the 2022 elections” Financial Times (2023): “Brazil’s Lula calls for end to dollar trade dominance: Leftist president lends his voice to Beijing’s efforts to boost renminbi’s role in global commerce” France 24 (2023): “Brazil’s Lula criticises US dollar and IMF during China visit: The two countries have recently announced a deal to trade in their own currencies, dropping the dollar as an intermediary. Lula also criticised the IMF, accusing it of ‘asphyxiating’ the economy of certain countries” Associated Press (2023): “Brazil’s Lula proposes South America currency to rival US dollar: The president is hosting a regional summit as he seeks to to revive a bloc of 12 politically polarised countries. Lula also gave a warm welcome to Venezuela’s Maduro, and criticised sanctions imposed on the nation by the US and others”. The Guardian (2023): “‘Prison or bullet’: new Argentina government promises harsh response to protest: President Javier Milei and his allies are preparing new security guidelines in anticipation of protests against currency devaluation” The Guardian (2023): “Javier Milei’s radical economic policies for Argentina met with protests: New libertarian president accused of drawing up a ‘battle plan against working people’” The Conversation (2023): “Release of Alberto Fujimori in Peru rekindles fears of backsliding on human rights” Geopolitical Economy Report (2023): “Peru’s natural resources: CIA-linked US ambassador meets with mining and energy ministers to talk ‘investments’: Peru has large reserves of copper, gold, zinc, silver, lead, iron, and natural gas. After a coup overthrew left-wing President Pedro Castillo, the US ambassador, CIA veteran Lisa Kenna, met with mining and energy ministers to discuss ‘investments’. Europe is importing Peruvian LNG to replace Russian energy”. Goldman Sachs (2022): “Green Metals: Copper is the New Oil” Geopolitical Economy Report (2023): “Peru’s coup-plotting congress has 6% approval, 91% disapproval (but full US backing): A polling firm found that Peru’s coup-plotting, right-wing-controlled congress has 6% approval and 91% disapproval. Unelected leader Dina Boluarte has 15% approval and 78% disapproval. But they have the full support of the US, Canada, and foreign mining corporations”. Geopolitical Economy Report (2023): “US President Bush praised dictator Fujimori as ‘Peru’s hope for the future’: US President George H. W. Bush welcomed far-right Peruvian dictator Alberto Fujimori to the White House in 1991, heroizing him as “Peru’s hope for the future” and praising his neoliberal economic policies”. Geopolitical Economy Report (2023): “‘Mexico is not a US colony!’: AMLO condemns invasion threats, celebrates nationalization of oil, lithium: Mexico’s leftist President AMLO condemned ‘hypocritical’ Republicans who want the US military to invade, declaring ‘Mexico is an independent and free country, not a US colony or protectorate!’ In a massive rally, López Obrador also celebrated the expropriation of oil and lithium, condemning exploitative foreign corporations”. Politico (2023): “GOP embraces a new foreign policy: Bomb Mexico to stop fentanyl: Republicans suggest everything from terrorist labels to an invasion to decimate drug cartels in Mexico”. US Attorney’s Office for the Southern District of New York: “U.S. Senator Robert Menendez, His Wife, And Three New Jersey Businessmen Charged With Bribery Offenses” Gallup (2023): “Biden Ends 2023 With 39% Job Approval” New York Times (2023): “Trump Leads in 5 Critical States as Voters Blast Biden, Times/Siena Poll Finds“

Write an article about: Michael Hudson: Why the US bank crisis is not over. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

banks, bonds, Fed, Federal Reserve, interest, Jerome Powell, Michael Hudson, MMT, Silicon Valley Bank, SVB, treasury bonds

Economist Michael Hudson argues banks like Silicon Valley Bank have behaved in a selfish and greedy way, yet get de facto US government bailouts, while regulatory capture and campaign contributions prevent the systemic change needed to stop these crises. Economist Michael Hudson, co-host of the program Geopolitical Economy Hour, first responded to the crash of California-based Silicon Valley Bank and Silvergate in another article here. When interest rates rise, bond prices fall (and stock prices tend to follow). However, banks don’t have to mark down the market price of their assets to reflect this declining valuation. They can simply hold on to their securities. Banks only have to reveal the market-price decline when there is a run on the bank and they have to actually sell these bonds or packaged mortgages to raise the cash to enable the withdrawals to be made. For Silicon Valley Bank (SVB), it turned out that they gambled to make a capital gain by buying long-term Treasury bonds, whose interest rates were being raised sharply by the Fed’s tightening. The bank expected that the Fed couldn’t keep rates high without bringing on a serious recession – and indeed, Fed Chairman Powell said that a recession was indeed what he wanted. But instead of lowering interest rates, Mr. Powell announced that not enough American workers were unemployed, so he planned to raise interest rates even more than he had expected to. Interest rates rose, and bond prices fell. SVB “was left sitting on an unrealized loss of close to $163bn – more than its equity base. Deposit outflows then started to crystallize this into a realized loss,” as the Financial Times noted. Banks across the country were losing deposits sharply. This was not a “run on the banks” resulting from fears of mismanagement. This was because banks have behaved in so selfish and greedy way that, as they have made soaring profits on rising interest rates – the rates they charge borrowers, and the rates yielded by their investments – they have been paying depositors only about 0.2%. Banks were acting as monopolies, together refusing to pay depositors a fair rate. But their monopoly did not extend to control of the U.S. Treasury. The result is a widening gap between what investors can earn by buying risk-free Treasury securities – about 4% – and the pittance that banks pay their depositors. So depositors were taking their money away from the banks to earn a more fair market return elsewhere. It would be wrong to call this a “bank run” or “panic.” The depositors withdrawing their money were not irrational. They were fed up with the bank’s selfishness. And SVB was one of the worst offenders. That’s why its stock had soared so sharply in the last few years. The threat of a “bank run” may apply more to foreign depositors. On March 13, the US dollar index fell by 1 percentage point. That actually is a lot for one day. Europeans were selling US stocks. That is why the Dow Jones Industrial Average fell at the opening (9:30 AM EST was 3:30 in the afternoon continental European time, so the European sell orders had piled up). Will Europeans withdraw from the US bank market? Are they losing trust? President Biden has done everything that he could to confuse the public as to what is happening. His March 13 speech assured voters that the SVB “rescue” was not a bailout. But of course it was a bailout. Uninsured SVB depositors who did not qualify for safety from losing a penny were rescued without losing a penny. What Biden implied, correctly, was that it was not a taxpayer bailout. But then what was it? It was a demonstration of how powerful Modern Monetary Theory (MMT) is. The banking assets sufficient to “make depositors whole” was simply created by the banking authorities. The $9 trillion in the Fed’s quantitative easing for the banks since 2008 was not money creation; it was a balance-sheet exercise – technically a kind of “swap” with offsets of good Federal Reserve credit for “bad” bank securities pledged as collateral – way above current market pricing. That is what “rescued” the banks after 2009. Federal credit was created without taxation. A few political considerations are appropriate here. For one thing, deregulatory corruption played a role. SVB was overseen by the Federal Home Loan Bank (FHLB). The FHLB is notorious for regulatory capture by the banks who choose to operate under its supervision. Yet SVB’s business was not mortgage lending. It was high-tech private equity entities being prepared for IPOs – to be issued at high prices and then talked up – and left to fall in the usual pump and dump ploy. Another political consideration is that Silicon Valley is a Democratic Party stronghold – and a rich source of campaign financing. The Biden administration was not going to kill the goose that lays the golden eggs of campaign contributions. Of course it was going to bail out the bank and its private-capital customers. The financial sector is the core of Democratic Party support, and it is loyal to its supporters. As President Obama told the bankers who worried that he might follow through on his campaign promises to write down mortgage debts to realistic market valuations in order to enable exploited junk-mortgage clients to remain in their homes: “I’m the only one between you [the bankers visiting the White House] and the pitchforks” – that is, his characterization of voters who believed his “hope and change” patter talk. The Biden administration’s plan is the usual one: kick the bank problem down the road, flood the economy with bailouts (for the bankers, not for student debtors) until election day in November 2024. The Federal Reserve did indeed pull back on March 13, just as SVB had anticipated. That reduction of interest rates by the Plunge Protection Team did make huge gains for investors in the long-term government bonds that SVB had bought. The problem was timing. That’s always the problem when there’s a crash. And there must always be a financial crash at some point. That is because interest-bearing debt grows exponentially, but the economy follows an S-curve and then turns down. And when the economy turns down – or is deliberately slowed down when labor’s wage rates tend to catch up with the price inflation caused by monopoly prices and U.S. anti-Russian sanctions that raise energy and food prices – the magnitude of financial claims on the economy exceeds the ability to pay. That is the real financial crisis that the economy faces. And it goes beyond banking. The entire economy is saddled with debt deflation (of incomes), even in the face of Federal Reserve-backed asset-price inflation.

Write an article about: How Western sanctions blow back, hurting Europe, deepening Asian integration. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Angela Merkel, ASEAN, China, dollar, energy, France, Francois Hollande, Germany, gold, Nord Stream, RCEP, Russia, sanctions, Shanghai Cooperation Organization, technology, Ukraine

Western sanctions led Russia to greatly increase trade with Asia, while devastating Europe’s economy. The US tech war against China is damaging its own industry. Economic coercion, through the imposition of sanctions, is an act of war. Many of these sanctions have caused hardship, especially for the civilian populations of targeted countries. But just as a rifle recoils on the shooter’s shoulder, potentially causing injury, so too can sanctions backfire on the user. That is the title of a new book, “Backfire: How Sanctions Reshape the World Against U.S. Interests.” This is not to say that sanctions don’t cause suffering, but they have a mere 13% success rate in altering a targeted state’s behavior in the way desired. The failure of sanctions has long been recognized, although that seems not to have dampened U.S. persistence in adding ever more of them. The blowback effect has begun, and more is predictably on the horizon. This present analysis will focus on the two main geopolitical targets of U.S. policy: Russia and China. At the moment, the U.S. is in a proxy war with Russia, with Ukraine in the military forefront. Before that, and alongside it now, is a running war of sanctions. The longest cause was the rise to power of Vladimir Putin, who restored Russia’s economic power and sovereignty by undoing some of the predatory effects of Russia’s privatization following U.S.-supported “shock therapy.” An early “Western” strategy to prevent a return of Russia as a great power was to bring many of its bordering states in Eastern Europe into NATO. Ukraine would be the last piece in what Russia perceives to be a military front of potential aggression. Whatever the outcome of that fight will be, sanctions are likely to continue. The U.S. first sanctioned 60 Russian individuals in 2012 with the Magnitsky Act, to punish those supposedly responsible for the death of Sergei Magnitsky, an accountant for a tax-evader who was charged with corruption, and who was also politically linked to Russian opposition leader Alexei Navalny – himself later a cause for further sanctions. In 2014, a U.S.-backed coup in Ukraine led to eight years of civil war, giving rise to separatist movements in the east of the country. Apparently following the 2019 report “Extending Russia” from the Pentagon-backed RAND Corporation, the U.S. selected Ukraine as the best option among neighboring countries to provoke Russia into over-extending itself. This proposed strategy seemed confirmed in December 2022 by Germany’s former chancellor, Angela Merkel, in an interview with the newspaper Die Zeit. She admitted that the “2014 Minsk agreement was an attempt to buy time for Ukraine. Ukraine used this time to become stronger.” The Minsk agreements had been overseen by Germany and France. Former French President François Hollande confirmed the same soon after, stating, “Angela Merkel is right on this point.” Their strategy succeeded in “extending Russia” into Ukraine in February 2022. Sanctions have been raining down on Russia ever since, against individuals, companies, and government agencies, most importantly against its oil exports, but also against its sale of aluminum, uranium, and agricultural goods. Initial harm included a sizeable drop in Russia’s GDP and living standards, the loss of foreign investment, a sharp increase in inflation, and a temporary depreciation of the ruble. The U.S. later restricted Russia’s access to capital markets and to oil and gas extraction technology, which can inhibit Moscow’s financing of oil field development, notably in the Arctic, where Russia has the longest shoreline. However, Putin turned much of this around with policies of import substitution, government subsidies, and the nationalization of private oil companies, which by 2018 had grown back up to almost 40% more than before sanctions.1 In fact, the value of Russian exports grew after the 2022 sanctions. Russian farmers gained from import substitution and ensured the country’s food security. And while Russia exports less now to Britain, Sweden, the U.S., South Korea, and Germany, it exports more to Brazil, Japan, China, India, Turkey, Spain, the Netherlands, and Belgium. India and China have increased their purchase of Russian oil; France relies on Russian uranium; Belgium still trades in diamonds with Russia; and the Netherlands offers access to Dutch ports for such cargo, the New York Times reported. While Russia’s exports to the U.S., the United Kingdom and other markets have fallen, its trade with China, India, Turkey and even Belgium and the Netherlands has boomed, driven in part by higher energy prices this year. https://t.co/MJLmBYdzzV pic.twitter.com/dbc4VYtSXw — The New York Times (@nytimes) November 2, 2022 Financial sanctions have also fallen short of their goal. The Bank of Russia’s reserve system has a surplus of pre-war levels. By the end of 2022, Russia’s foreign-exchange reserves were $581.7 billion USD, the fourth-highest in the world – while its ally China remained firmly in first place, with more than $3 trillion USD worth of assets. By contrast, Germany is facing the most collateral damage from the loss to its markets and the sanctions on energy, notably bringing an end to the supply of cheap Russian gas through the Nord Stream 1 pipeline. In 2020, U.S. Congress imposed secondary sanctions on banks that processed transactions related to the Nord Stream 1 and 2 pipelines and on ship insurers that serviced them. When construction of Nord Stream 2 was finished in 2021, Washington imposed new sanctions on insurance and certification companies to keep it from opening. Finally, both pipelines were sabotaged in an undersea explosion in September 2022. As a result, the industries that had made Germany preeminent in Europe, such as steel, chemicals, machinery, and automotives, are suffering from high energy costs and the loss of Russia’s aluminum, titanium, and palladium. As a consequence, one in four German companies is considering moving production to other countries, amid the energy crisis. While European nations like Germany and France appear publicly to support U.S. attempts to weaken the Russian government, they are furious at the cost to themselves in the form of lost trade agreements and investment opportunities. EU leaders are furious that the US is making lots of money from the proxy war in Ukraine by selling weapons and expensive natural gas Meanwhile European industries are being destroyed as high energy prices and US subsidies push its companies overseas https://t.co/cgtLK0ONC0 — Geopolitical Economy Report (@GeopoliticEcon) December 11, 2022 Their unease is compounded by suspicion of U.S. cupidity in substituting its energy sources – like liquified natural gas (LNG), which is several times more expensive – for cheaper Russian ones, and by record U.S. profits from selling more weapons. Furthermore, the Joe Biden administration’s attempt to re-shore manufacturing through its “Made in America” policy has led U.S. allies to charge that such protectionism violates international trade laws. In addition to the mounting costs of production due to the higher price of U.S. energy, this could push Europe into relative deindustrialization. Some countries have reacted by moving their factories to the U.S. to take advantage of the “Inflation Reduction Act”, which would subsidize a factory in the U.S. by up to $800 million. A move to the U.S. may save some companies, but will only further deindustrialize Europe. Another strategy being considered is European protectionism, which may put the trans-Atlantic political alliance on shakier footing.2 It is not just Europe that is mobilizing against U.S. protectionism. China, much of Southeast Asia, and some Latin American countries are acting similarly. The Regional Comprehensive Economic Partnership (RCEP) is a political and economic union created by the Association of Southeast Asian Nations (ASEAN). Larger than the European Union and the U.S.-Mexico-Canada Agreement, RCEP includes China, the Philippines, Laos, Vietnam, Brunei, Cambodia, Singapore, and Thailand, as well as U.S. political allies Australia, New Zealand, Japan, and South Korea. Members of the Regional Comprehensive Economic Partnership (RCEP) trade bloc Of course, this pits political and economic interests against each other in some cases, causing tensions that are a feature of blowback to U.S. economic coercion. The U.S. Congress has also used the financial sector to enforce its policies, imposing secondary sanctions on banks that process transactions with sanctioned parties. Secondary sanctions are imposed on countries that attempt to trade with the targets of primary sanctions. They are technically illegal, but many countries observe them out of fear of U.S. retaliation. Importantly, shipping companies and insurers often over-comply with sanctions that may not technically apply, which has delayed shipments of grain and fertilizer that are needed to prevent famine, notably in Africa. However, blowback looms in global finance, which could eventually erode U.S. power as exercised through the hegemony of the dollar. One of the ways to avoid primary and secondary sanctions is by trading in local currencies, rather than by using SWIFT (Society for Worldwide Interbank Financial Telecommunications), a member-owned system made up of banks and financial institutions worldwide, widely used for transactions that are denominated in dollars. SWIFT blocks payments that breach U.S. sanctions. Thus, more and more countries are trading in other currencies. Russia trades with India in rubles and rupees, and with China in rubles and renminbi. Also trading in national currencies are members of the Shanghai Cooperation Organization, which includes China, India, Pakistan, Russia, Iran, and numerous Central Asian states, making up half the world’s population. The 2022 meeting of the heads of state of the members of the Shanghai Cooperation Organization Alternative financial networks are being formed. The BRICS countries (Brazil, Russia, India, China, South Africa) are working to develop a new reserve currency based on a basket of their national currencies. China has formed CIPS (Cross-Border Interbank Payment System), a SWIFT-like payment network to internationalize the renminbi. Its co-founders included even some Western banks like Citi, Deutsche Bank, HSBC, along with numerous Asian and African banks. With about 1,300 banks in all, it is a challenge for the future.3 China is slowly edging its Renminbi into becoming an international currency, which would push the dollar into being only one member in a basket of currencies, rather than the dominant currency used in trade. Finally, there is the growth of digital currencies – electronic state-backed national currencies that act like cash, not to be confused with blockchain cryptocurrencies. National digital currencies will allow countries to trade directly, without having to go through mechanisms like SWIFT. The decline of dollar hegemony is expected, but with a long time horizon of two or three decades. However, the weaponization of finance has cost the U.S. a loss of trust. When foreign reserves can be frozen, as they have been for Russia, Venezuela, Iran, and Afghanistan, then no country can feel that its assets are safe. Many central banks, including China’s, have been buying gold for their reserves and selling U.S. securities. One important, contradictory result of the measures taken so far has been the growing closeness of Russia and China, who now hold joint military exercises. In terms of Beijing, whose spectacular growth presents a clear challenge to U.S. global dominance, Washington has begun a stronger form of economic coercion: export controls. Here the danger of blowback is even greater, possibly leading to a long-lasting trade war over semiconductors or microchips, the key to advanced civilian and military technology. In October 2022, the U.S. Commerce Department barred Chinese chip, biomedical, and chemical companies from importing highly advanced American chip design and manufacturing tools. The goal is to prevent Chinese companies from developing their own ability to manufacture comparable technology. Should secondary sanctions be applied in this case, other technology companies may be affected – like Samsung and Taiwan Semiconductor Manufacturing Company (TSMC), which trade with China’s large market. However, a considerable illicit trade of chip smuggling is going on. An amusing, miniature version of this was the attempt to bring in chips in a fake baby bump. One possible blowback to U.S export controls could be China potentially retaliating by denying the U.S. rare earth minerals that are needed for the batteries used in most modern technological products. China oversees 60% of rare earth production. U.S. business interests have expressed concern about the consequences, especially given that Washington has failed to persuade its allies to adopt similar export controls. Moreover, the loss of the China market would be a “death warrant” for some U.S. semiconductor firms, whose decline in revenue could lead them to reduce their investment in research and development, and thus decline.4 Hence, the semiconductor industry prefers a narrower target on China’s defense and security industry. Finally, who sets the standards for microchips also holds considerable power. Chinese engineers are increasingly influential in the International Organization for Standardization and International Electrotechnical Commission, which gives Beijing a presence in help setting the rules. China has even set up a competitor to WiFi on its Digital Silk Road. And its global positioning system, Beidou, is three times more accurate than GPS.5 Decoupling into two world systems of technology would probably backfire on many levels. Semiconductor production consists of a highly integrated global network of resource extraction, design and manufacture. At present, Taiwan’s TSMC has the largest concentration of production, amounting to 92% of the most advanced chips. That makes Taiwan a key factor in the U.S.-China competition. And, for now, it provides the island with a “silicon shield” from military operations. It is becoming increasingly clear that the U.S. sanctions policies to maintain global dominance, although harmful and escalating, may have passed the peak of their effectiveness. Export controls could be more effectively destructive, but even their outcome is likely to fall short of the ultimate goal. Most observers consider that, in two or three decades, the U.S. will have come to terms with being only one of several important powers. The dollar will become one part of a basket of reserve currencies. The question is if Washington can commit itself to cooperation rather than competition, in matters of concern to humanity at large. The benefits could be enormous. 1 Jeremy Kuzmarov, “Trying to Unbalance Russia: The Fraudulent Origins and Impact of US Sanctions on Russia,” in Davis and Ness, p. 300, citing Richard Connolly, “Russia’s Response to Sanctions: How Western Economic Statecraft is Reshaping Political Economy in Russia,” Cambridge University Press, 2018 2 Rawi Abdelal and Aurelie Bros, “The End of Transatlanticism? How Sanctions are Dividing the West”, in Horizons: Journal of International Relations and Sustainable Development, no. 16, Pandemics & Geopolitics: The Quickening (Spring 2020) pp. 114-135. 3 Agathe Desmarais, Backfire: How Sanctions Reshape the World Against U.S. Interests. Columbia University Press, 2022, pp. 129-131. 4 Desmarais, p. 180. 5 Desmarais, p. 185.

Write an article about: How could a BRICS+ bank and settlement currency work? Economist Michael Hudson explains. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

bancor, BRICS, de-dollarization, dollar, John Maynard Keynes, Michael Hudson, Vladimir Putin

Economist Michael Hudson details how BRICS could create a mutual settlement currency for payment imbalances among central banks and build an alternative to the financialized neoliberal model of the dollar/NATO bloc. This first week of October has seen U.S. interest rates soar to the 5% level on long-term Treasury bonds. That has made long-term Treasuries one of most attractive investment vehicles in the world, or even the most attractive. One obvious result is that countries aiming to de-dollarize their central-bank reserves would make an untimely decision to move out of the dollar at this point. To avoid holding dollars in the form of US Treasury securities would mean holding foreign reserves denominated in a currency that is declining against the dollar. No other government is willing to make its currency so attractive to international investors (including central banks) by raising interest-rates so high. At 5%, US bonds are the most secure and best investment around. There is a huge move into the dollar – and hence, pushing up its exchange rate against most other currencies. That has made it much more expensive for Global South countries to service their foreign debts denominated in dollars to the IMF, World Bank, and private bondholders. If they try to pay these debts – which are now much more expensive in their own currencies – they will have to suffer austerity, and use their economic surplus to pay dollar-holders instead of using it to develop their own economies. That strain imposed by international debt service is the most serious since the late 1920s – with the same refusal of creditor countries to see how today’s foreign-debt overhead cannot be paid. We have seen this before, in the austerity caused by Germany trying to pay its World War I reparations debts, and by England and France trying to pay their inter-Ally debts despite the self-destruction of adhering to creditor demands. The world refused to negotiate a write-down of these inter-governmental debts until the 1929 crash forced realistic observers to agree to the 1931 moratorium on German reparations and inter-Ally debts. By that time the Great Depression was underway. Today’s 5% interest rate threatens to destabilize the domestic US economy and federal budget just as much as it is increasing the cost of debtor countries servicing their foreign dollar bonds. A 5% interest rate on 30-year bonds means a doubling time in 14 years. (The Rule of 72: Divide 72 by the interest rate to get the doubling time.) For a 30 year bond, a million-dollar purchase will quadruple in face value, to $4 million by the time the bond matures in 2053, thirty years from now. Think of the effect that this will have on the US budget by that time. A much larger share will have to be allocated to pay bondholders – most of whom make themselves tax-exempt, for instance by holding their savings offshore. The world’s debtor countries, if not the creditors, are finally coming to realize that many government debts can’t be paid – except by throwing their economies into depression and austerity. That might be in store for the US economy too if it tries to tax the economy to pay creditors instead of simply printing the money. Obviously there needs to be an alternative. It needs to beyond merely the first step of declaring a debt moratorium. A longer-term restructuring of the international financial system is needed, because the present system has become dysfunctional. This recognition has been most explicit by the statements of China’s and Russia’s government. Although they are positioned to become creditor countries in the coming world realignment, they recognize the need to create a way for countries to run balance-of-payments surpluses or deficits without polarizing the international economy between creditors and debtors, creating a new split such as is now occurring. At the Valdai Club meeting in Sochi on October 5, Russia’s President Putin explained how he viewed the needed restructuring. Contrary to much discussion in the West, what is planned is not a “BRICS currency,” but something much more limited: a means of settling payments imbalances along quite different lines from those that have led to today’s crisis. As far as BRICS is concerned, we don’t need to create a single currency, but we need to set up a settlement system, create financial logistics in order to ensure settlements between our countries, switch to settlements in national currencies, while understanding what is happening with our national currencies, and keep in mind the macroeconomic indicators of our economies, exchange rate differences, inflationary processes. … I have already said, and many believe, that the Bretton Woods system is outdated. After all, this is not me talking, these are Western experts. It needs to be changed. Of course, it leads to such ugly phenomena as, say, debt obligations of developing economies, of course, this is the absolute, complete domination of the dollar in the world system. It’s only a matter of time before this happens. What is needed certainly is not a “new Bretton Woods.” The old Bretton Woods system was designed in 1944 by US planners first and foremost to break down Britain’s Imperial Preference based on block sterling holdings (government reserves that could not be spent outside of the sterling area) and the prospect of depreciation of the pound sterling. US planners consolidated American power by basing international monetary policy on the asset that the US Treasury held: gold, of which the U.S. held three-fourths of the world’s monetary gold reserves by 1950. Along with insistence on free trade and free capital movements (no capital controls or restrictions on how India and other British Empire countries could spend their accumulation of sterling reserves during World War II), the US “rules-based order” turned British sterling into a satellite currency. Having obtained British acquiescence, the US Bretton Woods proposals were imposed on Europe and other countries. Their fate has followed that of Britain’s domestic budget squeeze and “stop-go” austerity policies. John Maynard Keynes proposed an alternative to holding dollars – something like an anti-Bretton Woods. His aim was to avoid US financial dominance by creating a fiat currency, the bancor. That was not a form of international money, but had a special purpose as an asset of “paper gold,” akin to what the IMF later introduced as Special Drawing Rights (SDRs) in response to the US government itself needing a bailout as its foreign military spending pushed its balance of payments deeply into deficit during the 1970s war in southeast Asia. Bancors or SDRs could be issued to countries running balance-of-payments deficits to pay payments-surplus countries. This is the problem that the BRICS+ and Global South countries are trying to solve today. The popular press has confused matters by referring to a “BRICS currency.” It is not a currency like the euro or the ruble or renminbi. It is not a currency that anyone could spend at the grocery store or to pay rent. It is not “money” as generally understood. It is not a currency that can be traded on foreign-exchange markets, and certainly cannot be bought by speculators (although they could gamble on what it might exchange for, something like betting on a horse race without having a horse or jockey in the race). Domestic money, like the dollar or euro, ultimately derives its value from being accepted by national governments in payment of taxes or other transactions with the public sector. That makes such money fungible. Money in that sense can be thought of as a public utility. But providing such currency for a number of countries requires a common government, fiscal authority and legal system. If the currency is to be issued by a number of countries – like the euro – it therefore requires a political union empowered to allocate who gets how much of the currency. No such political foundation yet exists for the BRICS. In President Putin’s words, countries are “at different stages of development.” More to the point, their mutual trade and investment is nowhere near in balance at present. That imbalance is the major problem to be solved, just as it was in 1944-45. It is a balance-of-payments problem, not one of financing domestic government budgets and spending. How can countries with chronic balance-of-payments deficits (like most Global Majority countries looking to an association with BRICS+) can run up debts to payments-surplus countries (like China and Russia), without being forced to impose austerity. How can inter-governmental debt be prevented from causing the problems that the US/Bretton Woods system and IMF “conditionalities” have created? The first step has been a stop-gap of making swap agreements. That enables countries to settle for trade and investment imbalances among themselves with their own national currencies. The advantage is that there is no need to involve “hard line” creditors such as the United States, and to avoid the risk of US/NATO countries simply grabbing their central-bank monetary reserves as they seized $300 billion from Russia. But the problem goes beyond simply avoiding the use of dollars and euros. A system of international finance needs to be created that does not impose austerity on debtor countries. That self-defeating policy simply makes it even more impossible to pay the buildup of foreign debts. Most international payments occur on “capital account,” for foreign investment, lending, flight capital. But academic textbooks of international trade theory treat it as barter – as if money, currency speculation and flight capital are only a veil. If foreign trade and payments were in balance, there would not be any need for international reserves being accumulated. The books would be cleared. But international payments rarely are balanced. What is now under discussion is how to denominate the financial claims that result from this imbalance. The buildup of international reserves is not a healthy economic sign if they grow faster than the pace of world trade. When these imbalances – not only of trade, but foreign investment, war-making, currency flight, speculation – rise and accrue interest year after year, they become increasingly unpayable. That is the situation in which the world finds itself today. The vast majority today’s central-bank reserves are still foreign holdings of US dollar securities – that is, nominal US debt to foreign governments. The US Treasury did not “borrow” this money. Rather, they spent dollars into the international economy, headed by US military spending in an increasingly aggressive and belligerent way. One could think of foreign dollar reserves as their bearing the costs of US military encirclement of the globe. (This is the process that I have described in Super Imperialism: The Economic Strategy of American Empire.) Most international payments occur on “capital account,” for foreign investment, lending and flight capital. If foreign trade and payments were in balance, there would not be any need for international reserves being accumulated. The books would be cleared. But international payments rarely are balanced. As noted above, the present stop-gap solution is for countries to pay in their own currency, and for payments-surplus nations to accept this. But currency swaps are subject to their own problems. Not only governments exchange their currencies, but speculators not directly involved in exporting and importing. George Soros made his fortune mobilizing lenders to break the bank of England and force it to depreciate by outspending it at the currency poker tables. The currencies of many countries seem destined to decline – imposing a loss on payments-surplus nations. This has become a problem especially with the euro. At the Valdai meetings, President Putin explained why the euro is unlikely to be one of the currencies into which BRICS+ countries hold as they dedollarize: Do you understand what happened? The competitiveness of the European economy has fallen, and the competitiveness of their main competitor in terms of the economic component of the United States has increased dramatically, and other countries, including in Asia, have also increased. As a result of the loss of part of their sovereignty, they were forced to make decisions to their own detriment. Why do we need such a partner? … we are largely moving away from the fading European market and increasing our presence in growing markets in other regions of the world, including Asia. Among the BRICS+ countries, Argentina is a case in point. Its foreign dollar debt has grown largely by IMF sponsorship. The IMF’s main political function in US foreign policy has been to enable pro-American client oligarchies to move their money out of countries whenever there is a chance of a left-wing or simply democratic reformer being elected. Convert their Argentinean currency into dollars lowers the peso’s exchange rate. Without IMF intervention, that would mean that as the exchange rate falls, the wealthy classes engaging in capital flight receive fewer and fewer dollars. To support the currency – and hence, the hard-currency dollars that capital-flight actors receive – the IMF lends the right-wing government dollars to buy up the excess pesos that the client oligarchy is selling off. That enables Argentineans to move their money out of the country to obtain a much higher amount of US dollars than they would if the IMF were not lending money to the right-wing puppet government. When the new reform government comes in, it finds itself loaded down with a huge foreign debt owed to the IMF. This debt has not been taken on in a way that helped Argentina develop its economy and earn dollars to pay back the loan. It is simply a result of IMF support of right-wing governments. And the IMF then tells the new government (whether Argentina or any other debtor) to pay off its foreign loans by lowering the wages of labor. That is the only way that the IMF recognizes for countries to “stabilize” their balance of payments. So the reform government is obliged to behave just like a right-wing government, intensifying the class war of capital against labor. The “cure” for their balance-of-payments deficits thus becomes even worse than the original disease, that is, its rentier oligarchy moving their money out of the country. Recently, the IMF paid back part of one of these odious IMF loans. It did so with money that it borrowed from China. And China has been in discussions about raising its quota in the IMF to reflect its rising economic power. Yet US politicians have designated China as America’s number-one long-term enemy, and are seeking to expand NATO into the Pacific to ramp up military threats to China. The US/NATO war in Ukraine has been described as a strategy to destroy Russia’s economic ability to support China in the coming Cold War. And to support the West’s arms supply to fight Ukraine, the IMF has lent Ukraine seven times its quota – despite this large a loan being against the IMF rules, despite Ukraine being at war, and despite the fact that this loan obviously cannot be repaid. The Germans have helpfully suggested giving the $300 billion in confiscated Russian reserves to Ukraine to pay its foreign creditors and pay for more US arms. It therefore seems quite obvious that the IMF cannot play a role in any BRICS bancor arrangement. But it also shows how hard it is to create an alternative economic system to the present legacy of World War II. The most serious problem has not been discussed publicly. There is no way that a viable and resilient economy for Global South countries and their arrangement for central banks can take shape without repudiating the overhang of US dollar debt. This unpayably high foreign-debt burden is a legacy of US-sponsored financial colonialism. As long as this debt is kept on the books, countries will remain obliged to use their trade surplus and sales proceeds from selling off their property to foreign investors to pay their former colonial powers and post-colonial creditors. When one talks of dedollarization and the creation of a BRICS+ bank, this is the kind of quandary from which they need to escape. The first need is to create a vehicle to handle the inevitable payments imbalances. At present, these are settled by debt obligations. A key feature of Keynes’s bancor proposal was that if chronic credits accrued to a payments-surplus country – and if their counterpart in chronic debts occurred in deficit countries – these imbalances would be wiped off the books. Keynes’s intention was to prevent debt imbalances from destroying the global economy as they had destroyed European economies in the 1920s. There is no way that today’s international debt overhand can be repaid. That is as true for the United States as it is for Global South debtors. The US Treasury owes much more to foreign governments the form of their holdings of US securities than it can foreseeably repay. It has post-industrialized its economy, and has committed to spending enormous sums abroad, while its dependency on foreign imports is rising and its prospects for collecting its existing debt claims on deficit countries is looking shaky. The past half-century’s foreign investment has taken the form of privatization of the public domain of debtor countries. This investment has not helped them develop, but has merely transferred ownership of their oil and mineral rights, public utilities and other assets. A viable international financial system requires productive investment such as China’s Belt and Road Initiative that can help countries prosper, not asset stripping. Perhaps Islamic sharia law has a hint for a solution, in replacing debt obligations with equity arrangements (with buy-back agreements). If the plans being designed by China, Russia and other BRICS members work as intended, countries would be able to pay the investment sponsors out of the growth that would occur – not by imposing austerity as under today’s predatory financial “rules-based order.” Dollar dominance will continue over Europe and other US satellites. Other countries that need dollar reserves for their trade and investment with the United States. Existing US trade can continue as it has. But what will be changed is a new basis for the international economy iself. There will not be a new BRICS currency in the sense of a dollar or euro that could become a medium for trade, investment or international speculation. There will only be a mutual “currency of settlement” of payments imbalances among central banks joining the new system. And that system itself will be based on principles opposite from the financialized neoliberal model being promoted by the dollar/NATO bloc. That is the real context for the current discussion of BRICS+ economic reform.

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Brazil, BRICS, China

A new kind of globalization is being born, and the political future of the BRICS+ and the Global South in general depends greatly on China. The emergence and rise of new poles of power to the detriment of existing ones is nothing new in history. Since the 18th century, there have been countless examples of transitions in international hegemony. This accelerated with the emergence of industrial capitalism in England, which was more advanced than the Portuguese and Spanish commercial capitalism that for centuries had dominated much of the world, especially Latin America. Even the capitalist dynamic inaugurated by England has characteristics that are not unfamiliar to economic historians with great theoretical and conceptual rigor. Well known is Vladimir Lenin’s discovery of the uneven nature of the development of nations and the tendency of the most developed countries to lose dynamism while others begin to enjoy what economist Alexander Gerschenkron called the “advantages of backwardness”. So the international order cannot be observed, from a historical point of view, as a march where countries change positions like in a military parade. The emergence of monopolistic capitalism brought with it the tendency toward war, for example. We have witnessed two great world wars where the center of the dispute was world power, with results that consolidated new political actors on the international stage, mainly the United States. I start from the historical principle that reality has shown Lenin to be correct, regarding the uneven development of the system and the tendency toward stagnation in the developed centers. These processes open spaces of power in the world. I also say that we will have little to offer in terms of explanation for the future if we do not relate the transformation of the United States into a unified continental economy at the end of the 19th century, and its impacts on the development of the international capitalist system, with what we have witnessed in China over the past decades: the emergence of a unified continental economy in the third-largest country in the world, which is generating huge impacts on the international political economy – and is still little investigated by so-called experts. This is a fundamental point when we want to develop a sophisticated thinking about the BRICS+ and the future of the international order. I will return to this point. On the other hand, we are witnessing a new wave of systemic transition today. This time, there is the emergence of new poles of global power on one side, while on the other there is an accelerated stage of political, social, moral, and economic decomposition of a hegemonic power: the United States of America. It is interesting to note that the new order that is emerging is itself the product of the order created by the United States after World War II, which accelerated in the late 1970s with the rise of neoliberalism, and especially after the end of the Soviet Union. Globalization led by the powerful finance of the United States was a reality that transformed the economic geography of the world, but which is eroding within its own limits. Since the moment when financialization became the dominant dynamic of accumulation in capitalism, and neoliberalism won hearts and minds around the globe, the world has entered a spiral of greater instability and unpredictability. Since the 1990s, financial crises have become recurrent – at the same time as countries that have designed national development projects outside the precepts of the Washington Consensus have been gaining greater space in the world. Interestingly, China and India, two countries that became independent in the late 1940s, have gone from being miserably poor countries to great economies. The two together correspond to 51% of the world’s economic growth today. Russia, too, is reconstituting itself with a state capitalism as an atomic, energy, and military power, after the brutal fall in its GDP following the end of the Soviet Union. Russia is beginning to reoccupy lost spaces in the world. Its previous energy integration with Europe and now transition toward growing economic and technological integration with China reinforces its position of regional power. Despite following a contradictory path in the last 40 years, Brazil has managed to establish itself as a central country in the southern hemisphere of the world. The African continent has undergone a new process of independence in the last 20 years, largely due to China’s economic presence, in contrast to the old colonial powers. New anti-colonial revolts such as those in Burkina Faso, Mali, and Niger are proliferating on the continent, as China and Russia present themselves as progressive alternatives compared to the West’s historic relations with Africa. The formation of the so-called BRICS follows this historical logic of the functioning of capitalism, with its tendency toward the cyclical emergence of alternative poles of power in relation to the dynamic center of the international economy. This trend accelerated with the international financial crisis of 2008, where there was an apparent inability of central capitalist countries to manage the crisis in a way that would overcome the impasse created by financialization. Simultaneously, the tendency of the United States to lose influence over the international economy has led to a contradictory movement in which the hegemonic country breaks the rules it itself created. Hence, the globalization nurtured by the United States is declining as a cause and consequence of its own protectionism, the use of the dollar as a weapon of financial mass destruction, and the widespread breakdown of global value chains exacerbated by the COVID-19 pandemic. The impasse we are witnessing in the world today is reflected in global governance institutions, such as the United Nations, which are increasingly impotent in the face of facts. And the emergence of new weighty actors in the global economy is making the institutions formed under Bretton Woods obsolete, incapable of meeting the new demands of a global order that is emerging amidst the old. Thus, there arises a so-called Global South that can become a large international market capable of operating – starting with energy markets and local currencies. Currency swap agreements between China and other Asian economies, for example, have created a large local payment system that already dispenses with the use of the dollar. Historical rivals such as the Islamic Republic of Iran and the Kingdom of Saudi Arabia have not only resumed diplomatic relations, but also become part of the BRICS in its new composition, consolidated at the bloc’s 2023 summit in South Africa. It has been remarkable to see the contours of what has been called the “Global South”, a heterogeneous set of countries, with differentiated levels of development, located outside the Atlantic axis, but which have the ability to converge on some fundamental issues for their own future, and for that of humanity itself. The political future of the BRICS+ is increasingly related to the persistent search for convergence of this group of countries, and of the “Global South” as a whole. It is interesting to note that, after the international financial crisis and the exposure of Western hypocrisy across the board, what has resurfaced is the centrality of the struggle for the right to development – a struggle that was so present in anti-colonial struggles, and which found its brightest representatives in the Soviet Union and China. The “Global South” and particularly Africa have experienced a new wave of struggle for independence, against neocolonialism. This means that the political future of the BRICS+ is also related to the way this type of global struggle against misery and underdevelopment will occur. Another fundamental element to understand our common future is the emergence of another kind of globalization. The chancellor of the People’s Republic of China, Wang Yi, stated: Our circle of friends will always be in the Third World. Remember: developed countries in the West will not call us to play and, in their eyes, will always have a ‘superiority complex’. The West will always despise our values and consider China ‘backward’. In the eyes of Westerners, there will always be ‘differences between the East and the West’. Don’t think you can integrate into the Western world, nor think naively that you can. On October 18, a large meeting was held to commemorate the 10th anniversary of the Belt and Road Initiative. Many heads of state and government from the Global South were present at the event, and Russian President Vladimir Putin’s presence alongside his Chinese counterpart Xi Jinping was highlighted at various moments of the summit. There are a series of questions that must be answered by intellectuals interested in the change of dynamics that marks our historical moment. One of these involves so-called globalization, its decline, or the emergence of another kind of globalization, particularly in the context of Eurasia and China. In September 2013, Chinese President Xi Jinping launched the general guidelines for what was then called the Economic Belt of the Silk Road, currently the Belt and Road Initiative (BRI). Since then, 154 countries have formally joined the project, with about US$1 trillion already invested in almost every continent of the globe. Ten years after the launch of the Belt and Road Initiative, the world is facing a series of discussions, including that of a so-called “deglobalization” – accelerated by historic US protectionist policies and an attempt to block China from the global market for semiconductor supplies. This process has brought fissures to the pre-existing pattern of globalization, but does it mean the beginning of “deglobalization”? The type of globalization birthed by the United States after World War II has gained other contours and “financialized”, especially since the 1970s. This is dragging the world – and China in particular – toward new institutional milestones of all kinds, with new territorial arrangements based on the speed at which capital flows in and out of countries and the reorganization of the planet’s industrial geography. An extended period of low inflation in the US became synonymous with “Made in China”. What US policymakers never imagined is that the man who included China in the capitalist world economy had previously been a hero of the Long March, not one of their appointees in South Korea or Japan. We are referring here to Deng Xiaoping. In about 40 years, financialization has eroded the US’s ability to periodically reinvent itself. Its seemingly unbeatable military machine has been tested more times in a decade than in the entire Cold War. And this has contrasted with a society increasingly fractured by social inequality. At the same time, with each new financial crisis, the distance between China and the United States has decreased. In the last four decades, China has built “three immense machines”: It is at this point that we should question the narrative of so-called “de-globalization”. Is there a new kind of globalization is taking place? One with China as a promoter, based on incorporating Russia as a sovereign part of its economic networks and the physical integration of the world with infrastructure, based on large productive capacity, based on public banks (creators of fiduciary currency), with greater protagonism for regional powers such as South Africa, Egypt, Ethiopia, and perhaps Brazil. On the other hand, if there is a “globalization with Chinese characteristics”, and if any globalization process can also be defined by the values shared by the gravitational pole, what can we expect from a Chinese globalization? Social sciences and humanities do not have test laboratories like the hard sciences. Therefore, many answers lie in the field of history. In this sense, given the weight exerted by China’s productive (non-financialized) economy in the world, this new “globalization” will redesign an international division of labor, to the extent that China begins to export its prosperity. This export is already taking place to a certain extent, to the extent that a country is able to plan its economy on the basis of the trends created by China. That is one point. Another point is multipolarity. The Chinese are not interested in the burden of being a hegemon. But they are interested in polarizing the debate on global governance. China has launched three major “Global Initiatives”: We can say that Chinese governance is rethinking the principles of the famous Bandung Conference of 1955, with the addition of the “internationalization of factors”, by placing responsibility for safeguarding a world marked by multiple tensions in the field of the Global South. Here is to be found a dialectical relationship between the future, BRICS+ and the Global South. The end of the Soviet Union brought several negative consequences to the world that are still felt today: On the other hand, the erosion of the ability to reinvent capitalism due to financialization and the emergence of a socialist country (China) as an economic power whose path reflects nothing of the neoliberal recipes sold by the IMF and the World Bank have contributed to the acceleration of a systemic transition, in which a new globalization centered on China is only its greatest expression. It is worth remembering that one of the consequences of the conflict in Ukraine was not only a greater challenge to the order based on the dollar as a reserve currency for various financial operations, but also an incorporation of Russia into Chinese economic territory. This is not an annexation or economic colonization, but the beginning of the realization of a Eurasian project based on exchanges at all levels, from energy to high technology, and mediated by hundreds of joint projects involving the investment of hundreds of billions of dollars. This is made possible by China’s central position in the international credit market, the role of its domestic demand, and the immense potential held by the Russian Federation that goes far beyond its natural reserves. China’s export of its prosperity also occurs with the possibility opened for the industrialization and re-industrialization of various countries. The cases of Argentina, Bolivia, Zimbabwe, Indonesia, and others are suggestive, where value could be added to primary products, with help from Chinese companies. In short, the political future of the BRICS+ and the Global South depends greatly on the future of China and how its domestic challenges are being faced.

Write an article about: Despite Biden’s claims, Gaza health ministry death toll is accurate, scientific studies show. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Gaza, Israel, Palestine, The Lancet

US President Biden criticized Gaza’s health ministry, but its statistics on Israel’s killings of Palestinians are accurate, according to peer-reviewed articles in top medical journal The Lancet. The death toll of Israel’s war on Gaza reported by the Palestinian health ministry is accurate, according to two peer-reviewed studies by scientific experts published in top medical journal The Lancet. As of December 18, Israel had killed 19,453 Palestinians in Gaza, the ministry reported. Two-thirds of the deaths were children (7,729) and women (5,153). United Nations bodies, human rights organizations, and major media outlets have often used these statistics, because they have a history of being accurate. “International organizations including the United Nations usually rely on these same figures as they are seen as the best available”, the Washington Post acknowledged. “Many experts consider figures provided by the ministry reliable, given its access, sources and accuracy in past statements”, the prominent US newspaper wrote. Israel has claimed, without any evidence, that Gaza’s health ministry is untrustworthy, because it is supposedly run by the political party Hamas. (In reality, the Gaza health ministry is partially funded by and linked to Hamas’ political rival, the Palestinian Authority, based in the Occupied West Bank.) The US government has echoed Israel’s disinformation. President Joe Biden said in an October 25 press conference, “I have no notion that the Palestinians are telling the truth about how many people are killed… I have no confidence in the number that the Palestinians are using”. Despite Biden’s criticism, HuffPost revealed that the US State Department uses the Palestinian health ministry figures in its own reports on Gaza. In one of such memos, a US official acknowledged that, if anything, “The numbers are likely much higher, according to the UN and NGOs reporting on the situation”. This was exactly the conclusion reached by scientific experts at Johns Hopkins University’s Bloomberg School of Public Health. The peer-reviewed article “No evidence of inflated mortality reporting from the Gaza Ministry of Health”, published in leading medical journal The Lancet on December 6, noted that the Palestinian institution “has historically reported accurate mortality data”. In past conflicts, discrepancies between Gaza Ministry of Health (MoH) data and independent United Nations figures were only between 1.5% and 3.8%. Gaza MoH data were also quite similar to figures from Israel’s own Foreign Ministry, with a difference of just around 8%. Scholars Benjamin Q Huynh, Elizabeth T Chin, and Paul B Spiegel wrote that they “found no evidence of inflated rates”. Scientific experts from the London School of Hygiene & Tropical Medicine came to a similar conclusion in their own peer-reviewed article in The Lancet, published on November 26. For this previous study, scholars Zeina Jamaluddine, Francesco Checchi, and Oona M R Campbell reviewed death statistics from October 7 to 26, analyzing the list of 7028 deaths compiled by the Gaza Ministry of Health. Out of the 7028 names, only one had a duplicated ID number, one had an implausible age, and just 281 lacked an ID number. The experts concluded that the data were reasonable, writing, “We consider it implausible that these patterns would arise from data fabrication”. They also reviewed MoH figures from previous wars in Gaza, and found them to be reliable. “Assessments of Palestinian MoH data validity in the 2014 conflict had shown them to be accurate, and we saw no obvious reason to doubt the validity of the data between Oct 7 and Oct 26, 2023”, the scholars stated. If anything, they concluded that the Gaza MoH figures may be rather conservative. “The death reporting system currently being used by the Palestinian MoH was assessed in 2021, 2 years before the current war, and was found to under-report mortality by 13%”, they wrote, adding that “it is plausible that the current Palestinian MoH source also under-reports mortality because of the direct effect of the war on data capture and reporting, for example by omitting people whose bodies could not be recovered or brought to morgues”.

Write an article about: Inside Russia: Economists describe impact of Western sanctions and Ukraine war. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Alan Freeman, economics, neoliberalism, Radhika Desai, Russia, sanctions, Ukraine

From inside Russia, economists Radhika Desai and Alan Freeman report on the impact of Western sanctions and the Ukraine war. They discuss Moscow’s integration with Asia and move away from neoliberal economics. Economists Radhika Desai and Alan Freeman of the Geopolitical Economy Research Group traveled to Russia to participate in several conferences and investigate the impact of Western sanctions and the Ukraine war. They spoke with Geopolitical Economy Report about the economic situation in the ground, the country’s deepening integration with Asia, and Russian economists’ gradual move away from neoliberalism. Russian “economists have always been looking to the East; what is interesting is what’s going on in the leadership now”, Freeman said. He noted that Moscow is trying to implement a program of import substitution industrialization, to replace Western products. Desai said there has been a lot of capital flight in Russia, and “some [Western] businesses have left, but not all”. “What’s remarkable about Russia is how relatively low the economic pain has been, and that Russia’s economy has in fact been quite resilient”, she said. “So you know in Spring last year, the IMF had predicted that Russia’s economic growth would be lowered, that there would be -12% degrowth essentially in Russia, and in fact, Russia has escaped with a relatively minor lower adjustment of %2 degrowth”, she added. “It definitely doesn’t look like there’s a war economy”, Desai continued. “[There’s] maybe a certain amount of hardships. Certainly we saw some boarded up shops, you know, shops which had fading signs of the old brand names, Western brand names that have left. But you know, a lot of these brand names are still here. I have taken some pictures. Subway is here. Burger King is here. Citibank is here. Benetton is here. I mean there are so many Western Brands which are still operating their shops here”. In Russia, Freeman explained, “the atmosphere amongst economists … is very different to that that you find in the West”. “Here the economists themselves are radicalizing”, he said. “And every time I come here, they get more and more shirty about the things that they think should be done in the Russian economy”, and “the internal domestic structural challenges that Russia faces”. Desai recalled her experience in the conferences in Russia: “Your regular neoliberals were there, but they were only a handful, whereas the overwhelming majority of the economists who were there were taking a distinctly anti-neoliberal position, recalling that actually state controls, state direction, and state-organized redistribution are the keys to Russia’s economic survival in the face of sanctions”. “So the overwhelming majority of economists were distinctly to the left, far to the left, of what you hear of course in Western countries”, Desai added.

Write an article about: Origins of debt: Michael Hudson reveals how financial oligarchies in Greece & Rome shaped our world. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Christianity, debt, Greece, history, Michael Hudson, religion, Roman empire, Rome

Economist Michael Hudson discusses the origin of Western debt-based societies and the research in his book “The Collapse of Antiquity: Greece and Rome as Civilization’s Oligarchic Turning Point”. Economist Michael Hudson discusses the origins of Western debt-based societies, based on the research in his book “The Collapse of Antiquity: Greece and Rome as Civilization’s Oligarchic Turning Point”. Hudson argues this reality has for centuries been misrepresented by biased Eurocentric historians, but is relevant to understand our economic systems today. You can find links to all of Michael’s books at his website Michael-Hudson.com. You can support Michael on Patreon at Patreon.com/MichaelHudson. (The following is a lightly edited transcript.) BEN NORTON: Hi, everyone. I’m Ben Norton of Geopolitical Economy Report, and today I have the great pleasure of speaking with a friend of the show, the economist Michael Hudson. I’m very excited to be discussing his newest book, The Collapse of Antiquity: Greece and Rome as Civilization’s Oligarchic Turning Point. This book is an absolute tour de force. It’s an incredible work, not only of economic history, but simply, I would say, anthropology and economic archaeology. I think it really shows that many people know Michael Hudson for his work on economics and finance, but I would say that a book like this shows that he’s also an economic anthropologist or an economic archaeologist. He goes through and details essentially the history of the emergence of the modern financial system with its roots back in classical Greece and Rome, and the defining role of debt in the development of all of these political models. This is a book focused on classical antiquity, so it goes from about the 8th century of BC or BCE until the 5th century AD or CE. In his book, Michael uses BC, so I’ll use that for the dates. Michael starts this 500-page book discussing the emergence of interest-bearing debt and the emergence of classical Greece in the 8th century BC, and then he goes through classical Greece, and then classical Rome, the emergence of the Roman Republic and the Roman Empire, the rise of Christianity, and the influence on political culture today. So, Michael, there’s so much that I want to ask you about. This is a fascinating book, and I want to start with a very general overview. This is the second in a trilogy that you’re writing, which is a history of debt. The first installment is …and Forgive Them Their Debts: Lending, Foreclosure and Redemption From Bronze Age Finance to the Jubilee Year. Why in 2023, or in the past few years, why have you spent so much time writing about the emergence of debt and this history from 2,000 years ago? Why do you think it’s so relevant for us today in the 21st century? MICHAEL HUDSON: Many people think that debt, and the payment of interest, and the fact that all debtors have to pay their debts, it’s assumed that the rules of finance are universal; they’ve always been this way, and that there is no alternative. You could say that the political message of modern economic history is there is no alternative, and there never has been an alternative. Therefore, there is not any alternative in the future. All debts have to be paid, and creditor interests have to take priority over debtor interests, and those of the indebted society as a whole. Well, beginning in the 1980s, I thought of writing a long history of how countries were ruined by their foreign creditors. I began really in the 18th and 19th century. Then I went back to classical antiquity. I found out by about 1982 that there was this whole undiscovered or unwritten-about area of the ancient Near East and debt cancellations. And what I had been writing in the 1970s was all about the fact that the Third World countries, the Global Majority, cannot pay their foreign debts. The fact is that early societies coped with the debt problem not by letting the creditors foreclose and property passing into their hands, but by writing down the debts, so that they would maintain a balance between what was owed and what could be paid. It took about 25 years, working with Harvard University that put together, or let me put together, a group of assyriologists, and egyptologists, and anthropologists to look at the very origins of debt, and economic relations, and privatization, and land ownership, and land rent in the ancient Near East. I wanted to start really at the beginning and look at how the original idea of debt service, of interest payments, of land tenure were all put in place already in the third millennium BC, and how these dynamics changed over time. That took me until about 2015, from I think 1994 through 2015, to write the ancient Near Eastern five volumes of colloquia that I published there. Then I began to follow up what happened in antiquity. I subtitled [the latest] book, “The Turning Point”. Most people think of Greece and Rome and Western civilization as just the beginning of everything, as if somehow Greece and Rome developed their economic practices and their social practices out of primitive tribes that somehow developed. A lot of this was simple racism, that it had to be the Anglo-Saxons that developed the economics. It couldn’t have been the Mesopotamians or the Egyptians, much less Easterners, who did any of this. Starting the history with Greece and Rome misses the point that they were sort of on the periphery of 3,000 years of development from Sumer to Babylonia to Assyria to Judea and Israel. All of these Near Eastern countries had a common practice. The common practice was what the Jewish religion called the Jubilee Year, the cancellations of debts in the 50th year that was put at the very center of Mosaic law in Leviticus chapter 25. The Jewish laws were taken word for word from the Babylonian practice. You’d cancel the debts, personal debts, not the commercial debts, but the personal debts that were due. You’d liberate the bond servants that were pledged and you’d restore lands to people who lost them. And that way you prevented an oligarchy from developing and taking over all of the land. What happened in the 8th century BC was, there was a really bad climate from about 1200 BC to about 800 BC. Populations couldn’t make it on the land that they lived on. There was a great population movement. There was a great shrinkage of population. There was really a dark age. Writing disappeared. Before 1200 BC, you had syllabic scripts. When writing was reinvented, it was the alphabetic script from the Phoenician countries and then the Jewish lands. Gradually you had in this dark age warlords or mafia families taking over local districts and local cities. Classical historians themselves have used the term mafiosi states for these small cities. Greece and Rome were very different political environments from the Near East. All the Near Eastern countries had kings, had central rulers. Their role was to preserve economic balance, to preserve an army, a fighting force of citizenry that would fight to either defend or sometimes attack enemies. The idea was, kings didn’t want an independent oligarchy to develop because if an oligarchy developed, they would end up indebting the population and the indebted population would lose its lands to the oligarchy and would have to go and work for the creditors. If they had to work for the creditors, then they couldn’t serve in the army and they wouldn’t be available for the public infrastructure projects. Well, all of this is what I talked about in the first volume, … and forgive them their debts. But Greece and Rome in the West didn’t have any practice like that. So gradually you had the revival of trade along the Mediterranean and the Aegean in the 8th century BC. Then you had Assyrian traders, Phoenician traders coming, and they brought weights and measures and commercial practices to Greece and to Italy. And these practices included charging of debt. There was no indication of charging of debt in Greece or anywhere else in the Mediterranean before the 8th century. In the Mycenaean culture before 1200 BC, there was no interest bearing debt. This was brought to Greece and Rome, and this was something completely novel. And the mafiosi leaders of local cities immediately did what wealthy people would have liked to have done in Judea and Babylonia. They would have liked to make loans to debtors who would pledge their land and mostly their labor, and then the debtors would have to work off their debts by working for the creditors, and ultimately they’d lose their land and they’d be absorbed in a dependency relation to the creditors. That was prevented from happening in the Near East because rulers prevented it. And if they didn’t prevent it, they would be overthrown. Well, by the 8th century BC, you had a similar evolutionary process occurring in Greece and Rome. Starting in Corinth, you had reformers, usually from the leading families, saying, “Look, we can’t just have a dictatorship and impoverish everybody just to make these mafiosi families rich. We’ve got to overthrow them. We’re going to cancel the debts and we’re going to redistribute the land.” They were called tyrants. The word “tyrant” meant someone who paved the way for democracy by liberating the population from debt dependency, by creating popular support instead of just a very concentrated polarized land ownership. Same thing in Italy. The Roman kings, according to the Roman historians, all prevented an oligarchy from developing by making sure that the people who came to Rome would have their own access to land. They wouldn’t lose it to creditors. To make sure that the kings wouldn’t represent the oligarchy, Rome would appoint kings from other regions. They wouldn’t appoint one of their own leading families as kings. They were always an outsider. Persia had had the same practice of making sure that Persian cities would have outside rulers so that they wouldn’t get involved in the internecine conflicts and favoritism among families. Well, Rome became a magnet for people who ran away from very centralized, mafiosi-like states. Rome was originally settled by fugitives. Fugitives were runaways in flight. This practice of flight is found all the way through the Bronze Age in Mesopotamia. Debtors would avoid falling into debt bondage just by running away. By the 14th century BC in Mesopotamia, they were called the hapiru. And they seemed to be the predecessors of the Hebrew speakers. The hapiru were just sort of like pirate gangs or armed gangs who had run away. And they were very egalitarian among themselves. They said, “We’re not going to let inequality develop as it developed in the countries that we’ve run away from.” A similar thing apparently happened in Italy. People ran out to Rome and Rome built up a kind of proto-democracy under the kings. But the oligarchy overthrew them in 509 BC. And the oligarchs spent the next five centuries trying to fight against anyone who would try to cancel the debts and redistribute the land. And that was the constant cry throughout all of antiquity. I mentioned Corinth before. In Sparta, you had leaders come who would redistribute the land that they grabbed from the neighboring helots that they enslaved. They banned money altogether just to prevent debt to the largest amount, largest degree possible. Finally, in Athens, which was a latecomer, Athens was one of the last city-states to develop democratically and Solon, early in the fifth century BC, canceled the debts that had tied the population to the land, but he didn’t redistribute the land. So that was sort of a proto-democracy. It was Solon’s followers, Pisistratus and the sons of Pisistratus, that actually ended up democratizing the Athenian economy. So for the next five centuries, from Greece all the way to Italy, you had one revolution after another urging exactly the policy that had preserved stability in the Near East. Cancel the debts, redistribute the land, prevent an oligarchy from concentrating all the wealth and all the land in their own hands. In Rome, certainly, you have century after century, any popular leader who said, we’ve got to preserve economic balance by canceling the debts and not letting people lose their land, they were assassinated. The typical oligarchic political response was violence and political assassination. And that went right down to the second century when the leading reformers were killed. Catiline and his army urged that cancellation, he was killed. And finally, Julius Caesar was killed because they had feared that he was going to cancel the debts, although he only canceled the debts of the wealthy people, not really the poor people. So I find the common theme that made Western civilization different from everything that went before was the fact that they didn’t cancel the debts, that Western civilization let an oligarchy take over. Instead of the basic rule, that debts have to be written down to the ability to pay, Rome introduced a pro-creditor law. All the debts have to be paid no matter what the social consequences are, no matter how much society is injured by families losing their land and the land being concentrated, the money being concentrated, the wealth being concentrated and political power being concentrated in the hands of a creditor oligarchy. A debt is a debt, and it has to be paid. Well, the Roman law is still the philosophy of modern law. The whole modern legal system is still based on that of Greece and Rome. And I wrote Roman history after the Near Eastern history so that you can see how this whole evolution changed from a pro-debtor economy, in which you had kings and rulers preserving economic balance, to Greece and Rome, where in Greece, the word of invective was “tyrant”. If someone wanted to support popular desires to write down the debts or redistribute the land, he was called a tyrant. And in Rome, if someone wanted to cancel the debts and distribute land, [it was said of him,] “he’s seeking kingship”. So the opposition to kingship, the opposition to tyrants, as if somehow that was destructive of civilization and the economy, became the characteristic of the kind of morality you have today. That Roman way of thought, that pro-creditor, pro-oligarchic way of thought is what has really enabled classical historians for the last few centuries to think that, well, our society must have really begun in Greece and Rome. What began in Greece and Rome wasn’t democracy because, as Aristotle pointed out in his study of constitutions, many cities had constitutions that they called democracy, but they were really oligarchies. And Aristotle and also Plato explained how democracies tended to develop into oligarchies as some families developed enough power, enough money to gain political power. Then the oligarchies made themselves into hereditary aristocracies, until finally one of the aristocratic families fights against the other aristocratic families and takes the public into their camp by looking for public support, by canceling the debts and redistributing the land and overthrowing the reactionary oligarchic families that were fighting against this economic progress. When you look at the long perspective, you realize that this is a thread that goes all throughout history, from the very beginning of written records in the third millennium BC. The turning points and the distinctive economic dynamics that shape politics and economic society are how society has handled the debt. The Collapse of Antiquity is part of showing how the refusal to write down the debts and the mass assassination of politicians who advocated debt write-down led to the Dark Age that bequeathed its philosophy to today. The third volume of this sequence will show how we’re undergoing today exactly the same dynamics that tore the Roman Empire apart and ended up impoverishing it, leading to a Dark Age. That’s the same dynamic that we’re seeing in Western civilization today. The important thing is to realize that it doesn’t have to be this way, that the whole rest of the world had prevented this from happening except for Western civilization. Western civilization, instead of being the origins of civilization, turns out to be a detour from the Near East and the Asian civilizations that were able to prevent this kind of financialized Dark Age from developing. BEN NORTON: Michael, this is such an important corrective. I do agree that it’s so relevant today, not only considering all of those parallels, but also because a narrative that we’ve seen emerge in the past several decades is this fetishization of classical Rome. In fact, you probably haven’t seen this, but on social media today, it’s popular to see young conservatives and far-right activists use a Roman statue as the symbol on their social media profile. There is this idea that you constantly hear among Western conservatives, the concept of “Judeo-Christian civilization”, which is somehow conflated with Greek and Roman civilization, even though the Greeks obviously were not Christians or Jews, and the Romans weren’t Christian until Constantine. But anyway, the point is that there has been this imaginary history, a kind of conservative historiography that has been created that says that we have to go back to these great roots in classical Greece and Rome. But you’re pulling that entire rug from under their feet, and saying that actually this fantastical vision is not true. I think one of the most fascinating things about this book that really made me ponder when I was reading it was your use of the term “social Darwinism” and the concept of “Oriental despotism”. Because we’ve constantly heard, I remember when I was in public school in the United States, we’ve constantly heard for many decades and centuries that Asia in particular has been dominated historically by “Oriental despots”, right? “Authoritarians”, and “dictators”, in scare quotes? That’s still what we hear today. I’m still waiting for these Western commentators to refer to any Western government as authoritarian. It’s always China and maybe Russia, the former Soviet Union, but it’s always the scary “Asiatic hordes”. Now we see even Western media outlets like the Wall Street Journal portrayed Putin as a Mongol? Trying to link so-called authoritarianism to Asiatic heritage. Anyway, the point is, you point out in this book, that this is rooted in this concept of social Darwinism, which is not actually linked to science or evolution or even Charles Darwin himself, despite the name. It was popularized by Herbert Spencer, who is one of the main influences of the Austrian school of [Friedrich] Hayek and all the libertarian right-wing economists? So can you talk about this concept of Oriental despotism – not only in the past, but today look at the way that Xi Jinping is portrayed in Western media – and how, when Greece and Rome are portrayed as the beacons of freedom and supposed individual liberty, it’s actually not really freedom; it’s freedom for oligarchy; that’s what they represent, not freedom for average people; it’s freedom for the oligarchs to rule society. MICHAEL HUDSON: Well, the concept of Oriental despotism was developed by an embittered ex-communist, Karl Wittfogel, who looked at Stalinism and said, well, Stalinism is an expression of the racist Near East. He said, it’s the result of irrigated societies. He had an idea that has been universally rejected by all archaeologists. And certainly the five archaeological volumes that I did for Harvard has shown that everything that Wittfogel made up in his mind is just fiction. Wittfogel said, well, irrigation is such a big project that you need a palace to make a decision. And if you have a central power making a decision, he’s going to take over just like Stalin. We can’t have anyone with power. We have to get rid of any kind of singular leader. Wittfogel had an obsession with Stalin. And the fact is that the countries that he described that were despotic were not the irrigated societies. Archaeologists have found that when Babylonia and Mesopotamia, other societies that were irrigated, they were done locally. They weren’t done with central planning because you can’t centrally plan agriculture very well. It has to be basically local. The whole idea of Oriental despotism was just picked up and made into a racist idea that all Asians are just as despotic as Stalin was. The alternative is American democracy, which means oligarchy and despotism of the ruling class that we have today, the neocons that are fighting in the proxy war in Ukraine. So you have had a kind of Orwellian turnabout of phrasing. And where the Romans denounced kings for trying to protect the people, and the Greeks had tyrants for liberating populations from debts, today, we say with President Biden, any country where there’s a strong leader that wants to build up living standards and prevent an oligarchy, like China is doing, is “despotism”. So today, any attempt at democracy is called despotism. And any despotic country, such as the United States and the client dictatorships in Latin America and Ukraine is called a democracy that has nothing to do with rule by the people. It maintains rule by a very centralized, small oligarchic ruling class that maintains power by assassinating everybody who doesn’t agree with it and doesn’t agree to be colonized. So when you see how the language has been changed throughout history and you realize that we’re living in a kind of inside-out world, sort of like a Mobius strip ending up on the other side of things as you go through everything. BEN NORTON: Yeah, very well said. And Michael, a really interesting point that you make in this book that I had really not considered in the past is the role of kings. Now obviously, we’re not monarchists; we’re not trying to defend monarchies. There are a lot of reasons to oppose monarchies. It’s ridiculous to think that someone should rule a society simply because they had the luck of being born in the right family. But you point out that the central authority of a king was often a check on the power of the oligarchy, and how oligarchs didn’t want to spend money on social programs and infrastructure, and they wanted the state to be weak, because a strong state could serve as a check on their political and economic control. So when I read your book, it also made me think of a book by Michael Parenti, which is The Assassination of Julius Caesar, where he talks about the demonization of Caesar by the Senate, which was controlled by the oligarchs in Rome. So without obviously defending monarchies – I mean, we’re not monarchists – I’m wondering if you could talk about the battles that happened between the economic oligarchy and certain kings – not all, but certain kings. MICHAEL HUDSON: Well, in the early Bronze Age, in the third millennium and second millennium BC, societies couldn’t afford a selfish ruling class that kept all of the power in its own hands. Because if you kept all the power in your own hands and you indebted everybody to yourself, everybody would get up and leave. They’d just flee or they’d overthrow you and replace you with another king. Tribal societies often will choose a local tribal leader, maybe from another tribe. And if the tribal leader becomes very selfish, they’ll get rid of him, sometimes violently, and replace him with somebody who really serves society as a whole. You can do this in small-scale societies, and you could do this in the third and the second millennium BC. But by the first millennium BC, with the rise in wealth, society could afford to have a ruling class and could afford not to depend on its own citizenry to man the army. They could afford to hire mercenaries. If you read the Jewish Bible, that’s really the first history where you realize kings were bad. The Jewish Bible describes the kings as really becoming frontmen for the domestic oligarchy. Instead of the kings checking the oligarchy in Judea, they became sponsors of the oligarchy, which is why Israel withdrew and said, what interest do we have in the House of Jesse? Meaning David and the Judeans. So you could look at Jewish history as part of the class war of debtors against the creditors. The fact is that after the Roman kings were overthrown, obviously in the fifth century, fourth, third, second, and first centuries, nobody was going to make a king of Rome. Nobody was going to make a tyrant of the Greek lands, but they kept using the word for tyrant and a king for anyone who represented the democratic popular interest. The objective of the Roman oligarchy was to prevent anything democratic from developing, and the Roman election system weighted the voting according to how much land you owned. It’s very much like voting in America today. When the voting is according to how much money the campaign contributors can give to the Democratic or Republican parties, and that determines really their policies. The voting in Rome was weighted so that when the wealthiest groups of the population had voted first, it didn’t really matter what the population with lower land holdings and lower financial wealth had because the wealthy classes had already outvoted everybody else. They held onto power with an iron fist, and the iron fist was a very violent fist. From the very beginning, as soon as the kings were overthrown in Rome, you had the secession of the plebs. The plebs said, “Now the oligarchy’s taken over. You’re grabbing our land. You’re reducing us to debt. You’re reducing us to bondage. We’re going to leave. Rome was populated by people coming there when it was a nice place to live. Not a nice place anymore. They walked out. They negotiated and thought that they had an agreement, but it didn’t turn out to hold very well. Fifty years later, around 450 BC, there was another walkout. There were repeated secessions of Rome, but really the Roman population didn’t have anywhere to go in Italy because the lands at that time had become much more filled up than they were thousands of years earlier, when anybody who was enslaved could simply run away and you could find someplace nice to live with other people without much money that treated each other fairly and said — Okay, let’s not have any bosses here. Let’s run society for ourselves. That kind of egalitarian society ended in the first millennium BC, and a king wouldn’t have helped. What you needed was a political system that would enable people to be elected, to run society in a way that it would not be impoverished by concentrating all the wealth in the hands of a creditor class by getting everybody in debt and then foreclosing on them. The Romans were very much like the Republicans or President Biden today. They don’t want to spend money on public services or social spending. They want it to be done through charity. So it’s up to the wealthy people to decide who to support and how much to support. That whole spirit of charity was their alternative to public responsibility, making means of self-support a public right, making the land a public utility, making credit a public utility. Anything wanting to make a basic need a public utility was called, well, that’s what the kings tried to do back in the seventh and sixth century BC. “That’s what the tyrants tried to do, and we certainly don’t want that because look where that led to. That led to democracy. You can’t have that. You’ve got to have autocracy. We’re for freedom. We’re for the freedom of the wealthy people to do whatever we want. We’re for the freedom of the creditor to indebt the debtor.” That was the Roman concept of freedom, and they said just those words again and again and again. The freedom of the wealthy to enslave and in-serf the poor, the freedom of creditors to write the laws that all the debts have to be paid, and if you can’t pay it, you end up in bondage. That was the Roman concept of freedom, and it is becoming once again the concept of freedom throughout the West, certainly among the US-NATO West. That’s why the Americans fear what’s happening in China and now the rest of Asia. The rest of the countries are trying to get rid of all of this. BEN NORTON: Yeah, that’s a very good point. I think the main point that I take away from that discussion of how the oligarchs often saw certain kings as a threat to their power is simply, it’s not a glorification of monarchism, but about the importance of central authority and being able to discipline the wealthy classes, because the more you have decentralized authority, the more the oligarchs are able to dominate society, and enslave the debtors, and extract rent from them. Michael, another point that I thought about a lot when I was reading your book is the importance of who is telling the story in history, especially when we’re going back thousands of years. Historiography. And there’s this famous quote: “History is written by the victors”. And when you think, for instance, about the way that classical Rome is portrayed, figures like Cicero are often relied on – or actually, it was pronounced “KEE-keh-roh”, Cicero. But in fact, he was one of the most reactionary figures in Rome at the time. He represented the oligarchs against the interests of the people, of the workers, and he was against popular reforms to help working people and represented the wealthy oligarchs that controlled the Roman Senate, as you show in your book. But Cicero is constantly quoted by Western historians as a legitimate source on Roman history, as if we can simply rely on what this deeply political figure was saying about the time he was living in. So what does this also say about historiography, not just today, but for hundreds of years, about the way that historians have written about Rome and also Greece? MICHAEL HUDSON: Well, my book describes how Cicero was exiled for murdering politicians who he didn’t like in violation of Roman law. Even Roman law, with its assassinations, did not permit the murder of people who didn’t agree with him. From his exile, right after Caesar was assassinated, Cicero wrote to the senators who killed him, he was so sorry that he was not there that he could not plunge another knife into Julius Caesar. So that’s where he stood. And finally the heirs of Caesar, when there was a civil war after Caesar was killed, hunted down Cicero, who had his own army trying to take over Italy. They seized him in the army and they beheaded him. They finally put him to death. Of course, he’s made into a saint by the reactionaries because what Cicero wanted to do to Caesar, the murders that Cicero did, is just what Western civilization would like to do to President Xi of China, to President Putin of Russia. That’s their philosophy. So of course they love him. They say that’s what Western civilization can do. You cannot prevent a check on the oligarchy if you’re not willing to assassinate everybody who doesn’t agree with you. You’re either for us or against us, as George W. Bush said. So of course, that’s the philosophy that looks at Cicero, who did everything he could in the Senate, along with his colleagues, to sort of prevent the supporters of democracy, the advocates of debt cancellation, from bringing anything to a vote. They would find that there was an omen in the sky, or we saw birds flying the wrong way. That means there can’t be a vote. It’s bad luck. The role of religion in just preventing the Senate from making any rule, when even the senators said, “We can’t go on this way. If we go on this way, there’s going to be a dark age, and we’re going to be a slave society.” Cicero and his colleagues did everything they could to prevent any reform that would have prevented a dark age. BEN NORTON: In terms of Rome, Michael, another very interesting point that you discuss in this book is how, in many ways, the European feudal system had its origins in the Roman system, specifically of what was referred to as the “colonus”, which was the tenant farmer. So a farmer that was working land that belonged to a landlord, which is very similar to the serf that serves the feudal lord. You described how Roman emperors raised funds by selling off public land, and eventually they ran out of land to sell. You use a  term that you have also used to refer to the mass privatizations in the former Soviet Union: “grabitization”. When the Roman Empire, and the Golden Age ended, it ended through “raw grabitization that hollowed out its polarized economy”, you wrote. Can you talk about what led to the collapse of the Roman Empire, and specifically how this system, this colonist system in which you had these tenant farmers, helped give birth essentially to European feudalism? MICHAEL HUDSON: Well, I have to begin at the beginning of your question. The public land of Rome was land that it conquered from foreigners. It wasn’t its own land, which was already owned. It was land that you conquered. The big turning point in Roman history were the wars with Hannibal from Carthage that ended around 200 BC. Rome was really fighting for its life against Carthage and Hannibal. It asked for contributions of gold and silver jewelry to melt down and coin to pay the mercenaries and pay the army to support it to fight against Hannibal. So the wealthy families around 210, 208 BC contributed money to Rome. Our word “money” comes from the Temple of Juno Moneta, where the mint was situated and where money was coined in Rome. When the wars were all over, then one of the oligarchic families said, — Well, we gave you all this money. We won the war. We should really be the winners because it was because of our money that we won the war. It wasn’t really a gift. Let’s treat it as a debt. So Rome said, — Okay, we’ll owe you the money. Write down all the jewelry you gave. We’ll give you back all the money that you contributed to the war that we thought was progressive taxation. They said, — It turns out we’ve spent all the money on mercenaries and fighting. All we have is the land that we’ve conquered. So Rome gave the land to the wealthiest families. Arnold Toynbee in his book Hannibal’s Revenge is one of the best Roman classical historians. He said this was really the turning point of Rome. The revenge was that by winning the war against Carthage, Rome seized the land that it gave to the wealthiest families that used their wealth to fight and take over the whole economy and turn it from just a small oligarchy to a really vicious armed police state oligarchy that Rome went on to thoroughly destroy not only Carthage, but also the Greek, Athens and Sparta and the other Greek states. Especially Rome fought against the Spartan kings, Aegis and Cleomenes, who tried to cancel the debts in order to create their own citizen army again. The Romans saw Sparta canceling the debts as the great threat and destroyed it along with the rest of Greece. Even after that, the rest of the Greek territories tried to cancel the debts and Rome just came in and really just destroyed Greece over the next 50 years, from about 200 to 150 BC. That was the sort of prototype for making the large latifundia. The latifundia destroyed Rome. It’s because the latifundia, the land ownership staffed with first debtors and then tenant farmers who needed to take work on a farm in order to get enough food to eat and subsistence, that really became the prototype for what became feudalism under the empire. BEN NORTON: Michael, another very interesting part of your book, which is also discussed in the first book in this trilogy, …And Forgive Them Their Debts, is the role of Christianity. You explain how Christianity emerged as a revolutionary social force and how the early Christians preached the importance of debt forgiveness and also were essentially dissidents against the Roman empire. You quote Matthew 5:10 in the Bible, which says, blessed are those who suffer persecution on account of justice. However, you note that that quickly shifted in the 300s [AD]. In 311, Rome ended the ban on Christianity. In 321, Constantine converted to Christianity and he made Christianity the state religion. Then you describe how Christianity essentially, the leaders of the church, essentially encouraged this ideology that was the ideology of the Roman empire in support of the oligarchs, completely doing a 180 politically. So can you talk about the origins of Christianity as a revolutionary force that preached against debt and how Christianity was essentially co-opted by the Roman empire and the church essentially changed its doctrine and became a force for oligarchy? MICHAEL HUDSON: Well, by the first century BC, there was a pretty much of a conflict within Judea between creditors and debtors. You had the wealthiest Jewish families supporting a group of scholars, the rabbinical school, who wanted to get rid of everything in the Jewish Bible that called for debt cancellation. You had Rabbi Hillel credited with developing a clause that if borrowers would borrow money, they would sign an agreement that if the jubilee year fell, they would not take advantage of it and would not ask for the debts to be canceled and the lands to be given back. There was a whole group of people that we find in the Dead Sea Scrolls that were followers of Melchizedek and others who wanted to preserve the jubilee year. Jesus was one of these people who wanted to restore the jubilee year. In his very first sermon that he gave, when he went to the synagogue and unrolled the scroll of Isaiah and read about the year of the Lord restoring the land to the people, Jesus said the year of the Lord was the jubilee year. Jesus said that was his destiny. That was what he had come to proclaim. The wealthy oligarchs of Israel went to the Romans who governed the country and said, — We know you don’t like kings because kings want to cancel the debt. Well, Jesus says he’s the King of the Jews. He’s doing just what you don’t like kings to do. He wants to cancel the debts. Won’t you kill him? Because we really can’t kill him. That’s not our philosophy. So, indeed, Jesus was killed, but the movement that he started obviously went on and rather transformed form under many of his followers. But basically, it went on and it spread throughout the Near East and to Rome. And many of the wives of the emperors and the wives of the oligarchs thought that this was very fair and converted their husbands to Christianity. It ended up, indeed, that the Emperor Constantine made Christianity the state religion. Well, there’s a problem in making Christianity a state religion of a state that is built on absentee land ownership and pro-creditor laws. What are you going to do? One of the central points that was retained in Christianity was Jesus’ Sermon on the Mount with the Lord’s Prayer and forgive them their debts. And the word used was monetary debt. We have the early translation of the Hebrew Bible into Greek, and it’s very clear. The word they used was for monetary debt. The problem for the Romans was, — Well, now that we’ve made the Christian religion, we’ve got to have something to do with Jesus. We can’t get rid of Jesus altogether. What can we change? The big change occurred with the transformation of Christianity in North Africa. And it was transformed by two people in particular. One was Cyril of Alexandria, who realized that you have to kill every intellectual who can read the Bible. He was an anti-Semite who said, “We’ve got to free Christianity from everything that has a Jewish background”. And he developed assassination programs against the Jews. He killed the mathematician woman Hypatia by sending his thugs down to the beach and cutting away all of her skin with shells. Cyril developed the concept of the Trinity that sort of got rid of everything about Jesus being a human being fighting a class war as a political reformer. He said, “Well, you know, Jesus was really God. He wasn’t a human. God, Jesus, the Holy Spirit, they’re all the same thing”. And he rewrote the whole Nicene Creed by convening a Christian council and basically killing the people who didn’t agree with him. The real villain in Christianity was St. Augustine. And St. Augustine, essentially in North Africa, there was a whole fight while Christianity was being made the religion. The Romans were fighting against the Christians in North Africa, and they insisted on confiscating all of the Bibles and the holy books of the Christians and the Jews. There was a whole anti-Roman opposition there. Well, once Christianity was made the official religion, there was a fight. What group in North Africa are the Romans going to support when they say, — Okay, you can build Christian churches now. We’re going to give money to the Christians to build their churches, but who are we going to give it to? Are we going to give it to the people who said, — We don’t want the Romans to come and kill us? Or are we going to give it to people who say, — Well, you know, I’m going to get rid of all this debt cancellation talk. So Augustine, essentially the people who were representing the old fashioned Christians were called the Donatists. They were opposed by the Augustinians. The Donatists asked the Romans, — Won’t you come in and get rid of these newcomers? Augustine and his gang are not us. Augustine said, — Look, yes, indeed, send in the army, but I want you to kill all the people who don’t agree with me. They said, — Well, what’s the disagreement about? And Augustine, I’m summarizing vastly the chapter that I explained this in. Augustine said, — Well, they think that the Sermon on the Mount and the Lord’s Prayer is about cancel the debts. It’s really not. It’s all about the sin of egotism, especially sexual egotism. — It’s about basically, we’re all sinful and there’s nothing you can do. These Christians want the wealthy people to give their money to the poor. We can’t have that. If they give the money to the poor, there’s only one kind of poor they can give them to, the poor churchmen who are part of my church, not their church. But they have to give the money to the church or the only spokesman for the poor. — So don’t give it to the poor, give it to the church or the spokesman for the poor. So of course they could live in the kind of luxury that Augustine lived in. And basically, the Lord’s Prayer was, forgive us our sins. And Augustine had a whole fight with Northern Christians. And they said, — Wait a minute, people can live a good life and not be sinful. Augustine said, — No, everybody is a sinner. They have to get rid of their sins by giving their money to the church, by what later the medieval church would call indulgences. You have to buy indulgences to get rid of the sin that’s inborn with Adam. This inborn sin with Adam has nothing to do with being a creditor. It has to do with being egotistical and keeping your money and not giving it to me, the church. The great scholar who studied this whole period, Peter Brown, said that in effect, you should look at St. Augustine as the founder of the Inquisition, as I go into in my later books. And so basically, you had from North Africa a de-Christianizing of the Christian church. And you did have a Welsh reformer Pelagius try to say that, — No, you don’t have to live a sinful life. You can live a moral life and be a Christian. Augustine had him excommunicated. And all the books of the Donatists have been destroyed. The books of the opponents of Augustine have all been burned. Augustine started the book burning, saying, — If you’re going to be a Christian, you have to burn every book that’s not Christian. He turned Christianity into a religion of hate, hatred of total autocracy and authoritarian control. And that’s part of what ended up making Rome a sort of outlier. By the end of the fifth century [AD], when my book sort of ends, you had five centers of Christianity called bishoprics, five bishops. The leading part of Christianity was in Constantinople, because after all, it was Constantine that had made Christianity a state religion. They pretty much retained the original Christian religion. You had Antioch, you had Jerusalem, and then you had as an outlier, Rome, that sort of ended up being taken over by local families and it became sort of a backwater until the 11th century [AD]. So you had the whole essence of Christianity transformed in turning it away from a pro-debtor religion into a pro-creditor religion and an authoritarian religion, essentially denouncing everything that had been the original Christianity. BEN NORTON: A key question in this discussion of the development of Christian thought and ideology is the question of usury, of exorbitant interest being charged on debtors by the creditors — MICHAEL HUDSON: —There were no words in any ancient language to distinguish usury from interest. They were the same word. The idea that usury is charging above the interest rate is a modern concept only dating from the 12th century [AD]. Interest was usury; usury was interest. They were all the same idea. No distinction. BEN NORTON: Thank you for that clarification. Something that you do point out in the book is that in 325 at the Council of Nicaea the church banned the practice of usury by members of the priesthood. However that wasn’t really implemented later in the future, and you discuss how the church ended up supporting the Roman oligarchy. That was in 325 when they banned it. I mean, of course we have had 2,000 years of development since then. Can you talk about how the question of usury has developed over time within Christianity? And how we get to today, you know, especially with the rise of Protestantism and Calvinism, where many Christians – especially in the US, basically think that getting as rich as you can, through any means you can, including usury including exploitation of the poor, is totally fine and there’s nothing ungodly about exploiting poor people? MICHAEL HUDSON: Well, that’s the topic that I talked about in the third volume that I’m working on now, the tyranny of debt which picks up the story with the Crusades and really with the Reformation of Christianity in the 11th century. As I said, in the 10th century [AD] there was something that the Catholic Church itself calls the “pornocracy”, the rules of the concubines. [The word] comes from “pornography”. The totally corrupt family from Tusculum near the Alban hills near Rome controlled who was going to be pope. Just like they would appoint the local mayor and the local policeman or whatever, they’d appoint the local pope or one of themselves. You had their own family members monopolizing the papacy. Gradually other Christians said, we’ve got to reform this. Especially the Germans. The Germans said — Well, we’ve got to sort of reform the papacy and take over and introduce Christianity into the Roman Church. The Romans meanwhile had to cope with the Norman invasions coming in. The Normans came through France down into Italy and were threatening to grab the Papal States. The Papal States were middle Italy from about Naples almost all the way up to Venice. Pope Nicholas II made a deal with a Norman warlord Robert Guiscard and said, — We will sanctify your rule if you will take over Sicily and southern Italy and work with us, the popes. We will sanctify your rule, but you have to pledge to that you’re a fief of Rome and that we are your feudal masters. So Robert Guiscard did this in 1059. And then later in 1066, the year in which William the Conqueror conquered England, William made a deal with Rome. Pope Alexander II made the same deal with you that the papacy made with Robert Guiscard. — We’re going to make you the legitimate King with a divine right to rule and in exchange you have to pledge fealty to us. And by the way, make sure you keep paying us the Peter’s Pence, you have to pay tribute to us, and you have to let us appoint the bishops so that we can make sure that because the bishops are in charge of your churches, they will send all the money from your churches to Rome. — You can have the land but we control the churches and they have more land than you’re able to conquer because you have to let their land be independent. So the Roman papacy began to have dreams of becoming an emperor. Well, Gregory VII passed something called the “papal dictates” that said — We’ve announced a new revolution in Christianity. Instead of having the five bishoprics all in common, having a collective Christianity, there’s only one center, that’s Rome. — We are the only ones who can approve the German Emperor or the Kings. All the other churches have to obey us. And by the way, you have to believe our theology and you can’t have your theology. When the other bishoprics like Constantinople objected, Rome expelled them, and Rome ended up excommunicating almost all of the Christians who didn’t pledge feudal loyalty to Rome. And obviously, there was a threat. The Germans were getting ready to invade Rome and to fight against the Normans who essentially acted as the army of the pope. Pope Urban II had a brilliant idea in 1095. He said, — In order to show that we’re really the leaders of Christianity, let’s start the Crusades to the east. — Let’s say there’s a great vast Christian fight, and that’s to drive the Muslims out of Jerusalem, and also protect the Byzantine Empire from them. Essentially the popes discovered what Goebbels discovered in Nazi Germany. If you tell a country that they’re under attack, you can always get them to support you’re going to war. The Crusades essentially did indeed send an army to Jerusalem, and that was how the Knights Templar and the Hospitaller were created. That’s how the fighting military orders were formed. There were altogether many crusades, some say nine, but there are actually many more than nine. Most of the Crusades were not against the “infidels”, the Muslims, in the East. The Crusades were against other Christian states. They were to prevent other Christian states having a Christianity that was not Roman Christianity and not pledging loyalty to the Roman pope. Even the Catholic Encyclopedia describes how evil the popes were. One of the cultural centers of Europe was southern France, the area around Toulouse, the Albigensians, and so the pope made a deal with the northern French to conquer the Cathars and they formed the Inquisition under the Dominicans and they killed the whole flowering of intellectual culture of the troubadours, of the poets and the musicians, because all the poetry and the music were songs against the papal Inquisition trying to defend themselves. They wiped out the whole of the Cathars. Then they fought against southern Italy, against the Muslims, and fought again in Sicily. They fought in Spain. Especially they fought against Germany. They kept excommunicating the German Emperor, saying, — You’re not Christian because you won’t let us appoint the popes. Well, all of these wars that went on for 200 years required money. As they got more expensive you had to begin to build navies and you had to hire mercenaries. The question was: How were they going to raise the money? Well, originally William the Conqueror and other people had, when they conquered England, this was not a foreign trade oriented society. William invited Jewish merchants in to help commercialize and monetize the economy. They also made loans in addition to developing markets for the grain to turn the crops into payments for money that essentially the church or the king could use to fight wars. But they didn’t make many loans really to Kings. The big debtors, the people who needed money to fight the wars, were the kings, and also the churches that Rome said, — You have to raise money so that we can kill the non-Roman Christians. For this, they needed to find Christian creditors, so the Romans organized North Italian and trans-Alpine, they were called Cahorsins, from Cahors. The popes would send their agents throughout England and other areas with IOU statements promising to pay exorbitant interest to these Christian money lenders. Well the kings agreed to do this, and they raised the money to pay the interest by essentially confiscating whatever money the Jews had. And after confiscating the money that Jewish merchants had, in England and France, they then expelled the Jews. The problem that the Italians complained about again and again was that the Jews made loans at a lower interest rate than the Christians charged. And you can’t have their competition. The Jews were driven out of England and France, not for the reason that you usually read in the books, that they were usurers; it’s because they were not usurers. They had no more money to lend to anyone, because it was all grabbed by the kings and the Church. And again the Dominicans came and said, — We need a society that has one set of rules and only one set of rules. There can’t be any Jews in our society. There can’t be any Muslims. There’s only one way of straight thinking and that’s what the Inquisition says is a state thinking, That’s why we’ve killed the Cathars in France. That’s why we’re fighting against the others. This may seem normal today because it’s how America is treating the rest of the world, and yet this was completely different from the whole way in which the Muslims, Near Eastern lands, the Jewish lands; all of the Muslims and Sicily and the Byzantines and South Italy had all been a multi-ethnic multi-racial society. There was tolerance. The first intolerant that you have in society, of driving out people that didn’t believe what you did, was by the Roman Christians, who said — You can only have one way of thinking and that way of thinking is by Rome. And the pope that did this essentially wanted to be emperors. So you had the churchmen, theologians, largely from Paris, come and say — We’ve got to develop some logic where it’s economically legitimate to charge, and not “usury”, but let’s call it “interest”. Interest is what the Christians charge. Usury is what non-Christians charge – even if the rate of interest was much higher than the rate of usury. They said what later became the basis of the University of Chicago school of economics. They said, — Well, if there’s a risk, then you can charge interest for risk. And if you’re making a loan to somebody and he doesn’t pay you one time, you could have used that money, if he’d repaid you on time, to make a profit. And if you lose the profit, of course, you can charge the profit. And even though that’s much higher than the nominal interest rate, it’s a late fee. Well, we’ll do what today’s credit card companies do. You may have a 19% rate of interest on your Visa card or MasterCard. But the penalty rate is 29% or even higher. Well, that’s what essentially what churchman said it’s okay to do. When I was studying the history of economic thought to get my PhD, we had to read what the Christian churchmen of the 12th century wrote and it all seemed very reasonable that well, if, you lose money you have to make a compensation, until I began to read what the actual analysts, the historians of the 12th and 13th century and 14th century, were writing. Wat they said was, — The pope is sending out these IOUs to the Italian bankers [that] said we’re gonna make this a very low interest 10% interest, but there’s going to be a late fee of 44%, or, if you’re really nice, only 22%, but usually 44%. The late fee began a month later. So obviously the rate of interest was really the late fee. And [it was] said, — Well, that’s not usury That’s a late fee and that’s all permissible under the theology that we’re teaching. This argument went on until about 1515 when the Medici Pope Leo convened a whole Lateran Council and said, — Well, you know, there’s a real problem. We church people, we Roman Christians, are trying to help people by creating a pawnshop bank for the poor, the Mount of Piety — (which by the way just went bankrupt a few a year ago, but lasted all these centuries) — and the Mount of Piety wants to pay interest to depositors and it’ll pay low interest to depositors and then it’ll lend out to the poor so that they won’t have to depend on these awful wealthy creditors and wealthy usurers, but the church won’t let us pay interest because they say the bible’s against interest. Let’s get rid of the whole thing. And Pope Leo and the Lateran Council finally got rid of the concept of any blockage against usury and said, — We’re going to call it interest now. There’s a new word. And with the new word that makes everything different. Language is magic. It was only later that you had the concept of usury being charging more than the legitimate interest, but the fact is that interest was much higher than the usury rate. That’s what is usually missed if you don’t actually read what the medieval historians were writing and how they were making fun of this playing with language that the Roman papacy did. The Roman papacy ended up sending the fourth crusade to loot Constantinople and to essentially give 25% of all of the loot to Venice who advanced the money to hire the army [which robbed] Christian cities on the way to Constantinople and then bringing all the loot back to the church. That made the break between Roman Christianity and Eastern Orthodoxy that we have today lasting forever. People don’t realize that the Eastern Orthodoxy that survives in Constantinople is the closest we have to what was the original Christianity, and Roman Christianity is just a travesty of everything that Jesus is talking about. BEN NORTON: Incredible history, and I know you’ll be discussing all of that in greater detail in the third volume in your trilogy here, looking at the history of debt. I want to conclude our discussion just going back to a point that you did briefly address at the beginning, but I want to highlight it a bit more. If we study this economic history, what it shows is that there are alternatives to this system that we have. And of course, the capitalism that was created in the modern era is different from the pre-feudal and feudal systems that we’re discussing, but there is a common characteristic that ties them together, which is this idea that essentially debt is sacred. That debt must be paid, despite the fact that it’s quite literally impossible for the debt to be paid, and it’s also economically suicidal; it does damage to the real economy to insist that this debt has to be paid. You point out that there have always been alternatives. And thousands of years ago, if we go back we can look at the ancient Near East, what people today call the Middle East, in Mesopotamia, and the Levant and Northern Africa, and then there were other systems in which debt was regularly forgiven. We talked about today how there are many different economic models. So I just want to conclude here again with your final thoughts on what we can learn from, not only the destructive oligarchical debt-based models that were inherited by classical Greece and Rome, but maybe you can talk a little bit more about the alternatives that have always been there, and the alternatives that we have today. MICHAEL HUDSON: Well, under Judaism, the cancellation of debts was sacred. That’s why the Jubilee year was put right in the center of Mosaic law in Leviticus. And 2,000 years earlier under Hammurabi we have Hammurabi, in the stele, getting his laws from the Sun God of Justice. Hammurabi’s important legal pronouncements were not the set of laws (that people call a law code that really weren’t a law code but were a set of laws). What he did that was considered sacred was his coronation ceremony, that was the same coronation ceremony that every member of Hammurabi’s Babylonian dynasty did. Upon taking the throne, the ruler would cancel the debts, would liberate the bond servants, would restore any slaves that the debtor had pledged to the creditor, would be returned to the original debtor, and return any land that the debtor had lost to the creditor. So you’d restore the status quo ante, and that’s why they’re called a restoration of order. The ruler would restore order. And before Babylonia in the second millennium BC, you had the Sumerians from the middle of the third millennium BC. The first economic records we have are the debt cancellations of Sumerian rulers taking the throne, canceling the personal debts, and proclaiming what I call a clean slate, restoring the lands, restoring economic balance. The Babylonians and the ancient societies had an economic model. We have the textbooks that they trained their students in. And the textbooks were much more mathematically sophisticated than anything that comes out of the National Bureau of Economic Research today. I think I’ve said this on your show before. On the one hand, the scribes would calculate how fast does a debt grow at compound interest. Every compound interest has a doubling time. Any rate of interest has a doubling time. And it’ll double, and it was in five years in Sumer, quadruple in 10 years, multiply 8 times in 15 years, and 64 times by 30 years. Well, you can see how fast the debts went up. We also have their calculation of how fast the material economy grew. For instance, the herds of sheep, and they were in an S (sine) curve. And obviously, the Babylonians saw that debts grow faster than the economy at large grows. And how is society going to cope with this problem of debts growing faster than the ability to pay? Well, if you leave the debts in place, then you’re going to have the debtors lose their freedom, their liberty. They’re going to have to go to work and work off the debts as labor for the creditors. And that was how the original wage labor was developed. Not as saying, we’re going to pay you a salary to work for us. We’re going to make you a loan, and you’re going to have to work off the loan by working off and pay interest by working on our land. Ultimately, they would end up losing the land themselves to the creditors. If that would have happened, any society that let that happen, everybody would run away or there would be a social revolution, or they’d simply kill the ruler and replace him with someone who would do what the rest of society had been doing for thousands of years before that, maintaining economic balance. So you had this whole philosophy of economic balance being sacred. All the Sumerian and Babylonian kings would all say, “This is the ethic. Debt cancellation is sponsored by the Sun God of Justice that we’re following.” And that’s why there was a calendrical basis for canceling many debts. Certainly that developed by the time of the Jewish religion, which took over the Babylonian debt cancellation word for word. But by that time in Judea, the kings were no longer sacred and they’d become part of the oligarchy. That’s why Jewish religion took debt cancellation out of the hands of the kings and put them at the very center of its religion in the Jewish bible, which became the Old Testament for the Christians and were embodied into it. So the question is, what is more sacred? If you make debts sacred, then you’re going to just rationalize the economic polarization of society between creditors and an increasingly impoverished, indebted economy below them. That kind of society is going to end up the way Rome ended up, in a Dark Age. If you want to avoid that, then you have to cope with the fact that you know that debts grow faster and you have to put the ideal of maintaining economic balance as being more important than giving money to the wealthy people. That’s what Socrates wrote about. That’s what Plato wrote about. That’s what the Roman historians wrote about. It’s what the Greek dramatists wrote about. And all of that is transfigured and almost expurgated from the classical histories that were taught today. BEN NORTON: Yeah, and I would add, I mean, I know you’d agree with this, that when we talk about forgiveness of debt, it’s not only within countries and societies, between the rich and the poor, but it’s also between countries. There are so many Global South countries that simply can’t pay off this debt. It needs to be forgiven. Yet it’s used as political leverage to force political policies on these countries, and austerity, and other neoliberal policies. So it’s an extremely important point of discussion that I think really needs to be raised, that their debts should be canceled. MICHAEL HUDSON: Can I point out what Socrates said about this? The whole plot of The Republic, it begins when Socrates is having a discussion with someone [who] says, —You know, I owe some people some money, should I repay it? Socrates said, “Suppose you borrow a weapon from somebody, a sword or something, and he wants it back. But you know that this person is a violent person. Is it fair to give the weapon back to this person if you know that he’s going to use it for an asocial purpose and to hurt society?” The other person, a student says, “Well, no, I guess that’s not fair.” Socrates said, “Well, the same is true with credit. Suppose you repay a monetary debt to somebody and this monetary debt is going to make an oligarchy rich and it’s going to make the creditor richer and richer. And he’s going to get very egotistical.” “Once you have a lot of money, you tend to get very self-centered and egotistical and you have hubris. And hubris means you injure other people in order to help your own gain. If you want to avoid hubris, then you don’t want to give the money to wealthy people. And in fact, you don’t even want wealthy people to be the people who are running society like they’re threatening to rule Greek society today in the fourth century BC. You need to have a ruling class that is not so egotistical and self-centered that it’s pushing for its own economic benefit.” Well, since you mentioned the Third World debt, let’s say that you’re taking Socrates’ position in the Republic today and say, — Well, you have the Global South countries, the global majority countries, are saddled with an enormous dollar debt to international bondholders and banks. Suppose that you follow Socrates and ask, — Should these countries pay the debts to the banks and to the bondholders, if they’re going to use the dollar debts, they’re all going to be paid to the United States, and it’s going to do what it’s doing in Ukraine now. It’s going to make proxy wars. It’s going to fight in the Ukraine and threaten World War III, just like it’s fought and turned the Near East very bad, just like it’s fought in the whole world to make military bases and hurt the rest of the people. If you’re moral in the tradition of Socrates, you’d say the Third World countries and a Global South and global majority should not pay its dollar debts. You cannot enrich a violent country that is acting asocially to destroy other people out of its hubris. That’s literally the plot of The Republic that Plato wrote to explain Socrates’ logic. I think that would be a wonderful logic from classical Greece to apply to the modern world, but that’s not the message of Plato and The Republic that I learned when I went to the University of Chicago for my undergraduate degree. BEN NORTON: Well, I think that’s a perfect note to end on. I was speaking with economist Michael Hudson about his incredible book, The Collapse of Antiquity: Greece and Rome as Civilizations’ Oligarchic Turning Point. This is an incredible book, 511 pages. And it really, for students of economic history, I think this should be required reading. It really is a fascinating read, and it really changed the way that I see hundreds of years of history that I didn’t know much about. And now I feel like I have a much better grasp. Michael, as we wrap up here, is there anything that you would like to mention or plug before we conclude? MICHAEL HUDSON: I can’t think of anything. It’ll take me another year to finish the book I’m working on now on the Tyranny of Debt, about how the Middle Ages and the Crusades shaped modern finance. BEN NORTON: Great. Well, I’m looking forward to reading that book and looking forward to discussing with you when it’s out. Michael’s website is Michael-Hudson.com. And also, he has a Patreon account, so people should go and support him over at Patreon. And for people who want to read the first book in this trilogy, it’s called …And Forgive Them Their Debts. I read that a few years ago, and it was also very eye-opening. So I want to thank you, Michael, for joining us for so long and for the very enlightening conversation today. MICHAEL HUDSON: Well, thanks for having me. It has been a nice discussion.

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banks, crypto, cryptocurrency, Michael Hudson, Signature Bank, Silicon Valley Bank, Silvergate

Economist Michael Hudson analyzes the collapse of Silicon Valley Bank, Silvergate, and Signature Bank, explaining the similarities to the 2008 financial crash and the US government bailout (which it is not calling a bailout). Economist Michael Hudson analyzes the collapse of Silicon Valley Bank, Silvergate, and Signature Bank, explaining the similarities to the 2008 financial crash. In this discussion with Geopolitical Economy Report editor Ben Norton, Hudson also addresses the US government bailout (which it isn’t calling a bailout), the role of the Federal Reserve and Treasury, the factor of cryptocurrency, and the danger of derivatives. BEN NORTON: Hi everyone, I’m Ben Norton. I have the pleasure of being joined by someone I think is one of the most important economists in the world, Michael Hudson. And I should say that we should wish Professor Hudson a happy birthday. Today is March 14th. It’s his birthday, and he turns 84 today. How do you feel Michael? MICHAEL HUDSON: Just like I feel every other day. I usually feel energetic on my birthday because I’m always working on a new chapter and I tend to write a lot around this period each year. BEN NORTON: And Michael is extremely prolific. He has so many books. And today we’re going to be talking about a lot of topics that he addressed in one of his classic books, which is Killing The Host. And talking about how the financial sector is parasitic for the real economy. Today we’re going to be talking about the banking crisis that we see unfolding in the United States. This March, three banks have collapsed in the span of one week. It started at first with a California-based cryptocurrency-focused bank, Silvergate, which collapsed on March 8th, and then two days later Silicon Valley Bank (SVB) went down as well. It went down in the largest-ever bank run. And that was the second biggest ever to fail in US history. And it was also the largest bank to crash since 2008. Silicon Valley Bank had $209 billion in assets, compared to the largest-ever bank failure which was Washington Mutual, which had $307 billion in assets, and that was in 2008. Professor Hudson has been writing about this. He already has two articles that he published. The first is “Why the US banking system is breaking up.” So Michael, let’s just start with your basic argument of why you think these banks have been crashing — first Silvergate, then Silicon Valley Bank, and why you think they’re crashing, and what the response of the Federal Reserve (Fed) has been. MICHAEL HUDSON: Well in order to understand why they’re crashing, you have to compare it to what happened in 2008 and 2009. This crash is much more serious. In 2008 and 2009, Washington Mutual collapsed because it was a crooked bank. It was writing fraudulent mortgages, junk loan mortgages. It should have been allowed to go under because of the fraud. The basic subprime fraud and collapse was widespread fraud throughout the whole financial system. Citibank was one of the worst offenders. Countrywide, Bank of America. These were individual banks that could have been allowed to go under and the mortgages could have done what President Obama had promised to do. The mortgages could have been written down to the realistic market values that would have cost about as much to service as paying your monthly rent. And you just would have got the crooks out of the system. My colleague Bill Black at the University of Missouri at Kansas City described all this in The Best Way to Rob a Bank Is to Own One. So the problem then under the Obama administration — he made an about-face and reversed everything that he had promised his voters. He had promised to write down the loans, to keep the subprime mortgage people in their houses, but to write down the loans to the fair value and undo the fraud. What happened instead was, as soon as he took office, he invited the bankers to the White House and said, “I’m the only guy standing between you and the mob with the pitchforks.” [By] “the mob with the pitchforks,” he meant mainly Black and Hispanic buyers, mortgagees, who were the main victims of the subprime fraud. He bailed out the banks and directed the Fed to undertake fifteen years of quantitative easing (QE). And what that was, was the Fed said, “Well the mortgages are worth less than —the value of the property doesn’t suffice to cover all of the bank deposits, because the banks have made bad mortgages.” “How do we save the banks that have misrepresented the value of what they have?” “We’re going to slash interest rates to zero. We’re going to spur the largest asset-price inflation in history.” “We’re going to put nine trillion dollars supporting bank credit — flooding the market with credit — so that instead of real estate prices going back to an affordable level, we can make them even more unaffordable.” “And that will make the banks much richer. It’ll make the 1% in the financial sector much richer. It’ll make the landlords much richer. We’re going to do that.” So they spurred — by lowering the interest rates, they created the biggest bond-market boom in American history. From high interest rates in 2008 all the way down to almost zero. So the result of course was an inflation in stock prices, an inflation of bond prices. And the result was widening inequality for Americans, because most stocks and bonds are owned by the wealthiest 10%, not by the bottom 90%. So if you were one of the 10% of the population that owned stocks and bonds, your wealth is going way up. If you were a part of the 90%, your wages were not going up, and in fact your living standards were being squeezed — not only by the inflation, but by the fact that more and more of your income had to go to paying rent and interest to the FIRE sector — [Finance, Insurance, and Real Estate]. Well finally, a year ago, the Federal Reserve said, “Well there is a problem. Now that COVID is over, wages are beginning to rise.” “We’ve got to have two million Americans thrown out of work in order to lower wages so that the companies can make larger profits, to pay higher stock prices.” “Because if we don’t cause unemployment, if we don’t lower the wage levels for America, then profit levels will go down and stock prices will go back down, and our job at the Fed is to increase stock prices, increase bond prices, and increase real estate prices.” So finally they began to raise [interest] rates to — as they put it — “curb inflation.” When they say “inflation,” what they mean is “rising wages.” And even though wages have gone up, they have not gone up as much as consumer prices have gone up. And the consumer prices have gone up, not because of wage pressures, but for two reasons. One — the sanctions against Russia have sharply increased the price of energy, because Russian oil can’t be sold to the West anymore, and Russian agriculture can’t be sold to the West anymore. [Two] — the Democratic party has followed the Republican party in deregulating monopolies. Every monopolized sector of the economy has been raising its prices without its costs going up at all. And they raise the prices because, they say, “Well, we’re raising them because we expect inflation to go up.” Well that’s a euphemism for saying, “We’re raising them because we can, and we can make more money by raising them.” So the prices have gone up, but the Fed is using this as an excuse to try to create unemployment. Well, what has happened is that, by solving the problem of wages rising, they’ve also created a problem that spilled over into the financial sector. Because what they’ve done is reverse the whole asset-price inflation from 2009 to just last year, [2022]. That’s almost a 13-year, steady asset-price inflation. By raising the interest rates, all of a sudden they’ve put downward pressure on the bonds. So the bonds that went way up in price when interest rates were falling, now go down in price, because if you have a higher-yielding bond available, the price of your low-yielding bond falls, so that it works out to yield exactly the same. Also there’s been a withdrawal of money from the banks in the last year, for obvious reasons. The banks are the most monopolized sector of the American economy. Despite the fact that interest rates were going up, despite the fact that banks were making much more money on their loans, they were paying depositors only 0.2 percent. And, imagine — if you are a fairly well-to-do person, and you have a retirement income, or a pension plan, or if you’ve just saved a few hundred thousand dollars, you can take your money out of the bank, where you’re getting almost no interest at 0.2 percent, and you can buy a two-year treasury note that yields 4 percent or 4.5 percent. So bank deposits were being drained by people saying, “I’m going to put my money in safe government securities.” Many people also were selling stocks because they thought the stock market was as high as it could go, and they bought government bonds. Well what happened then is that all of a sudden, the banks — especially Silicon Valley Bank — found themselves in a squeeze. And here’s what happened. Silicon Valley Bank and banks throughout the country were flooded by deposits ever since the 2020 COVID crisis. And that’s because people were not borrowing to invest very much. Corporations were not borrowing. What they were doing was building up their cash. [SVB’s] deposits were growing very very rapidly, and it was only paying 0.2 percent on the deposits — how is it going to make a profit? Well it tried to squeeze out every little bit of profit that it could by buying long-term government bonds. The longer term the bond is, the higher the interest rate is. And even the long-term government bonds were only yielding let’s say 1.5 percent, maybe 1.75 percent. They took the deposits that they were paying 0.2 percent on and lent them out at 1.5, 1.75 percent. And they were getting — it’s called arbitrage — the difference between what they had to pay for their deposits and what they were able to make by investing them. Well here’s the problem. As the Federal Reserve raised interest rates, that meant the value of these long-term bonds — the market price — steadily fell. Well most people who saw this coming — every CEO that I know sold out of stocks, sold out of long-term government bonds. When the Federal Reserve head said that he was going to raise interest rates, that means you don’t want to hold a long-term bond. You want to keep your money as close to cash as possible. You want to keep it in three-month Treasury bills. That’s very liquid. Because short term treasury bills, money market funds — you don’t lose any capital value in that at all. But the Silicon Valley Bank thought — well they were still after every little bit of extra they can get, and they held onto their long-term bonds that were plunging in price. Well, what you had was a miniature of what was happening for the entire American banking system. I have a chart on that, on the market value of the securities that banks hold: Now, when Banks report to the Federal Reserve, that’s exactly it. When they report — this shows the actual market value. If banks valued their assets just what they were worth on the market, they would have plunged just like you see at the bottom there. But banks don’t have to do that. Banks are allowed to represent their assets according to the book value that they paid for them. So Silicon Valley Bank, and other banks throughout the system, have been carrying all their long-term mortgage loans, packaged mortgaged, government bonds, at the price they paid for them — not the declining market price. They figured — “Well, we can ride this out and hold it to maturity in twenty-five years as long as nobody in the next twenty-five years actually withdraws their money from the bank.” It’s only when bank customers and depositors pull their money out that they decide that, “Wait a minute. Now in order to raise the cash to pay the depositors for the money they’re taking out, we have to sell these bonds and mortgages that we’ve bought. And we have to sell them at a loss.” And so the bank began to sell the bonds and the packaged mortgages at a huge loss. And they were losing capital. Well as it happens, Silicon Valley Bank isn’t a normal bank. A normal bank you think of as having mom and pop depositors, individuals, wage earners. But almost all the deposits — I think over eighty percent of the deposits at Silicon Valley Bank — were by companies. Mainly high-tech companies that were sponsored by private capital — special purpose private capital acquisitions. And they began to talk amongst each other, and some of them decided, “Well it looks to me like the bank’s being squeezed. Let’s pull our deposits out of the small bank and put them in a big bank like Chase Manhattan or Citibank or any of the big banks that the government says are too big to fail.” So you know that their money will be safe there. So there was a run on deposits. So the problem that Silicon Valley Bank and other banks have is not that they’d made bad loans. It’s not that they had committed any fraud. It’s not that the US government couldn’t pay the bills. It’s not that the mortgagers couldn’t pay the bills. It was that the market price of these good loans to solvent entities had gone down and left the bank illiquid. Well, that is what is squeezing the entire financial sector right now. So just as the quantitative easing was flooding the economy with enough credit to inflate asset prices for real estate, stocks and bonds — the tightening of credit lowered the asset prices for bonds certainly, for real estate too. For some reason the stock market has not followed through. And people say, “Well, there is an informal government Plunge Protection Team (PPT) that’s artificially keeping the stock market high, but how long can it really be kept high?” Nobody really knows. So the problem is that the 2009 crisis wasn’t a systemic crisis, but now, the rising interest rates have created a systemic crisis because the Federal Reserve, by saving the banks’ balance sheets by inflating the prices for capital assets, by saving the wealthiest 10% of the economy from losing any of their money — by solving that problem they’ve boxed themselves into a corner. They cannot let interest rates rise without making the entire economy look like Silicon Valley Bank. Because that’s the problem. The assets the banks hold are stuck. Now a number of people have said, “Well why didn’t the banks — if they couldn’t cover their deposits — why didn’t they do what banks did in 2009?” And in 2009 the banks — Citibank, Chase Manhattan, all the big banks — went to the Federal Reserve and they did repo deals. They would pledge their securities and the Fed would lend them money against their securities. This wasn’t a creation of money. None of this quantitative easing appeared as an increase in the money supply. It was all done by balance sheet manipulation. The banks were able to go to the Fed. Or instead of selling the bonds, people said, “Why couldn’t Silicon Valley Bank simply borrow short-term money? You want to pay out the depositors? Okay, borrow the money, pay the four percent, but don’t sell — you know, it’s not going to last very long. Once the Fed sees how systemic the problem is, they’ll certainly turn out to be cowards and roll back the interest rates to what they were.” But there’s a problem. If the repo market — in other words, the repo market is the repurchase market; it’s the market that banks go to if they want to borrow from larger banks. You want to borrow overnight credit. You want to borrow from the Federal Reserve. But if you borrow in the repo market, the bankruptcy law was changed in order to protect these sort of non-bank lenders, and it was changed so that if a bank makes a currency swap — if it says, “I’m going to give you a billion dollars worth of packaged the government bonds and you’ll give me a loan” — if the bank then goes under and becomes insolvent, as Silicon Valley did, the bonds that it pledged for repo are not available to be grabbed by the bank itself to make the depositors whole. The repo banks — the large banks — are made whole. Because Congress said, “We have a choice. Either we can make the economy rich or we can make the banking sector rich. Who gives us our campaign contributors? The banks.” “To hell with the economy. We’re going to make sure the banks don’t lose the money, and that the 1% that own the banks don’t lose money. We’d rather the voters lose the money because that’s how democracy works in America.” So the result is that the — there was a lot of pressure against SVB trying to protect itself in the way that banks were able to do back in 2009. All they did was sell the existing securities they had in order to pay the depositors before they were closed down on Friday afternoon — before closing hours — and that led them to the problem today, before President Biden decided to bail them out and then blatantly lied to the public by claiming it’s not a bailout. How can it not be a bailout? He bailed out every single uninsured depositor because they were his constituency. Silicon Valley is a Democratic Party stronghold, as most of California is. There’s no way that Biden and the Democratic Party was going to let any wealthy person in Silicon Valley lose a penny of their deposits, because it knows that it’s going to get huge campaign contributions in gratitude for the 2024 election. So the result is that of course they bailed out the banks and President Biden weaseled his way out of things by saying, “Well, we didn’t bail out the bank stockholders; we only bailed out the billions of dollars of depositors.” BEN NORTON: It’s very revealing to see how the financial press treated Silicon Valley Bank. In fact, just before — on the eve of it imploding — Forbes described SVB as one of “America’s Best Banks” in 2023. And that was for 5 years straight, praising this bank. And I think it’s important to go look at SVB’s website and to see how it portrayed itself, what it was boasting of. If you go to the Silicon Valley Bank website, they boast that 88% of “Forbes’ 2020 Next Billion-Dollar Startups” are SVB clients. “Around 50% of all US venture capital-backed tech and life science companies bank with SVB.” And in fact, just before it imploded, 56% of the loans that SVB had made were to venture capital firms and private equity firms. And if you go down on their website, they boast “up to 4.5% annual percentage yield on deposits,” which is incredible. I mean most banks offer 0.2% yield. SVB wrote on their website, “Help make your money last longer with our startup money market account. Like with the savings account you’ll earn up to 4.5% annual percentage yield on deposits.” MICHAEL HUDSON: “Up to.” I could say, why don’t they say “Up to 50% a year.” — anything you want. I think in this case they were factoring capital gains into it — that means asset-price gains — this wasn’t an income yield so much. It was an overall yield, making the depositors part of the mutual speculation. But the depositors — we know that eighty percent were people like Peter Thiel. They were large private-capital firms. And one of the problems is, if you have a lot of well-connected rich people who are the major depositors that they’re talking to in this case, they talk to each other. And when they see that there’s no way that the bank can pay anywhere near 4.5% anymore, they jump ship. And that’s exactly what happened. They talked to each other and there was a run on the bank. Now, most people think of a run on the bank as being “the madness of crowds.” This wasn’t the madness of crowds. The crowd was not mad. The bank may have been mad, but the crowd was perfectly rational. They said, “Look, I think the free lunch is over. Let’s pull our money out. What we want now is not to hope and pray for a 4.5% return — let’s just move for safety.” If you have a billion dollars, you’re more concerned with keeping that billion dollars safe than actually making an income on it. And I think that’s what happened. And when you say “up to” — yeah, that’s funny language. BEN NORTON: And Michael, I know you’re friends with Pam Martens and Russ Martens over at WallStreetOnParade.com that always do great reporting. MICHAEL HUDSON: They’ve done a wonderful job of following all of this. They say, if there’s anyone who shouldn’t be bailed out, it’s the wealthy billionaire depositors of that bank. BEN NORTON: Yeah, they described Silicon Valley Bank as a “Wall Street IPO pipeline in drag as a federally insured bank.” And I just want to read what they wrote here which really summarizes it very well: “SVB was a financial institution deployed to facilitate the goals of powerful venture capital and private equity operators by financing tech and pharmaceutical startups until they could raise millions or billions of dollars in a Wall Street Initial Public Offering (IPO).” You mentioned, Michael, that the US Treasury Secretary Janet Yellen claimed that the US government is not going to bail out the depositors — these private equity firms and such and startups at SVB — but in reality only $250,000 of their deposits were actually federally insured, but we were seeing that actually the US government is ensuring that all of their deposits, including above $250,000, is going to be paid to them. So essentially, what the Federal Reserve — backed by the Treasury with the $25 billion war chest in supporting this operation — what they’re essentially saying is that deposit insurance on commercial banks in the United States, including ones with very high interest interest-bearing deposits — it’s basically infinity. There is no limit on federally insured accounts. It’s no longer actually $250,000 — which only incentivizes other firms in the future to deposit their earnings into very risky banks that offer very high interest rates they can’t pay out, because they know that the US government will bail them out. MICHAEL HUDSON: Well Janet Yellen also said that Ukraine was going to win the war with Russia. Sort of the reincarnation of Pinocchio. You’re never going to have a Federal Reserve head say that there’s going to be a problem. Bankers are not allowed to tell the truth. That’s why — one of the worst things that can happen to a banker is if they get COVID. Because when you get COVID sometimes, you’re not able to lie quickly, and it’s a surefire way of losing the job. That’s part of it. But there’s another reason. If you have a banker be aware of the systemic risk that I just explained — the risk that is for the whole economy if it ever tries to go back to normal, which it can’t again without causing a crisis — then you’re disqualified for the job. Or you’re called overqualified. In order to be a bank examiner or a bank regulator, you have to believe that every problem can be kicked down the road. That there are automatic stabilizers and the market is going to solve everything thanks to the magic of the marketplace. And if you don’t believe that, you’re a blackballed and are never going to be promoted. So the last person you’re ever going to want to explain anything, whether it’s Alan Greenspan or his successors, is the head of the Federal Reserve. BEN NORTON: Michael, I want to talk about the scheme that the Federal Reserve has created in order to bail out Silicon Valley Bank and its clients without calling it a bailout. I’m going to look at a very good Twitter thread that was done by the post-Keynesian economist Daniela Gabor. forget about SBV liabilities for a second, the real bailout story is the regime-change in the Fed's treatment of collateral: par value goes against every risk management commandment of the past 30 years. it turbocharges the monetary power of collateral pic.twitter.com/7T0M8QUrrn — Daniela Gabor (@DanielaGabor) March 13, 2023 She’s tweeted that she has spent fifteen years researching central banks collateral, and she has never heard a single central banker contest the common wisdom that there should be “haircuts.” Instead, what we see is the Fed is paying par value. So the Fed has this program called the Bank Term Funding Program, and essentially it’s giving extremely favorable loans to Silicon Valley Bank and other banks, which are essentially government subsidies. And instead of using as collateral the Treasury securities and other assets that are owned by Silicon Valley Bank — or at least that were — instead of using their market value, the Federal Reserve is using the value at par — the face value that was printed on the Treasury securities that are held by SVB and other banks that need to be bailed out. So essentially what they’re saying is that, only average working people are subject to the discipline of the market. But banks — they don’t actually have to go along with market value for their securities. They can be bailed out by using as collateral the values of what they originally bought the security at before the Fed raised interest rates and the price of those bonds decreased. So in short what it is, is socialism for the rich for big corporations and for the commercial banks, and capitalism for everyone else. Daniela Gabor said she’s never seen this in fifteen years of research. Have you ever seen something like this? MICHAEL HUDSON: Well this is what I said at the very beginning of our discussion today. I said, the banks are able to carry their assets at the price they purchased them. That was called the “book value” — not the “current market value.” For years, in the 1960s and 1970s, if you had banks or a corporation carrying real estate at book value, people were looking over these balance sheets saying, “Aha, they’re going to value their real estate at what they bought it for in the 1950s and now it’s tripled in value. Let’s raid that corporation and take it over, break it up, and sell the real estate.” That was how money was made in the 1960s and 1970s and even more in the 1980s. But that’s when asset prices are going up. But when you mark to “purchase price” — “book value” — instead of the “market value,” you’re going to have this disparity. That’s exactly the problem. And you’re quite right about the double standard that the government has. Look at the double standard with the student loan debtors. They are unable to pay their student loans without making a big sacrifice. But Biden has made sure that they’re not going to be bailed out because he’s the man who sponsored the bankruptcy bill saying that student loans are not subject to bankruptcy laws to be written down. Every other kind of asset, if you go bankrupt, can be written down to the current market failure for what you owe. But not student loans. They are kept sacrosanct. There’s a diametric opposite economic philosophy when it comes to what wage earners and consumers owe, and what the financial and real estate sector owes. The Biden Administration and the Republicans say that no billionaire should lose a single penny. No bank or real estate company should owe anything. We will guarantee that bailout — they are risk-free. We’ve transferred all of the risk onto the voters who put us in power, because we say that, “Maybe you’ll be a billionaire someday. You don’t want to hurt them, do you?” or whatever their politicking is. So this double standard is what is squeezing the economy now. By not permitting the financial sector from taking a penny loss, somebody has to lose. And the losers are the non-financial economy — the real economy of production and consumption. BEN NORTON: Michael, another factor in this is crypto. While all of this is happening, it’s also in the wake of a disastrous collapse in big parts of the cryptocurrency industry. You yourself have always been very skeptical and have criticized this crypto industry and you can talk about that — I mean I’ve done many interviews with you over the years. Going back on the record people can see that you were proven right about this. Of course Silicon Valley Bank as its name suggests is definitely involved in the tech sector and Silicon Valley. But before SVB collapsed we saw Silvergate collapse, and Silvergate was very heavily invested — or at least many of its depositors were companies invested in crypto. And then on March 12th there was another bank that went down which — unlike SVB and Silvergate, which were in California — the third bank to go down was Signature Bank which is based in New York City. And thirty percent — almost one-third of Signature Bank’s deposits were cryptocurrency businesses. So maybe you can talk about crypto’s role in all of this. And of course this comes at a time when Sam Bankman-Fried — the fraudster who ran the FTX exchange — he was exposed to the world for committing literal fraud, and losing billions of dollars really overnight. MICHAEL HUDSON: Well the whole mythology and fantasy of crypto has been burst, especially with Bankman-Fried. Crypto was supposed to be — they called it peer-to-peer lending. The peer-to-peer lending was, the person who bought the crypto took money out of the bank and paid for crypto with a bank transfer fee — was one peer. Who’s the other peer? The other peer was Bankman-Fried, and he could do whatever he wanted with his money. The crypto cover story was, “Well, we know that the economy’s messed up and we don’t like big government and we don’t like the bank, so here’s an alternative to the banks, putting your money in that bank and putting your money, depending on government fiat currencies.” So people would put their money into crypto, thinking, this is something different from the banks. And yet it turns out — what did the crypto companies do? If you get a billion dollars of inflow by people who want an alternative, what are you going to do with a billion dollars? Well Bankman-Fried simply bought luxury real estate and gave money to the Democratic Part and a few Republicans for campaign contributions to buy influence. But most of the crypto was put in Silvergate Bank or other banks, or government securities. I mean, where else are you going to put a billion dollars inflow? You get a bank transfer from a bank. It goes into your bank account — you have to have a bank account somewhere to hold it. And what do you do? The money that goes into crypto ends up in the very banks or the government securities that crypto’s supposed to be an escape from. So all that crypto is, is a disguised bank or a mutual fund that has its money in banks and government securities. Except it has secrecy, so that if you’re a criminal or a tax evader or a crook and you don’t want the government to know what you have, you’re willing to give a premium. Just like the cocaine cartel who will pay ten percent or twenty percent for money laundering. Crypto was a vast money laundering operation wrapped in an idealization — a fantasy — that it was an alternative to banks and government money, when of course the backing for the crypto was banks and government money. Obviously when people begin to realize this, and saying, “Wait a minute, who is running the cryptocurrency that we’re holding? We don’t know what it is.” Because it’s crypto — that’s why it’s called crypto. And it can’t be regulated, because the government can’t know what’s in it or who’s paying what, because it’s crypto. So there’s no way of regulating crypto, and needless to say, every mafiosi — every sort of financial crook — finds it’s like taking a candy from a baby. All you have to do is say that we have a an idealistic libertarian answer to socialism. So crypto was the libertarian answer to socialism. And we’ve seen — I think socialism won that particular fight. The banks of course — when people were selling the crypto, the cryptocurrency had to draw on its bank account. And when it drew on its bank account, the banks were left without money. The banks that had to pay the crypto company to pay the crypto seller had to sell their bonds and packaged mortgages and take a capital loss on assets that they were carrying at original book value or purchase price, but that they were only getting the market price for. So, the whole unraveling of all of this — reality raised its ugly head. BEN NORTON: Professor Hudson you’ve written in an article about this, which is “Why the US banking system is breaking up.” And then you followed up and you said that “the US bank crisis is not over.” And you warned that it could spread. And I just want to go over this briefly again just these numbers here. The biggest bank to ever fail in US history was Washington Mutual and I was in 2008 during the financial crash and it had $307 billion in assets. The second biggest bank ever to collapse in US history was Silicon Valley Bank with $209 billion in assets. So pretty close to Washington Mutual. And Signature Bank was the third biggest bank to collapse, which had $118 billion in assets. So clearly there are parallels to the 2008 crash. But in your article you also pointed out that there are parallels to the Savings and Loan (S&L) Crisis of the 1980s. So what can we learn from the 1980s S&L crash and also the 2008 crash? MICHAEL HUDSON: Well I want to first of all challenge what you said about Washington Mutual being the biggest bank to go under. This is not at all the right way to look at it. What is important to look at is, what banks were insolvent. Sheila Bair wrote in her autobiography that there was one bank that was worse than all the others. It was totally insolvent — not only incompetently managed but crooked. That bank was Citibank. But Citibank was looked over by Obama’s Treasury Secretary Tim Geithner — who had worked with Bob Rubin, who was the protector of Citibank — so the fact is that not only Citibank — Citigroup— but all the big banks — Sheila Bair, who was head of the Federal Deposit Insurance Corporation, said, the banks are insolvent. She was pressing. She said, “Look, Citibank should go under. Let’s clean it up. Let’s take it under and clean out the crooks.” And Geithner said, “No, the crooks are us. That’s our game.” So the key to look at isn’t what banks actually were permitted to go under — the really crooked banks like Washington Mutual — but what banks are insolvent. Citibank and Wells Fargo, she mentioned. These were the banks that had the junk mortgages. Bank of America. The banks were insolvent. And when I say that the problem is just beginning, it’s just beginning because the problem that the financial sector and the banking sector has today is endemic to finance capitalism. The charts that I’ve made in Killing The Host and also in The Destiny of Civilization — the financial sector grows by interest-bearing debt, and that’s an exponential system. Any interest rate has a doubling time. Any interest rate goes exponentially. But the economy doesn’t keep track. It goes on an S-curve, and it goes slower and slower, and then it turns down. That’s the business cycle. And it’s depicted as a kind of sine curve, up and down. The problem is that the economy can’t keep pace with the ability with the debts that it owes — the ability to pay the exponentially rising debt does not keep pace with this growth of debt. That makes a collapse inevitable. This disparity between the growth curves of debt and the growth curve of the economy has been known for 5,000 years. It was already documented in Babylonia in 1800 BC. We have the textbooks — the mathematical textbooks — that scribes were trained in. Antiquity knew this. Aristotle talked about it. Everybody knows about this, but it’s not taught as part of the financial curriculum. The financial sector grows by different mathematical laws then the economy grows in. And that’s what makes it inevitable. The Savings and Loan Crisis was somewhat different. It is worth mentioning, because much of it was the result of a fraud — again as Bill Black has explained. But here is the problem in the Savings and Loans and savings banks. I discussed this in the article that you just cited. The savings banks and S&Ls lent mortgage money, and they would — basically, when I was working in the 1960s, interest rates were going up from about 3.5 percent to 4.5 percent for mortgages. And the banks would take deposits and they’d pay maybe a 2.5 percent interest and they’d make loans at maybe 3.5 percent for a thirty-year mortgage. So of all of this sort of happened normally until the late 1970s. And in the late 1970s — because of the Vietnam War — the interest rates steadily rose because the US balance of payments was getting squeezed. And finally you had inflation because of the war-induced shortages — “Pentagon capitalism” — and so Paul Volcker raised the interest rates to 20 percent. Well imagine what happened? Even though they came down from 20 percent, after 1980, they were still very high. Well here’s the situation — the SNL’s were in much the same situation that bank depositors were in the last few years. You could get a very low rate of interest from the banks or a high rate of interest by putting your money in government securities or corporate bonds or even hunk bonds that were paying a lot of money. So people took the money out of the banks and a bought higher yielding financial securities. Well the banks were squeezed, because the banks could not pay. When interest rates went up to 6 percent, 7 percent for mortgages — banks couldn’t simply charge their mortgage customers more because the mortgage customer had a thirty-year loan at a fixed rate of interest. So there was no way the banks could earn enough money to pay the high interest rates that were in the rest of the economy. And as a result they were pushed under, and the commercial banks had a field day. Sheila bear told me that the banks raped the — she didn’t that used that word — the savings banks. She said, “They said they were going to provide more money for savings bank depositors, and what they did was empty it all out and just pay themselves higher salaries.” So there are I think no more savings banks, hardly — no more S&Ls. They were all cannibalized by the large Wall Street Banks emptied out as a result and that transformed the financial structure and the banking structure of the American economy. Well that transformation, and that squeeze, of getting rid of a whole class of banks is now threatening the smaller banks in the United States, the smaller commercial banks. Because they’re in the situation of being sort of left behind. In the sense that, if only the largest banks are too big to fail — in other words, they’re such big campaign contributors and they have so many of their ex officials running the Treasury or serving as Treasury officials or going into Congress or buying Congressman — that they’re safe. And people who have their money in smaller banks — like a Silicon Valley Bank and the others you’ve mentioned — are nowhere near as safe as the Too Big to Fail banks. And if a bank’s not too big to fail, then it’s small enough to fail, and you really don’t want to keep more than $250,000 there because that’s not insured, and you don’t know how long Biden can get away without bailing out the wealthy depositors and just sticking it to the rest of the economy. At some point, he just can’t be a crook anymore. BEN NORTON: Michael, you’ve emphasized that, after the 2008 crash, in addition to bailing out the big banks and all this and the idea of Too Big to Fail — one of the ways that the US had a so-called recovery — although you pointed out it wasn’t really a recovery — is through quantitative easing. And you can see quantitative easing really is a kind of drug for the economy, where money was so cheap, interest rates were so low — I mean, now that interest rates are rising — the federal funds rate is going up — it makes it more expensive to get money and this bubble that was created by the Fed is is beginning to burst. And you’ve argued that this is maybe going to push them back toward quantitative easing, although Jerome Powell has insisted that he’s potentially going to continue increasing the federal funds rate. MICHAEL HUDSON: That was on Friday [March 10] he said that. Yesterday he withdrew. He said, “I’m sorry, I’m sorry. We crashed the banks. Never mind. Never mind. Now that I realized that I’m not only hurting labor, but I’m hurting our constituency, the 1%, of course we’re going to roll it back. We’re not going to — don’t worry 1%, give your money to the party. We’re going to make everything okay for you.” BEN NORTON: If you look at a graph of asset price inflation, we see that it seems like the economy in the US is at a point where it’s so financialized, and it relies so much on these bubbles, that it doesn’t seem like it can survive without low interest rates and without quantitative easing. So you’ve argued that this crisis is here to stay. There needs to be fundamental systemic change. It’s going to either be stagflation, with the continuation of these policies of QE and low interest rates, or it’s going to be economic crisis like we’re seeing now. MICHAEL HUDSON: This is the corner into which the Fed has painted itself. We’re in the culminating part of the “Obama depression.” This is what Obama set in motion by bailing out the banks and supporting the banks instead of the economy as a whole. Obama and Geithner and Obama’s cabinet declared war on the economy by the 1%. And the amazing thing is that the economy doesn’t see how dangerous what he did was, and how consciously he sold out the voters that have put trust in them — to do everything he could to hurt them, because the degree to which he could hurt the economy was the degree to which the 1% or the 10% was able to make a killing. So this is not the class interest that Marx talked about. It’s not the class interest of employers versus wage earners. It’s the finance class allied with the real estate and insurance class — the FIRE section — against the economy at large — the real economy of production and consumption. That is what we’re seeing, and something has to give. And in every case both the Republicans and the Democrats say, “If something has to give, we’re willing to shrink the economy in order to protect the financial, insurance, and real estate sector from taking a loss, because that’s where the 10% have it’s assets.” We’re not in industrial capitalism anymore —we’re in finance capitalism. And the way that finance capitalism works is very different from the dynamics of industrial capitalism as was forecast in the nineteenth century. BEN NORTON: Michael, as we start to wrap up here I want to ask you about corruption. This is something that you mentioned in your articles analyzing the SVB crash and other banks crashing. You talk about campaign financing, which you address, but also regulatory capture is I think an important point. And you wrote that, “To understand this, we should look at who the bank regulators and examiners are. They are vetted by the banks themselves, chosen for their denial that there is any inherent structural problem in our financial system. They are True Believers that financial markets are self-correcting by automatic stabilizers.” Talk about the concept of regulatory capture and how really it’s just corruption, but we don’t call it that. Because the US acts as if other countries are corrupt but the US isn’t corrupt. MICHAEL HUDSON: Well the center of this corruption — again my colleague Bill Black has explained this — if you notice, who were the bank regulators over the Silicon Valley Bank and the others? These banks that have gone under are all regulated by the Federal Home Loan Bank Board. If there’s any bank board that is totally run by the banks that it regulates, it’s the Federal Home Loan Bank Board. And they look at themselves as “protecting” the banks under their authority. Instead of regulating them, they say, “How can we help you make more money?” Before that the most corrupt regulator was the [Office of the] Comptroller of the Currency group. Now, banks have a choice. The banks are able to choose what regulator is going to regulate them. If you’re a banker and you want to be a crook, you know just who to go to. “I want to be regulated by the Federal Home Loan Bank Board because I know that they’ll always let me do anything I want.” “They owe their job to the fact that I can get them fired at any time if they do something that will not let me do whatever I want.” “If they try to say that what I’m doing is fraudulent, I’ll say, ‘This is socialism! You’re regulating the market! This is market regulation, come on! Theft is part of the market, don’t you get that?’ ” And the regulator later said, “Oh yes, you’re right — the free market under the libertarian Federal Home Loan Bank Board — fraud is part of the free market. Theft is part of the free market. Anything else is socialism, so of course we’re not socialists..” Of course you can do whatever you want and as long as you have bank regulators like that who believe that, as Alan Greenspan put it, “Why would a banker ever cheat somebody? If he cheated somebody he wouldn’t have them as customers anymore.” Well, if you ever have been pickpocketed in Times Square anywhere else in New York, you notice that the pickpocket doesn’t say, “Gee, I better not steal the wallet of this guy because then he’ll never trust me again.” You’re never going to meet the guy again — it’s a hit and run. And that’s how the financial sector has worked for the last century, and already for the early twentieth century. There were critics of how banks were structured, and the British critics especially. During World War I the argument came out, “Maybe Germany is going to win the war because they have a much more industrially-organized banking system.” Banks had been industrialized. But the British banks — and stockbrokers especially — are hit-and-run and just want a quick payout and leave the company emptied out. Well the way to make money most quickly, if you’re a financier in America, is asset stripping — you borrow money, you buy out a corporation, you load it down with debt, and empty it out, and leave it as a bankrupt shell. That’s finance capitalism. That is what you’re taught to do in business schools. That’s how the market economy works. Raid a company, take it over, sell off the wealthy assets, pay yourself a management fee, pay yourself a huge dividend — this is why I think Bed Bath & Beyond is going under. It’s why a whole bunch of companies are going under. You borrow money, you take over a company, you let the company borrow money, you pay it to yourself as the new owner as a special dividend, and then you leave the company owing a debt with no current income able to cover the debt, and it goes bankrupt. And you say, “Whelp, that’s the market.” And of course it doesn’t have to be the market. It doesn’t have to be this way, but that’s the way in which the market is structured. And you’d think that this is the kind of thing that academic economics courses would teach about. But instead of teaching people how to make an alternative to this, and how to avoid this kind of a ripoff economy and smash and grab economy, they show you how to do it. So, given the way in which public consciousness is taught and the skill of financial lobbyists and telling people that they’re getting rich to borrow more money to buy a house whose price is going to go up and up if only they take on more and more debt. If people imagine that the economy’s recovering by taking on debt to make housing more expensive and stocks and bonds and hence retirement income more expensive, then you’re living in an inside-out world that turns out to be a nightmare. BEN NORTON: Well to conclude here, Michael my last question is: Where you think we should be keeping an eye on the US economy? What other financial institutions could be next? You wrote in your analysis that the Biden administration is simply kicking the can down the road until the 2024 election. That these are fundamental systemic problems and there may very well be more banks that crash in the next weeks, months, years. So, where should we be looking, and what’s the final word you want to leave us with? MICHAEL HUDSON: The word is: “derivatives.” There are $80 trillion of derivatives — that is, bets — casino bets — on whether interest rates will go up or down — whether bond prices will go up or down. And there’s been a gigantic increase in the volume of bets that banks have made — maybe a hundred times as large as it was back in 2008-2009. And one of the reasons it could grow so much is, with interest rates of almost zero, people could borrow from the bank and essentially go to the races and make bets on currencies, exchange rates, interest rates. But now that interest rates are beginning to go up, it costs more to make the bets, and even if you bet right on a derivative — you can put down a penny and buy a $100 bond and bet that this bond is going to go up one penny. And if it goes up one penny, you’ve doubled your money. But if it goes down one penny then you’ve lost it all. This is what happens when you have a highly leveraged bet on derivatives or something else. The derivatives are what everybody’s worried about, because there’s no real accounting for them. We just know that — I think JP Morgan Chase has maybe [$55 trillion] in derivatives. Ellen Brown has just written a wonderful article on derivatives that’s all over the internet, and she’s a lawyer as well as a bank reformer. The next big crash is going to be some bank that’s made a wrong bet in derivatives and the wrong bet has just wiped out all the bank capital. What is going to happen then? That’s the —as they say, the next shoe that is going to fall. BEN NORTON: Well Michael, I want to thank you so much for joining us to explain these important topics. Not only I’m just for joining us, but for joining us specifically on your birthday. Happy birthday, it’s a real pleasure. Thank you so much for spending your time with us. I want to invite everyone to go check out Michael’s website at michael-hudson.com. There you can find links to his articles, to his books, and I will link in the description below to the articles that he’s written specifically about the crash of Silicon Valley Bank and other financial institutions. Finally what I’ll say is that I will also invite everyone to check out a show that Michael hosts every two weeks with friend of the show Radhika Desai — they have a show together called Geopolitical Economy Hour, and it’s hosted here at Geopolitical Economy Report. In the description below I will include a link to include a playlist where people can find all of their episodes there explaining the intricacies of economics and geopolitics. Michael, thank you so much, it’s a real pleasure. MICHAEL HUDSON: Well I’m glad we discussed this in a timely fashion, because all of this is unfolding so rapidly that who knows what the story will be next week. BEN NORTON: Absolutely. We always benefit from this very timely analysis from you. Thanks a lot.

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economics, Geopolitical Economy Hour, Joe Biden, Michael Hudson, Radhika Desai

Political economists Radhika Desai and Michael Hudson discuss the rhetoric and reality of Bidenomics, and how good US President Joe Biden really was for the economy. Political economists Radhika Desai and Michael Hudson discuss the rhetoric and reality of Bidenomics, and how good US President Joe Biden really was for the economy. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello and welcome to the 23rd Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And working behind the scenes to bring you this show every fortnight are our host, Ben Norton; our videographer, Paul Graham; and our transcriber, Zach Weisser. 2024 is being billed as the greatest election year in history. More than 50 countries are going to the polls, that’s 7 out of its 10 most populous countries, with a combined population of 4.2 billion, that is more than half the world’s 8 billion population. Among these, for good or ill, one might add, the US election will be the most consequential, deciding life and death questions such as how much war the world will witness, how well its economy will do. This is not because the US is a force for peace and development. On the contrary, it’s been weighing down on the prospects of peace and development for decades. Of course, the formal choices before the US public promise to change little, though a worsening on both fronts is entirely in the cards, no matter which of the two main contenders on the scene at present win the election. But will they even, will either of them win the election because there are so many uncertainties around this election? Will Biden run? Can Trump run? If not they, then who will represent this increasingly divided country? And if no one can, is civil war a possibility that has been canvassed in practically every major news outlet on the cards? And what will civil war in the US mean for the rest of the world? All these questions are part of the story of the 2024 elections. These are the circumstances in which they are being held. Biden’s approval rating is only 38%. Indeed, it had dipped into negative territory by August of the first year he took office. And since then, they have only gotten worse. MICHAEL HUDSON: Well, what does the public see that Biden and his supporters are not recognizing? That’s really the question that I think we have to talk about today. RADHIKA DESAI: Exactly. And what is the public seeing and what is the public experiencing to give him these negative ratings? Biden’s one hope was to unite the country behind him through good economic stewardship. After all, it was James Carville, Bill Clinton’s campaign manager, the guy who helped reshape democratic politics in the aftermath of the Reagan electoral earthquake, who said, it’s the economy, stupid. You can’t win elections without a good economy. And you can’t say Biden hasn’t tried. He’s even ponied up a new term: “Bidenomics”. We are told that this is going to solve the US’s deep-seated economic problems. And certainly his Bidenomics has included considerable sops to the biggest US corporations, the idea being that somehow this is going to induce them to invest, although it is not clear what sort of quid pro quo had actually been set up. And nor is it clear that they’re actually investing even after receiving these sops. The pro-Biden establishment, of course, has picked up this term and run with it. They’re trying hard to set up an election year narrative that under Biden, the US economy has done very well, Bidenomics is working, and it has moreover achieved that miracle of miracles, a soft landing, by which is meant that it has slain the dragon of inflation without inducing a recession. However, their job is not easy, and the holes in the story that they’re trying to weave together are widening. So Michael and I thought it would be a good time to do a 360-degree check on the US economy, and we want to do it by going through a number of major topics. We’ll talk about employment, we’ll talk about the investment situation, the trade situation, the real story about inflation in the US, because it’s not so clear that the dragon of inflation has been slain, the problem of financial stability, and finally, of course, the issue of the budget. So these are the topics we are going to go through. But before that, before we go through these topics, we must begin with a contrast. On the one hand, the stock market is soaring. Let me just show you a few of the stock market indices here. This is the S&P, so Standard and Poor 500. You can see it is at the highest point it’s ever been in its history. This is the Dow Jones Industrial Average, similarly at a peak. And the NASDAQ is, if not at a peak, at a peak pretty close to its previous peak. So you can see that all the stock markets are doing really, really well. But Michael, does this mean that the US economy is doing well? MICHAEL HUDSON: Well, it certainly means that there is a tech bubble and a war industry bubble. But let’s look at all the things that are increasing. Since your chart, not only are stocks going up, but when stocks go up, economic polarization increases, because most of the stocks are owned by the top 10% of the population. So economic polarization is increasing as wealth is concentrated at the top of the economic pyramid. And a lot of voters see this as unfair. So to say that the stock market and the 1% are doing well is not really a good political selling point, unless you can convince people that, well, you can be a capitalist in miniature. You can invest your pension funds in the stock market, you can invest your savings, and maybe you can get rich just like the billionaires. How do you get them to think of themselves not as wage earners, but as stock market investors? If you can convince voters to think that they’re finance capitalists instead of wage earners, you’ve got a good selling point. But let’s look at other things that are up: Crime is up. Shoplifting, robbery, phone and internet scamming. I’ve already got my morning internet scam call. Rents are up, utilities are pricing, and food outside the home is pricing. I think we’ll get to these charts later. There we go: Basic food, eggs. All of a sudden, people are having to pay more, whether they’re eating at home or whether they’re buying the food at the stores. Everybody’s noticing the prices are rising and the packages are getting more and more empty. You’ll get a box of cornflakes and a lot of it is air now. RADHIKA DESAI: It’s called shrinkflation. Prices go up and what they sell you, the quantities go down. MICHAEL HUDSON: That’s right. Exactly. Housing is also basically up. When housing prices are up, you also get homelessness up. Taking the subway in New York, you’ll see a very crowded subway car, and then all of a sudden, you’ll see cars with hardly anyone in it, and that’ll be a homeless person that maybe hasn’t had a chance to take a bath for quite a few days. You’re seeing that already. RADHIKA DESAI: If I may just interject, this is the percentage of households who spend more than 30% of their income on housing. Overall, 30% of all US households are spending more of their housing, but among renters, this ratio goes up to 50%, while among owners, it is 21%. You can see that those who are wealthy and relatively better off who own their own homes are penalized less than those who are relatively worse off. You see here, again, another really shocking statistic. This chart goes back to 1960. You can see that the ratio of house prices to the median household income went down after the 60s and remained low right into the 1980s, but from about 2000 onwards, basically coinciding with the easy money policy of the Federal Reserve, house prices as a proportion of median income has risen, and although they again fell after the 2008 housing bubble burst, they began rising again, and today they are even higher than they were in 2008. MICHAEL HUDSON: The situation is actually much worse than that chart says, because not only have housing prices gone up, but the mortgage rates have gone up. They’ve doubled from about 3% to almost 7%. Now, if you have a mortgage, you want to buy a house, you don’t want to be a renter, you want to escape from being a renter, you buy a house, and your mortgage has to be 7%. That means the entire price of the house, the mortgage that you’re paying, doubles in 10 years, and if it’s a 30-year mortgage, it doubles again and it quadruples in 20 years and multiplies eight times by the end of the 30-year mortgage, so that the bank will get eight times as much for the house you buy as the person who sells the house to you. The mortgage rate and the debt attached to the house is expanding even more rapidly than the housing prices. That’s what debt deflation is, and that’s part of why the economy is being malstructured. So what voters are seeing is not simply the economy’s getting worse, but the whole way in which it’s structuring and the direction it’s going in, financialization and the whole neoliberal plan makes them want to throw the rascals out of office. RADHIKA DESAI: Indeed, the approval ratings figures are showing exactly that. MICHAEL HUDSON: Yes, what they’re disapproving of is the economy above all, and people say, oh, it’s just because Mr. Biden’s getting senile. Well, it’s not that he’s getting senile, it’s that he’s a nasty, bad person running a nasty, bad economy. That’s really the key. We haven’t even mentioned the medical costs going up for people who have lost their jobs or they have to stay home because of COVID. There’s a whole COVID effect of the economy. Long COVID is a problem that isn’t being counted. A lot of people are having to take part-time jobs. So what you’re seeing is a kind of crapification of the economy. You mentioned that about the prices that we’re seeing. A whole new vocabulary is being developed to describe what’s happening in the economy, and shitification, the whole bit. So let’s look at what hasn’t increased. Maybe there’s a bright spot there: well, lifespans have not increased, and health generally has gone way down. You have a reversal in the whole post-war rise of lifespans. They’ve gone down. They’ve gone down especially for people who earn less than $50,000 a year. For non-white people, they’re turning down. Wages have been turning down. The Financial Times last week had a story that wages are growing more slowly for employers working at home because employers want to see them in the office. And yet what they’ve found in your country now, England, is that workers from home, the productivity is going up even faster than workers who actually have to go to the office and sit on the long transportation train to get in, whether it’s London or New York. So the Financial Times said this is a success story. Employers gain in both ways. The workers get to stay home, and they’re more productive, but you’re paying them less for the right to stay home. RADHIKA DESAI: And you’re not paying for all those offices. We’ll come back to that as well. But shall we go into our discussion of the various topics now? MICHAEL HUDSON: Sure. RADHIKA DESAI: So the first topic we wanted to discuss was employment. So on the employment front, recently, as many of you will have seen, the Biden administration is making much of a report of the Bureau of Labor Statistics, which reports that 350,000 new jobs were created in the previous month. However, there are huge problems with that. First of all, let me just show you the story, the official story that the Biden administration would like to emphasize. So this is the official unemployment rate that is shown on the Federal Reserve website: And you can see this chart also goes back to 1950. And you can see that there have been various peaks in unemployment in the 1980s and again after 2008. And then unemployment went down. And then, of course, this huge narrow spike is the COVID pandemic, when, of course, it hit nearly 15%, officially, at least. And since then, it has declined. And so President Biden feels that he can pat himself on the back for bringing down the unemployment rate. However, there are many, many other elements to this story, which are not being talked about. First of all, as opposed to the Bureau of Labor Statistics, coming up with this number of 353,000 new jobs, a private payroll company, which essentially gathers, you know, basically, it knows who is paying whom, how much in wages, etc., what is the payroll of different companies, reported that only 107,000 private sector jobs were created, which is a very small amount. And even if to this, you add the public sector jobs that are created, which will have expanded, because of Biden administration initiatives, nevertheless, it, you know, this would mean that if 353,000 new jobs were created, then job creation is being led by the government. But at the same time, let’s also see something else, full time employment has fallen. That means, and this is, of course, been historically the issue, the United States always claims that it is such a wonderful job-creating economy. But few people point out that the bulk of the jobs that are created are part time jobs, they may even be zero hours contracts, and so on. So, the actual quality, and of course, the kind of jobs there are, the benefits are low, the wages are low, etc. So, you essentially have an epidemic of McJobs rather than good-paying jobs. Furthermore, this unemployment rate that I showed you is, unemployment rate is always calculated as the number of people who have failed to find work out of a total number, which includes those who are, those who are either working or actively seeking work. But it does not include those who have stopped actively seeking work. And that number has actually … been going up for a long time, but it has particularly spiked in recent years. So, in reality, the actual number of American people who are employed as a proportion of the labor force is going [down] … I want to show you the chart: The labor force participation rate was fairly low, just below about 60% in the 50s, because of course, at that time, most women did not work. But beginning in the 1960s, as women began entering the labor force, the labor force participation rate began to go up, and it rose steadily through all those decades, up to about 2000, when you see this final little peak here. And since then, it has been in decline. So, essentially, what workers are saying is that as neoliberalism has matured, as labor legislation, which decreased the onus on employers and essentially allowed employers to offer workers worse and worse jobs for worse and worse conditions and pay and so on, people who could choose to leave the labor force have been leaving the labor force, of course, we’re not even counting those who become disabled, particularly after COVID and so on. But it has been declining, it declined massively during COVID. Since then, it has recovered, but it still remains short of the point it was at when COVID struck. So, you can see that this is a relatively favorable story that the administration is trying to, is able to tell entirely because of this matter of labor force participation rates. And finally, a couple of final points. Wage growth has been down for a year, particularly, as Michael was saying, for work-at-home employees. But the productivity is higher, so employers are gaining. Workers’ insecurity is very high, and it is high precisely because they don’t have stable, permanent jobs. They have jobs that don’t last very long, that are part-time, that they hold at the whim of the employer. So, the traumatized worker syndrome still remains. Back in the late 1990s, when Alan Greenspan was asked why, if the economy was running so, you know, the economy was running so hot, essentially, it was running so well, how come there was not more inflation? And he said it’s because of the traumatized worker. Workers are unwilling to demand higher wages, even though, according to him, the labor force, you know, the employment rate was very high. But the simple reason was the workers were getting bad jobs, that they were getting insecure jobs. So, they were traumatized and insecure. They were unable to complain. So, and finally, the quitting rate is very high, partly for medical reasons, but also because hospital workers, teachers, etc., do not feel medically protected at their job. So, and according to the Biden administration, of course, COVID is over. So, these are some of the problems with this idea that somehow the Biden administration has given Americans a low unemployment rate. MICHAEL HUDSON: Well, you’ve made all the points that I would have made, so I don’t have to make them. I would like to see a chart for statistics they don’t collect: The employment by U.S. multinational corporations worldwide. Their employment in the U.S. may have gone down, but their employment abroad, especially in Asia, the maquiladoras along the Mexican border, their employment has gone up, but just not employment for their workers in the United States because it’s not really economic to employ American labor, given the rise in housing costs that we’ve just discussed, medical costs, and all the other costs that are going up. America has priced labor out of the market, except for monopolies, especially artificial intelligence monopolies and military-industrial complexes. These are not competitive, so America doesn’t really have to do anything there. You pointed to the structural shift in labor. It’s dangerous to go back to the office if they don’t have clean air and if you’re exposed to COVID, and the COVID rates continue to go up, and there’s nothing being done to encourage air purifiers or even the use of masks. You’ve made the points that I would have made. RADHIKA DESAI: Okay. There’s another couple of points, though, and Michael, I think you wanted to talk about pensions as well, but let me make one point here further, which is that there’s a very odd discrepancy in U.S. growth figures that is increasingly being talked about. And that is that there are two measures of GDP. One is GDP, gross domestic product, and the other is GNI, gross national income, and very often these two are basically supposed to match. I mean, there were maybe some statistical discrepancies, but the first, GDP, which measures essentially how much value was made out of the production of goods and services, and the GNI, gross national income, which measures how much people earned out of that process, this discrepancy is essentially being put down to the fact that workers are not buying, workers essentially are not, you know, they’re not getting high wages, they’re not buying enough goods, and a lot of their income is actually replaced by debt. And the second thing is that, in fact, a lot of the things that are actually being produced are not, in fact, being sold. So, both of these things are also problems Michael, you wanted to talk about pensions on the employment. MICHAEL HUDSON: Yes, that’s the problem. Not only are the workers’ conditions getting poor, but pensions are no longer defined-benefit pensions, and many of the pension plans in the United States are actually broke. Again, there was a Financial Times article last week that said that, Brooks Masters wrote, that the typical Generation X household has just $40,000 saved for retirement, and 40 percent of their 401k pension plans are zero. So, this is the result of not having a pay-as-you-go pension policy like Germany has and Europe has. Pensions have been financialized. In other words, instead of just paying out of the current economic surplus that you’re producing, workers and companies have to pay, save up money in advance instead of investing. The post office, for instance, post office rates, postage prices in America are soaring because the attempt by Congress to privatize the post office means you have to include the pension plans for the next 75 years all in the price of your postage by saving it in advance, not hiring more labor, not improving the mail delivery, but just the turnover to the stock and bond markets to invest so you can pay pensions if there are any postal employees left. Of course, the whole objective in increasing the public pension plans is to say, oh, I’m sorry, the post office and other public agencies are broke. We’ve got to privatize them. You privatize them, and what happens is what happened in England under Margaret Thatcher. You wipe out all of the pensions because there’s no company to pay them anymore. Now, Peter Drucker called this pension-fund socialism before, because he said this is wonderful, workers and companies are going to pay for stocks, and that’s going to create financial wealth that’s going to be spent on new factories and new employment, and workers will be capitalists in miniature. Through the pension plans, they’ll be stockholders. But the effect is simply to divert wage income into the financial markets, into the stock market. The pension system is a bonanza for the stock market and for bondholders because it’s financializing the economy, but it’s an awful noose for the workers who have to pay their own pensions instead of making pensions a public right like it is in socialist economies. RADHIKA DESAI: Exactly, and if I may add a few points to this, this idea that the Peter Drucker idea that somehow you will get a kind of pension-plan socialism. There’s a very interesting real-life example of this. In the 1970s in Sweden, thanks to a very high level of coordination between trade unions, governments, and employers, what had happened is that they had managed to create a fairly high-wage economy, a fairly prosperous working class, a very, very generous welfare state providing a whole range of services. So then the question was, how would workers, whose wages will continue to increase thanks to rising productivity, what would be now done with the rising wages? What would they do? So they decided that they would create a wage earner fund, and the wage earner fund would slowly start buying up the stock of existing corporations for which they work, and slowly they would eventually become the owners of these companies, and that was the general idea. It was called the Rehn-Meidner plan. And this plan was much discussed. Everybody thought it was great, but what immediately followed, beginning in the 1980s, was a major capitalist counter-offensive, an attack on the unions, which essentially meant that this wage earner fund plan was watered down to an extent that it became meaningless. And of course, today, in many ways, people would say that Sweden has gone from a Valhalla of socialism or social democracy to being a Valhalla of neoliberalism. So I did want to say that. MICHAEL HUDSON: I want to add a technical twist, and that already occurred in the 1970s in Chile under the University of Chicago guidance. You’ll have the Chilean companies found out how to do pension plans the neoliberal way. You do have the workers buy the stock in the company, but the company owner will also have a whole array of companies. They’ll have a holding company for the industrial company, they’ll have an offshore bank account to hold the stock in the company, and the company will continue to make basically loans to its holding company and be loaded down with more and more debt. It’ll borrow, borrow, and then the holding company, the actual industrial employer, will be left to go bankrupt. It’s a corporate shell, and all the money will have been taken by the holding company. And so very quickly, Sam Zell, the real estate owner, did this with the Chicago Tribune. The Chicago Tribune had exactly what you’re saying. We’re going to be part owners, we reporters and news people. And so Zell bought the Tribune, then he took all the money in the pension plan, lent it to himself and the holding company, and then said, oh, it’s broke, and wiped out all of the stockholders. I discuss that in my book, Killing the Host. That’s the pension plan finance capitalism. RADHIKA DESAI: Exactly. And this is exactly the reason why, as this is particularly true in the United States, one reads every few months, one reads that some or the other pension plan has essentially lost its money. And that means the workers who had put in their money, their hard-earned money into these financialized pension plans, essentially are getting nothing in return. But there’s a couple more points to be made. First of all, when you financialize pension plans, workers are encouraged to think that somehow they are also becoming capitalists, that they have a stake in the stock market, et cetera. Now, what really happens when our pension money goes into, essentially becomes privatized and is now being managed by some or the other private financial institution, is that our pension money just becomes so much throw weight that they can use in order to move markets in their favor. Remember, when you are speculating, if you are speculating with a few hundred or a few thousand dollars, you are a price taker, a market taker. But when you are speculating with millions of dollars and maybe even billions of dollars worth of money, you are a market maker, you are a price maker, which means that you essentially get to rig the system. So, our money is used by these fund managers and so on as throw weight in their speculative activities. So, this actually increases speculation, it inflates asset bubbles, and it makes financial crisis, from which we all suffer as working people, more regular, more frequent, and so on. MICHAEL HUDSON: The situation actually gets worse than fund managers. Because the pension plans are in deficit, the pension managers are desperate. How are they going to get more money? They turn the money over to private capital. And private capital is much worse than the pension fund managers. Private capital makes its money by buying a corporation and driving it bankrupt. Private capital does to the U.S. economy what it’s done to Sears Roebuck, to Toys R Us. The company will borrow a lot of money from a bank. It’ll pay a special dividend to the private capital owners. The owners will immediately say, we’ve got the increased earnings, we’re going to cut back productivity. When workers leave, we’re not going to replace them. We’re going to work them harder. We’re going to give the traumatized workers syndrome with emphasis. And so, by workers thinking, I’m going to be a capitalist, just like the rich people, and my pension fund is going to make money for me as a capitalist. But making money as a finance capitalist means hurting their identity as a wage earner. What are they going to think of themselves as? RADHIKA DESAI: Well, exactly. And so, definitely. And the other thing as well is that, of course, the companies that are brought into the control of private capital, these CEOs, etc., they borrow money in order to also, like Michael said, they certainly borrow money in order to pay huge dividends, but they also borrow money in order to engage in share buybacks, which increases the value of the shares. And all of this is being done on the backs of existing employees. And of course, in doing so, they very often misuse and misapply pension funds so that they can go bust as well. But my second and third point are equally important, which is that workers who think that they are participating in the stock market and therefore rising stock markets are good for them, etc., should always remember two things. Number one, when markets go up, they may benefit, but they always benefit much less than the people who are controlling these markets, the big financial institutions and so on. They are very low on the pecking order of benefit from financial speculation. And number two, when there is a loss, they lose much more than those who are controlling these pension funds, etc., who have their golden parachutes and so on. So that’s about the employment situation. Now, let us look at the next point, which is what is happening with investment. So here again, you know, we are being told that parts of the US economy are finally doing much better because investment rates are somehow better and so on. But let’s look at what’s really happening with investment. So this is a chart showing gross fixed capital formation in the United States from 1970 to onwards: And you can see that on average, if you drew a trend line in this chart, it would basically be pointing downwards. So basically throughout the neoliberal era, investment, which is in many ways the main driver of the economy, consumption is also important, but investment is essentially, you know, the more there is investment, there is the more growth there will be because investment itself creates growth and it increases productivity and growth. So this has essentially been going down. This peak here is at the end of the 1970s. It’s going down. This is about 1990, going up again just with the tech bubble up here and then with the housing and credit bubble, but then essentially declining after 2008. Since then, it has risen, but as you can see, it remains below, in fact, even many of the low points of the previous 50 years, let alone the high points. So and in the last couple of years of the Biden administration, these figures are only available to us for now up to 2021. But you can see that under Biden’s first year, it effectively took a downturn. And let me also add one other thing, which is that investment is a proportion of GDP: You know, the United States and the Biden administration make much of competing with China and so on. Let’s take a look at this graph. It only goes to 2015, but I don’t think the story has changed. And this graph, by the way, is the work of my partner, my husband and intellectual partner, Alan Freeman. And here you can see he has given investment as a proportion of GDP for China, which is this bold blue line, and for many other countries. But we just want to focus on China and the United States, which is the green line. And indeed, as you can see, the green line is basically at the bottom of all these comparable countries, including Europe, Japan, other industrialized countries, and so on, and even the global south, which is here in this thin blue line. So you can see if you’re going to compete with China in terms of growth and productivity and so on, China at its peak is spending 45 percent of its GDP on investment. By contrast, the US is spending less than 20 percent, less than half in investment. So this is the sorry state of investment in the United States. MICHAEL HUDSON: Oh, it’s much worse than that. It doesn’t say how the composition of this investment has shifted. This re-rising of the US investment is largely military industrial. A lot of it is also real estate. That’s probably the largest element of a lot of this investment. And the real estate investment has been transforming the whole economy. And that includes buying out existing companies. That’s counted as a new investment. If you buy a building that was at a low price before, buying it at a high price is a new investment. In London, for instance, you just had the sale of the British telephone phone tower last week to a hotel company. So it’s privatized. They’re going to essentially use that as a new investment. But it’s not building a new building. It’s just taking something over. In the United States, you had the last few months, you had Greyhound bus terminals sold. That was an investment, sort of like Stagecoach in London. The company that bought Greyhound is a real estate company. They said, we’re going to tear down the terminals that are put in the center of the city. The reason they’re in the center of the city is so that they’ll be convenient for people who ride the bus. They can go to the terminal, have a place to sit, buy tickets. We’re going to make them go to the outskirts of the city and wait outside, regardless of the weather, because we don’t care about the users of our service. We want the real estate. So we’re going to essentially dismantle the public service investment and make a gentrified version out of this. And in New York, you’re having the Wall Street area. All of these commercial office buildings in New York, there’s a 40% vacancy rate on commercial buildings. So companies are coming in to try to invest the company, saying, well, there’s no more industrial economy to put in these buildings. Let’s gentrify it for all the people who are getting rich on the financial sector, making money de-industrializing the economy. Well, there’s one problem with this that they’re suddenly finding out. You can take an office building, a bank, or a publishing company, or whatever, and divide it into residential units, but where are you going to put the kitchens? These buildings are not geared to have gas and electricity and venting for kitchens. And what about bathrooms? If you look at how your employer is set up at a company, this is not the kind of bathroom that you’re going to want near a bedroom or living room for a residential person. So there’s an idea that somehow you can do to the commercial office buildings in America what President Obama did to Chicago before president when his job was tearing down black neighborhoods and getting rid of the low-income blacks and gentrifying them for his sponsor, the Pittsburghs, to make a real estate fortune there. So fortunes are being made by real estate investment, not exactly industrial investment. Real estate is, again, part of the FIRE sector, finance, insurance, and real estate. You’re having investment in research and development. That’s called capital investment. You’re getting the picture that the investment that is taking place isn’t the kind of investment that originally helped an industrial economy. It’s a de-industrializing form of investment. RADHIKA DESAI: And there’s also, I mean, well, gross fixed capital formation will actually measure physical investments, so that there’s definitely some physical investment taking place. But as we see, it’s much lower than China’s, it is not really recovering. And more to the point, if there has been any kind of recovery or whatever little investment is taking place, let’s put it that way, whatever little investment in actual plant and machinery is taking place under the Biden administration is happening in large part because of the sops he’s giving to industry via his Inflation Reduction Act and other such initiatives. So essentially, he is giving certain corporations money to invest in certain sectors. And this is why you are seeing it. So it’s the dynamo or the dynamic, the mojo of American capitalism is definitely not back. It is definitely very weak. MICHAEL HUDSON: You mentioned the inflation and that act. One of the high points of it was advertised by Taiwan, taking its computer chip company, wanting, getting, I think, over vast billions of dollars to set up a computer chip system in Arizona. The people came up here and they say, oh, it’s not going to work. There are no workers. You know, you said that you were going to provide us with American labor to work in the investment plant, but there aren’t any American workers because they’re not trained as working industrially. You know, who are we supposed to hire as workers for our computer chip plant if you don’t have workers trained to work in computer chip plants or other industries? RADHIKA DESAI: And, you know, that also reminds me, I mean, we haven’t even talked about this, but the state of public education, that is the education that most ordinary American kids get, has actually been declining to such an extent, as we know, for decades. You know, teachers will complain that they spend all their time trying to keep control of the classrooms. How are they going to teach kids anything? So if your kids are not learning what they need to learn, how are they going to become even semi-skilled workers, let alone skilled workers? So absolutely, I’m not at all surprised. Some time ago, I remember reading somewhere that the Japanese companies that were being encouraged to invest in car plants in the so-called right-to-work states, these companies were having to produce the literature to minimally give instructions to workers using symbols rather than putting it in writing, because many of these kids were functionally illiterate. But let’s go on, because we have quite a few things more to talk about, and we don’t want to go too much over an hour. So very briefly, we said that we would talk about the U.S. trade deficit, and once again, vis-a-vis the trade deficit, the Biden administration is crowing about its great achievement. You see here the U.S. trade deficit, which, of course, historically had been very [high]. That is, you know, in this graph, the higher the line is, the better the situation. So when the line dips, the deficit grows. So you can see beginning around the 1980s and then really taking off in the 1990s, the U.S. trade deficit was quite, you know, dipped quite low. People were really worried about the so-called twin deficits and so on. And then after 2008, precisely because of the massive recession in the United States, the trade situation improved. The trade deficit actually narrowed. And this is also very interesting, you know, historically because of deindustrialization. The United States has a tendency that when the economy grows, the trade deficit grows. Why? Because American consumers prefer buying foreign goods. So this has been the case for many decades in the United States. So obviously, with incomes shrinking, so did the trade deficit. But once again, it resumed declining. And as you see here, in the Trump years and also in the Biden years, the trade deficit declined. You know, as you see, it reached a really, really low point already under the Trump administration. And it has recovered, but it still remains at historic high levels. So in that sense, if there has been any improvement in the trade deficit, again, this is largely because of the sickness of the American economy, the poverty of American consumers, not because of any miracle that the Biden administration has executed or has brought off in the U.S. economy. MICHAEL HUDSON: I think the Biden administration has vastly helped the trade deficit. You know, what is Bidenomics? It’s a slogan for a war economy, financed by a financial bubble. And the State Department official, Victoria Nuland, just gave another plea for Congress to give a few hundred, a hundred million dollars for the weapons in Ukraine and Israel. And since our show focuses on geopolitics, I want to point out how war spending is contributing to the trade balance and also to American affluence against Europe’s NATO countries that America has just conquered economically. Nuland picked up President Biden’s point that in reminding politicians that almost all the money for the war in Ukraine is going to be spent here in the United States, employing labor in the local districts of all the congressmen on the military and national security committees. That’s why war stops are going up. And it’s the merchants of death business. And Biden is pretending to reindustrialize the economy by emphasizing how this military industrial sector is not subject to price competitiveness. You can do it with low productivity, high cost labor, because it’s a proprietary good. It’s an economic monopoly good for the weapons. Biden said, quote, but patriot missiles for air defense batteries made in Arizona, artillery shells manufactured in 12 states across the country, in Pennsylvania, Ohio, Texas, and so much more. Well, these are the swing states in the election. And you have Biden, Hillary Clinton, Nancy Pelosi, and the other Democrats recognize that the world economy is splitting up between the U.S. and NATO neoliberal countries called “democracies” and the global majority seeking independence. Well, it’s almost as if they’re channeling Rosa Luxemburg. She said the choices between socialism and barbarism. And Biden and Nuland agree, except what socialism is, what’s occurring in the global majority. Barbarism is what’s occurring in the American NATO militarization and the fight in Ukraine and the Near East. But the fight in Ukraine has helped the U.S. balance of payments, the trade balance, by essentially forcing the NATO countries to impose the sanctions against Russia that we’ve talked about. The anti-Russian sanctions have broken the German industrial economy for good. And that’s why German companies, Mercedes, Porsche, BASF, are moving to the United States, because they can’t get the oil and the gas and the energy that’s needed to make industrial goods. And what’s happening as a result? America is not buying European investments. America is replacing Russia as a supplier of gas, liquefied natural gas. That’s way up for the exports. Oil, way up. Basically, America is gaining. And also, this $100 million, all these billions that NATO have given to Ukraine have emptied out their war stocks. And they now say, we have to buy new arms of up to 2% to 3% of our GDP. And who can make it? America can make it, because we don’t have any oil and gas to power the industry to make these stocks. This is going to be a huge, huge increase in the American trade balance while the euro goes down and down and down. RADHIKA DESAI: If I may add, one of the things that I forgot to mention earlier is that a large part of the improvement in the US trade deficit under Biden in the last couple of years, particularly, has come precisely from the export of liquefied natural gas. So think about it. Instead of having some kind of serious industrial policy, the United States is once again an exporter of primary products like natural gas, an exporter of energy. Two more quick points. You’re so right to emphasize that, you know, many people think that NATO exists to defend the West against all, you know, originally against communism, and then now against all these vague, you know, dictators and what have you. In reality, the NATO exists so that the US military-industrial complex will have an export market because of NATO interoperability considerations. Essentially, when a country joins NATO, they become a captive market for the American military-industrial complex. But there is one final point I’d like to make. You know, many, many decades ago, a couple of decades, maybe two or three decades ago, Madeleine Albright is supposed to have said, what’s the point of having such a vast and sophisticated army if you don’t get to use it? Because she was saying, you know, we should, of course, we should go to war if we want to, etc. I’d like to paraphrase her on this. What’s the point of having a $1.5 trillion annually military-industrial complex if it actually cannot produce sophisticated weapons today? As far as technological sophistication is concerned, Russia and even China are further ahead of the United States. They can produce things like hypersonic missiles. They can produce electronic technology to fight wars that is far superior to anything the United States has. So, this is another really interesting point, which is that the United States today can only get customers for its coddled military-industrial complex, which has become incapable of producing anything decent, when it essentially makes people join NATO and essentially convinces the governments of various countries to act against the interests of those countries. Because every country that is being brought into NATO on the premise that its security is going to increase is actually going to have its security decreased. First, because, of course, NATO is increasing in security around the world. And second, because in reality NATO is not capable of defending these countries. It has deficient armies, it has deficient industrial and military production, and it has deficient weapons technology. So, for all of these reasons, and the reason why the Russians and the Chinese are able to surpass the United States in terms of military technology is very simple. Yes, they have also in military industries, but their military industries and their armies are actually devoted to the defense of the country, not devoted to their own expansion for their own reasons. So, that’s another thing that I wanted to mention, that this is really in terms of the trade deficit. But we also have three more interrelated things to discuss, which is what’s really happened on inflation, what’s really happening to the financial sector and financial stability, and what’s really happening to the budget deficit, and how are all these things interacting. So, let’s take inflation first. What I’d like to say about inflation is the following. Throughout the last many months, the story has been that the Federal Reserve has managed to create a soft landing. We have vanquished inflation while not being in recession. Now, Michael and I have already told you how the U.S. economy is doing far less well than you might imagine, and that if you look at the GNI statistics, the Gross National Income statistics, the U.S. economy is in recession. It has had several quarters of declining GNI. On inflation then, the story that we are being told, the official story, is that the Federal Reserve has performed a miracle. It has achieved a soft landing, it has defeated inflation, and the U.S. economy is not in recession. But the reality of it is that if you go by the GNI figures, the Gross National Income figures, the U.S. is in recession in reality. And the other problem is that, in fact, it’s quite possible that inflation has not been vanquished, because the fact is that while the more volatile prices, but particularly energy prices, have indeed gone down, at least they are down for the moment, core inflation remains stubbornly high, which is why the Federal Reserve, after talking for so many months about reducing interest rates in 2024, is already beginning to postpone the reduction of interest rates. So, in that sense, inflation has not gone away as a problem, and this creates massive problems for financial stability to which the widening U.S. budget deficit is making its own contributions, and we’ll talk about that in a minute. Let’s take a look at financial stability then. The fact of the matter is that we already saw at the beginning of this year that we had a series of failures of American banks, the Silicon Valley Bank and a few other banks failed, and they failed chiefly because of the way in which the Federal Reserve is trying to deal with the problem of inflation. We’ve already discussed in the past that the problem of inflation cannot be really resolved by raising interest rates. Indeed, one economist, Robert Solow, had essentially referred to the raising of interest rates as a means of dealing with inflation as burning a house to roast a pig. I mean, you don’t need to do that. You are basically creating a lot of destruction. But nevertheless, the U.S. Federal Reserve started raising interest rates, and this began affecting the financial institutions like Silicon Valley Bank and the other banks that went bust that had relied on the continuation of easy monetary policy. So, in a certain sense, we are facing the prospect of another financial crisis, which in 2008, also the financial crisis occurred because in the mid-2000s, the Federal Reserve started raising interest rates once again because the dollar was falling too low, because commodity prices were rising, and as they brought interest rates up to about 5.25 percent, which is roughly where they are at right now, this was enough to prick the housing and credit bubbles, and you got the 2008 North Atlantic financial crisis as a result. The new financial crisis has arguably already begun. It already began with the bank failures earlier in 2023, and now we read headlines like this, “Bad property debt exceeds reserves at the largest U.S. banks”. This is a Financial Times story: “Loan provisions have thinned even as regulators highlight risks in commercial real estate markets”. So, they are showing us these major banks, how many lost reserves they have in relation to loans that have already become delinquent, loans on which payments have already been missed. These are the six largest banks, and except for J.P. Morgan Chase, which has a ratio higher than 1 percent, compared to 2022, in 2023, which is this light blue line, practically every bank has less than one dollar of reserve for every dollar of its exposure to bad loans in the commercial real estate market. And these sorts of problems are, by the way, not just commercial real estate is just one, but there is also private equity. There are many other asset markets in which trouble is brewing. And this also goes for the market in U.S. Treasurys: Because as interest rates go up, the U.S. essentially has to pay a higher rate of interest in order to borrow money on the international market. And what’s more, over the last many years, the treasury market has been sinking, and it has essentially not got enough buyers. As a result, the Federal Reserve has had to step in in order to prop up the treasury market. But even then, even with all the support the Federal Reserve is going to get, is giving, you can see here this up to 2023 is the real figures. And then from here on, these are estimates. And you can see that interest costs as a percentage of GDP, the interest costs on U.S. debt are going up and they will contribute to a worsening U.S. budget deficit. So you see here, interest costs have been just a little above 1 percent for a while, and now they will go up to 2 and 3 and 4 percent. And this is going to brew trouble. And finally, this is an interesting story that appeared: Even though the United States budget is in such deep doo-doo, basically, you have the United States government spending more and more money on the military-industrial complex. We are told that it was, the official story is that it’s worth about $750 billion, three-quarters of a trillion dollars. But studies show that the actual size of military spending in the United States is about $1.5 trillion. That is a huge sum. The total amount of U.S. GDP itself is about %20 trillion. So you can imagine, it’s like about 7 odd percent of U.S. GDP. So this is the state of the U.S. economy. And so we can expect in the near future to hear finally an official admission of the recession the U.S. is in, continuing inflation, and with continuing inflation, the possibility of the Federal Reserve increases interest rates. So maybe even if it does not increase interest rates, the possibility of another financial crisis. So this is the sort of cauldron of troubles that is already brewing as the U.S. approaches an election year. MICHAEL HUDSON: Well, there are a couple of things. Let me go over your charts one by one again. You sort of went very quickly. When you showed the chart about the banks being in negative equity, this is especially the case for small community banks. About 30 or 40 years ago, there began to be small community banks. The smaller banks, if you notice, are the ones that are in the most trouble because they’re the ones that have made loans to local businesses, local landlords. You already have one of the big New York City community banks going broke in the last week, just like you had the Valley National Bank go broke before. What these charts show is that the U.S. financial system in general is in negative equity. Now, just think of that. If you have a financial system that’s in negative equity, what do you need a financial system for? The whole idea of finance is people are supposed to be abstinent and save rich people and save their money. You remember Karl Marx’s quip that the Rothschilds must be the most abstinent family in Europe because they have so much money. Well, the fact is that if banks don’t supply money to the economy, but they’re broke and they get all the money from the government, this is just what China’s doing. Why don’t we just say, okay, money is a public utility? RADHIKA DESAI: Nationalize the banks. MICHAEL HUDSON: If it’s a public utility like China, then it’s not going to make this de-industrial real estate kind of property investment. Now, let’s look at the chart again for the interest rates going up in the U.S. economy: This has overjoyed Biden, and especially it makes Obama very, very happy. This is Obama’s dream to privatize Social Security. The government is going to say, we have to balance the budget. The Republicans are going to close down Congress, as they’re threatening to do this Friday, by the way, in order to balance the budget. Because the market, the magic of the marketplace, has raised the interest rates. Between the higher interest rates and the military charges that you just showed, there really isn’t enough money for social spending anymore. But we can do what Margaret Thatcher did to the English economy. We can privatize Social Security. And now all the money that you had for Social Security is not going to be your money anymore. It’ll be, we put it in the hands of the banks that have already driven themselves and then the financial sector into negative equity. Now they can take your Social Security and drive it into negative equity. That really is the grand plan, to privatize, to treat Social Security, Medicare, Medicaid like the post office. It’s all going to be privatized. That’s the neoliberal plan. And this is not an accident. This is, it’s a feature, not a bug in the economy. And that’s basically the direction we’re going in. The privatization of finance, instead of doing the obvious thing, if finance is now broke, why not do it? The government can create the money instead of what it’s doing now. The banks are giving the bad loans and basically they’re putting their assets with the Federal Reserve and borrowing the money to stay in business. You can be in negative equity forever as long as the Federal Reserve, which basically works for the commercial banks as their customers, is creating enough money to subsidize the negative equity for the banks and the financial sector. What they’re not doing is subsidizing the negative equity of the wage earners, the negative equity as a result of their housing costs, their medical costs. RADHIKA DESAI: Two things very quickly. And I think we should probably wind down because we are just about a little over an hour here. But just two quick observations that in the 2008 financial crisis, there were many people who were arguing that, yes, there should be a bailout, but not of the banks that caused the financial crisis in the first place, but of the homeowners who were not necessarily at fault. And of course, the economic benefit of bailing out the homeowners would vastly be greater for the good of the American economy than bailing out the banks. But of course, a government that is beholden to the big financial institutions was not going to do that. And so it did what it did. It bailed out the big banks and not the poor people who lost their homes, who lost their jobs, etc. The second thing is that, you know, I completely agree with you, Michael, that this is what neoliberal governments have done for many decades now. They essentially want to privatize everything in sight. And of course, by creating a crisis of social security and so on, that’s what they generally do. They first run down any institution, whether it’s social security or any other publicly owned asset, and then they say it’s time to privatize it because that will improve it. But, you know, I wonder, I wonder if there are not even enough people who can buy U.S. Treasury securities, if the market for Treasury securities is not great, if the big financial institutions are already sitting on mountains of negative equity, where are they going to get the money to buy? Where is going to be the market to buy these assets that the governments are going to privatize? Because in the history of privatization, there have been many privatizations that have had to be called off because there are not enough buyers. And we may very well be in that situation. MICHAEL HUDSON: You pose a question, I get to answer it. The answer is they’ll get it from abroad. This is a geopolitical hour after all. Europe’s loss will be America’s gain. What affluence is flowing in? You could say that since World War II, Europe and America have gained by keeping the prices of raw materials and the global South countries low and keeping the prices of their industrial goods very high. What you’re seeing today from Europe is, I think, their way of solving the problem you’ve just posed. The bright spot is getting a flow of American, of European companies into the United States, relocating here because they can’t, the European economy is collapsing. You’re having a flow of labor and skilled labor from other countries into the United States. Affluence is this kind of flowing in. If you’re not producing an economic surplus at home and you want to somehow sustain American living standards and corporate profits, it has to be done externally. It has to be done via foreign countries. And that’s the geopolitical implications of all this. If America is turning into a deficit, parasitic economy, some other countries have to pay. And that’s why there’s all of this military spending. RADHIKA DESAI: I would beg to differ, actually, because here’s the thing. The geopolitical economy of the North Atlantic financial crisis was roughly like this, that in the process of deregulation of European financial institutions that came along with the launching of the euro, a lot of European financial institutions ended up outside of North, the United States and Britain, becoming the main customers of the toxic securities that were being generated in the 2000s as a result of the housing and credit bubbles. Once that bubble burst, once the crash occurred, essentially European money left and it has generally stayed away. And there, as I said, this money is not even available to buy U.S. treasury securities. If the Europeans invest in the United States, they will be investing in creating new assets. They’re not necessarily going to buy up what the American government necessarily wants to privatize. And what’s more, in recent decades, recent years, I should say, China and Japan have also been increasingly reluctant to buy treasury securities. So all in all, all I’m trying to say is that it is not a given that these assets, that the old tradition of essentially privatizing things at bargain basement price, even at bargain basement prices, is necessarily going to work. That’s all. I’m just wanting to raise some questions around it. But so all in all, Michael, I think what we’ve done is we’ve painted a picture of an extremely precarious situation, an extremely dangerous situation in which people are suffering. They are unhappy. They are going to the polls. They are going, they’re being asked to choose between two candidates, both of whom have failed in signal ways. And there is not any simple way out. And so, as I say, it’s going to be a really, really rocky road to the election. MICHAEL HUDSON: Yep. If you have a democracy, you cannot let people have a vote for the other candidate. That’s what our democratic hero in Ukraine, Zelensky, says, cancel the elections. That’s what’s happening in Israel. Netanyahu, no way of throwing him out. And that’s what’s happening here. There can’t be a third party. You have to, as long as the Republicans and the Democrats have the same program, just with a different rhetoric, that’s the new meaning of democracy. RADHIKA DESAI: Well, I think that you’ve said that, said it, Michael. So I think with that, we’ll say goodbye for now. And we look forward to seeing you in a couple of weeks. Thank you and goodbye. And please remember to like our show and to share it as to other interested people and to subscribe to the channel. Thank you very much and goodbye.

Write an article about: EU confesses ‘our prosperity was based on China & Russia’: cheap energy, low-paid labor, big market. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

China, EU, European Union, Josep Borrell, neoliberalism, Russia

EU foreign-policy chief Josep Borrell confessed the West’s neoliberal economic model was “based on cheap energy coming from Russia,” “access to the big China market,” and low-paid Chinese workers. Europe has now lost that, and is thus in crisis. The West’s economic prosperity following the end of the first cold war in 1991 was built on a neoliberal capitalist economic model that was only made possible due to the extraction of wealth from China and Russia, the European Union’s top foreign-policy official, Josep Borrell, has confessed. “Our prosperity was based on China and Russia – energy and market,” Borrell said. China provided the US and EU with a massive market, low-paid labor, and cheap consumer goods. And after the Soviet Union was overthrown, mass privatizations in Russia and steps at integrating it into the West helped Europe secure huge amounts of inexpensive energy. But the significant rise in workers’ living standards in China, as well as the proxy war in Ukraine and the EU’s corresponding pledge to boycott Russian gas and oil, have greatly increased the cost of living and doing business in Europe, making its products uncompetitive in global markets. This has plunged the trans-Atlantic capitalist system into a deep crisis, motivating the neoliberal West to wage a new cold war on Beijing and Moscow in hopes of reasserting control over China’s market and labor and Russia’s natural resources. The EU’s foreign-policy chief acknowledged these facts in a speech at the 2022 Ambassadors Conference in Brussels on October 10. Borrell’s remarks were reminiscent of comments made in August by French President Emmanuel Macron, warning of the end of a neoliberal “era of abundance.” Borrell explained, “Our prosperity has been based on cheap energy coming from Russia. Russian gas – cheap and supposedly affordable, secure, and stable.” “And the access to the big China market, for exports and imports, for technological transfers, for investments, for having cheap goods,” he added. The EU foreign-policy chief observed, “I think that the Chinese workers with their low salaries have done much better and much more to contain inflation than all the central banks together.” Borrell then summarized, “So, our prosperity was based on China and Russia – energy and market.” The EU's top foreign-policy official, Josep Borrell: “Our prosperity was based on China and Russia – [Russia's] energy and [China's] market.” "China and Russia provided the basis of our prosperity. This is a world that is no longer there." Full video: https://t.co/AIZ7reVdKu pic.twitter.com/Pe51k62ZMa — Ben Norton (@BenjaminNorton) October 20, 2022 That prosperity is now slipping away. By imposing devastating sanctions on Moscow over the proxy war in Ukraine, and by pledging to boycott Russian energy, Europe has lost its larger supplier of gas and oil. The EU is now looking for new sources of energy, and is importing much more expensive liquified natural gas (LNG) from the United States, which has caused electricity bills to skyrocket for European citizens and businesses. Now that China and Russia have become the EU’s geopolitical adversaries, Borrell argued that Europe “will require a strong restructuring of our economy.” “The adjustment will be tough, and this will create political problems,” he said. “I think that we Europeans are facing a situation in which we suffer the consequences of a process that has been lasting for years in which we have decoupled the sources of our prosperity from the sources of our security,” he conceded. The EU’s neoliberal economic model adopted in the 1990s relied on cheap energy from Russia and China’s consumer goods, labor, and market. On the other hand, Europe’s security policy was based on the United States and NATO. But the US is not a reliable security partner, Borrell acknowledged. At the current moment, the US and EU are closer than ever, he said. However, that alliance is not ironclad, and it could shift in the near future. Borrell explained: On the other hand, we delegated our security to the United States. While the cooperation with the Biden Administration is excellent, and the transatlantic relationship has never been as good as it is today – [including] our cooperation with the United States and my friend Tony [Antony] Blinken [US Secretary of State]: we are in a fantastic relationship and cooperating a lot; who knows what will happen two years from now, or even in November? What would have happened if, instead of [Joe] Biden, it would have been [Donald] Trump or someone like him in the White House? What would have been the answer of the United States to the war in Ukraine? What would have been our answer in a different situation? These are some questions that we have to ask ourselves. And the answer for me is clear: we need to shoulder more responsibilities ourselves. We have to take a bigger part of our responsibility in securing security. You – the United States – take care of our security. You – China and Russia – provided the basis of our prosperity. This is a world that is no longer there. Borrell also conceded that the EU’s security problems are not just external. Internally, Europe is facing a threat from the “radical right.” “There is a radical shift, and the radical right is increasing in our democracies, democratically,” he said. Instead of trying to blame this on a foreign bogeyman, Borrell admitted that this far-right shift “is not an imposition from any power.” “The radical right is increasing their grasp in European politics,” he added. The EU’s “internal cohesion is under threat.” The EU foreign-policy chief likewise acknowledged that, while Europe is no longer dependent on Russian energy, it is becoming dependent on US liquified natural gas exports. This poses its own, new security problem, Borrell warned: The other day, at the Prague [European] Council, President [of France, Emmanuel] Macron said that very clearly: we cannot substitute one dependency by another. We are happy that we are importing a lot of Liquefied Natural Gas (LNG) from the United States – at a high price, by the way – and substituting Russian gas by American and Norwegian gas, or Azerbaijani gas – well, from Azerbaijan it’s a small quantity. But what would happen tomorrow if the United States, with a new president, decided not to be so friendly with the Europeans? Why not? You can imagine the situation in which our critical dependency from LNG coming from the United States could also be in crisis. Or that, tomorrow we do not have the cobalt, we do not have the rare materials that [come from] the DRC, South America, Afghanistan – they are [as] critical for us as oil and gas. Borrell warned that the world is in chaos, and he named several main causes: the NATO proxy war with Russia in Ukraine, the “deep US-China competition,” food and energy crises, and an impending economic recession. It is not just the proxy war in Ukraine that has destabilized Europe, Borrell said, but also the “deep US-China competition.” He acknowledged that the US government bears responsibility for pushing up to the brink of war. “The escalation of tension in Taiwan,” Borrell said, “was triggered by an individual travel of a personality that brought the Taiwan Strait at the edge of – I would not say a war, but – a lot of war games.” He was referencing the trip taken by Nancy Pelosi, the Democratic speaker of the House of Representatives, the third-most senior official in the US government. These conflicts, compounded by rising inflation and “food and energy crises,” has created a “perfect storm,” Borrell said. This will inevitably lead to an economic recession: This is a perfect storm. First, the prices increasing. Second, the reaction of the central banks raising interest rates in the United States. Everybody has to follow, because otherwise their currency will be devaluated. Everybody is running to raise interest rates. This will bring us to a world recession. The world following the Fed [the US Federal Reserve], the world implementing the same monetary policy – because there is no other way, otherwise the capital will flow – reminds me of what was happening in Europe before the euro when everybody had to follow the monetary policy dictated by Germany. Because if you did not do the same thing, the capital was flowing, and you had to do it even if it was not the right policy for your internal reasons. What was happening among us before the euro is happening today on the world stage.

Write an article about: Sanctions ‘undermine hegemony of dollar’, US Treasury admits. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Brazil, China, CNN, de-dollarization, dollar, Fareed Zakaria, Iran, Janet Yellen, Russia, sanctions, SWIFT, Treasury

US Treasury Secretary Janet Yellen admitted to CNN that Washington’s unilateral sanctions on countries around the world “could undermine the hegemony of the dollar”. The secretary of the US Treasury, Janet Yellen, has admitted that Washington’s imposition of unilateral sanctions on countries around the world could weaken the dominance of the dollar. “There is a risk, when we use financial sanctions that are linked to the role of the dollar, that, over time, it could undermine the hegemony of the dollar”, Yellen said in an April 16 interview with CNN. She also noted that Washington’s use of economic warfare “does create a desire on the part of China, of Russia, of Iran to find an alternative” to the dollar. Before serving as secretary of the Treasury, Yellen was the chair of the US central bank, the Federal Reserve. Her remarks represent a significant public acknowledgment by a top level US government official that its increasing use of sanctions has fueled the growing de-dollarization movement in the Global South. Republican Senator Marco Rubio made similar comments in a March 30 segment on Fox News, complaining, “We won’t have to talk sanctions in five years, because there will be so many countries transacting in currencies other than the dollar, that we won’t have the ability to sanction them”. In the April 16 CNN interview, Fareed Zakaria asked Yellen: The way that the United States has used sanctions often – in this case [against Russia], the case of the Iran nuclear deal – is to use the power of the dollar as the reserve currency of the world. But that weaponization of the dollar has produced a reaction. This week, President Lula in Brazil said, ‘Why are we all being forced to use the dollar?’ Emmanuel Macron made reference to the dollar in that same way. The European Commission has talked about, after Trump pulled out of the Iran [nuclear deal], talked about creating an alternative to SWIFT, to the American-dominated payment system. Is there a danger that we will look back at all these measures and say, this was the moment that the dollar’s hegemony and its status as a reserve currency began to falter? Yellen leads the Treasury, whose Office of Foreign Assets Control (OFAC) oversees the US government’s sanctions. She responded: There is a risk, when we use financial sanctions that are linked to the role of the dollar, that, over time, it could undermine the hegemony of the dollar, as you said. But this is an extremely important tool, we try to use judiciously and in circumstances, especially when we have the support of our allies. It’s not just the United States. It’s a coalition of partners acting together to impose these sanctions. So it is a very effective tool. Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative. But the dollar is used as a global currency for reasons that are not easy for other countries to find an alternative with the same properties. The US treasury market is the deepest, and most liquid, and safest asset. Dollars are widely used. We have very deep capital markets and rule of law that are essential in a currency that is going to be used globally for transactions. And we haven’t seen any other country that has the basic infrastructure, institutional infrastructure, that would enable its currency to serve a role like this. Despite Yellen’s claim that the US government uses this tool of economic warfare “judicially”, more than one-quarter of the global population lives in countries that have been sanctioned by Washington. Unilateral sanctions that don’t have the approval of the United Nations Security Council, which is the vast majority of those imposed by the US, flagrantly violate international law. A map of countries sanctioned by the United States Western sanctions have caused millions of deaths around the world. A former United Nations assistant secretary-general and UN humanitarian coordinator in Iraq, Denis Halliday, resigned in 1998 in protest of the devastation that sanctions caused in the West Asian nation. “United Nations Security Council member states … are maintaining a program of economic sanctions deliberately, knowingly killing thousands of Iraqis each month. And that definition fits genocide”, Halliday stated in 1999. “We are now in there responsible for killing people, destroying their families, their children, allowing their older parents to die for lack of basic medicines”, he added. “We’re in there allowing children to die who were not born yet when Saddam Hussein made the mistake of invading Kuwait”. The former top UN official estimated that sanctions caused between 1 million and 1.5 million Iraqis to die from malnutrition or lack of health care. In a 1996 interview on 60 Minutes, former US Secretary of State Madeleine Albright was asked about a report that sanctions caused half a million children to die in Iraq. The top US diplomat replied, “I think this is a very hard choice, but the price, we think the price is worth it”. Since then, Washington’s use of the sanctions weapon has massively increased. Illegal US sanctions caused an estimated 40,000 deaths in Venezuela just from 2017 to 2018, according to a study by the Center for Economic and Policy Research. The number of US government sanction designations grew from 912 to 9,421, skyrocketing by 933%, in the two decades from 2000 to 2021, according to economist Timothy Taylor’s review of OFAC data. In the interview with CNN, Yellen argued that the unprecedented Western sanctions on Russia have been successful, causing a 40% drop in Moscow’s oil revenue and leading to a substantial government deficit. She also implied that the US and Europe want to use some of the $300 billion worth of Russia’s foreign exchange reserves that they unilaterally seized in order to pay for reconstruction in Ukraine – in what is essentially an act of massive geopolitical robbery. Zakaria asked if the money needed to rebuild Ukraine “should be taken from Russia’s frozen central bank reserves”. Yellen hinted that Washington would like to do so, but there are “legal constraints”, stating: I think Russia should pay for the damage that it has done to Ukraine. So that’s a responsibility that I think the global community expects Russia to bear. This is something we’re discussing with our partners. But, you know, there are legal constraints on what we can do. We have frozen Russian assets, and we’re discussing with our partners what might lie in the future. But I think that’s the right thing to happen, that Russia should pay for the damages that it’s caused. The US dollar was established as the global reserve currency in the 1944 Bretton Woods Conference. This same conference established the US-dominated World Bank and International Monetary Fund (IMF). This April, the World Bank and IMF held their spring meetings in Washington. While these US-dominated financial institutions were meeting, however, the developing nations in the BRICS system were strengthening their own alternative, the New Development Bank, which is adding new members, expanding its operations, and moving away from the US dollar. BRICS Bank de-dollarizing, promises 30% of loans in local currencies, new chief Dilma Rousseff says

Write an article about: Inside Latin America’s new currency plan, with Ecuador’s presidential candidate Andrés Arauz. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Alberto Fernández, Andrés Arauz, Argentina, Brazil, Bretton Woods, BRICS, Ecuador, Latin America, Lula da Silva, Rafael Correa, Sur, Zoltan Pozsar

Ecuadorian economist and former presidential candidate Andrés Arauz explains Latin America’s attempt to create a new currency and regional financial architecture, to challenge the “hegemonic, neo-colonial” US dollar-dominated system. Geopolitical Economy Report editor Ben Norton spoke with Ecuadorian economist Andrés Arauz, a former presidential candidate who came close to winning the 2021 elections. Arauz discussed Latin America’s attempt to create a new currency and regional financial architecture, to challenge what he described as the “hegemonic, neo-colonial” US dollar-dominated system. “We need the type of bank that can really serve the Global South”, he urged, calling for a “clearing and settlement bank that can allow for these transactions to take place, and that is not afraid of sanctions from the United States”. “We’ve seen tectonic shifts in the functioning of the international monetary system”, Arauz said, agreeing that the world is now seeing a new kind of Bretton Woods III emerge. “There are many different initiatives, but this has to find a reasonable path forward, which goes along with regional integration mechanisms. So you have a sort of Eurasian hub, a pan-African hub, a Latin American hub, and then you have connections among those regions”. “The society of the 21st century has to be a society of blocs, of large geopolitical blocs that can effectively allow for a sort of planetary governance, in more balanced terms, but also have common positions, but then within those blocs you can have quite a bit of diversity. So I think that’s how it will end up working also in the monetary sphere”. “This is a historic moment for humanity”, he argued. “We have to show that there is an alternative, and we are in the conditions to prove that”. But Arauz warned that Latin American unity must come quickly: “We cannot be facing this geopolitical moment, basically a world war, as 33 independent, small republics; this has to be faced as a Latin American bloc. And the political conditions are there. I just hope that we can get the structures, the instruments, in place for the regional bloc to actually assert itself”. BEN NORTON: Hey everyone, I’m Ben Norton, and this is Geopolitical Economy Report. Today, I have a real pleasure of being joined by the Ecuadorian economist and politician Andrés Arauz. He was the former minister of knowledge and human talent in the government of Rafael Correa in Ecuador. He was also a former general director of Ecuador’s central bank. And he is brilliant when it comes to understanding new forms of finance, new economic alternatives. He’s been a longtime critic of the International Monetary Fund. He has discussed a lot the importance of building a new currency system in the region, and has also discussed central bank digital currencies. So that’s exactly what we’re going to be speaking about today. Now, there was also recently a regional election in Ecuador, and the leftist Correísta movement swept the elections and won more than any other party. They won in the seven most populous regions, and they also won the mayorship of the major cities of Quito and Guayaquil. So we are going to talk about the election, but I want to begin, Andrés, speaking about the discussion of creating a new currency in Latin America for bilateral trade. There has been a lot of debate about this, especially in the financial press. We’ve seen economists from the IMF have denounced it as a “crazy” idea. But this is not necessarily a new idea. You yourself were involved in a previous attempt at creating a unit of account in Latin America for international trade, which was called the Sucre. And I do want to ask you about that in a moment. But I’m wondering if you can discuss this meeting that was held this January between the Brazilian President Lula da Silva and Argentine President Alberto Fernández. And in that meeting, Lula said that they are beginning the process of research to create a new currency, which he has tentatively referred to as the Sur. There are a lot of questions about this. I know it’s in the early stage. I’m wondering what your thoughts are on this. You yourself have been promoting this idea for a long time. ANDRÉS ARAUZ: Hi, Ben. Thanks for having me. Yeah, the Sur is an idea that has been in the minds of Latin American economists for decades. And we have a lot of historical precedents. In the ‘80s, there was an initiative called the UMLA, Unidad Monetaria Latinoamericana, within the ALADI, which is the Latin American Integration Association, so that central banks could have this common currency and they could make transfers, international transfers amongst the different countries of the region without having to do it recurring to the dollar or the US financial system. And then, you know, we had the Sucre initiative among the ALBA countries, that works, that is operation right now. We also had the case of the Peso Andino for the Andean countries, that likewise was created in the ‘70s and ’80s. And now we’re discussing the Sur. Some of the critics have incorrectly basically called it a unique currency, or a currency that will replace national currencies. And that is not so. The idea is not to replace each country’s national, sovereign currency, but rather to have an additional currency, a complementary currency, a supranational currency for trade among countries in the region, starting with Brazil and Argentina, that are the sort of two powerhouses in the Southern Cone, and that could then amplify to the rest of the region. That’s a very important concept because people tend to compare this to the euro, and the euro had a very long process of getting there. But the euro is actually in every person’s physical wallet. In our case, we’re not talking about replacing national currencies. We’re not talking about convergence criteria and fiscal convergence, like the Maastricht Treaty, imposing austerity and debt limits to each country. That is not the case of our proposal. It starts from the banking sector, from the functioning of the international payment system dynamics, very much in the spirit of Keynes’ Bancor. Now, I think that translated to the 21st century means that the Sur, this common additional currency for trade transactions within the region, has to have financial innovation incorporated in the design so that, for example, we don’t have to use the banks in Miami or in New York just to transfer funds between Chile and Uruguay, or Argentina and Colombia. Right now, what happens is that, when a transaction from either of these countries has to take place, they have to first find what’s called the correspondent bank in the United States, usually a bank in Miami or in New York City, where the money flows. Now, that’s not only inefficient in energy terms, and information terms, but it is also much slower because, by having to go through the US financial system, it has to comply with the United States sort of know your customer, anti-money laundering, combating financial terrorism laws and regulations. And that’s in principle okay, but they take a long time to process. And if you think about it, if it’s a transaction between two countries within Latin America, why would they have to comply with U.S. regulations to begin with? It could be a regional financial arrangement that could make transfers in real time, what’s called real time gross settlement of these transactions. You could have this immediately available. And you could make trade much faster. And it could be a way of promoting regional economic integration, especially for small and medium enterprises. You usually have to wait, you know, five or six days for a transaction to finally settle. So this is an opportunity for Latin American small businesses as well, and hopefully it can be deployed in a very quick manner. You know, this has been discussed in theory and practice for decades. So it really shouldn’t be a challenge to get this going forward fairly quickly. BEN NORTON: Thank you for describing that. And you mentioned something very important, Andrés, which is the Bancor. This was the proposal that John Maynard Keynes had made back at the Bretton Woods conference in 1944, in which the US dollar was established as the global reserve currency. This is an international unit of account, so each country could still maintain its own sovereign monetary policy. And I’m glad that you stressed that this is not based on the Eurozone model, where a country that has a current account deficit like Greece is just going to constantly be trapped in debt, whereas countries that have current account surplus like Germany, which export so much, they maintain this kind of economic hegemony. I want to talk about what happened with the Sucre. You mentioned that the Sucre technically is still, it’s still possible to use this currency. A lot of people associate the Sucre with former Venezuelan President Hugo Chávez, who had been a huge promoter, but it was actually under Rafael Correa in Ecuador, in whose government you served, that used the Sucre more than any other country in the region. This is a graph showing the volume of trade, at least converted to U.S. dollars, of the use of the Sucre in bilateral trade in Latin America from 2010 until 2016. And Ecuador was responsible for the vast majority of the transactions. Now, we do know that there are political reasons for [the reversal of] that. After Correa left power in 2017, we saw that he was betrayed by his former vice president, Lenín Moreno, who basically did a kind of internal coup. But I’m wondering if you can discuss your experience with the Sucre, I believe you were involved in helping to develop it, what lessons you have learned from it, and if you think that it’s something that could be brought back in the future, or if the Sur is going to kind of replace it, or, in general, if you can reflect on the experience of the Sucre. ANDRÉS ARAUZ: The Sucre is like building an extra highway for financial transactions. So you have the conventional financial system that by default requires that a US correspondent bank intermediates financial transactions, and that correspondent bank is usually based either in Miami, for the Latin American countries, or New York City, if it’s a larger business. For example, a transaction between South America, any South American country and, for example, an East Asian country, it usually requires a correspondent bank account, and a common correspondent bank account, and that’s very hard to find. So they have to call their bankers, and they say, “Hey, do you have any relationship with a bank in Argentina?” And they say, “No, I don’t. Let me call my bankers’ bankers”. Then they make successive calls until they find that they both share an account at the Federal Reserve, for example, or a big bank like JP Morgan. And so then these banks, which are in fact grouped in these large global private commercial banks, that intermediate financial transactions, are grouped into an organization called the Wolfsberg Group. This Wolfsberg group is the group of the 13 largest international banks, and they settle most of the international trade in the world. And they are all private banks. And they have their own standards, their own principles, and their own logic as to how they work. Of course, they want to make money, but then they also follow their country of origin’s rules and regulations, which are hegemonic in nature, neocolonial in nature as well, and are not designed for the interests of the sort of peripheral countries or marginal users of these transactional systems. So in the case of the Sucre, it’s a highway, it’s a platform that connects the central bank of each of the countries, of the ALBA countries, with the domestic commercial banks, where people have accounts, and then the central banks are connected amongst themselves with the Sucre platform, which is really a piece of software, a messaging protocol, which allows the central banks to talk to each other and to pay each other in Sucres. The Sucre is the unit of account of the system, of this platform system. And like I said, it’s fully operational, in technical terms. Anyone can do a transaction, if they want to. But politically, when Lenín Moreno came to power in Ecuador, he decided to stop sending the Ecuadorian delegates to the monthly and yearly sort of meetings that the Sucre council had, had, where they were discussing the technical operational workings of the system. And so after Ecuador stopped sending the delegates, some of the issues on the technical workings of the Sucre started to sort of be on pause and on hold. And until now, they’re like that. So it was a political manipulation of the process to make it slow at first, and then to completely halt. However, the software itself, the technical design, and the possibility to make transactions, could be easily retaken, if there is just enough political will to bring it back to life. The Sur also has other precedents in the Southern Cone of South America, which was the SML, Sistema de Pagos en Monedas Locales, or Local Currency Payment System, that within the Mercosur was developed by first Argentina and adopted by Uruguay and Paraguay as well, which allows exporters to invoice their sales in local currency to get paid in local currency with transactions within Mercosur countries as if they were domestic transactions. But then the central banks settle, at the end of the day, at the New York Fed. So again, they have to go to this sort of correspondent banking network, designed where the New York Fed has protagonism. So it won’t be hard to sort of merge these initiatives and to have the Sur come out of that. It is not necessary to have, you know, a physical or legal merge of these two instruments. It is enough to have a conceptual merge. We have the ideas from one, the ideas from another. We can easily design something new that takes the best from all of these designs, the historical precedents that we do have in the region. That’s why I trust that it can be deployed fairly quickly. I followed President Lula and President Fernández’s announcement, again, it was announced as an initial research phase. I have been involved in the working group for the Sur with some people from the ministry of finance of Brazil. And I think we can really go forward fairly quickly. But again, our challenge here is not technical in nature. We know how to solve all these issues. We have the experience; we have the concrete, tangible experience. What we need is to present a system that will be supported by our local productive sectors, so that it can be sustained, so it can be sustainable in time, and not be just subject to a political backlash or, you know, flip flopping, like we have seen in the case of the Sucre, or in other initiatives in the region. We need to make this long lasting. And for that to work, we need the productive sectors, small and medium enterprises, businesses actually use the platform and the mechanism. BEN NORTON: Yeah, I’m glad you mentioned that, Andrés, because I was going to ask you about the politics of this. I should say that I want to apologize a little bit to you, because I know I landed you in some hot water in Ecuador. I wrote an article after, in Brazil, after Lula won the presidential election in October, you published an excellent article in Spanish explaining your new plan for a “regional financial architecture”. And I translated it into English and was promoting it. Advising Brazil’s President-elect Lula, Ecuadorian economist and leftist presidential candidate @EcuArauz made a blueprint for a “new regional financial architecture” to unite Latin America, including a currency to challenge the hegemony of the US dollar https://t.co/o7L0fN236F — Ben Norton (@BenjaminNorton) December 1, 2022 And I saw that the Ecuadorian right wing was very angry, because they said that you are planning on ending the dollar as the Ecuadorian currency. Of course, people might know that, in Ecuador, the dollar has been the national currency ever since the 1999 banking crash, that was actually overseen by former Economic Minister Guillermo Lasso, who is the multimillionaire banker who is now the president. So I’m sorry for leading the right wing to attack you, even though that’s not what you proposed. You didn’t propose changing the national currency of Ecuador. And they’re obviously misinterpreting what you wrote. But what you did write in that article, an important point, is that Latin America, at least South America at this moment, has a narrow window of time, because at the end of 2023, there are going to be presidential elections in Argentina. And if the right wing comes to power, and especially if someone who is very extreme like perhaps Javier Milei, who is this, you know, libertarian, right-wing Koch Brother kind of figure in Latin America, I highly doubt that he would be willing to continue with this process of economic regional integration and the creation of a unit of account for trade between countries in the region. How can a system — I know this is not an easy question to answer — but how can such a system like this be created, so if a Bolsonaro, or a Milei, or a Lenín Moreno comes to power, they can’t just sabotage it, like they have done in the past? ANDRÉS ARAUZ: Yeah, it really is a challenge. But we know the answer. The answer is to have, you know, to surpass the point of no return. And to do that you first have to overcome the theoretical discussion. It can’t just be an idea floating around. It has to try to become at least a treaty, a law, some regulation of some sort that can exist in reality, not just an academic proposal. So the first step is to do that. Then, of course, we need to go beyond just having it on paper. We need to have users of the system that can then become the incumbent defenders of the system, of the new system, of the alternative system. So that is why we need to go extremely quickly. This is what really bothers me, because sometimes, you know, the heads of state make these grand announcements, which are huge in terms of their implications, but then our bureaucracies, Latin American bureaucracies, and especially the foreign ministries do not move at the same pace that the presidents are going. They go very slowly. And, you know, with all these bureaucratic messes and they’re still sending physical snail mail to exchange letters and you have to send a letter to the embassy, sort of ignoring that we live in the 21st century, that you have email, that you have WhatsApp, that you can send an instant message, and then you can actually make decisions quickly, and go forward quickly as well, where you have a huge pool of talent available anywhere in the world, and you can have meetings via video calls. Somehow, this does not work in the case of Latin American government bureaucracies, foreign ministries. We have to go really quickly. I mean, I am a technical person, I know my stuff. But I’m also active in politics. And I immediately recognize that we do have a narrow window. We have no time to lose. And so we need to create a chat group among the presidents, and have them make decisions quickly, you know, via their cell phones. This is how things get done nowadays in the corporate world, and big firms, and other initiatives. And this is how we have to move; we have to move forward quickly. It is a bit frustrating, that the speed at which the bureaucracies are moving does not match the historic moment that we have in Latin America with, you know, basically all of the major economies, all of the major countries having progressive governments. I mean, this is not an opportunity to waste. Then, of course, once we get this done, once we get this operation going, we have to empower our citizens. We have to empower our domestic productive sectors, our small and medium enterprises, our cooperatives, our associations of producers, so that they can get the most out of these new mechanisms. They can trade amongst themselves. We have to build networks. We have to set the infrastructure in motion quickly, so that the new opportunities for trade among our countries can be concrete, tangible, and effective. And that is a challenge for us. I wish we could build, you know, as quickly as the Chinese are building new rail infrastructure, for example. And that’s something that we need in South America. And that can be done as well, also quite quickly, and have profound, transformational impact within the region. Then there are other things that are even more powerful that can be done extremely quickly, and that are very important to keep the motion and the momentum for regional integration going, which is, for example, setting up a scholarship fund, a small scholarship fund, but for what we call educational exchange between high schools and also universities of the countries in the region, so that you can do a semester or a year abroad. And when a student leaves to another country, for example, goes from Peru to Paraguay, and then the empty spot left in Peru can be filled by a person from Bolivia, or from Ecuador. Then you have basically a clearing system of educational exchange that does not need to cost more money for our governments. So with very little money, basically paying for tickets, you could get this energy of regional integration going, especially among the youth, which in a young continent like Latin America is the engine for the present and the future. BEN NORTON: Yeah, I should mention to people that Andrés was a leading presidential candidate in 2021. He won the first round of the election, and came close to winning the second. And it’s very refreshing to hear all of these very creative ideas from someone who could potentially be president someday. Andrés, you talked about the importance of speed in this moment. I do have to say that Lula made a comment in his meeting with Alberto Fernández that gave me a little concern, when he said that “there are going to be many debates and many meetings” in the plan to create this. And it does make me a little worried that that they might not be expediting the process very rapidly. But what I will say is Lula made another very interesting comment that I wanted to ask you about. When a journalist posed this question about the currency, Lula mentioned that the BRICS system is also working on creating an international reserve currency. And from what we’ve seen thus far, it’s going to potentially be based on a basket of currencies of the five members, Brazil, Russia, India, China, and South Africa, using their currencies. And potentially also there may be the use of commodities like oil. So I’m curious, now that the BRICS is developing its own international financial architecture, a potential reserve currency, and Argentina has applied to join the BRICS. China invited Argentina to virtually attend the two meetings of the BRICS last year. And Iran, Algeria, Egypt has expressed interest, and Indonesia. I’m curious if you think that, now that we’re seeing another international financial architecture being created through the BRICS system, if in Latin America the financial architecture could potentially be connected, if you could collaborate, and potentially if you can even see a country like Ecuador collaborating with BRICS or potentially joining BRICS. ANDRÉS ARAUZ: I think it would be, of course, interesting to have Ecuador join BRICS. I think that’s a very distant possibility, for different reasons. Right now [President] Lasso is completely a right-wing ideological monster, and is not even interested in anything counter-hegemonic, and doesn’t even believe in regional integration. And of course, challenging the unipolar system is out of question, in the case of Lasso. But also Ecuador is a fairly small country, although its human talent I think outweighs its natural size. But I think right now what is key is to have the five BRICS countries, the core members, actually get something done. You know, the New Development Bank halted some of its operations in the pandemic. Then more recently as well, I think Lula nailed it, correctly, when he proposed that Dilma Rousseff go to China to lead the BRICS bank, called the New Development Bank. Hopefully it can do so without following the same sort of IMF, World Bank type logic, or the same credit rating agency type logic, and to create new markets, new ways of interacting with the Global South. I think that the common unit of account is definitely something that can be done, again, quickly. We have the experience of setting up in South America this system for unitary compensation in the region, the Sucre. And there are other examples as well. This should not be a challenge. Hopefully, what’s important there is to find a clearing and settlement bank that can allow for these transactions to take place, and that is not afraid of sanctions from the United States. We need that type of bank that can really serve the Global South, the interests of the Global South, and that can help nations that are in desperate need, in this 2023, where we’re going to have a massive debt crisis in the Global South, particularly many Latin American and African countries. Hopefully the BRICS bank will be there to support the Global South with solidarity, and not just become one more creditor that, you know, wants to join the Paris Club or whatever. We need an alternative view. And I really hope that President Dilma will bring that vision to the BRICS bank. BEN NORTON: Yeah, very well said. I think that is a very important decision, to appoint Dilma as the head of the New Development Bank. You mentioned an important word, the s-word, sanctions, which I wanted to ask you about. We’ve seen that in the past few decades, the application of unilateral sanctions by the United States has skyrocketed. And of course, in the context of South America, we’ve seen that Venezuela is suffering under a brutal embargo imposed by the U.S., with many illegal unilateral sanctions. The central bank reserves and the gold reserves in particular, of Venezuela were effectively stolen by the Bank of England. That established a precedent that was then used by the U.S. to freeze the central bank reserves of Afghanistan, which has fueled a horrible crisis and hyperinflation, because they can’t stabilize their currency in Afghanistan. Then, of course, Russia. After Russia invaded Ukraine, the U.S. and the EU froze $300 billion U.S. dollars worth of the central bank reserves, the foreign exchange reserves of Russia. So clearly that has established a precedent that has frightened countries around the world. And it makes sense why countries are trying to find new reserve currencies and new payment mechanisms. The prominent Credit Suisse economist Zoltan Pozsar has been talking a lot about this concept of Bretton Woods III. He argues that we’re entering this new kind of monetary era where Bretton Woods I, from 1944, in the Bretton Woods conference, until 1971 or ‘73, when the US dollar was delinked from gold, was Bretton Woods I, and then we’ve been living through Bretton Woods II. But he argues that now we’re moving into a kind of Bretton Woods III. I’m wondering if you agree with that argument, and what role you see Latin America playing in kind of forging this path. I always shout at the top of my lungs, you know, people talk about Eurasian integration, but I think Latin American integration is just as important in challenging this financial hegemony and building a truly multipolar system. And I’m curious if you think that we are in this Bretton Woods III world, and what role Latin America plays in that. ANDRÉS ARAUZ: Yeah, definitely, we are in this Bretton Woods III world. This is obvious, not in question. We’ve seen tectonic shifts in the functioning of the international monetary system. Some are not detected until after a while. But those who follow this, you know, those who follow this closely, I think we are in the capacity to say that, yeah, we’re living this Bretton Woods III moment. There are many, many conversations happening right now. I think right now we’re still in a moment of what Ilene Grabel calls “productive incoherence”, in the sense that there are a million ideas, you have BRICS, you have the different regions, you have Latin America, you have the SDRs, you have the crypto movement, I mean, all these different alternatives and ideas. And for now, it’s okay that it’s sort of chaotic and there are many different initiatives, but this has to find a reasonable path forward, which goes along with regional integration mechanisms, and the connection among regional integration mechanisms. So you have a sort of Eurasian hub, a pan-African hub, a Latin American hub, and then you have connections among those regions. And the society of the 21st century has to be a society of blocs, of large geopolitical blocs that can effectively allow for a sort of planetary governance, in more balanced terms, but also have common positions, but then within those blocs you can have quite a bit of diversity. So I think that’s how it will end up working also in the monetary sphere. And we need these sort of communicating chambers or layers, and that would be the suprabloc or the supranational mechanisms, you know, like the BRICS bank, but also the SDRs at the International Monetary Fund and other such initiatives. So we’re definitely living this moment of creativity. And I think it’s important to get these things rolling, so we have to go from talking about them to actually setting them in motion, and then testing which initiatives are most successful. Now, all of this has to be done in the context of geopolitical confrontation and the weaponization of the incumbent financial system, which is the dollar-based, US financial system-based, correspondent banking and sort of FATF-governed, US hegemonic financial system. And that is really both a cause for the major change, but also it stifles that change, because the smaller countries, but also maybe banks that do not want to lose their incumbent position, are afraid of taking on this role of an alternative system, because the US institutions, the OFAC, the Treasury, FinCEN, and their position in international multilateral organizations have really weaponized the system against any sort of this creativity. So it will take a lot of courage, but also a lot of coordination, so that things can be done in a unified way, opposing hegemony, but in a coordinated way, so that not each individual country suffers the weight of the sanctions, but that we can do it in such a coordinated way that, you know, we can all go forward without fear of retaliation from these institutions. So that’s a realpolitik kind of thing. Coming from a small country like Ecuador, it would be impossible for us, Ecuador by itself, to try to promote something that big. So we have to trust the big players to take the first steps, and to make some long-lasting change. And just because you mentioned sanctions, I want to add another element, which is not only the gold that was taken from Venezuela, and the asset freeze and so on, but there was a particular type of sanction that has not been well described in the media, which is the IMF, the International Monetary Fund, which is a multilateral organization, but because the US has a veto and outsized influence in the governance of the fund, decided not to recognize the Venezuelan government. So neither the Maduro official government, nor the fake Guaidó “government”, they said, “We have uncertainty as to whom we should recognize as the official government”. And they blocked Venezuela’s accounts at the IMF, and in de facto avoided, or it was an obstacle for Venezuela accessing its $5 billion dollars worth of recently issued SDRs in 2021, which at the moment of the pandemic, and given the economic hardship that Venezuela was going through, would have been extremely useful for fighting the economic consequences of the pandemic, and acquiring vital health and medical equipment for the population. So this is a new type of sanction, which is not explained anywhere; it’s very difficult to pin down. But up to this moment, even two months after Guaidó has been sort of removed from power, and there is no question as to the legitimacy of President Maduro of Venezuela, the IMF has still not recognized the Venezuelan central bank, and has still blocked the passwords to Venezuela’s account at the IMF, where there is over $5 billion worth of SDRs, which are bigger than what’s in the UK with the gold, bigger than other asset seizures that Venezuela has gone through. BEN NORTON: Yeah, this is actually a perfect segue. I wanted to ask you about special drawing rights, SDRs. You’ve been a big advocate internationally for expanding the use of SDRs. And in many ways, this is kind of an example of the Keynesian concept of the Bancor in practice. The problem, of course, with the SDRs — you can explain what they are — is that they are overseen by the IMF. And we know that the IMF is a deeply politicized institution, in which only the U.S. has veto power. Of course anyone who knows the basic history of the IMF knows it has a long history of trapping countries in the Global South in debt, and then forcing them to impose neoliberal “structural adjustment” programs, cutting the minimum wage, privatizing state assets, etc. The IMF itself, its top economists, admitted in a report called “Neoliberalism: Oversold?” that those policies led to a decline in growth, led to increasing inequality, and unemployment, and such. But we’re in this complicated situation, where the SDRs do propose an interesting opportunity for the Global South. But as you mentioned, during the pandemic, Venezuela applied for an IMF loan, but also Iran, where no one contests who the real Iranian government is. The US used its veto power to block the request that Iran made for a $5 billion loan from the IMF, during the pandemic, that could have saved lives. So I’ve always been struck by this contradiction. I think you’re absolutely right, that SDRs are an important opportunity for the South. But how do we square the circle of that contradiction, where it’s also with such a thoroughly flawed institution? You yourself have been a leading critic of the IMF. I’m just curious what you think about the contradiction there, of the importance of SDRs, but the problem of the IMF. ANDRÉS ARAUZ: So we don’t have to compare the SDRs to perfection, because perfection doesn’t exist, and is not around. So we have to compare SDRs to other existing mechanisms. And other existing mechanisms that we have right now in the system are the hegemonic, neo-colonial swap arrangement from the Federal Reserve, where the United States grants literally an unlimited dollar account to five other central banks: the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank. So these six, the six central banks, the US Fed plus these five others, have literally unlimited dollar accounts at the Fed. Now that is definitely an advantage that these partners of the US have, but Global South countries don’t. What do Global South countries have? Well, they don’t have these unlimited dollar accounts, so what they can do is, you know, try to knock on some doors and maybe get a loan from somebody. And you know what those loans mean? They mean conditionality; they mean austerity; they mean firing people; they mean privatizing state assets; they mean deregulating the financial system, and so on, and creating crisis. So those aren’t really a true alternative for people that are actually concerned with the human rights and the well-being of people in the Global South. So the next best thing that we have are the SDRs, that, yes, have to follow the conventional voting structure at the IMF; they require US consent. But once that happens, they are distributed fairly equitably to every country in the world. They are skewed towards richer countries, but the richer countries are not making any use of them anyway. So what you really have to count is how much arrives to the Global South countries. I’ve done several studies to show that it’s the Global South countries that are the ones taking advantage of the SDRs, and that we need more. We need more of these SDRs for several reasons, more specifically because they benefit the fiscal budget, the budget of these countries, that allows them to invest in their economies, and save lives, and help people very concretely. But also because it creates an alternative to the hegemonic system. So I think, in that sense, SDRs are a very powerful instrument. Again, they are not perfect. I hope one day we can reform the IMF governance and so on. But in the meantime, SDRs are a viable alternative that can happen. And as happened during my [presidential] campaign in 2021, when I said that I would help the people in the pandemic by giving $1,000 to each of the 1 million families that were in the most vulnerable condition in my country, they said, “Where is that money going to come from?” I said, “Well, from the SDRs. It’s issued out of thin air”. And the people that didn’t know how money works sort of made fun of that, because they don’t know how it works. But SDRs are issued out of thin air; they are politically created. You know, the countries literally meet, in this case by email, and they vote on creating new money, new money that is a hard currency that can be issued to every country in the world that’s an IMF member country, and then that can be swapped or traded for dollars, euros, yuan, yen, or the British pound. And they can be used for countries’ day-to-day operations and purchases in the international market. So it’s a concrete benefit to Global South countries. Yeah, we have to overcome the governance dynamics of the IMF. But in the meantime, it’s the most concrete, most tangible, most equitable, debt-free solution for getting liquidity, getting money to the poorest countries in the world. BEN NORTON: Yeah, very well said. I have one final economics question, and then we can conclude talking about the politics in Ecuador briefly. You’ve also been a promoter of central bank digital currencies. I’m wondering if you can talk about this. This has become a very hot topic in the financial press. And something that’s also related, we saw that Argentina and China just signed a currency swap line agreement. And the Chinese media discussed this as a way of encouraging bilateral trade between Argentina and China using their domestic currencies. But also it’s clearly a way to provide liquidity for Argentina, which is facing this inflation crisis, so Argentina can service its dollar-denominated debt, while also having these Chinese yuan. I’m curious if you think that currency swaps — we’ve seen China, the Chinese central bank, has really expanded its use of currency swap lines with countries that are suffering with dollar-denominated debt, like Pakistan, Sri Lanka, Argentina — I’m curious what you think about that in the future. People have argued that this is basically a way of providing loans that get around the SWIFT system and around sanctions. So these are both examples, central bank digital currencies and currency swap lines, of ways for central banks to kind of oversee alternative payment mechanisms or alternative loan mechanisms. What do you think about both of those? ANDRÉS ARAUZ: Well, swap lines are loans, they are mutual loans between central banks. So one central bank lends some of its own currency to another country and gets a loan in return. Usually it’s a country with a harder currency that is actually the one that’s lending the currency to another country with the weaker currency. And usually there’s an asymmetry; there’s a difference in the sort of relative hierarchy of currencies between the countries that are engaged in swap arrangements. I think they are a valid alternative. Again, this is part of this “productive incoherence”, part of these, you know, many, many initiatives that have sprawled, especially after the great financial crisis of 2008, where, you know, countries started to be creative about how we can get our hands on liquidity without having to return to the IMF and to get a loan and, you know, go through this whole conditionality stuff. So many, many of these initiatives have sprawled. You also have the Arab countries developing swap networks, also the Arab Monetary Fund, and so on. We have a Latin American Reserve Fund. We wanted to have a Fund of the South in our region; unfortunately, that did not go through. But again, there are many other initiatives, and I think swap lines are an important one as well. Now, central bank digital currencies are a bit different. They are mostly designed for domestic payment purposes, basically people, and businesses, but also directly human beings, can have a type of account or a wallet at the central bank. That has many other implications, you know, implications as to how that will compete with a conventional banking system, with cash, and so on. And I think we can have basically two main ideas here. One, I think that any successful CBDC — because we were the first country in the world, Ecuador, to do a pilot, to actually launch and have a CBDC fully operational — is that it has to be mindful of true financial inclusion. So you don’t really have to target the people who already have a conventional banking account. You want to try to reach the people that do not have financial services, that may have a phone, may have you know, a data connection, or not even, just ap hone connection. But it is that sector that you want to reach. Then the other one it is that you have to keep in mind that you are legal tender. If you want to have a CBDC, it has to be as good as legal tender. Legal tender, the physical currency, has some protections for the consumer, with regard to the anonymity, privacy, and non-traceability of its use. So legal tender is not just the thing that forces businesses to accept your currency. It is also a thing that protects the user of cash by granting them the possibility of deciding to do with their money whatever they need to do with it, without, you know, supervision by anybody else, much less so a bank. So the digital currency, central bank digital currency, to be successful, has to replicate those characteristics that are present in physical cash in the digital version. I think most central banks have not understood this. They are trying to, you know, basically create accounts in the conventional sense. And they’re really excited about the surveillance possibilities that now they will have over society, by controlling every single transaction that they make, and so on. They’re not getting the point that adoption will only be there if they replicate the characteristics of physical cash. BEN NORTON: Yeah, very well said, again. It’s extremely refreshing hearing a prominent politician who could one day be a president discussing such innovative ideas. This leads me to my last question or two here, as we wrap up. And that’s the discussion of the politics in your home country, in Ecuador. I mentioned at the beginning that Andrés was the former central bank manager in Ecuador. He also was minister of knowledge and human talent. But in 2021 he was a presidential candidate. Andrés won the first round and came close to winning the second. He lost by several points to the current right-wing millionaire banker president, Guillermo Lasso. But in regional elections that were just held, the leftist Correísta movement did very well, winning more than any other party. ¡Gracias Ecuador!¡Qué respuesta a seis años de infamias, persecución y destrucción!¡De aquí pa’ arriba, hasta recuperar la Patria!#LosCorruptosSiempreFueronEllos pic.twitter.com/qeyzk39aO1 — Rafael Correa (@MashiRafael) February 11, 2023 Here is former President Rafael Correa, thanking his country, and you can see the results of the Citizens’ Revolution movement that was founded by Correa, got 61 mayor’s seats and nine governorships, basically is the equivalent. That’s more than any other party. And especially in the big cities of Quito and Guayaquil. But also something that was very important is that the president, Guillermo Lasso, had been trying to propose a referendum to change the constitution, and we know that he lost every single measure. He had eight different proposals to change the constitution. The leftist opposition just had a huge victory in Ecuador: The Correísta movement dominated local elections across the country And right-wing millionaire banker President Guillermo Lasso held a referendum to try to add 8 changes to the constitution, but he lost every single one pic.twitter.com/r5HAZULBbm — Ben Norton (@BenjaminNorton) February 7, 2023 And in response to that, there were reports that Lasso actually was calling the leaders of the electoral council and yelling at them, and threatening the members of the electoral council. This has led to people, including people who previously supported Lasso, to suggest that that would be an impeachable offense in Ecuador. So Andrés, can you reflect on this historic victory of the Correísta Citizens’ Revolution movement that you are a leader in, in these historic elections, and the failure of Lasso in this constitutional referendum? What does this mean for Ecuador? ANDRÉS ARAUZ: This is great news for our country. It was a historic victory after years of political persecution. My campaign was extremely difficult in its conditions. We had all the referees against us. I had to run a campaign where I was constantly under death threats and threats of imprisonment. The incumbent government was a traitor, and had already put many of my comrades in prison and so on. So it was under very difficult conditions, and we lost by a very slim margin in the second round. But in this case, we have one main lesson that unfortunately was learned by the population the hard way, which is that, in the last campaign, we did suffer a bit of punishment from the electorate, because we had previously supported Lenín Moreno. And they said, “Well, yeah, whatever, “I don’t care that he’s a traitor; he’s part of your camp; “and we’re going to punish you for having selected him in the past”. But now that Lasso has been in power for almost two years, and has governed exactly the same way, with the same policies as Lenín Moreno, people have understood that it was really a massive act of betrayal, and that it was the right wing that was governing all this time, especially after Lasso decided not to investigate Moreno or to try to or to try to get him into any serious trouble. So people have noticed that it has been Lasso and the right wing that has been actually governing all these last five, six years. So that has been the key difference in the structure of the vote. And of course, we have sort of amended our relationship with the people and that gave us a huge victory in these last elections. We won all major cities, all of the major prefectures, and our demographic weight has gone up tremendously. And of course, that gives us a lot of possibilities for a subsequent presidential campaign in the future. Now, in the case of Lasso, his defeat was complete not only because the Citizens’ Revolution won some of these key races, but because he lost the referendum in each of the eight proposals he made. And that was a resounding victory of the people. The margin of that victory was much larger than the people who voted for us. So that means that there is a critical majority that is not just voting for the Citizens’ Revolution, but for a larger anti-right-wing type coalition. That is our challenge now, how we can build a relationship within that coalition of not just coexistence, but also amending those the links, so we can go together and have a resounding victory in the next electoral cycle. Now, for Lasso, this has been total collapse. He has basically no support within the parliament, no support no support with the people, electoral defeats, all his most trusted elements have quit. And now he has to basically survive, and probably he won’t make it in the next few days or weeks. So we’ll probably have some news coming from Ecuador fairly quickly. BEN NORTON: Yeah, that would be incredible. That’s the positive news. I want to conclude, unfortunately, on I guess a more tragic note, which is the social cost of the Lasso government. We saw that under President Rafael Correa and the Citizens’ Revolution, there was a massive decrease in violence and organized crime in Ecuador. The violent death rate in Ecuador over time, by president This is a graph showing the death rate, violent death rate in Ecuador. When Correa came in, it just plummeted, the death rate in Ecuador. Ever since the return to the right, by Lenín Moreno and now Lasso, we’ve seen a massive increase in violence. And there have been so many horrible reports that I’ve seen, of reports of mass killings in prisons and drug violence. In fact, before the elections, there was a prominent Correísta leftist candidate who was assassinated. So I’m wondering if you can reflect on the social cost of the Lasso government thus far, and why you think that there has been such a massive increase in violence and drug trafficking in Ecuador under Lasso. ANDRÉS ARAUZ: Unfortunately, this violence that we’ve seen in Ecuador is, and it really saddens me to say this, but it’s part of a plan. It’s part of Lasso’s plan to weaken the social organization capacity, to instill fear in the population, and to demobilize people and to remove hope from them. We have seen, in parallel to this violence, we have seen the largest migration wave out of Ecuador, that’s comparable to the large migration waves that we’ve seen from other countries, but without an embargo, a blockade, or financial or economic sanctions against it. This is basically the collapse of Ecuadorian society, from the fact that Lasso’s policies have decided to destroy our domestic economy, the relationship between the productive sectors and society and so on. And unfortunately, it seems that has been part of a plan to create this sort of fear, this element of fear in society for him to implement his neoliberal policies in a much easier way or a much easier fashion. So now, the evidence that points to this is the fact that the minister of security for over a year was Alexandra Vela, who has said continuously that she’s not an expert in security; that is not her forte; that is not what she’s good at. She was still kept at the Ministry of Security for a long time, only to be replaced by Diego Ordóñez, who is this other guy who has no experience whatsoever in matters of security, his only expertise is sort of a libertarian political persecution against the left in Latin America. That’s all that he has. He has no expertise in security matters whatsoever. So these are the people that are running our security forces. These are the bosses of the police and the armed forces in Ecuador. And of course, that can only make sense if the plan was to not do anything about the violence. Now, the good news is that as soon as a progressive government takes power in Ecuador, the progressive government will have a lot of legitimacy. It will have a lot of trust from the people. And as we have demonstrated in the past, with the leadership of Rafael Correa, there will be immediate action, because we know how to get things done. We’ve done that in the past. We reduced, like you showed, the homicide rate in a very short amount of time. So we know how to do that, by managing the local police force, by being very meticulous about studying the causes of crime, the geography of crime, and so on. So the good news for the people of Ecuador is that as soon as we have a progressive government in place, those indicators will improve tremendously, quickly, and with immediate benefits for the families of the Ecuadorian citizens. BEN NORTON: Very well said. I guess, just to not end on a super dark note, I will ask one final question. And I know you’re a busy man, then I’ll let you go. There has been a lot of discussion of the return of the so-called “Pink Tide”. I know, in my experience in the region, people don’t really use the term “Pink Tide”, but a progressive wave, a left-wing wave of governments across the region. In fact, for the first time in modern history, the six most populous governments in the region were left wing, until the coup in Peru in December. But, I mean, we see for the first time ever a left-wing government in Colombia. We see for the first time in many decades a left-wing government in Mexico. And of course, Lula has now returned in Brazil. Unfortunately, the only holdouts, the right-wing holdouts, are Ecuador and Uruguay. And I guess you could say Guatemala. And well, El Salvador is complicated. But the point is that Ecuador is, I think, probably next in line for the left wing to come back. The last question that we can end on is, what do you see in the short to the medium term, maybe even the long term, for the future of Latin America? And especially with the left being able to govern, do you think that you’ll be able to continue the process of regional integration and turn Latin America and the Caribbean into, I would say, a pole in a multipolar world? I increasingly think that might be the case. But I’m curious what your final thoughts are. ANDRÉS ARAUZ: Yeah, we need to we need to have some key conversations in the region among the largest players, you know, I’m talking about Lula, talking about AMLO, talking about Fernández, Petro. I think if we could get these four presidents together on the table, to have off-the-record conversations, maybe sit down for an entire day and have them come up with some key ideas. It’s very important. We need that kind of conversation right now. This cannot just be, you know, some random ideas floating around and then making some headlines in the papers, but then not being implemented in reality. We need to have a true political consensus among the progressive governments, serious conversation, to overcome issues about egos, and vanity, and stuff like that. And we need to understand that this is a historic moment for humanity, and that the Latin American people have a duty to the continent, of course, but also to the rest of the world. We have to show that there is an alternative, and we are in the conditions to prove that. So we really need to make that happen. Then, after the conversation of the presidents, we need to go beyond the political integration of political parties, or chiefs of states, or, whatever, the summit pictures. We need to have an integration of the peoples. This is important, Ben, and I mentioned this already, but I want to say it again, we need to make regional integration tangible for the people, the everyday citizen. We need to make this concrete. We need to make this, you know, felt in their bodies, in their minds, in their day to day. And this is done with the educational exchange program. We need a cultural program, where we have small kids in elementary schools discussing, what should the flag of Latin America be like? What should the anthem be like? With the music, musicians, poets of each of our countries. We need to discuss, you know, how the coat of arms should be? What kinds of symbols do we want to adopt as a Latin American civilization? These are the discussions that will make so many other things happen, especially if we start with the younger kids in our generation. We also need to have this infrastructure immediately. You know, we have almost $1 trillion in reserves being deposited in Swiss and US bank accounts, if you add up South American, and Mexico’s, and Central American reserves. We have that money deposited in the Global North, but we should invest at least a tenth of that in our own region, in concrete, tangible assets, in roads, in electric interconnection system, in a rail network to connect the big cities of Latin America amongst ourselves. And we need to make that happen quickly. Otherwise we’ll lose this opportunity. So my call is to have a little wake-up call, and get our regional movements going, and pressure the governments to go forward much faster in terms of regional integration. Not every country can save itself. We cannot be facing this geopolitical moment, basically a world war, as 33 independent, small republics; this has to be faced as a Latin American bloc. And the political conditions are there. I just hope that we can get the structures, the instruments, in place for the regional bloc to actually assert itself and start projecting and acting in real life. BEN NORTON: Wow, those are powerful words to end on. I must say that I hope that today I was speaking with the next president of Ecuador. I think the president of any country that could implement those kinds of ideas, or at least try to implement those ideas, I think would be such a positive force for the entire world. Andrés Arauz was the central bank director in Ecuador, and under former President Correa, he was also minister of knowledge and human talent. He is finishing up, I believe you’re finishing up your PhD in economics, right? And everyone should check out Andrés Arauz over at his Twitter account. You can follow him at @EcuArauz. And I know that, Andrés, you’re also a fellow at the Center for Economic and Policy Research, CEPR, in Washington, DC, which I often joke is the only good think tank in Washington. They do a lot of very important work over there. Is there anything else that you would like to plug at the end here, where people could find your work or follow what you do? ANDRÉS ARAUZ: Yeah, I’m just waiting for the slow university bureaucracy to print my little diploma, and I’ll be ready with that. But yeah, I finished my degree in mid last year, and I’m happy to have that done. So, yeah, thanks again, Ben, for everything. Thanks for this interview. I hope we’ve clarified some of these issues for a wide audience. BEN NORTON: You absolutely did, and I hope you inspire people to do more research into these very fascinating topics. I think we’re living in a deeply important, watershed moment in history. And I do think Latin America plays a key role in that, especially with brilliant political leaders and economists like you and others. So thanks so much for being generous with your time today. ANDRÉS ARAUZ: Thank you, Ben. Bye bye.

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Economists Radhika Desai and Michael Hudson discuss the US banking crisis and the effective privatization of the Treasury in this episode of their program Geopolitical Economy Hour. Economists Radhika Desai and Michael Hudson discuss the US banking crisis and the effective privatization of the Treasury in this episode of their program Geopolitical Economy Hour. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hello everyone, and welcome to the sixth Geopolitical Economy Hour, the fortnightly show on the political and geopolitical economy of our time. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: As you know, the last time when we closed we were scheduled to do our fourth and final show on the subject of dedollarization. However, as you know, the best laid plans can be thrown awry by, as Harold MacMillan said, “Events, my dear boy, events.” Since we published the fifth show we’ve had what looks like the biggest financial crisis since 2008 and 2020 on our hands, with the usual flurries of bailouts and emergency actions, which in other words amounts simply to a socialism for the rich. So of course Michael and I had to devote our show today to that topic. So we’re going to talk about how this crisis is no isolated crisis but really another chapter in the long unraveling of the US financial system — an unraveling in which the really public character of banking — that is to say, the fact that banking is always meant to be a public utility becomes manifest under the pretense that it can be maintained as a private system. So the crisis has by now been declared as over by some, and the markets seem to be calm, but nevertheless they have been extremely rocky. Madame Yellen said on Thursday March 16th to the Senate Banking Committee, “I can assure you […] that our banking system is sound.” So basically she’s saying, “Banking crisis? What banking crisis?” But of course, Michael, you and I have a different view, don’t we? MICHAEL HUDSON: Well what she said were words that you never want to hear from a regulator — that everything is sound. That means things are falling apart. And her next words — the rest of that sentence — were that “Americans can feel confident that their deposits will be there when they need them.” In other words, what Yellen said was that she actually acknowledged that the United States banking system is insolvent. She said, “Forget the promises that we’re going to limit deposit guarantees only to $250,000. We are now guaranteeing all depositors in the system.” The banking system is now a branch of the US Treasury with the whole value of the US Treasuries behind the banking deposit — there’s no more risk essentially. It would appear at first glance that she’d nationalized the banks. But really what happened was that — it wasn’t reported in the newspaper, [but it’s almost as if she’d] just taken a mid-level job at Wells Fargo — maybe it was at Citibank — saying the Treasury is now a subgroup of Wells Fargo, Chase Manhattan, and the large banks, [pledging all its credit so that uninsured depositors will not take a loss.] The banking system has cannibalized the Treasury and mobilized the whole of Treasury for its banking. People had, for a long time, wanted the idea of public banking. They wanted banking to be a public utility. But now the Treasury itself has become privatized as a banking utility. Given the sort of widespread awareness of insolvency, when S&P downgraded the entire banking system last week, the Treasury essentially is making a commitment that it will back up whatever the private banking system has done. “We’re not going to regulate it anymore because, after all, we never have been regulating it for the last twenty years.” This is supposed to make it more efficient. Get government out of the picture. Just turn everything over to the big banks to manage. A public bank would have — why do we need the banking system in this case? That really is what everybody should ask, and what I think our show discussion today is going to be about. A public bank has no reason — logic — to speculate in derivatives. A public bank wouldn’t have to invest in Treasury securities because it would be part of the Treasury. It wouldn’t lend for derivatives. It wouldn’t make take-over loans. It wouldn’t do all of the things that have led to the collapse not only of Silicon Valley Bank (SVB) and Signature Bank but to most of the banking system, with its reported $630 billion of losses on its capital account — its assets that it doesn’t have to report because of the way in which bank reporting is based on fantasy prices, not market prices. RADHIKA DESAI: Quite so. Michael. You put it so well. Because basically, when you can’t have banking as a public utility, then inevitably what happens is the government becomes a private utility. That’s exactly what’s going on. And of course, because you’re trying to make something into what it isn’t, and in fact cannot be, the process is bound to be fraught with great contradictions. So of course you are absolutely right to point to the fact that Madame Yellen has essentially bailed out the depositors — extended deposit insurance to all the depositors, not just up to the $250,000 — of a couple of banks. But what’s also really interesting is that she has had to stop shy of extending it formally to all banks. All they’ve said is that they will try to bail out other banks if they are systemically important. So we’ll just have to see how it rolls along. Now, what has emerged in the last couple of weeks is that, contrary to what some have argued — which is that SVB should have been bailed out because it was some sort of a “good bank,” that it was investing in the “cutting edge” of American industry and investing in production — in reality what we’ve discovered is that SVB’s banks assets are of much more dubious value. That the federal agency charged with selling and dissolving it cannot find buyers, either for the whole of the bank, or banking assets. The Financial Times in this story reports that the largest portion of the loan book of Silicon Valley Bank, [which] was $41.3 billion at the end of 2022, consists primarily of so-called “subscription lines” which SVB offered to private equity and venture capital funds. Credit funds scrutinise ‘mythical, enormous’ Silicon Valley Bank loan book https://t.co/D2gGD6e17v — Financial Times (@FT) March 23, 2023 Such loans are extended basically to tide over a fund between the time it buys a company, or makes an investment, and when the fund receives the money that has been promised — of which of course there are no guarantees. So such loans are always very low-yielding; they are not even rated. And they are now considered too risky by financial institutions. That’s the bulk of [SVB’s loan book]. And then another part of SVB’s alleged investments amounted to speculation — what we may call “crony lending” — lending on a rolling basis to already rich people and their private funds to enrich them so that they can enrich themselves through dividends and management fees even when they are not making very much money. And the repayment is postponed [until] the unlikely event that there is a successful IPO. These were the depositors that got bailed out. So honestly the “all is well” message is definitely not very credible. In fact what we are seeing — and of course we’ve seen that [Jerome] Powell has repeated the message of Yellen — he said the banking system is sound and resilient and deposits are stable and he claimed the crisis has been stemmed by the decisive action of the Federal Reserve and the Treasury But look at this [graph] of the KBW index — a major banking index. You see that banks have been sliding over the past month and they remain quite low. They are not recovering. The investors are not assured. The public is not assured. And in this context it’s also very interesting that the Stanford Business School is reporting that the US banking system’s market value of assets is two trillion dollars lower than suggested by their book value. So this is — and this low level declined — they have dropped by ten percent in the last little while. So this is really quite a serious matter. Obviously this doesn’t mean that everybody’s going to run and that these losses will be realized, but it shows you how precarious the system is. So the Federal Reserve in the meantime remains caught in this pincer movement between monetary stability and financial stability and has therefore produced a compromise of a 25 [basis point] rate hike. This is the very difficult — and very troubling situation — so Michael lets you and I delve right in. So really what we want to talk about today is the unraveling of neoliberal financialization. So for the last two decades, basically, US authorities have acted like the policeman in the film Casablanca who is shocked to find there is gambling in the casino. This is exactly what’s going on. This is what Alan Greenspan did when he was testifying about the 2008 crisis. He said, “I thought markets were very well and I was shocked to find out that they are not working well.” Ben Bernanke has done the same thing. Every time there’s a crisis, the authorities claim to be shocked once again. And the fact of the matter is that we simply cannot take them at face value. The fact of the matter is that the US banking system is not only not sound today, it has not been a seriously functional banking system since at least the 2000 dot-com crash, if not even earlier than that. When the United States dollar-based financial system made the transition to ultra-low interest rates — chiefly because financial authorities realized that asset markets — the inflation of asset bubbles, particularly the real estate bubble — was the only thing working in the US economy, so they decided to give it full rein. And so low interest rates were designed to do that. And so this banking system has been failing in its most fundamental function of assessing risk. In fact it has become based on excessive risk. MICHAEL HUDSON: Well when you say “risk” it’s really arbitrage. There was no risk of non-payment in the Treasury securities that the bank held. There was not even a risk of non-payment for the mortgages that it held. The risk is simply the fact that interest rates went up. And the fact that, for years, Silicon Valley Bank, like all the other banks, only paid depositors about 0.2% on their savings. Any of you who had your money in the bank, there was no way that you could get a higher rate than about 0.2%. Well, the bank thought it was making a profit because here it was paying depositors that little rate, and it could get 1.8% on government bonds. Well this is lower than government bonds really had ever been, so that there was a 100% probability — no risk there — 100% loss in the market price when the Federal Reserve — when Mr Powell said, “We’re going to begin to raise the rates.” “We’re going to raise the rates because we need to slow the economy so that wages are going to go down” — as we discussed before. And when the government says it’s going to raise the rates, he didn’t realize that he would not only be hurting labor but he would be hurting the banks, because if they have their reserves held at very low-interest bearing securities, at 1.8%, when rates go up to 4% obviously that means that the value of the old government security 30-year bond falls to about 70 cents, maybe 65 cents, on the dollar. Well nobody would have cared about this if deposits hadn’t been withdrawn. But because the banks are still only paying 0.2%, anybody could take their money out of the bank savings account and buy a two-year Treasury note that would yield over 4%. So why would they leave the money in the bank? In fact Americans begin to withdraw their money from banks all across the country. And once they withdrew [the money], the banks had to actually raise the money to pay them by selling these bonds that they bought at a low yield. And all of a sudden they realized that, “Wait a minute. What we were carrying on our books as worth 100 cents on the dollar is really only 70 cents on the dollar.” They had to take a big loss because under the rules of reporting, banks report what they paid for the assets, not what the assets [are] actually worth on the market. Because if they reported what their assets were really worth, you’d see today that the banks are broke. That’s why the Treasury has said, “We will bail you out. We’ll take over the banking system. Even though the private banking system has outlived its function. Even though the private banking system cannot survive if interest rates go back to normal. We’re going to keep bailing them all out.” And that basically is what’s happened. So the kind of risk was a result of the Federal Reserve’s own policy, and it’s a risk that affects the entire banking system today, not just Silicon Valley Bank. RADHIKA DESAI: So true Michael. And you know, this also — just to remind you, we had a show a few shows ago on inflation and what has caused this inflation. One of the things we pointed out is that the Federal Reserve is not going to be able to continue to raise interest rates — not because it cares about American workers — it would dearly love to raise interest rates in order to crush the working class, crush their employment prospects, crush their wages, etc. — but it cannot. It cannot — not because it is so tender-hearted towards American workers and workers elsewhere for that matter — but [because it is] tender-hearted towards the filthy rich in the United States. So the banking system is based on excessive risk, as we’ve just been saying. It has also been investing — not in production, which is what your Economics 101 textbook tells you it should do — rather it has been investing in everything else — in real estate, in consumption loans, in government bonds — which by the way finance tax cuts — and not government investment in anything worthwhile. Or government spending for that matter in anything worthwhile. And in other speculative products, including asset-backed securities, derivatives, and so on. MICHAEL HUDSON: Well the banks really have been lending for speculation, as you point out, on financial securities and making arbitrage gains. You borrow at a low rate and you buy something yielding a higher rate. You make money off asset-price inflation. And the Federal Reserve’s $9 trillion of quantitative easing has simply been aimed at raising stock prices, bond prices, and real estate prices. And that’s how banks have been making their money. The effect on consumption has been to load down households and also industrial corporations with debt, and it’s to finance takeovers that use corporate profits to support stock prices. Corporations have been borrowing from the banks simply to buy their own stock, because their own stock pays dividends that are higher than the low borrowing rates. They’ve been borrowing even to pay out as dividends, because if you borrow money, you pay it as dividends, that’s going to raise the stock price temporarily. Obviously the loans have to be repaid at a point. And if you have private capital taking over a company like Bed Bath & Beyond, it’ll privatize the company, make a loan to [that same] company, take that loan and then pay themselves a special dividend for management, leaving the company a bankrupt shell. So you could say that the role of the banking system is to bankrupt corporate industry and to lock in the transition from industrial capitalism to finance capitalism. Really it’s suicide. RADHIKA DESAI: Exactly. And this kind of finance capitalism essentially is predatory. Predatory essentially upon workers’ wages and taxpayers’ revenues. Because — either directly or through government payments — we are paying for — ordinary people are paying for essentially — the banking system has been transformed into a machine that transforms a goodly part of our taxes and a goodly part of of our wages into further payments to themselves. This is a predatory banking system. In fact not only is it predatory, but it also tends to strangle the productive part of the economy. MICHAEL HUDSON: Well I think then we need to define “predatory” and as you said, it basically means “unproductive overhead the non-financial economy has to bear.” I think a predatory loan is one that does not provide the means to help the debtor repay its creditor. For instance, people believe that they’re getting rich by borrowing from the bank to buy a house whose value goes up, but the value of housing going up is because so many people are borrowing that the housing is worth whatever a bank will lend, and it’s all been bid up on credit. So what’s really gone up is the housing debt. People say, “My house is worth a lot more.” But the equity that people have in their houses has been falling and falling and falling as the economy becomes more debt-leveraged. So it’s not simply wages and profits that banks want. What they want is to transform property into financial gains. It’s all about capital gains. It’s about asset-price inflation that they love, as opposed to wage-inflation. RADHIKA DESAI: And actually that reminds me this is really a system that is about profiting without producing. That’s what they are on about. So it is also therefore very speculative. It’s based on inflating asset bubbles, which of course has been the result of two decades of low interest rate policy — what people call the LIRP for Low Interest Rate Policy or ZIRP, which is Zero Interest Rate Policy. And the result is that today there is essentially a bubble in practically every asset market. MICHAEL HUDSON: Yeah, that’s what a zero interest rate policy was all about. They said, “We have to reinflate the price of stocks, bonds, and real estate.” Because the banks after 2008 were — back then, negative equity. They couldn’t cover what they owed depositors. The way of saving the bank was to vastly raise the price of housing in the United States and raise the price of buying a retirement account. RADHIKA DESAI: Yeah, and then in addition we have seen a few other things as well. We have seen the financialization of productive corporations. Once you create such a vast and powerful financial sector, the few remaining productive corporations basically throw in the towel. They say, “If you can’t beat them, join them.” So essentially they also develop financial arms. You’ve probably heard of the saying that GM makes more money lending you money to buy cars then it makes building and selling you cars. GM Financial is bigger and more powerful than GM itself. So this has been of course the trend that has been noticed throughout the present century and even going back a little bit before that. MICHAEL HUDSON: Even Macy’s used to make more money by getting credit cards for Macy’s customers than they made actually on the store. It’s as if the whole objective of corporate industry today is to get consumers to run into debt and make money off the interest that you charge for consumers rather than to make profits. So a economic analysis that focuses on profits made by employers exploiting labor misses the point that there’s much more income to be made by financializing than by industrialization, and that’s why the people who basically run the economy — the management’s been shifted from Washington to Wall Street — say the money’s to be made in financialization and not industry. That’s why we’ve been deindustrializing and painted the US economy into the corner that it really can’t re-industrialize without replacing the banking system that is in the middle of showing that it doesn’t work. RADHIKA DESAI: No, exactly. And then we also see that the kind of economy that has now emerged as a result of decades of policies that have encouraged financialization and discouraged production is that we basically have an economy of corporations whose balance sheets don’t bear much scrutiny. And that is why you’ve seen the rise of private equity, which means that you can have corporations that do not have to make their accounts public — that are not kept accountable by any sort of public scrutiny. So the risks here are so great that more and more companies cannot be listed publicly and have their balance sheets scrutinized publicly. Therefore all the lending that goes to these outfits, again, is lending that takes place in the kind of crony lending fashion that we have already discussed. And this is the kind of structure that has created the astronomical inequality that we have all noticed in the recent past, particularly over the COVID period, but it goes back a long way. In fact when Thomas Piketty wrote his big fat book on inequality [Capital in the Twenty-First Century (2013)] he actually missed the trick because he blamed rising inequality on capitalism alone. And I’m not saying capitalism is innocent, but this kind of financial capitalism has been primarily responsible for transferring wealth from the ordinary people to an extremely small filthy rich elite. And in this system, the financial system has been a major aid to this process. MICHAEL HUDSON: Well most people, when you think of inequality, the way it’s shown in the newspapers is, they think of inequality of income — the wealthy people are making more income. But by far the main source of inequality is that of wealth. It’s on the balance sheet. It’s assets and debts. And if you looked at wealth, half of Americans have no net worth. Zero net worth. Compare the zero to the enormous wealth that the 1% has made since 2008 as a result of the asset-price inflation — that’s where the inequality is. That’s what the aim of ZIRP was, to inflate the asset market. So people think of prosperity as being when the value of their stocks and bonds go up, and they pretty much ignore the fact that this is much more overshadowing than just income. There was a point in the 1980s, and again much more in the 2000s, where a worker could go, take out a mortgage, buy a home, and in one year the price of the home’s increase would exceed what the worker could take home during the entire year. Imagine how this affects — by the fact that the upper 10% own maybe two-thirds of the stock market and the bond market. That’s where the real source of inequality is. And you have to look at the balance sheet of finance capitalism, not at the dynamics of industrial capitalism that’s being replaced by this financialization. RADHIKA DESAI: You know, what you say Michael reminds me. If you look at — a lot of us, we love to drive at how much doctors may make, or how much some people who are employed may make, whereas the rest of people make so little. But the biggest inequalities of income are not between different sections of those who make their money through work. Yes, they are great, but they are nothing compared to the differentials of incomes between those who make money through work, and those who make money through wealth. And you can see charts about this. This is what it’s about. So anyway, what we are trying to say is that the financial system, even before 2023, even before 2020, even before 2008, was already unsound. And we have simply seen a demonstration of the unsoundness of the system. So basically, all of these bubbles that we are seeing — they are now waiting to be worse. Because right now, as a result of decades now, almost two decades of low or zero interest rate policy, we today have an “everything bubble.” Every asset market is in a bubble situation, and the recent interest rate hikes have been the pin. They are bursting the bubble. The prices of assets of all sorts — not just government bonds which were involved in the SVB collapse, but also derivatives, real estate, commercial real estate — every form of assets [is] declining. SVB was invested of course in long-term government bonds and I won’t repeat — Michael’s already explained very nicely what went wrong there. And many progressive thinkers were arguing that Silicon Valley Bank was a good bank, providing patient capital and whatnot. But in fact, as Pam and Russ Martens of this wonderful website Wall Street on Parade which you should check out if you’re interested in these things — as they pointed out, Silicon Valley Bank was basically a pipeline that moved extremely speculative types of investments towards IPOs, many of which of course never materialized. But the cost of those — and that cost included the lavish lifestyles and the immense wealth agglomeration of the people involved — were financed by institutions like Silicon Valley Bank. Earlier, cryptocurrencies also were going bust. There has been a silent crash in equity and real estate prices and commercial real estate prices. They have all been crashing. MICHAEL HUDSON: Well what you’ve described is what was called “economic rent” in the nineteenth century. What used to be the landlord class that was running society is now the financial class. They make money basically by what used to be paid as rent. Under the old aristocracy that emerged from feudalism, people would pay rent to the landlords — the “ground rent”. Now that housing has been democratized, the rental value is paid to the banks as interest. So instead of being a rentier class based on “land rent”, we have a rentier class based on interest and on making money financially in the way that you said. (Ground rent and land rent are interchangeable — Ed.) The banks don’t lend out their deposits for industrial development. They don’t lend them out to build factories and new means of production. They lend them out to buy existing factories and break them up and turn them into gentrified housing to make profits. It’s sort of a travesty to compare what’s actually happening to what is reported in the textbooks. And of course it’s very hard to have a huge financial superstructure [without] an industrial base. And if you have a superstructure on a teeny base, at a certain point it’s going to collapse. And that’s finally what we’re saying today. The idea of a post-industrial economy making money purely on financial engineering instead of industrial engineering ends up with more claims for payment than the economy can pay. That’s been the theme of all of our shows and that’s exactly what you’re seeing today. Ponzi schemes work until somebody wants to withdraw their money. And once you say, “Okay you say we’ve been getting rich, now we’ve put all this money into this scheme, let’s try to withdraw” — all of a sudden we’re told it’s not there. You’re seeing Mr. Macron in France facing riots when he’s trying to say, “Well, we can’t afford to pay social security because the banks needed more money for the bailout, so we’re going to extend the retirement age.” I’m waiting for Mr. Biden to go back to his program of a decade ago and say, “We’ve got to cut back Social Security, got to cut back Medicare because we’ve had to use the money for the bank bailout. I’m sorry there’s no money, and now that the Treasury is part of Citibank and Wells Fargo we have to do first things first.” RADHIKA DESAI: This is absolutely right, Michael. And this is one set of problems — there’s excessive risk, there’s this Ponzi character. Now, you’d think that the Federal Reserve and the government exist to keep oversight on this, to ensure that these banks are regulated, that they don’t get into trouble. So why do they get into trouble? The reason is because the system is actually riven with what’s known as regulatory capture. Which is essentially a fancy way of saying that you are hiring the fox to guard the chicken coop. The fact of the matter is that the Federal Reserve, which is supposed to regulate, is itself captive of those it is supposed to regulate. MICHAEL HUDSON: Well, the regulators don’t regulate. If you look at what’s happened to Citibank, Wells Fargo and Chase. They were told by the regulators, “You’re on probation. You’ve broken the rules. Don’t break them again.” They break them again. Again and again they break them. The Federal Reserve does nothing. The Federal Reserve of San Francisco sent out warnings to Silicon Valley Bank, saying “Hey your balance sheet can’t cover your deposits. You’re in negative equity, and we’re drawing your attention to that.” And the reply from Silicon Valley Bank, “Yep we’re paying attention to it. So what? You can watch television. You can pay attention to us.” There is no regulatory apparatus, and no regulatory apparatus can be put in as long as the banks get to nominate the regulators. They have one of their lawyers go and act as a regulator. Sometimes the regulators are appointed by Washington, but they’re appointed by the heads of the Financial Committee and you become a head of the Financial Committee by contributing money to the Democratic or Republican Party leadership. And the committee head [positions] are sold off for who raises the most money. So all the banks have to do is give their lobbyists enough money to buy the position as head of the Financial and Banking Committee so that they can appoint regulators from the banking system. As long as you have the Citizens United rule of essentially putting politics up for sale, the banks are going to take over the regulations. So again, what’s happened is that instead of the banks being nationalized, the Treasury has been privatized by the banking system. That is sort of the ultimate victory of finance capitalism, but the result is that it’ll destroy industrialization and what used to be industrial capitalism in the United States. RADHIKA DESAI: Exactly, indeed, Michael — as your new book is going to argue, [financial capitalism] is going to destroy civilization itself. In The Collapse of Antiquity, Michael traces the whole history of the current patterns of financialization back into antiquity and connects it indeed with the collapse of antiquity. So do check it out, it should be available on Amazon now. But to return to our point now. Michael, what you say actually reminds me so much of the famous novel Lord of the Flies. Because again, when you think about the regulators, the idea is that there are regulators and they regulate the banks. So there are some adults in the room that are going to make sure nothing goes wrong. But actually there are no adults in the room — everybody is one of the kids who is essentially going to egg the other kids on into ever greater hijinx, and that’s what we are seeing. There is a long history of regulatory capture, and let me just read off some of the major moments in this. So the Federal Reserve has been colluding in deregulation since the 1990s. And in what we may call the original sin of this financial system, which was the repeal of the Glass-Steagall Act, which divided banking into investment banking and commercial banking and provided deposit insurance only to commercial banking which it then proceeded to regulate fairly heavily. Investment banking could do whatever it liked, but whatever losses it made, it was losing money on its own dime — nobody was going to help it. But the repeal of Glass-Steagall essentially has muddied all the waters and it has allowed the Federal Reserve to step in and say, “Okay we can bail everybody out.” And the repeal of Glass-Steagall, the way it happened, is also very interesting. Because Citicorp merged with Travelers Group — an investment bank with insurance interests — to create Citigroup, and this challenged the Glass-Steagall boundaries — the red lines that were drawn between investment banking and commercial banking, insurance, etc. So the situation this produced was that either they had to comply — that is to say break up and sell off parts of the merged banks so that they would once again be compliant with Glass-Steagall within a year or two. Or Glass-Steagall had to be repealed. And now, get this. The regulator Alan Greenspan bet that the industry would get to do whatever they liked, and the regulation would be defeated, and he won. And the repeal of Glass-Steagall in 1999 has undoubtedly laid the basis of the 2008 bubble and today’s multiple bubbles and everything that has happened — the quantitative easing, the ZIRPs, the LIRPs, everything. MICHAEL HUDSON: Well that’s right. You remember when Drexel Burnham went under in the 1980s, it didn’t matter. There was no crisis in the banking system. The customers of Drexel pretty much thought so. The stockholders were wiped out. The Fed didn’t say there’s a big crisis. But then, once you had the brokerage companies merged with the banking companies, the brokerage companies took over the banks. It was the financial, speculative part of Citibank that took over. All the banks bought brokerage companies and essentially you had the transition from old-fashioned banking, of just lending out money, to stock market speculation. And the result is that you have the situation you have today. That’s why Moody’s ended up downgrading the entire banking system, because now it’s all a stock market speculation basically. It’s not a banking system. RADHIKA DESAI: And just to reel off a few other such instances, the Federal Reserve’s concealment of the real extent of the bailout of 2008 is also very interesting. This is generally confused with the Troubled Asset Relief Program (the TARP), which was actually quite modest — it was $750 billion. They realize this is the case, and then put the extent of the real bailout — which was essentially Federal Reserve money printing — at $7 trillion. However, economists at the Levy [Economics] Institute [of Bard College] have in the last few years actually tallied — if you put together all the different emergency programs that were rolled out by the Federal Reserve in the aftermath of 2008 — it amounts to 29 — get this, $29 trillion. So if you just Google the words “29 trillion” I’m sure you’ll find the relevant paper. There was also the Federal Reserve policy reversal after the 2015 temper tantrum. That is to say, when the Federal Reserve decided that it was going to tighten up monetary policy a little bit — stop doing quantitative easing and do a little bit of quantitative tightening — the market had a tantrum, and the Federal Reserve essentially capitulated to it. There was the Trump-era loosening of regulations under the already weak Dodd-Frank Act, because the Dodd-Frank Act was supposed to be a replacement for Glass-Steagall, but it was nowhere near that, and even that was weakened. And by the way, in this weakening the Silicon Valley Bank CEO Gary Becker played a major role. Further, there was a concealment of the 2019 bailout of the repo market — the market in which banks borrow overnight from each other. There was a big crisis in that. Interest rates were going up. We don’t fully know what happened yet. The Wall Street on Parade once again has exposed this but it still remains to be found out exactly what happened. There was the 2020 Federal Reserve trading scandal in which Federal Reserve governors used insider information about which banks were going to profit from which bailouts, and used this in trading, which was also extensively reported. There was the Federal Reserve bailout of 2020 itself which was now extended to productive corporations — not because the Federal Reserve cares about productive corporations, but because these productive corporations and the assets that they created for the financial system were very important for the financial system. And finally there was the Federal Reserve doing everything possible to create and maintain the unsound structure of US banking today. What you see as the US financial system is actually the Federal Reserve’s baby, and this is the one that has been downgraded by Moody from “stable” to “negative” — the entire US banking system, which prides itself on being the most advanced and sophisticated financial system in the world. So decades of these practices have now come home to roost as interest rates are going up and created the classic dilemma between maintaining monetary stability — that is to say curbing inflation — and maintaining financial stability. The Federal Reserve is caught between these two demands, and it cannot achieve both of them at the same time, and that is why the Federal reserve has opted for a 0.25% increase so that it looks like it is still combating inflation but this increase, combined with its backstops, somehow tries to save the financial system from its own misdemeanors. So this is the point at which Yellen has stopped a more pervasive run on the banks by announcing that there will be money for systemically important banks, etc. But here she’s also caught, given the anger that people still feel at the bailout of 2008. She cannot be shown to be using taxpayers’ money in order to bail them out. So what is to be done? There are a number of other measures that have been proposed. One of them is simply to let the markets do their work. If banks are going to collapse, let them collapse. Let there be no bailout. MICHAEL HUDSON: That means taking them over. And you had that, I guess, with [Continental Illinois National Bank and Trust Company]. Taking them over — how is the government going to run them? Is it going to take them over and say, “Okay, your way of doing business hasn’t worked out. We’re now going to be running it as a public bank, as a state bank — making loans for purposes that banks used to be supposed to be making [them for] — for sound mortgage loans, not for speculative purposes.” Or, are they just going to take them over and then say, “Well here’s a weak bank. Let’s sell it to Chase Manhattan or Citibank. Let’s sell the weak banks to the strong banks so that we’ll end up with maybe five banks in America like Canada has.” What is the government going to do when it folds up a bank? The pressure is that they’re going to just give them to the big banks and essentially the big banks will end up running into the same problems that led the small banks over [the cliff]. And the government will be paying — not with taxpayer money, it’ll just create the money to do that. RADHIKA DESAI: Of course Michael, what you’re saying is probably what is likely to happen, but I should say that the people who are suggesting [letting banks collapse] are not suggesting what you’re saying. They are suggesting that the banks should be allowed to fail because not allowing banks to fail has created moral hazard. Now I agree with you this will not happen, chiefly because of the problem we’ve already talked about, which is regulatory capture. The financial sector will not stand for it, and the Federal Reserve and the alleged “regulators” will do exactly their bidding — which is that if they become unviable then they will be bailed out. But that is one point that is being made. And by the way, I should add that you refer to Too Big To Fail (TBTF). Too Big To Fail was first used as a principle to bail out a bank when Continental Illinois went bust in 1984 thanks to its exposure to a lot of Third World debt in particular. And that was the first time it was used, although then it remained quite episodic. But today [TBTF] has become much more systemic. Anyway, the second proposal that has been made is that all bank deposits should be covered under the Federal Deposit Insurance Corporation (FDIC). Now there are two problems with this. Number one, there are many Republicans who will oppose this, and the Biden administration is not going to be able to pass the relevant legislation if there is a sufficiently sizable number. [Number two], they will also require increasing insurance premiums that the banks will have to pay if the financial sector is going to have to collectively pay for its own failures, and this will be resisted by the financial sector itself. Of course, there are other more severe options. People have said, increase reserves; decrease leverage; convert debt into equity, especially if the bank shares sink below a certain point, some of the debt becomes equity, which means that people who have invested in this will stand to lose money. [Essentially converting debt into equity means that lenders become owners and they partake to a greater extent in the risk of the firm, losing the seniority of bondholders over shareholders and risking losing more if the firm goes bankrupt. — RD] They have also proposed that you should strictly enforce Mark to Market (MTM) accounting — penalize the management of failed banks. So these are many such proposals, but all of these will in one way or another be resisted by the financial sector itself. MICHAEL HUDSON: Well Martin Wolf has suggested moving [to] a 3:1 leverage ratio instead of the 10:1 or 20:1 ratio now common. In other words, the banks shouldn’t be able to make such high loan-to-value loans. That would hold it in. And he’s also mentioned the “Chicago Plan” — basically turning the banks into savings banks, which is what they were originally imagined to be. They won’t create credit. Take away their ability to create credit, because they stopped creating credit for useful public purposes. 100% reserves [requirements]. They can lend out the deposits they have, and if they have an opportunity to make more loans — either mortgage loans under non-leverage rules — or to actually back construction or new means of production — then the Treasury will provide them with the deposits to lend out. In effect the Treasury would be doing what it’s supposed to be doing under Yellen, but not in her perverted way. It will be extending credit for banks to make productive loans, not unproductive loans. That was the Chicago Plan, ironically developed by the University of Chicago in the 1930s. And the commercial banks would act essentially as they were supposed to in the textbooks, deciding what kind of loans help the economy, what kind of loans are productive, and most of all, what kind of loans can the debtor — [and the economy] — afford to pay back without slowing the economy and bringing on a depression that prevents the loans from being paid. RADHIKA DESAI: This is exactly the sort of “return to Plainville” in our banking that the financial system, as it is today, will never stand for because they have become used to essentially being allowed to create as much credit as they want in order to engage in leveraged speculation. Borrow money to throw into speculation so that you can make much more money on the same margins. So this is going to also be resisted, but nevertheless you can see the seriousness of the crisis by the radicalism of the proposals being made, even by quite mainstream writers. So people have said, according to the Chicago Plan, that there should be a separation of the issuance of money from the issuance of credit. Central banks essentially would issue central bank digital currencies, so that would mean that all of us would have money issued by the central bank and we would have accounts with the central bank, and then whatever private financial banks remain — I mean in a certain sense [in this scenario] there need be no private financial sector — [they] could only lend against extremely high reserves, which would reduce their profitability. So this would again transform the financial sector into a public utility and not the casino that it currently is. MICHAEL HUDSON: Well that’s really the key. Who is going to create money: the government or the banks? The banks have shown that their bank credit has not ended up in a functional way. It’s become “de-functional”. And the losses for the US and the European banking systems already are in the trillions of dollars, and that’s even before the bad gambles on derivatives are taken into account, and we don’t even know how much that would be. So if the Treasury does not take over the banking system deposit liabilities, then this whole week’s banking crisis is economy-wide, and it is permanent — it cannot be fixed because of the mathematics of compound interest. Any interest rate doubles [the amount owed] in time, and as long as the interest rates rise again, you’re going to have debts double and redouble and redouble, and the economy — it will not keep pace — the economy will be shrinking and shrinking, and you’ll have an even bigger pyramid of credit and debt (two sides of the same thing) on a smaller and smaller industrial base. RADHIKA DESAI: This is indeed, Michael, the logic of the system. We totally agree on that. However, there are as I say deep contradictions in this, because what we are looking at is a financial system which is presided over by authorities who can be relied on — if their past behavior is any indication — they can be relied on to fight tooth and nail to keep the system private, even as crisis after crisis the financial system’s public character becomes manifest. And they will keep it not only private, but private and the most minimally regulated. So what we are going to witness are further strenuous efforts to keep interest rates low, to continue bailing out banks — not necessarily with taxpayers’ money — this may not be possible anymore, although they will try — but certainly with Federal Reserve-created money, which again will not be put to the use of the productive economy to create broad-based prosperity, but to keep the wealth of the rich secure. They will continue to surrender to financial sector demands, not to be regulated on the one hand, and while on the other hand to be bailed out from the consequences of the unregulated and deregulated activities. And there will be in the process of all a continuous flow of rhetoric about the need for freedom and how the private sector only is innovative and so on. So this is the pattern of how the rubble will now bounce further. Because we have had lots of rubble before and (crosstalk) there it is. MICHAEL HUDSON: Well the International Monetary Fund reports that this condition already is the case with many of the Global South debts. Now that the dollar has risen above their currencies, and their trade deficits and energy and food are exploding as a result of the US sanctions against Russia — you’re having the same system within the US economy. Although I think you can recognize it more clearly with Argentina and Latin America and other countries. Within the US economy, the Federal Reserve cannot escape from Obama’s zero interest rate policy without creating such large losses for the banking system’s reserves and assets and loan values that the entire system is insolvent. You’ve already seen the little bit that the Fed has raised interest rates — you’ve seen what it did to Silicon Valley Bank and the entire banking system — which is why it was downgraded. It’s a quandary that cannot be solved without a transformation of the whole structure of banking, and that requires how people think about money and credit, which we’re talking about now. RADHIKA DESAI: You put — as lots of people do — you put Credit Suisse and Silicon Valley Bank in the same box, and I do feel that in one way they belong in the same box, but it’s also very interesting — someday Michael, in another program, to look at the historical differences between the US and British banking systems, on the one hand, and the Continental [European] banking systems on the other. Differences which persist to this day and which are interesting today because I think the cookie will crumble in a different way across the Atlantic. I think they will have problems, but I think that — anyway, it’ll be interesting to see what happens with Credit Suisse, with Deutsche Bank, etc. But I also wanted to point out that I think a lot of people say they attribute the current crisis to the lowering of interest rates in the pandemic, which is what you see just here after 2020: But in fact I would say that the US financial system entered the era of low interest rates as early as 2000, except in the middle of the decade Greenspan was forced to raise interest rates because of the downward pressure that was created on the dollar — particularly with rising commodity prices. And of course, it only had to reach about 5% before it triggered the 2008 financial crisis, and then of course we saw them come right down to zero, and then going up slightly in the recent past and then once again having to be brought down with the pandemic and going up. So really, for most of the 2020s, as you see, we have had a historically low level of interest rates. MICHAEL HUDSON: Well you had the dot-com bubble just before 2000, and that led Greenspan to lower the interest rate. That was temporary. The real quantitative easing took place [when] the Obama depression began. Ever since Obama bailed out the banks and not the economy — ever since he didn’t write down the debts to what can be paid —ever since he refused to let the Federal Deposit Insurance Corporation take over Citibank and refused to declare that the largest banks — Wells Fargo, Chase — all these banks were insolvent — that refusal led to the whole debt overhead — what they called the “jobless recovery”. They still pretended it was a recovery, but instead of calling it a “jobless depression” — which is what a depression is — they called it a jobless recovery. So it’s like “the depression recovery”. That was a deliberate policy choice of Obama and his Treasury Secretary Geithner. That remains the policy of the Democratic Party today with some Republican support. Their policy is to put the financial sector first, and the job of the entire economy is to reduce its living standards, cut back its corporate investment, cut back any spending except the flow of money into the financial sector. That sounds radical but that’s exactly what’s been happening by the banks, and it’s the inherent tendency — it’s the mathematics of interest-bearing debt and finance themselves. RADHIKA DESAI: No, absolutely. I should just clarify the reason why I still think that the low interest rate policy in the early 2000s is continuous with what we have seen since, is that, you see, back then, Greenspan lowered interest rates — in the first instance, yes, in response to the dot-com crash. But then they kept it going because they realized that the only motor in the US economy that was chugging along at any rate was the already-brewing real estate bubble. And in order to keep that going — because that was the only thing that was really working in the US economy because it was inflating asset values and so on — so that is the main reason. But beyond that I agree. I mean definitely these policies have taken on a new scale and intensity since 2008. MICHAEL HUDSON: Well something happened way beyond interest rates. The collapse of 2008 wasn’t simply a product of lowering interest rates — it was fraud. There were eight million defaulting mortgage victims that were thrown out of their houses. The houses of eight million American families were bought out by private capital companies and turned from owner-occupied housing into rental housing. The shape of the economy changed. This is much more than lower interest rates. It was a transformation of the American economy from a homeowner’s economy to a rental economy — from an industrial economy to a financial economy. The Obama administration ended permanently any hopes for an American industrial takeoff until such time as his acts can be undone and you wipe out the debt overhead that is the same thing as the savings overhead of the banks in the financial sector. As long as America bails out the financial sector, it’s bailing out the wealth of the 1%, maybe the 10%. But the wealth of the 10% is made by indebting the 90%. If you indebt the 90% there’s not going to be any internal market to buy what labor produces, and you’re going to have the kind of unemployment that the Federal Reserve says it’s its policy to restore normalcy — with normalcy meaning: all the wealth ends up in the financial sector and we’re back into something that looks very much like neo-feudalism. RADHIKA DESAI: No, exactly. And by the way Michael again let me agree with you first of all that Obama was doing this even though everybody and the dog was talking about the need to have a fiscal stimulus which meant a bigger government role in making the economy more productive, investing, etc. So there’s no doubt. Although I should also say that the voices that have been talking about that also go back to the 1980s. I mean, remember Ross Perot and him saying that if the United States wants to have an economy as competitive as Japan’s, it’s going to need industrial policy, and that implies a very different financial system. And so yes, of course, with Obama continuing these sorts of instincts of the US ruling class, essentially you have financial markets prospering against the background of an ailing economy — something that we saw taking an extremely grotesque form, particularly during the pandemic when the economy had crashed and nevertheless financial markets — particularly after the Federal Reserve’s massive stimulus — were simply scaling ever new heights. MICHAEL HUDSON: Well Obama did something much worse. The Federal Reserve in 2009 started the practice of actually paying interest on bank reserves held at the Fed. So a bank could borrow from the Fed at a low rate of interest, redeposit the money at the Fed and actually make an arbitrage gain. This is, again, a transformation in the structure. It’s not just a lower interest rate — it’s not just that. It’s lowering interest rates in a way that gives banks a way to make free money by borrowing cheap from the government and lending back to the government. This was a gigantic $9 trillion subsidy to the banks at the same time that the Democrats said, “We cannot afford to forgive student debt. We can afford to forgive the debts of the 1%. We can afford to forgive the debts of the banks that have gone under. But not the students, not the homeowners that couldn’t pay, not the victims of junk mortgage loans.” This is the choice that both the Democrats and the Republicans are following, and that is what makes a recovery impossible for the United States without a change in policy. I don’t see how it can occur without a revolution. The banks made no attempt to attract deposits — they didn’t have to with the Federal Reserve just funding them. Much more than just an interest rate policy. RADHIKA DESAI: Although I should say that the practice of the Federal Reserve paying banks interest on their deposit — which previously they had to deposit as part of the regulatory structure — this practice actually began with the 2006 Financial Services Regulatory Relief Act. And this only goes to show that I think that the practices we’re talking about are not post-2008. They go back much earlier — indeed they go back to before 2008, before 2000, and even back to the deregulatory trend that set in already by the late 1970s. MICHAEL HUDSON: Well you could say it goes back to the founding of the Federal Reserve. That was the fatal detour that the American economy took. If you read the government reports of the National Monetary Commission at the time, the purpose of the Federal Reserve was to take monetary power out of Washington and put it in the financial centers in New York, Philadelphia, and Boston. And the Treasury was not even allowed as a board member on the Federal Reserve. The idea was to privatize finance and essentially replace the Treasury with the private banking system. One result was the stock market crash of 1929. And then finally the moratoriums of 1931 that you had. Then finally Roosevelt trying to fix it up. And ever since Roosevelt the fight has been led by the Democratic party to undo everything the reforms that he tried to do, and we’re now really back to the raw banking and raw privatizations that you had already under Wilson in 1914. RADHIKA DESAI: I think we’d have to do a whole program on the Federal Reserve. But I would simply say, I think that the United States was certainly overdue for creating a central bank. The problem was that they created the particular type of central bank that they did — privately owned and designed in certain ways and so on. And that I totally agree with. MICHAEL HUDSON: Well, so right now what do we have? We have an economy slowed down. The function of the central bank today isn’t to provide money to the economy, it’s to provide money for the banks to make money financially at the economy’s expense. RADHIKA DESAI: Absolutely, I agree with that. And it’s also important to understand that what is not invested is consumed. And a lot of people were getting into debt just to make ends meet — to buy the homes and the cars they needed — not for speculation. I think it’s important to understand that the consumption part is there for two systematic reasons. MICHAEL HUDSON: Well, what’s not invested isn’t necessarily at the expense of consumption. What’s not invested is paid out as interest and financial charges to the financial sector. You don’t have industrial capital investment in means of production and factories and machinery and research and development. You have borrowing to make money financially. So that the Fed’s mandate in practice is the reverse of helping ensure full employment. The mandate of the Fed is to make sure that there’s enough unemployment that wages cannot rise, so that all the growth in economic surplus will accrue to the 1%, the 10%, that controls the Finance, Insurance, and Real Estate (FIRE) sector. The whole idea after the pandemic was, there was a thought that there would be a recovery, and the idea was — the Federal Reserve said, “We don’t want the economy to recover if wages are going to go up. We want the recovery to be a jobless recovery” — like the Obama recovery was. “We want to make sure that any recovery is in corporate profits, in stock prices, in bond prices, and real estate prices, not in living standards.” RADHIKA DESAI: Absolutely, Michael. And I think that what becomes really clear is that there’s no doubt that the Federal Reserve is out to “cool down” the labor market — that is to say, to ensure that there is sufficient unemployment that labor does not become particularly strong, either economically or politically. However, those who are making this argument tend to say that, therefore, raising interest rates is the wrong thing to do because inflation is episodic, it’s because of food and energy prices and the sanctions and the war, and so on, and rising monopoly power. Both of which are true. I’m not at all saying that these are not important factors in inflation. I would say that inflation also has one other core component. So you can see [on the bar graph], the “All items”, the “Food” component, the “Energy” component, and then [the green bar] “All items less food and energy”. And you can see that that green bar at the end is also quite solid. This is for February 2023 figures here. This is for core inflation, and core inflation has remained high. And I would say that this core inflation arises from precisely those fundamental productive weaknesses of the US economy which have built up over decades. Which we have been talking about, Michael, throughout this episode and many others. Particularly (crosstalk) multiple decades, and this is not budging. MICHAEL HUDSON: I think it’s more financialized. Much of that inflation, the largest element is the 20% rise in housing costs. That’s the financial consequence — banks are raising the price of housing and shifting into a rentier economy. The rise in energy prices, which is the largest element in the bar chart, is a result of the American sanctions against Russia. And as Biden said, “We have the sanctions against Russia and blocking its energy and its food and grain because this is a 10 to 20 year fight to prevent any government from playing an active role in the economy.” “China is a mixed economy — private and public. Any country that retains a strong government power instead of letting the economy be run by the financial sector is by definition an autocracy, limiting the freedom of the banks to take over.” “That’s why we’re fighting China and why we’re fighting Russia as the defender of China.” And you just talked about raising the interest rates. People have been criticizing Silicon Valley Bank, saying, “Well, why couldn’t they simply hedge against interest rates?” Well, if you have the head of the Federal Reserve Mr. Powell, saying, “We’re going to raise interest rates up to 4% from the 0.2% that they were at” — that means that every government security, every mortgage, every bond and stock is going to go down in price. Who on Earth would be at the other side of the hedge? Who on Earth would say, “Well we promise to pay you in five years — to buy this government bond 100 cents on the dollar even though the Fed says it is only going to be worth 70 cents on the dollar” ? Nobody would write a hedge. The hedge would have cost $9 trillion for the economy as a whole because that was how much was paid. So if Janet Yellen now says, “Well the Treasury will make good all of the bank’s losses that have been a result of raising interest rates from Obama’s zero interest rates” — then there’ll have to be another $9 trillion. Well with $9 trillion you can forget Social Security, forget Medicare, forget social spending — you’ll only have a government doing military spending and paying money to the banks. And the military spending is going to prevent any other country from trying to take over its [own] banking system in the way that China has done. RADHIKA DESAI: The Silicon Valley Bank as you say, they couldn’t have easily hedged themselves against the problems that they found themselves in. But there is also the fact that they probably blithely assumed that they would be bailed out. This was what they were trying to achieve all along. I should also say one other thing. Earlier you were referring to the fact that the Federal Reserve has this dual mandate. And of course you are quite right. Not only are you right that it never really respects its mandate to keep employment levels high, it is only concerned about its mandate to keep inflation levels low. This second mandate, of keeping employment levels high, was actually written into the legislation in 1977. But as you know, within less than a year or two of the legislation passing, Paul Volcker, by imposing his interest rate shock, violated that employment mandate right royally. So you know that the Federal Reserve only uses it to justify policies whose real purpose is to be soft towards the financial sector. These policies are then justified in the name of keeping employment levels high. MICHAEL HUDSON: Well I don’t think that the Silicon Valley Bank actually expected to have to be bailed out. What it expected was that deposits would continue to grow and somehow the financial system would work and it would just hold the Treasury bonds yielding a very low rate and it could afford to do that as long as it was making a lot of money elsewhere in the economy. But it never expected depositors to actually withdraw the money. The idea was that the deposits would grow forever. But once the banks got so selfish, so greedy, that even though anybody could make 4% by lending to the Treasury, [SVB] thought, “Well people are very lazy, they’re slow. They’re willing to leave their money here at 0.2% and let us make all the money by paying them %0.2 and ending up earning 4% ourselves.” “We’ll make enough money so it doesn’t matter that we’re losing money on our Treasury securities. The public doesn’t have enough sophistication to know that it has a choice.” And once people began to realize they had a choice, the whole system fell apart. That it didn’t have to be this way. And that is what is terrifying the Federal Reserve and the Treasury now — that it doesn’t have to be this way, and that if there’s a choice we don’t have to let a predatory banking system shape the economy. The [banks] can make the money creation system work for the economy instead of vice versa. RADHIKA DESAI: Well as you know, every time there’s a big disaster the question always arises: Are the people [who are] responsible fools or knaves? Michael you are saying that they are fools, I’m saying they are knaves, but who knows. The situation might actually be both. But this also actually raises a really interesting question in my mind. As I’ve been following the story of Silicon Valley Bank, I read that the initial alarm about the deposits not being safe was spread by a relatively small number of depositors including Peter Thiel, who is the Silicon Valley investor. And perhaps in the future we will discover why they did so. Maybe they did it because they thought, “Okay let’s accelerate this process and make sure that the Federal Reserve comes in and insures our deposits — [that is, bails us out].” So who knows, it will be interesting to find out. MICHAEL HUDSON: Well I think they were worried about an element of the [Dodd-Frank act] about bail-ins, saying that if banks couldn’t pay there was going to be a bail-in. [The] depositors over $250,000 would have their deposits cut back to make up the bank’s losses. [That] was completely unnecessary, because if the government would have taken over the banks, exactly the same thing would have happened. Of course they would have parceled out what was left of the banks among the various depositors. So the depositors in Silicon Valley [Bank], because there were so few of them who were depositors at the bank — this was a very concentrated bank ownership — said, “Well we don’t want to be left holding the bag and bailed-in. Let’s jump ship right now and leave the bank a shell. After all, that’s our business model.” “We start companies. We sell them to the public. We loot them. We leave them as a corporate shell. Let’s do the same thing to Silicon Valley Bank. That’s what we know how to do.” RADHIKA DESAI: Michael I think we should probably wind down now. And you wanted to wind down by talking about whether we really need banking. MICHAEL HUDSON: Yes, that’s really the question. If banking doesn’t help the economy, what is its purpose? Certainly we need a source of credit. Every economy needs credit. But the credit is supposed to be given for something that is economically productive — to build factories, to build houses, for construction, for infrastructure — and that’s not what’s happening today. Most credit is for financial speculation, not to finance productive capital investment, and the default rates are rising all across the board. Mortgage loans are defaulting. Auto loans are defaulting. Credit card debt is defaulting. And nobody knows how large the losses on derivative gambles are. So the question is: If the way that we structure banks today leads to bankruptcy of the banks and it needs [a] bailout, why not have the Treasury create public banks and simply fund the economy for public purposes? Instead of letting the financial sector not only take over the banking system but take over the Treasury itself, and even take over the government, as you’re having under Citizens United and what’s happening today. Are we going to have finance capitalism? Or are we going to go back to industrial capitalism evolving into socialism? RADHIKA DESAI: I thought they had already taken over, Michael. I thought that was what we were arguing. Isn’t that so? (laughs) Certainly I think that this is the central contradiction. And I think that the Federal Reserve’s actions will on the one hand be pulled by this reality to which Michael and I have been referring, which is the reality of the public character of banking. Banking needs to be public. But on the other hand — on the other side there will be another pull as well in the opposite direction, which is the desire of the regulators to pretend as though they are still running a private system which is inherently virtuous. So Michael, and then the other thing you say, about: Wouldn’t it be cheaper and more direct for the treasury to create a national bank? Well that will be a central bank issuing what is increasingly being talked about in progressive circles — issuing a central bank digital currency, which will allow every citizen to have an account with the central bank. You don’t actually need any other banks. In the past, you needed banks and bank branches because there was no way in which a central bank sitting in New York or Washington or wherever could reach out to the entire country. But today with information technology that is no longer an obstacle. So I think that makes central bank digital currencies more possible. It then evades the necessity of having these private casinos, which we call our financial system today. And it also then can make more feasible a financial system that is oriented towards serving a productive economy that creates broad-based prosperity. So I think that we should also at some point talk about this soon. The other thing that’s perhaps really interesting that we should kind of remember is that the United States, and most other countries, had a financial system much closer to a productive financial system in the decades after the Second World War, which is why back then you didn’t have the same rate of financial failure, and nor did you have the same levels of inequality, speculation, predation. It’s really quite interesting what you see here [in the bank failures charts]. So this is the first chart, and what you see is from the beginning, since the creation of the Federal Deposit Insurance Corporation in the 1930s, you see a reduction — the regulation reduces bank failures. And then you see these two big bars [for “1980s” and “1990s”] which show the big Savings & Loan crisis in the 1980s and 1990s. So that was a very big number of bank failures. And then you see, again, bank failures increasing. But the actual reality of this is revealed when you combine this chart with the next chart. Here [in the second chart] you see the total deposits that are lost. Because what also happens in this period, particularly after the 1980s and 1990s and into the 2000s is a massive centralization of the banking sector. So the number of deposits that were lost in these are actually the highest in the 2000s. This is the 2008 financial crisis. And now we are seeing more bank failures and more deposits being lost. So that you can see that the lack of — whereas in the 1950s, 60s, and 70s, right through this time there were actually essentially no big bank failures to speak of. So essentially, this is the situation. We need a more highly regulated banking system that is going to be aimed towards not only making productive investment [but also] creating the sort of economy capable of creating broad-based prosperity. MICHAEL HUDSON: I think the point that you wanted me to make before is, we can’t restructure the banking and credit system and leave the current bailouts in place, and the current debts in place. The enormous amount of debts that have grown as a result of the Obama bailouts — the huge $9 trillion in debts — cannot remain in the economy without [preventing the economy from developing]. This whole buildup of debt, sponsored by zero interest rate policy, has to be wiped out. If you keep that debt, if you don’t let the banks go under, if you do not wipe out this debt, there is no way that the economy can afford to be competitive [with] other countries. And all it will be left [with] to relate to the international economy will be military power. There’s no way that it’ll have export power, or even a financial power that is viable. RADHIKA DESAI: Absolutely Michael. So that, folks, is the story of the banking system that Michael and I wanted to share with you today. Really, the answer to this is not only — I think the progressive economists are right to point out the dangers of the anti-labor character of the interest rate increases — but while interest rate increases have to be stopped, that is not the end of it. There has to be a root and branch reform of the financial system. Only that is going to solve the dilemma which we are in today. Now, just a brief word about our future shows. So we are going to take a break for the next fortnight, so you’ll see our next show in about a month’s time. The reason we’re taking a break is that I’m off to Russia for several conferences as well as something of a fact-finding trip. So when we get back, one of the programs we’re going to do is the political economy of the Ukraine conflict. I’m hoping to be able to report a great deal from what I found in Russia, and share my impressions with Michael who I’m sure will also have lots of interesting things to say about it. Remember we are going to do our fourth and final dedollarization show sometime. Thanks very much to you all. Thanks to Ben Norton for hosting our show on his website. Thanks to Paul Graham, our wonderful videographer. And also to Zach who always transcribes our scripts for us. So thank you all and until next time. Bye.

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banks, crypto, cryptocurrency, derivatives, economics, inflation, interest, Jerome Powell, JPMorgan Chase, Paul Volcker, quantitative easing, S&L, Sam Bankman-Fried, Treasury

Economist Michael Hudson responds to the collapse of Silicon Valley Bank and Silvergate, and explains the similarities with the 2008 financial crash and the savings and loan crisis of the 1980s. The California-based, cryptocurrency-focused Silvergate Bank collapsed on March 8. Two days later, Silicon Valley Bank went down as well, in the largest ever bank run. The latter was the second-biggest bank to fail in US history, and the most influential financial institution to crash since the 2008 crisis. Economist Michael Hudson, co-host of the program Geopolitical Economy Hour, analyzes the disaster: The breakup of banks that is now occurring in the United States is the inevitable result of the way in which the Obama administration bailed out the banks in 2009. When real estate prices collapsed, the Federal Reserve flooded the financial system with 15 years of quantitative easing (QE) to re-inflate real estate prices – and with them, stock and bond prices. What was inflated were asset prices, above all for the packaged mortgages that banks were holding, but also for stocks and bonds across the board. That is what bank credit does. This made trillions of dollars for holders of financial assets – the One Percent and a bit more. The economy polarized as stock prices recovered, the cost of home ownership soared (on low-interest mortgages), and the U.S. economy experienced the largest bond-market boom in history, as interest rates fell below 1%. But in serving the financial sector, the Fed painted itself into a corner. What would happen when interest rates finally rose? Rising interest rates cause bond prices to fall. And that is what has been happening under the Fed’s fight against “inflation,” by which it means rising wage levels. Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets against depositors. The result today is similar to the situation that savings and loan associations (S&Ls) found themselves in the 1980s, leading to their demise. S&Ls had made long-term mortgages at affordable interest rates. But in the wake of the Volcker inflation, the overall level of interest rates rose. S&Ls could not pay their depositors higher rates, because their revenue from their mortgages was fixed at lower rates. So depositors withdrew their money. To obtain the money to pay these depositors, S&Ls had to sell their mortgages. But the face value of these debts was lower, as a result of higher rates. The S&Ls (and many banks) owed money to depositors short-term, but were locked into long-term assets at falling prices. Of course, S&L mortgages were much longer-term than was the case for commercial banks. And presumably, banks can turn over assets for the Fed’s line of credit. But just as QE was followed to bolster the banks, its unwinding must have the reverse effect. And if it has made a bad derivatives trade, it’s in trouble. SVB bank melts down following a Thursday where its stock fell off the cliff, dropping 60% in one day. For those in the crowds, it’s feeling like 1929 all over again as customers converge on the bank’s locations in a modern-day bank run. https://t.co/ghLkVaDJKR — Boston Herald (@bostonherald) March 10, 2023 Any bank has a problem of keeping its asset prices up with its deposit liabilities. When there is a crash in bond prices, the bank’s asset structure weakens. That is the corner into which the Fed has painted the economy. Recognition of this problem led the Fed to avoid it for as long as it could. But when employment began to pick up and wages began to recover, the Fed could not resist fighting the usual class war against labor. And it has turned into a war against the banking system as well. Silvergate was the first to go. It had sought to ride the cryptocurrency wave, by serving as a bank for various brand names. After vast fraud by Sam Bankman-Fried (SBF) was exposed, there was a run on cryptocurrencies. Their managers paid by withdrawing the deposits they had at the banks – above all, Silvergate. It went under. And with Silvergate went many cryptocurrency deposits. The popular impression was that crypto provided an alternative to commercial banks and “fiat currency.” But what could crypto funds invest in to back their coin purchases, if not bank deposits and government securities or private stocks and bonds? What was crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers? Silvergate was a “special case,” given its specialized deposit base. Silicon Valley Bank also was a specialized case, lending to IT startups. First Republic Bank was specialized, too, lending to wealthy depositors in San Francisco and the northern California area. All had seen the market price of their financial securities decline as Chairman Jerome Powell raised the Fed’s interest rates. And now, their deposits were being withdrawn, forcing them to sell securities at a loss. Reuters reported on March 10 that bank reserves at the Fed were plunging. That hardly is surprising, as banks are paying about 0.2% on deposits, while depositors can withdraw their money to buy two-year U.S. Treasury notes yielding 3.8% or almost 4%. No wonder well-to-do investors are running from the banks. This is the quandary in which banks – and behind them, the Fed – find themselves. The obvious question is why the Fed doesn’t simply bail them out. The problem is that the falling prices for long-term bank assets in the face of short-term deposit liabilities now looks like the new normal. The Fed can lend to banks for their current short-fall, but how can solvency be resolved without sharply reducing interest rates to restore the 15-year, abnormal Zero Interest-Rate Policy (ZIRP)? Interest yields spiked on March 10. As more workers were being hired than was expected, Mr. Powell announced that the Fed might have to raise interest rates even higher than he had warned. Volatility increased. And with it came a source of turmoil that has reached vast magnitudes beyond what caused the 2008 crash of AIG and other speculators: derivatives. JP Morgan Chase and other New York banks have tens of trillions of dollars worth of derivatives – that is, casino bets on which way interest rates, bond prices, stock prices, and other measures will change. For every winning guess, there is a loser. When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity. There is now a flight to “cash,” to a safe haven – something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders. It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed. So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015. So the chickens are coming hope to roost – with the “chickens” being, perhaps, the elephantine overhang of derivatives.

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de-dollarization, dollar, economics, Geopolitical Economy Hour, gold, Michael Hudson, Radhika Desai

Economists Radhika Desai and Michael Hudson discuss the evolution of the US dollar system after it was taken off the gold standard in 1971. In this episode of their program Geopolitical Economy Hour, Radhika Desai and Michael Hudson discuss the evolution of the US dollar system after it was taken off the gold standard in 1971. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hi everyone. Welcome to the fifth Geopolitical Economy Hour, the fortnightly show about the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: So this is our third show on the theme of de-dollarization, based on our work, particularly on Geopolitical Economy that I wrote in 2013 and Super Imperialism that Michael wrote some decades ago and has recently reissued. Based on my book “Geopolitical Economy” and Michael’s “Super Imperialism,” and also of course our article which we co-wrote called “Beyond the Dollar Creditocracy”. As many of you know we have structured our discussion around some ten questions. So as you see in this slide they are all here. In the first show we answered the first five questions. In the second show we answered the next three, which are, How did the Sterling system end? What really happened between the wars? And, How did the dollar system work between 1945 and 1971? So in this show we are going to take up the last two questions, which are: Was there really a Bretton Woods II really after 1971? And finally, What is the crisis today — what are its main dimensions? So that’s what we’re going to do. So let me just start off by just saying one thing about the first question, which is, Was there really a Bretton Woods II after 1971? Now the most important thing to know about this is that the very label “Bretton Woods II” involves a boast. And let me also explain that by pointing out that actually by calling it a boast I’m drawing attention to a very important fact about the whole discourse around dollar hegemony and so on. And that fact is that there is an absolute industry of writers — on the dollar and dollar hegemony and US hegemony and so on — whose business it is to constantly talk up the dollar. No matter what’s happening on the ground, the conclusion they draw from whatever is happening is that the dollar system is here to stay and here forever. And so if the dollar goes up they say, “Oh look, the dollar is high and everybody wants the dollar.” If the dollar goes down they say, “Well, see, people want the dollar even though it’s down.” So this is the kind of weird reasoning that you see, and of course Michael and I have unpacked a lot of it already, and in this show we will continue to unpack it. So basically the boast about so-called Bretton Woods II — that is to say, the dollar system after 1971 — is that this was “hegemony without tears”. That the United States had been freed from the burden of linking the dollar to gold. Michael I think you have some points on this as well. MICHAEL HUDSON: Well the United States aimed to not lose any more of its gold, because gold is how it had bouldered its control over international finance since the 1920s. The US also wanted to keep its veto power in the IMF and the World Bank. And it’s continued to be led —the World Bank certainly — by US military strategists, and the IMF has in fact just continued American foreign policy. So the story is that what was new is that the United States was able to pay in IOUs — Treasury securities — and which now we all know really are never going to be paid because they can’t be repaid, anymore than the government is going to retire the paper currency, the dollar bills that you have in your wallet. The irony and the internal contradiction here, is that this success in maintaining American power and American policy enabled the United States to become, well we can just say it, parasitic. It enabled it to deindustrialize. It enabled the United States to get so much revenue from its foreign investments, from its foreign lending, and from its control of the foreign trade system and the tariff system, that it was able to deindustrialize and actually become dependent on other countries for essentials. Just the opposite of what it had tried to make other countries do. And this was a kind of poison chalice. It left the United States in what we now know is an untenable position. How can it live off the surplus exports and payments of others while it itself is being deindustrialized? What is the basis for its power if not ultimately military? Any breakaway from the US economy is going to leave it isolated, as we now can see, and unable to provide for its own basic needs. So it needs to have an international financial system that actually works as a kind of neo-colonialism, a neo-imperialism. You can call it financial colonialism and financial imperialism. And that is driving, right now, other countries out of the US orbit as we’ve talked about today. And their withdrawal isn’t simply from the dollar as a currency, it’s from the foreign trade system, the foreign investment system, and the foreign debt system that the United States has used since 1971 to bolster its international position. RADHIKA DESAI: So exactly, Michael. You know it’s really important — we both tend to emphasize in our writings and our writings together that this is the key. If you want to run a system like the dollar system, what you’re going to do is exact a price from your productive economy. You’re going to deindustrialize it. You’re going to make it weaker. Now if the US economy has become reliant — and particularly of course the US elites, the US ruling classes have become reliant — on an introductive predatory speculative financial system. And if that financial system, on which the dollar is based, is essentially unraveling, then you can easily see that the United States is in for a rather big crisis, a rather big reckoning. And it’s gonna be hard. But let me say one other thing very quickly. The United States has always, as we’ve emphasized in previous shows — this whole desire to install the dollar as the world’s money comes out of a certain interpretation — a certain wrong interpretation — that American foreign policy elites have made throughout this period, going back to the early twentieth century, about how the sterling system ran. They simply did not did not see that the sterling system ran on the basis of empire. But they have sought to emulate that without an empire. And even with an empire the sterling system was not sufficiently stable, and the dollar system is even less so. But the important point is that, as soon as the UK started essentially running the sterling system, it also set the stage for the deindustrialization of the UK. And you are seeing a repeat of that process a century later in the case of the United States. This is really quite a serious point. So I think we’ve given you a broad conception of the contradictions. But it tells you also why we need to look at the reality of the dollar system and its contradictions. Because you see if we’re going to talk about de-dollarization, then if we don’t understand how the dollar system was contradictory, we will think of de-dollarization as something that has hit the dollar system out of the blue. In reality it is the maturation of the contradictions of the dollar system. And if you see, for example in the next two slides, I’m just going to show you the value of the dollar declining. So Paul if you will show — yes the dollar since 1971. You’ll see here that there is a huge rise in the dollar in the early 1980s, which is the Volcker shock. And since then you see, although there are ups and downs, there is a secular downturn in the value of the dollar. With the stock market bubble the dollar went up. But funnily enough, all the money coming into the United States after the housing bubble, all the money that was attracted into the United States —massive quantities of money — were not able to prevent the downward slide of the dollar. And since then, quantitative easing, etc. quantitative easing one, two — quantitative easing infinity, etc. — have let the dollar go up, but now you see what they began to do in the last decade or so, is they have rebased the whole system. So the two peaks here that you see — in the previous graph they are valued at about 80. And in the new graph, you see that they are valued at about 100. So they basically are basing the dollar up again so you do not see the broad secular decline, but believe me, there has been a secular decline in the value of the dollar. And this is despite all the efforts made by the Federal Reserve to essentially run the casinos of various asset bubbles which would have brought money into the dollar and therefore kept the value of the dollar up. Because remember, our argument has been — my argument in Geopolitical Economy, Michael’s argument in various writings, and also our argument in “Beyond the Dollar Creditocracy” — is that, since 1971, essentially the United States has sought to make the dollar system function by counteracting the “Triffin dilemma” effect. By expanding purely financial demand for the dollar. Not economic demand, not investment demand, not trade demand, but purely financial speculative demand for the dollar. And this system essentially is now unraveling. And just to remind everybody, the Triffin dilemma is simply the assertion of Robert Triffin going back to the late 1950s when he pointed out that the United States’s effort to try to provide the world with liquidity by running deficits was essentially deeply contradictory, because the more liquidity it provided — therefor the greater the deficits — the greater would be the downward pressure on the dollar. And many people — especially those who are part of the industry of the dollar boosters — they hate talking about the Triffin dilemma. And if they ever talk about it they say, “Oh well, after the dollar’s link to gold was broken it’s no longer operating.” That has simply not been true. It has continued to operate, and the United States has made great exertions — and we will discuss them all in some detail now — but it has made great exertions to try to counteract this effect. Particularly by, as I say, allowing huge speculative bubbles to be inflated in the dollar financial system, so that investors, speculators would bring funds into the dollar system so as to keep demand for the dollar up. So that’s the key thing. The Triffin dilemma never stopped operating. And 2008 was a big peak for that. MICHAEL HUDSON: Well by 2008 what’s important is that what we’ve called dollarization was really what the US State Department called the “rules-based international order.” Meaning, rules that it’s set. By 2008 almost every country had managed to extricate itself from the International Monetary Fund (IMF). I think [Türkiye] was the only country that was still remaining as a client of the IMF because it was widely recognized that the IMF “medicine” of austerity actually is a kind of poison, it’s not medicine at all. And the World Bank’s idea of “development” was basically underdevelopment. It was basically dependency on the United States exporters — especially its farm exports — and creditors. Instead of creating their own money, instead of producing their own food, instead of producing their own products. What Triffin neglected to point out is that the US deficit — he isolated that from the whole world system, and the world system was designed to make other countries dependent, and that was why the dollar didn’t go down anywhere near what Triffin’s so-called dilemma implied. Because the dilemma was solved by what we’re calling monetary imperialism. RADHIKA DESAI: Yes. So you know one of the other broad realities that we have to look at is that in this period — that is to say the period since 1971 — the United States financial system, which had been made into one of the most highly regulated financial systems thanks to the Depression-era regulations that were brought in in the 1930s — and therefore this financial system had been kept focused on productive investment — in the period since 1971 you see its gradual transformation into a financial system which is the opposite of what a really productively dynamic country needs. In any case, the dominant story — the story told by the dollar boosters — is that after 1971 the dollar played this world role without having to bear the burden of being linked to gold, without having to exchange dollars for gold. It was sort of like a hegemony without tears. But actually when we look at what happened you see a very different story. So immediately, once the dollar’s gold link was broken, it plummeted. And again, the story told by the dollar boosters is — they always try to make everything look as though it’s all under the United States’ control. So when the dollar plummeted they said, “Oh it’s great for the United States. United States exports were competitive.” But if it was so great, then the United States monetary authorities, the Federal Reserve, would not have intervened in markets in order to shore up the dollar. And we know they did. So the point is that these interventions show that actually the dollar was plummeting far more than what the US authorities had required, and that simply allowing the dollar to “find its own level” without backing of gold was no easy ride for the dollar. MICHAEL HUDSON: Well they were sort of trapped by their free market view that really was their form of market intervention. All markets are regulated, any kind of a market. Either they’re regulated by governments, or by monopolies, and by bankers. And the free market economists who are saying, “Oh, it’s wonderful, we’ve been able to not only go off gold but in the process we’ve devalued.” And Treasury Secretary [John Bowden] Connally was pointing to the fact that now we can really get an advantage for our exporters, not realizing that pretty soon we were going to deindustrialize and not really be an export economy in the way that we were before, because we were becoming a very high-cost economy. A high-cost economy because of our military spending, because of the increasing financialization, by the fact that more and more of the income in the American economy wasn’t going to the expert sector of products at all. It was going to real estate and finance and was becoming the kind of economic overhead that has undercut America’s ability to export, and therefore it undercut its ability to balance its international payments by trade as we’re now seeing. So the United States tried to control world trade and investment markets via the financial sector backed by diplomatic brass knuckles. And that was the reality that the country has been trying to deal with. RADHIKA DESAI: Absolutely Michael. This myth people talk about — how markets are somehow spontaneous and natural and so on. All markets are made. They need a whole panoply of government regulation in order to create a market for anything. And this goes also for the international market for dollars. You know, again, there are the dollar boosters, the people who want to say that the dollar system is completely natural and has no problems and will last forever. These are the people who always argue that the creation of the so-called “Eurodollar market” — that is to say a market for dollar and dollar-denominated financial instruments outside the United States — [they would say] “It had to happen because you can’t control flows of money. Money flows out inherently uncontrollable.” Of course, if they were inherently uncontrollable, then why would the United States and other such governments spend so much time and effort trying to persuade countries to lift capital controls? Because capital controls actually work, and they don’t want these capital controls to work. So anyway so the point I’m trying to make is that the Eurodollar market itself was a result of changes made to the legal and regulatory environment in which money operated, both domestically and internationally, particularly in the United States and the United Kingdom at this time, which laid the basis for the creation of an international market in dollars. So anyway, the first point is that the fact of the matter is that United States authorities could not afford to accept whatever valuation the market gave to the dollar. They intervened in markets to try to shore it up. The next thing that happened is also really interesting. Which is that essentially the dollar was falling so much that commodity prices were also rising. Or commodity prices were rising. You see, any money has — and the dollar in particular — has a very specific relationship to the prices of commodities. They move in opposite directions. If commodity prices go up, the value of the dollar goes down. So one of the things that happened in the late 1960s and early 1970s is that there was a big rise in the prices of commodities in general. And if you see in this chart it shows you that there was a big spike in the prices of food in the early 1970s. And partly in response to this — but partly also because the dollar was falling — the OPEC countries — the newly formed Organization of Petroleum Exporting Countries — basically jacked up, in 1973 they quadrupled the price of oil. This was a really earth-shaking event in its time. It was destined to have extremely bad consequences for the world economy, and a large part of what began to happen from hereon was the United States intervened in this crisis in order to once again use the crisis as an opportunity to stabilize the dollar. MICHAEL HUDSON: During this period I was going back and forth to the White House with Herman Kahn regularly to talk to the Treasury Secretary and the staff that was drawn largely from the oil industry. And the US told the oil countries that they could raise their export prices as much as they wanted. The more that OPEC would raise its oil export price, the larger the price umbrella became for American oil companies. So the American oil companies were very glad to see this, because it certainly helped. All the United States wanted from the oil countries was, “All of your export earnings have to be sent to the United States by buying US assets headed by Treasury securities or minority stock ownerships and bonds.” And some of the Saudi oil sheiks were said to buy a million shares of every stock listed in the Dow Jones Industrial Average. So there was a huge flow, not only into US Treasury securities and other securities, but also into American banks and British banks. You mentioned Eurodollars. And the United States preferred for deposits to come to the United States via London Eurodollars. Because when I was at Chase we found the single largest foreign depositor was really the young twenty year old who was in Chase’s London branch who was in charge of sending the Eurodollars to the head office in New York. The Federal Reserve rules said that banks didn’t have to have any reserve requirements against Eurodollars, unlike deposits. Eurodollars were the way in which the United States got sort of free money for the bankers. And the bankers were flooded with these dollars, on which they paid very low interest. And they turned around and began lending them out to Global South countries — to Latin America especially, to Africa, to Asia. And so this money flowing in became an almost reckless re-lending of these dollars to Third World debtor governments. RADHIKA DESAI: So the first thing I should say here of course is that this was a very complex moment, and there were certainly advantages of this moment — the quadrupling of oil prices — for the US because in part of course the US itself had big oil companies which were of course happy to benefit from it. And the other thing that this did of course, is that by raising prices of oil and ensuring of course that and still dominating it in dollars, meant that the rest of the world now acquired four times as many reasons to hold dollars. So again this in itself played a role in stabilizing temporarily at least the value of the dollar. But at the same time, as Michael said, the Americans basically persuaded the OPEC countries to deposit their money in Western financial institutions, US financial institutions, particularly those based in London but elsewhere as well. And they of course had to go on a lending spree. Because remember, it may sound like a great thing that you are a bank and all these people are depositing money into your bank, but the fact of the matter is, if you’re a banker, if people are depositing money into your bank, you’ve got to pay interest. Where are you going to earn the money to pay interest from? You can only do so by lending. And that’s why you see this enormous lending spree, as Michael says without really taking account of the consequences. By the way there was also a big lending spree within the United States. There was certainly a big international lending spree and money was lent to Third World countries and also communist countries where necessary. So in this period there were very complex new processes of money flows that were set up. And in this context the other thing that began to happen is that for many Third World who were borrowing this money, they were getting access to this money practically free of charge, in a sense, because in the 1970s again, nominal interest rates, wherever they were, but they were not low, they were relatively high, but so was inflation. So in real terms, there were actually negative real interest rates, and this as I say created a spigot of practically free money for Third World countries to borrow and to industrialize with. Yes, many Third World countries also — this money flowed into corrupt bank accounts and so on — but many Third World countries were also using this money to industrialize. And in the end, this is not something that the United States wanted to see, because from the start the United States has always wanted to have its relative power unquestioned, not just its absolute power. So in that sense, this whole scenario had very mixed consequences. The United States continued to experience very high inflation, and therefore the pressure on the dollar continued, and lending was flowing out to Third World countries who were also industrializing. So the scenario was not great. And in this context let me also say that another problematic thing from the US point of view is that European governments had already forced the hand of the United States into breaking the link with gold, because essentially they demanded so much gold, and they acquired so much gold as the consequence of their export surpluses, that it left the US with no choice. Now, immediately after the breaking of the link with gold, the United States and the European governments were involved in the so-called “Committee of 20” which was supposed to try to find a solution to this crisis and essentially try to negotiate a new financial system. And in this again, Keynes’s ideas were brought back on the table and so on. But the United States essentially brought to an end the Committee of 20 negotiations by doing this deal with the OPEC countries and changing the situation on the ground. And by the way, that deal with the OPEC countries also involved something else. Western Europe and Japan, as the capitalist allies of the United States, were heavily dependent on importing oil. And they were desperate to try to create a sort of multilateral recycling of petrodollars in such a way that they said to the OPEC countries, “Look, it’s your right, it’s your oil, you are free to raise the price of oil. But at least let’s create a system in which we can borrow from you the money we need. Essentially give us your surpluses as export credits.” And this possibility was nixed by the United States, and that’s how you got this recycling of petrodollars through Western financial institutions. So once the Committee of 20 negotiations were essentially scuttled by these means, the Europeans were essentially quite mad, and they said, “Ok, we are going to start our process of monetary integration” — something that they had been talking about for a while. But they now took the first steps in European monetary integration which would eventually lead, almost thirty years later, into the creation of the euro. So this is also very important, because people fail to see this, but the euro itself constitutes the first example of exit — a planned exit from the dollar system. Because by creating the euro, the European countries essentially ejected the dollar from their mutual transactions. So for trade within the European Union, etc., not only initially European currencies and eventually the euro were really what were going to be used. So this was the beginning of European monetary integration. MICHAEL HUDSON: I want to say what was happening in the banking sector. The government wanted the banks to find it profitable to accept the oil OPEC deposits. When I was working at Chase in the 1960s, my job was to analyze whether countries could pay or not. But by the 1970s, I had a meeting at the Federal Reserve and they said, “You don’t need to analyze the ability to pay anymore. Because if a country can’t pay its debt to the United States, we will lend that country the money.” And I said, “I don’t see how” — and I named some Latin American countries, Argentina and Chile. “How are they going to be able to pay?” And the Federal Reserve officer said, “Well according to your analysis, Professor Hudson, England is insolvent. It can’t pay.” And I said, “Oh I’m glad you mentioned that. Yes.” And they said, “But is it going to pay? Of course it’s going to pay. We will always lend England the money to pay the money it owes the United States. It’ll just be indebted to us.” And you were going to do the same for Latin America. So the American Banks were encouraged. They said, “Okay, we don’t have to look at the markets anymore. We don’t have to do an analysis of the ability to pay. The whole system has become political.” Well, since you bring up the creation of the euro, Radhika — the euro was indeed meant to integrate the European economies, largely by combining the surplus run by the German economy, with the rest of the Eurozone that was running a deficit. And so in that sense, they were trying to balance and stabilize their own exchange rates. However, the way in which the euro was created was basically the satellite currency of the United States, because it was designed by Robert Mondell at the University of Chicago for what he was given the annual Nobel Prize for the worst economic advice that they give annually. And he created the euro in a very right-wing “Chicago School” way, in a way that blocked the Eurozone from actually using the euro and the central bank to actually finance Keynesian-style budget deficits. European countries were forbidden to run a budget deficit of more than three percent of their GDP, which is a very small amount. And what that did was prevent the euro from creating enough money, enough currency, enough credit, to really become a rival for the dollar. It was sort of crippled from the very beginning by the rules that made sure the government would not be able to create enough credit to enable European recovery to take place without very very heavy borrowing from the European banks and from the American banks. So the euro was created in a way to minimize the role of government, maximize the role of banks, and essentially that’s what made it a right-wing Chicago School development from the very beginning, and we’ve now seen how it’s unfolded. RADHIKA DESAI: YOu certainly are absolutely right, Michael, when you say that the design of the euro is quite right-right. Although I would attribute it — although there’s also no doubt that the advice given by Robert Mundell was certainly part of the thinking of the Europeans when they were designing the euro. But I would say that also the ideas that flowed into the creation of the euro were as much a result of German older liberalism which has always been exceedingly monetarily conservative. MICHAEL HUDSON: Yes. RADHIKA DESAI: So in terms of the ideas, there is also another thread of ideas pouring into this. In terms of the kind of financial system it created, I think this is also a really interesting thing because, on the one hand, the euro was designed — as you rightly pointed out — to preserve the dominance of the German industrial machine in Europe as a whole. And then for the rest of the countries of Europe, with these sort of limits on deficits and so on, it was designed in such a way as to penalize them for engaging in any kind of productive expansion of their activities, and that’s also true. But that’s really more having to do with the internal politics of the European Union and the dominance of the Germans in the project. And of course, remember, this project evolved over a very long period of time. But having said both of those things, and agreeing with both of those things, I wouldn’t go so far as to say that the result was that the euro became a satellite currency of the US. The fact of the matter is that the euro did — the whole process of European monetary integration and eventually the euro — it did take the mutual transactions of the Europeans out of the dollar system. It made them independent of the dollar system. And also, the euro is used more widely. What you are pointing to, which is the way in which the United States financial system provides credit and functions on the basis of deficits — yes, that is something the euro is not going to do. But that again goes back to our contrast between a productively-oriented financial system and a speculatively-oriented financial system, and we will come back to that when we come to this later. But yes, so definitely the euro was created certainly as a way of essentially the Europeans stepping out of the dollar system. Now, we are still in the 1970s and another thing that I would like to point out and remind people of, is that the mid-1970s is also the period when the G7 meetings begin. Originally the G6 and then the United States brought in Canada as sort of ao North American partner. And this made it the G7. And the G7 meetings, which are annual, were forums where a lot of the extremely fraught politics of the dollar were played out. Where the Europeans, for example, would demand that the United States reduce its deficits, and so on. And now remember they no longer needed dollars. So they kept saying the United States should reduce these deficits. They also put pressure on the United States to stop the war in Vietnam which was proving very inflationary. They essentially ensured that [Lyndon B.] Johnson would refuse to run for a second [presidential] term because they made it politically impossible, and people even said this was the Europeans dictating to the Americans. So essentially the G7 became a forum at which the mutual exchange rates and so on would be determined based on collective decisions. So this idea that somehow the United States was running its own show, unilaterally deciding monetary policy for the world, this is simply has never been true. Certainly not as long as the G7 has been operating. And so in that sense, you also see the depth of the crisis of the dollar system that you found in the 1970s. And this crisis appears as though it is resolved by the Volcker shock. And essentially this is the point where in the late 1970s inflation is going out of control in the United States and Paul Volcker, who is regarded as a “sound money” man, is brought in as the new Federal Reserve chairman in order to deal with this problem. And Volker does the only thing that capitalist country central banks know how to do — which is, the only way they know how to deal with inflation is to restrict money supply, and allow interest rates to rise as high as they want, a particularly rise above the rate of inflation, so that eventually by rising high enough they will create a recession and they will eventually — the recession will kill inflation, rather than any particularly deft monetary policy, So this is what he did in 1978-79. MICHAEL HUDSON: Well Volker was my old boss’s boss at Chase Manhattan, and I was the note taker on talks that he would give periodically to the banks. And when you say he was fighting inflation, he defined inflation as “what construction workers are paid.” And he said, “I’m going to raise interest rates until I don’t see the wages of construction workers rising anymore.” And they rose to a peak of twenty percent in 1980. And the important thing is that obviously with interest rates that high nobody could borrow to buy housing — you’re not going to pay a mortgage at twenty percent rate over thirty years. Companies couldn’t borrow. But what this did was crash the stock market, the bond market, and the real estate market, by the interest rates. This set the stage for the Reagan decade, for Reaganomics. This set the stage for the largest bond rally in history. Interest rates went down from twenty percent then to I guess you could say last year’s almost zero rates. There was a steady decline in interest rates, a creation of enormous interest credit and basically the banks were given enough money that all of a sudden the way to make money after Volcker was not by industry anymore. It was by financial means: by corporate takeovers, by the leveraged buyout — all of that became the legacy under Reagan, combined with tax cuts for the financial sector, tax cuts for the high income people, but most of all the financialization of industry the transformed the whole role of the US economy in international affairs. RADHIKA DESAI: Before we — and this is a really important point Michael — but I also want to say one other thing about the Volcker shock before we move on to what this did to the US economy, which is something very serious and important for us to understand. But the Volcker shock, by allowing interest rates to go as high as they did — and at one point they hit nearly twenty percent in the United States, right — so this is how high interest rates had to those days to essentially bring down inflation. As Michael said [Volcker] defined it particularly in terms of wages, and that’s definitely also important. But this sort of Volcker shock created the Third World debt crisis, beginning with the default of Brazil, Mexico, and Argentina. And this is also very important from our point of view today, because, again, first of all, the fact that the Volcker shock created the debt crisis, the fact that the dollar went up very high in this period — again this is used as grist for the mill by those who are boosting the dollar. But in fact it is actually — this whole process was creating many contradictions. As far as the Third World was concerned, it did look as though this was the United States not only bullying the Third World and oppressing the Third World but also getting away with it. And certainly the 1980s and 1990s were periods during which, thanks to the Volcker shock and the Third World debt crisis, many Third World countries actually experienced a retardation in their growth. They had to work harder and harder to produce more and more of the cheap goods — whether it was coffee or cocoa or cotton goods or cheap manufactures or whatever it was that they were producing — they were producing their guts out in order to export to the rest of the world, particularly to the First World countries, in order to earn the dollars to repay the debt. So this debt was being repaid. And of course, the fact that they were repaying the debt was also bringing fund flows into the dollar system. But this sort of dollar repayment was really repayment by punishment. It was a repayment by restricting consumption by Third World countries — consumption as well as investment in Third World countries — rather than repayment by increasing the capacity of these countries to produce. And of course the whole process was overseen by the World Bank and the IMF. So when Michael says that these institutions were actually promoting underdevelopment rather than development, you saw that in all its gorey details in the 1980s and 1990s. So this was really quite important, what happened to Third World countries. And by the way, this also meant that the price of everyday things that you could buy in a First World country, whether it’s tea or coffee or cocoa or shoes or what have you, began to go down. So it looks like this is a great victory for the United States. But now let’s look at what this did, what the policy priorities set in train by the Volcker shock — which are essentially the policy priorities of neoliberalism — what they did to the productive apparatus of the United States itself. Because the Volcker shock punished US industry. US industry was already beginning to decline, particularly relative to the more robust productive and technologically advanced industries of Western Europe and Japan. So US industry had already begun its decline in the late 1950s and through the 1960s. But now that decline is massively accelerated. And what you see, already by the first couple of years of the Volcker shock, you begin to see the end of the manufacturing interest as an independent interest. Let me explain what this means. The Volcker shock basically induced a recession, and the recession was a double-dip, or double-u shaped, recession, so it extended over several years. and in the first few years there was a manufacturing industry. These people got together, they went and talked to Reagan, they talked to Volcker, they pleaded for a lowering of interest rates so that they could continue industrial expansion and so on. But they eventually failed. and what this also did is, when they failed, they essentially threw in the towel. They said, “If we can’t make money by producing, we are going to try to make money through financialization.” So this set in process the financialization of many productive American corporations. This is how — you may read in many places, a company like GM today is probably going to make more money by lending you money to buy their cars, rather than by making their cars. So this was the beginning of the financialization of the US economy, and the end of an independent manufacturing interest. MICHAEL HUDSON: Well, you’ve described two parallel forms of deindustrialization. I was to review just what you said about the Third World countries. Mexico defaulted in 1982. It could not pay the interest on its Tesobonos. All of a sudden, the high interest rates that were created at that time were not renewed. A lot of Third World debts were falling due, and they couldn’t re-borrow these debts at three or four or five percent. They were charged huge amounts. All they could do was default. And the defaults spread rapidly through Latin America, Asia, Africa. So literally the international bond market dried up, almost totally. No one could borrow in the 1980s. and we’ve discussed that on earlier shows. So, without borrowing, how were these economies whose economic development had been crippled by the IMF and the World Bank — how were they to develop? The only way they could balance their payments was to do what the US State Department told the IMF to tell them. “Sell off your industry. Sell off your public ownership of utilities, of basic natural monopolies. Your oil, your minerals.” So there was a huge selloff, and there was no money at all under the austerity of the 1980s for the Third World countries to really develop. But what happened in the United States was similar! As Radhika just said, the money was to be made financially, not by actually investing in corporations. This was the decade of junk bond takeovers, leveraged buyouts — initially by Drexel Burnham [Lambert] that began really with the CVS leveraged buyout, and then spread to the Nabisco [takeover] that was described in the book Barbarians at the Gate: The Fall of RJR Nabisco (1989). All of a sudden, people could borrow — go to Drexel Burnham and later other houses — and borrow high interest rates — junk bonds. And at that time, eleven, twelve, thirteen percent was a bonanza for investors. And how could they make money by borrowing at rates that profit-making industrial companies had never been able to do. Well, they made essentially money by a kind of arbitrage. By borrowing at twelve percent, and buying a company whose dividends, now that the Volcker shock had collapsed the stock prices of industrial companies, they could borrow and buy assets, paying dividends at much higher rates than twelve percent. And if they were not actually generating profits to pay these rates, they could begin to sell off the companies. They could carve them up. Companies were being bought out, broken up — [Henry] Kravis and KKR and all sorts of other companies were doing this. And in fact it was free money for the investors, because they organized a criminal conspiracy, for which Drexel Burnham people and their clients, such as Ivan Boesky, were sent to jail. Suppose you wanted to buy a company with borrowed money. Well, you’d get together and say, “Ok, in order to buy this company, we have to make an announcement of a takeover demand. And we’re going to have to pay twenty percent, twenty-five percent, over the existing stock market price in order to have the existing stockholders say, ‘Ok, we’re going to sell out our stocks and you can take the company private.’ ” Well, knowing that they were going to make a tender offer (unintelligible) — about twenty percent gain, which is a huge gain. Imagine making twenty percent in one week and only putting down five percent of the money yourself and borrowing from a bank or a brokerage house ninety-five percent for a stock option. The Drexel Burnham investors would say, “We’re going to buy Company X. But we’re going to buy stock options to buy at this low price from existing brokerage houses.” And then they’d make the tender offer — knowing how much they were going to offer — and the stocks would jump twenty percent. They would then exercise the stock options — at an enormous gain — and the stock options would give them the money to pay the stockholders to buy out the firm. They became instant billionaires, and of course the feds finally said, “Wait a minute, this is insider dealing. You’re not allowed to do this on margin.” And they stopped that. But what they didn’t stop was the whole concept of leveraged buyouts and takeovers — of buying a company, not to, say, produce cars; not to produce toothpaste or consumer goods; but to produce dividends, and to produce rising stock prices. Money was made no longer by making profits that would increase the stock price. For one hundred years, people had analyzed investment in industrial corporations by saying, “Let’s look at the profits. Let’s see how they’re going up over time. And we’re going to capitalize the value of these profits into stocks.” But what the takeover people did — the financial people — was say, “Well, we’re not going to invest in making profits by the long-term investment, research and development, developing markets — that takes too long. What we’re going to do is use the existing profits that we have to buy our own stock. Stock buybacks. And to pay dividends. We’re going to raise the stock market price.” “And what we’re producing is capital gains. Because the government is taxing capital gains at only a fraction of profits. The government tax system doesn’t want people to invest in employing labor. They don’t want companies to invest in capital expenditures to produce more. They want companies — and have designed the tax system — to make companies simply use the existing profits for stock buybacks and dividends and essentially shrink the companies. They want the companies to commit industrial suicide.” And indeed, Wall Street understood exactly what was happening, and they became — ever since the Reagan administration — participants in this industrial suicide of the United States by financializing the company, replacing industrial engineering with financial engineering, and essentially transforming the whole character of capitalism itself — away from industrial capitalism to finance capitalism. RADHIKA DESAI: Yes, exactly, Michael. If you really count the cost that the United States economy has been paying, in order that the Federal Reserve, and other US authorities essentially create this international casino, which is the dollar system — if you count that cost, you really begin to see how the United States economy has come to such a (unintelligible) state. And this is directly connected with the desire to keep the dollar as the world’s money. Because throughout this period, while this is happening, essentially financialization is strangulating US industry. And even as it’s doing that, throughout this period what you see is that, as the old, highly regulated financial system of the United States is coming under pressure because of high inflation and high interest rates and all sorts of things are going wrong. Savings and loans were essentially — because they had lent for a long-term basis on long mortgage rates that were at very low interest rates, they were hit really badly by the nominally high interest rates and the high inflation of the 1970s. And they went into a huge crisis in the United States. But if you examine what happened to that and how the authorities responded, what you see is something that has been true for the entire period since the 1970s. And that is that every time there is any problem with the financial sector — and there were many during this time — instead of saying, “Let us re-regulate — the old regulations are not working, but let’s put in new regulations which will try to achieve the same aims.” — Instead of that, they always deregulated in a way that encouraged financialization. That is to say, the increase in financial activity in relation to productive activity. And of course increasingly that financial activity no longer serving to expand production, but rather serving only to suck out the profits that were being made, whether in the form of profits or wages by productive forces — whether productive capital or workers. And what’s really interesting as well is that this entire period — if you see the slide that that shows interest rates through the entire period — you see here the interest rates of course reached a peak in the Volker shock of nearly twenty percent. And then you see them coming down. But what you also see — and of course you see in the present time since the 2000s, you see them exceedingly low as well — but what you see in the 1980s and 1990s is that this was a period of financialization in which interest rates remained relatively high. In themselves, these interest rates would have made it very difficult for that to be a revival of US industry. So in this period you had essentially high interest rates strangulating US industry. MICHAEL HUDSON: Well while these interest rates were falling, they still remained high. And as they fell, the economy could afford going deeper and deeper into debt. This is what the business cycle theorists missed. If you look at typical discussions of the business cycle, it’s a cycle. Like a sine curve, smoothly going up and down. But what was happening, especially since the 1980s, is that each recovery — and we’ve said this before in this show — each recovery since World War II has taken place at a higher and higher and higher level of debt. So the economy was gradually increasing its debt, because that’s how wealth was created. It wasn’t being created by capital investment in industry. It was created financially, mainly by debt leveraging, by borrowing money at interest and making a capital gain on it. The result is that people thought that the economy was getting richer and richer, but this wasn’t an industrial business cycle, as people had discussed before. It wasn’t a cycle of costs and prices going up and down and automatic stabilizers. There was nothing to stabilize the exponential growth in debt that was taking place. So the result is that as you could make money financially, instead of by industrial engineering and production, you had the economy deindustrializing more and more. And all of this was depicted as creating wealth. It was creating financial wealth, not industrial means of production or what people had usually thought of as being tangible, real wealth. The byproduct of all of this wealth is that it was very heavily concentrated in the wealthiest 1% — maybe 10% — of the economy. This financial wealth was not shared with the participants in the industrial economy of production and consumption. And so the economy was being distorted. Its shape was shifting. It was polarizing. The wealth of the 1% really found its counterpart — on the opposite side of the balance sheet — in the debts of the 99%. And the 99% thought that, maybe, well, it [itself] could also profit financially by becoming landlords in miniature. You borrow and buy the highest price home that you can find. You could be in real estate — they thought of themselves not as wage earners, but as using their ability to earn an income, to go to the bank and pledge this income to the bank for a mortgage and buy a house that would rise in price, maybe making more money in a single year than they could earn by earning wages. So all of that — the way in which people were spending their money and gaining wealth — was being transformed. RADHIKA DESAI: And you know Michael, as you say, so much of the wealth in the United States over the past so many decades has become financial wealth. And this underlines a point that our friend Jacob Assa has made in his concept of the financialization of GDP, which is that this vastly exaggerates the the wealth — because US method of counting GDP turns all this financial activity and makes it look as though it’s productive activity, it vastly exaggerates the GDP of the United States, and the real wealth and income of the United States. And of course the second thing that this reminds me of is that the inequality of the past several decades — which as most people recognize has reached astronomical levels — financialization has made a critical contribution to this and, unfortunately, although Tomas Piketty — or someone like Thomas Piketty — has documented the rise in inequality, what he has done however is he attributes it to the wrong reasons. He makes it look as though this is the natural consequence of capitalism — and to some extent it is — but he fails to take into account the serious role — the central role — that financialization has played in inequality. So the whole point we’re trying to make is that these features of a neoliberal United States, based on financialization, have been on the one hand necessary to support the dollar system, and on the other hand they have strangulated productive activity and made the United States into a less productive and more and more unequal system. And this policy paradigm has been continued from Reagan to Bush Senior to Clinton to Bush Junior to Obama, Trump, and today Biden. The Democrats and the Republicans have a cross-party consensus, and this is what accounts for the parlous state of the US economy. And in this context, it’s also important to see that part of the reason why the Third World got so badly punished by the system — essentially by having to repay their debts — is that their elites, their ruling classes, did not have the courage and the political will to default. Fidel Castro said, back in 1983-84, when the debt crisis was at its height, he said to the Latin American countries, in the eye of this storm, he said, “Don’t repay your debts. These are odious debts. You don’t have to repay them.” But unfortunately they did. And that’s why the Third World countries suffered as much as they did. And then what you also see in the 1980s is that the Europeans of course have — thanks to the European monetary integration and so on — they have largely absented themselves from the market for US Treasuries. And so now the United States turns to Japan. Japan is the country that is going to that that the United States tries to inveigle into buying the enormous number of treasuries that the United States is dumping on the market in this decade because of its twin deficits — [on the one hand] the federal deficit thanks to Reaganomics, and its tax cuts and so on are increasing — and on the other hand the trade deficit is widening thanks to the deindustrialization of the United States. So Japan in this period becomes a major buyer of US Treasuries. MICHAEL HUDSON: Well [Japan] also became a general lender to other countries, and it set up more than any other country the carry trade. Because as interest rates were lowered in Japan in order to really follow the US demands — my friend David Hale, a Wall Street investment manager for Zurich International — called Japan “the thirteenth Federal Reserve District”, it was creating so much money flowing over. But it was Japanese money largely that was lent to Iceland, for the Icelandic crisis. It was lent to all sorts of other countries, because (you could borrow from) banks with low interest rates could essentially lend to other countries fueling, essentially, the whole junk bond inflation and bank crisis. That was a byproduct that was spilling over beyond Japanese-US relations. RADHIKA DESAI: A lot of people tried to portray, in this period, Japan as essentially somehow a victim of US policy. But in reality, what the Japanese were doing was, first of all, they were buying US Treasuries, yes, but they were buying at a time when interest rates on these treasuries was very high. Borrowing costs were very high. Japanese financial interests were benefiting from buying US Treasuries. And, moreover, in return, the Japanese bought “preferential access” to the US market. In particular, as many people who are old enough to remember will remember, Japanese cars flooded American highways. This was essentially the beginning of the destruction of the American automotive industry. The Japanese were also in the forefront of making very fuel-efficient cars which, after the two oil shocks of the 1970s, had become really very important. This whole mechanism of essentially the United States interest rates being very high, and the Japanese buying up US Treasuries led the dollar to go to that peak that we saw in the chart earlier. Everybody recognized that this peak was unsustainable and so the central bankers of the major financially important countries got together at the Plaza Hotel in New York to hammer out an agreement to bring the dollar lower in a controlled fashion so that it wouldn’t crash and create disruptions in the market. Again, this is often linked to the fact that this eventually led the Japanese to have a real estate bubble in Japan because the dollar went down, American interest rates went down to some extent, and therefore this created a huge inflow of money into Japan and led to massive increases in real estate prices in Japan. And we are told that this laid the foundation for the destruction of Japan. MICHAEL HUDSON: Well in a way it did. It did because — as you say — the Japanese were making money off this process themselves. So they themselves were a part of going along with the idea that turning from an industrial economy into a financial economy was the way to get richer. There was so much credit that was created, that the value of the land around the palace in Tokyo — the Ginza District — was worth more than the value of all of the real estate in the United States. Japan had essentially kept this vast increase of credit within the economy itself, as well as the carry trade, and the result was disequilibrium to say the least. Japan did try to buy real estate in the United States. It bought a Rockefeller Center. And then it found out that it bought the land under Rockefeller Center, thinking, “Well the land value is going to go up,” without realizing that the billion dollars that it spent was absolutely fixed and put it under long term at what it could charge. So Japan said, “Okay, we see that one percent of the population is getting most of the money, so let’s buy trophies, let’s buy luxuries. That’s what’s going to go up if you’re going to polarize.” So they tried to buy I think the Pebble Beach Golf Course in California, not realizing that the Pebble Beach Golf Course was not going to let them raise the money to the extent that they wanted to do it. The Japanese investments in the United States were not very good, so they thought, somehow, that they could invest in Japan. Every month the daily Yomiuri [Shimbun] would publish — they had land prices very distinct from overall real estate prices in Japan — and you could see the steady gains, and everybody thought that buying land was going to make them rich. Of course, all of that broke in 1990 after the Asia crisis. Ever since then, real estate prices month after month after month have gone down and down and down in Japan. And all of this seeming financialized wealth has been dissipated. RADHIKA DESAI: But you know what the interesting thing about Japan is Michael as you know is that the bank of Japan actually pricked the real estate bubble. Because they knew that this is what was happening. They knew it was unsustainable. Unlike the behavior of Alan Greenspan, who always professed never to be able to see any bubble even while it was inflating under his very eyes. So in that sense I think they pricked the bubble because while they inadvertently set off this process of financialization, Japan remains to this day a far more industrially-focused economy than the United States is. And as a consequence their form of economic management remains quite distinct from that of the United States. So this idea that somehow three decades of secular stagnation have destroyed Japan is actually highly exaggerated, because Japan is still a very wealthy society, and in many ways its economy is better than that of most Western countries, particularly that of the United States. Let me just briefly quote something of mine I wrote on the subject of Japanese secular stagnation, and how it tends to be discussed in the West. (Radhika starts reading) The fact of the matter is, that over the past three decades of Japan’s secular stagnation, there have been at least two booms that have livened an otherwise gloomy Japanese outlook. The Izanami boom of the 2000s, and the Abenomics boom of the 2010s. As the Economist magazine noted recently, overall growth in Japan has remained sluggish, but growth per head has recently been comparable to others in G7. Unemployment has remained minimal. Longevity has increased. Inequality has stayed relatively low. Moreover, the same Economist report quoted a 2020 tweet by Paul Krugman that pointed to another reality. Within a decade of Japan’s slowdown, other major economies, including the United States, after its roaring ’90s, had entered a period of low growth which appears similarly intractable. Krugman had tweeted, “Maybe Western economists who were so critical of Japan circa 2000, myself included, should go to Tokyo and apologize to the emperor. Not that they did great, but we did much worse.” (Radhika stops reading) So that is to say that this whole relation between financialization, productive economy, and the whole phenomenon of secular stagnation has really now come home to roost even in Western countries. So this is something we can discuss in further detail in another show. But for now let me just say that the bond buying of Japan — the buying of US bonds — had already faded by the end of the 1980s. By the early 1990s the United States seemed to be in a real funk. George Bush Jr lost the 1992 elections very memorably as James Carville said, because “it’s the economy, stupid.” The economy was doing so badly that the incumbent president lost the elections. Remember also that this was the election — in 1992 — when Ross Perot became the most successful third party candidate I think throughout the twentieth century history of the United States. Because he ran on a platform which said, “Look at Japan. Japan is doing so well because they are not neoliberal, because they don’t believe in free markets, because they have industrial policy, because they are able to be industrially powerful. That’s what we need.” And he ran a really successful campaign and even managed to shift Clinton’s rhetoric a little bit more in an interventionist and anti-neoliberal direction. Of course Clinton did not keep his promise because no sooner was he elected then the financial interests essentially took charge of him. Alan Greenspan and others essentially met him and told him that if he tried to go through with his interventionist program that there would be a big run on the market against the US dollar, against US treasuries, the Federal Reserve would be forced to increase interest rates, etc. So in any case the point is that in the 1990s, you got the whole new political economy, and this was where you begin to see the shift to the different regime of the US trying to keep the dollar as the world’s money, which is by inflating asset bubbles. And the first asset bubble to be inflated was of course Dot Com bubble. And in the prelude to that you also see Alan Greenspan, and the Treasury generally, engage in a huge drive to encourage other countries, particularly the big emerging markets of Asia, to lift capital controls. They were told that if they lifted capital controls, all sorts of much-needed productive investment would come to that country. But in fact none of this happened. They lifted capital controls and the only type of money that flowed into the economies was short-term “hot money” which inflated various asset markets in these countries and eventually led to the East Asian financial crisis. MICHAEL HUDSON: Well the 1990s really were the turning point in this financialization. And what happened in America was very much like what had happened in England. You could think of Clinton as the American Tony Blair. In England there were certain things that even the Thatcherite government couldn’t do to privatize. Tony Blair went much further than Thatcher in privatizing the railroads and just driving the nail into what had been Britain’s industrial economy. Well in the United States, Clinton did things that even the Reagan Administration could not have done. It took the Democratic party cloaking itself in the pretense that it was a party of labor to end financial regulations. It ended the Glass-Steagall act, which led commercial banks to become brokerage houses. That diverted credit creation away from the industrial economy into the purchase of stocks and bonds and speculative investments and real estate. And then it deregulated the commodity markets, essentially. This was all capped by the — Clinton was really much more of an anti-labor president, explicitly, than Reagan. By (i) essentially opening up NAFTA to make sure that any tendency towards American unionization would be counted at least in the South by migrants; by (ii) cutting welfare and essentially by (iii) shifting the economy towards — letting it be run by his Treasury Secretary, Robert Rubin. And that was sort of the Rubinomics that was turned over to the Fed under Alan Greenspan to essentially let the financial system run wild while basically ending — winding down — the American tradition of social protection of labor and consumers and the poor and welfare. And then as you just point out, the [East] Asian crisis of 1997. RADHIKA DESAI: The East Asian crisis was also very important in another way, which also makes, as you rightly say, the 1990s a very liminal moment, a moment of transition. You mentioned earlier, Michael, that the IMF and the World Bank had essentially lost most of their clients in the twenty-first century, and part of this had to do with the way in which the IMF in the World Bank dealt with what were, after all, some of the most dynamic economies of the world. The economies of Korea, Malaysia, Thailand, and so on. And the way these countries were dealt with was so harmful to them that everybody who was anybody who was involved in policy making in Third World countries were taking notes. And they realized that the IMF and the World Bank could not be relied on at all. And the moment they had any options to them they essentially refused to take any money, they refused to go to the IMF and the World Bank. And one of the things they did, in order to prevent ever having to go to the IMF and the World Bank, is they engaged in a process of reserve accumulation. That is to say that, instead of having a currency crisis, they accumulated enough reserves to ensure that if there was downward pressure on their currency they could intervene in markets in order to buy their own currencies and increase the prices of their currencies. So the East Asian crisis was a big moment. And once the East Asian crisis occurred then of course all the money that was going to these countries in order to make a quick killing returned home to the United States. And the Dot Com bubble began to go up. And of course that burst in the 2000s. And this is also therefore another transition point because the point I was making earlier by showing the slide of interest rates was that interest rates, although they came down after the Volcker shock, remained historically high in the 1980s and 1990s. But after the Dot Com bubble burst in 2000, Alan Greenspan brought interest rates down to like one percent, and kept it there until about 2004-5 when commodity prices began to go up, putting even more downward pressure on the dollar. So then he began to increase interest rates little bit by little bit by little bit and by the time it got to about 5.25% it had burst the new bubble that Greenspan had incubated in the US economy, which is the housing and credit bubble based on all those toxic securities that most of us now know more than we ever want to about. So this was the bursting of the 2008 financial bubble. MICHAEL HUDSON: Well I don’t want to blame that simply on interest rates. The bubble you’re talking about was a huge financial fraud, as my colleague at the University of Missouri – Kansas City, Bill Black, has shown. The real estate boom was largely a result of a number of crooked banks making huge loans that could not be paid — companies knew that they couldn’t be repaid — to racial minorities who in the past had been blacklisted. Until about 2000, it was very very hard for Black people to get a mortgage in this country. They were redlined, and they were restricted to particular neighborhoods. And once they would move into a neighborhood often the whole neighborhood would be torn down. That had been a practice ever since the 1960s. I grew up near Hyde Park, Kenwood, on the South Side near the University of Chicago. In the late 1950s, finally for the first time banks began to make loans to Black homebuyers on Dorchester Avenue where I lived. This is a block from where Obama had his house in Kenwood. And all of a sudden, as soon as a Black family moved in, the White families began to move out, prices collapsed, speculators bought them up and sold the houses at double the price to Black people who had been waiting, finally, to move from the West Side of Chicago in to where Lake Michigan was. So basically, all of this prejudice against the Blacks was stopped after 2000, and so the banks did begin to lend to Black people, but only at much higher interest rates, and only to buy houses that were vastly overpriced, and that could not be afforded by most families. How do you get somebody to buy a house at double the price that it had sold just a few years ago? For one thing, you don’t require a down payment. For another thing, you don’t limit the mortgage loan to just twenty-five percent of what they can earn — you fake their earnings, and third, you hire corrupt property appraisers to say, “Well the house really is worth twice what it sold for two years ago.” So you had enormous bank fraud and all of this was saved by President Obama who came in as basically the lobbyist for the banking sector. He was sponsored by Robert Rubin, Clinton’s treasury secretary, and by Citibank, which was singled out by the FDIC as the most incompetent and outright corrupt bank in the country. You had basically fraud and a transformation of the character of mortgages. RADHIKA DESAI: Absolutely, Michael. Of course we could talk for hours about the actual 2008 financial crisis and the bubble that was inflated in the first decade of this century, but we want to focus on the international aspects and the dollar system. So let me just say very briefly however, just for the record, that I think, while you’re undoubtedly right about the whole sad role of a racism in real estate politics and political economy in the United States, I do like to underline that it is actually wrong to call the 2008 crisis a subprime crisis, because that implies that most of the loans went to subprime borrowers. In reality the banks only began lending to subprime borrowers which is the very tail end of the lending boom. Which means that the bulk of the loans that were made were to totally prime borrowers. Because otherwise it becomes very easy to say all these subprime borrowers caused the crisis. That was not it at all. But to return to these international aspects, the fact is that the low interest rates, or what is called LIRP or ZIRP which is Low (or Zero) Interest Rate Policy — it certainly played a role in this. While I don’t doubt that banks were also quite fraudulent, the fact of the matter is that low interest rate environments create an incentive to take unreasonable risks. And in that sense — and because it still remains relevant today — the only way you can explain why [even though] the economy is tanking during covid, [yet] asset prices were going up, is because of the low interest rate policy. But anyway the point is that the international story that is told about the 2008 financial crisis, which was told again and again and repeated again and again by the highest place people — whether it is Ben Bernanke at the Federal Reserve or Bush Jr in the White House — is that this bubble got inflated because of the so-called global savings glut, or the Asian savings glut. And the general idea was that these Asians are saving too much. They are the ones who are essentially investing in the United States and the evidence for this was that the Chinese were buying a lot of US Treasuries and other central banks in East Asia were buying a lot of treasuries. However, you see on this slide of advanced economies and gross capital flows — this is from a pay stub at the Bank of International Settlements — two economists from the Bank of International Settlements who wrote this precisely to counter this false narrative of the Asian savings glut being at the root of the 2008 financial crisis — the real cause of the financial crisis was the inflow of money primarily from Europe, from the UK and the continental Eurozone. Because if you look at the bar, each bar shows gross capital flows around the world. And a very large proportion of these are going into the United States, and you see that the green part of each bar are the advanced economies. And all the other parts, whether they are emerging Asia or the oil producers or whatever, represent a very small part of the total capital inflows into the United States. So what this chart tells us is that the financial crisis was a result of essentially flows from other rich countries. And this is not surprising if you consider the fact that, while the world as a whole — you know, people call this 2008 crisis the “global” financial crisis. But you see why in this instance it’s actually more accurate to call it the “North Atlantic” financial crisis. Because the overwhelming majority of international funds that went into the toxic securities being generated by the United States were coming from Britain and from the Eurozone financial institutions, because these were the guys who gorged themselves on the toxic securities being generated. And that is why the bulk of the financial distress was concentrated in Europe. Of course, after the 2008 crisis, as they say, once bitten twice shy. So in this context, what happened, which you see in the next slide, is that international financial flows — you can see them peaking, reaching a huge, unprecedented peak in 2007, then falling precipitously, and then recovering, but remaining less than half of what they had been in 2007. And this also shows us something else, which is that around this time, the idea that the United States can open a casino and invite money flowing into whatever asset bubble was going in the United States, this was beginning to fade, and increasingly the monies that are involved in US-generated asset bubbles aren’t domestic US funds. So that’s really an important thing to remember, because, of course, after 2008 housing and credit bubbles have been replaced now by what we call an “everything” bubble. So every asset market is inflated, but the extent of international investment in these is considerably lower. MICHAEL HUDSON: I don’t have anything to add to that. That’s right. Internationally, the Europeans have been big losers in the bubble. For instance, the German local savings banks had bought many of the packaged mortgages that the United States was selling, and the mortgages went bad. So German savers lost a lot of money. And the Federal Reserve bailed out these foreign banks almost just as much as they bailed out the American banks. Especially the French banks, Paribas, all of these were heavily bailed out. But the shock — for other industrial countries investing in the US and abroad — was almost similar to the shock they had after Mexico’s default in 1982. There’s a question of: Can they really collect? Is there a reality? And they realized that so much of the financialization in the United States was not even based on interest rates but based on gambling on derivatives, on bets as to whether interest rates would go up or down, whether capital prices, stock prices, and real estate prices would go up and down. The whole character of investment called for an entirely new generation of investment managers, and this new generation was, as we’ve discussed, financially-oriented, not industrially-oriented. RADHIKA DESAI: Exactly. I should say that now we’ve gone for more than an hour, and we’ve only dealt with question one, and I still want to say one final set of things about question one. So what we’re going to do is answer question two in the next show. But for now let me bring this discussion to a conclusion by saying a couple of things. So what we’ve done is, we’ve tried to show that what’s seen as this period of easy dollar dominance after 1971, has been a heavily managed process, but also a process in which American attempts to try to manage the system in order to keep the dollar going have been full of contradictions. They have had their ups and downs. And now we are moving into a period of serious reckoning. Because on the one hand, the Federal Reserve’s capacity to generate asset bubbles and to keep money flowing into the United States is being exhausted. Moreover, and this is the first thing I want to say, and that is that the fact that these asset bubbles now exist, and that the bulk of the wealth of rich people in the United States depends on these asset bubbles, means that the Federal Reserve is now caught in a bind. Because on the one hand, these asset bubbles are necessary for keeping the dollar’s value high, etc. But on the other hand, dealing with inflation will require increasing interest rates to an extent where this will burst these asset bubbles. So the Federal Reserve has a choice between what’s called “monetary stability” and what’s called “financial stability”. This is what we argued in our episode on inflation, and also which I argued in this article that I wrote entitled “Vectors of Inflation”. So basically the idea is that, if inflation goes high, the dollar’s value will suffer. If the asset bubbles are burst, the dollar’s value will suffer. So the Federal Reserve is caught between a rock and a hard place. So let me just now conclude by saying the final thing I want to say about this long history of dollar boosting, which has consistently focused on denying the contradictions of the dollar system. Because you see, throughout this period, since the 1960s the rest of the world has complained that the United States has been living beyond its means. So as early as 1961, as gold was flowing out and a gold pool had been necessary — we discussed this in the previous episode — it had been necessary to back the dollar with adequate gold, this is when you first hear the first denial that the United States was living beyond its means. And in response to this, the United States said that, on the one hand the gold pool was going to ensure that the dollar would be backed by gold — paying no attention to the fact that the gold in the gold pool did not belong to the United States — and then going on to say, and I’m quoting from the “Economic Report of the President” — “Meanwhile the world should not doubt the dollar’s international investment position. “After all, US non-gold assets showed that the nation is not living beyond its means. Rather, its means are steadily increasing. At the end of the 1960s the US government owned foreign assets totalling twenty-one billion dollars, in addition to gold holdings of eighteen billion dollars.” Of course they had been much bigger before. To quote further, “And US citizens owned fifty billion in assets abroad. These US claims on foreigners,” the Economic Report claimed, “gave a ‘basic long-run strength to the dollar’ even though some of these claims were private and long-term and could not be quickly mobilized. Now by 2001 you have a very different scenario. The US international investment position has turned negative. It has moved from an accumulated surplus of less than ten percent of GDP in the late 1970s, to a deficit of nearly twenty percent of GDP in 2001. (These are statistics from the Economic Report of the President from 2003.) And the Economic Report also admitted that the debt could not increase without limit. Now, what was the US administration’s response to this? Now, the US administration is scraping the bottom of the barrel in terms of ideas that could justify the US being a fake destination for the world’s capital. Because by now the casino had been open. So now it says that the US is, “far from the point at which servicing the international debt becomes an onerous burden. Not least, because until last year, more investment income was generated by US foreign investment in foreign countries than by foreign investments inside the US.” So they are now saying — and by the way, you can see the US international investment position in this slide #12. (ed – slide missing, see video). MICHAEL HUDSON: This is the plan already in the 1960s and 1970s. That America would buy the highest profit European and Third World sectors and they would recycle the money by buying Treasury Securities. So America would owe low interest on Treasury Securities, make a killing on what it had bought from their privatization of infrastructure, and buying out their commanding heights, their leading companies. That was very explicitly said in the 1960s and 1970s. RADHIKA DESAI: And you see here that, ever since the complaint was made, which is the beginning of this line, you’ll see that the United States international investment position has continued to slide. But now they are pointing to the income they are able to make from the rest of the world. If the international investment position keeps sliding, then at what point will the income from these investments also cease to be higher than the income the US has to pay? Particularly in a regime of high interest rates. In fact in 2005 Paul Volcker actually said, “As a nation we are consuming and investing about six percent more than we are producing, and this cannot continue.” Already by this time the United States was absorbing about eighty percent of the net worth of the world’s capital. And then at the same time the current account deficit was becoming an increasing concern. And again, the United States government responded, first of all, by calling the current account deficit a “capital account surplus,” which is just a different way of looking at things. And by relabeling things they were not going to solve any underlying problem. They said, “We have a capital account surplus because of low and declining US saving, high growth compared to other advanced industrial countries.” In this period US growth was bumping along the bottom line so to speak. “And high productivity growth.” Again, this is completely fictional. “And the more favorable investment climate.” The only true thing about this is they referred to financial market size, though not efficiency. And finally, they are of course also attributed to the dollar’s international role, and now, two really smart-alec American economists come along and propose their theory of “dark matter”. What is this theory of dark matter? They said, if Americans are earning more from their investment, than their investment is actually greater than what it says it is, because that’s what it shows — that is the dark matter that you cannot see. Which is essentially much like Alan Greenspan back in the late 1990s claiming that the stock market rising was a result of a productivity miracle. And you ask Mr. Greenspan exactly what is the evidence of the productivity miracle, and he will say, “It’s the stock market.” So this is completely circular reasoning. So this is the way in which the dollar’s very contradictory problematic world role has been naturalized or has been sought to be naturalized. But we are now increasingly looking at the end of that system. So we’ve taken a long time discussing just this penultimate question. So in the next episode, Michael and I will discuss the final question, which is, exactly what’s going on right now: What are the dimensions of the crisis of the dollar today? What does it consist of? And what can we expect in the future?

Write an article about: BRICS challenges US ‘dollar dominance’, Saudi considers selling oil in other currencies: New multipolar economic order. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

Arab League, BRICS, China, de-dollarization, dollar, GCC, Gulf Cooperation Council, multipolarity, oil, petrodollar, renminbi, Russia, Saudi Arabia, South Africa, Xi Jinping, yuan, Zoltan Pozsar

BRICS is “developing a fairer system of monetary exchange” to challenge the “dominance of the dollar”, South Africa revealed. Saudi Arabia is considering selling oil in other currencies. Economist Zoltan Pozsar says the US “unipolar era” is over. The international economic system had been dominated for decades by the United States, but this financial architecture is rapidly fracturing with the creation of new institutions in the Global South. The BRICS bloc of Brazil, Russia, India, China, and South Africa is working “to develop a fairer system of monetary exchange”, to challenge the “dominance of the dollar”, South Africa’s foreign minister has revealed. Saudi Arabia publicly confirmed that it is considering selling its oil in other currencies. China’s President Xi Jinping said Beijing will buy energy from the Persian Gulf states in its own currency, the renminbi. Prominent economist Zoltan Pozsar, of the Swiss investment bank Credit Suisse, has observed that the “unipolar era” of US hegemony is quickly being replaced with a new “multipolar” order of “one world, two systems”. “China is proactively writing a fresh set of rules” and “creating a new type of globalisation”, Pozsar wrote, describing how this transition threatens “the ‘exorbitant privilege’ that the dollar holds as the international reserve currency”. A meeting of the heads of state of the BRICS bloc in 2014 South Africa’s Foreign Minister Naledi Pandor told Russia’s state media outlet Sputnik that the BRICS bloc is working to “develop a fairer system of monetary exchange”, to weaken the “dominance of the dollar”. Pandor’s comments were ignored by Western media outlets, but widely reported in the Indian press. “We have always been concerned by the fact that there is a dominance of the dollar and that we do need to look at alternative [systems]”, she said. “The systems currently in place tend to privilege very wealthy countries and tend to be really a challenge for countries, such as ourselves, which have to make payments in dollars, which costs much more in terms of our various currencies”, Pandor continued. “So I do think a fairer system has to be developed, and it’s something we’re discussing with the BRICS ministers in the economic sector discussions”, the South African foreign minister added. In 2014, the BRICS countries created the New Development Bank (NDB) as an alternative to the US-dominated World Bank. Pandor explained, “Within the economic context we are looking at how the NDB and other institutional formations may assist us to develop a fairer system of monetary exchange”. The South African foreign minister also criticized the United States’ imposition of unilateral sanctions, which are illegal under international law. She told Sputnik, “We always have a problem with unilateral sanctions and their impact on many countries that fall outside a particular conflict, so we have indicated to our friends in the United States that we really want them to relook at this imposition of unilateral sanctions, which is often not very helpful a strategy in resolving problems”. Chinese President Xi Jinping meets with the heads of state of the Arab League in Saudi Arabia in December 2022 While the BRICS is gradually moving toward de-dollarization, one of Washington’s most important historical allies is doing the same. The world’s largest oil exporter, Saudi Arabia, has publicly acknowledged that it is considering selling its crude in other currencies, not just the US dollar. Saudi Finance Minister Mohammed Al-Jadaan told Bloomberg TV, “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal”. “I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world”, he said. In 1974, Saudi Arabia agreed to sell its crude in the dollar and invest its oil revenue in Treasury securities, in return for US government protection. This petrodollar system helped undergird the status of the greenback as the global reserve currency, after US President Richard Nixon ended the convertibility of the dollar to gold in 1971. But the petrodollar now has direct challengers. The Wall Street Journal reported in March 2022 that “Saudi Arabia [was] in active talks with Beijing to price some of its oil sales to China in yuan”. Riyadh did not publicly confirm this at the time. Chinese President Xi Jinping then visited Riyadh in December, where he held a historic meeting with the Gulf Cooperation Council (GCC) and the 21 member states of the Arab League. Xi said he and top officials from Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain, and Oman discussed purchasing Persian Gulf energy with China’s own currency, the renminbi. The Chinese president explained, in comments reported by Reuters: “China will continue to import large quantities of crude oil from GCC countries, expand imports of liquefied natural gas, strengthen cooperation in upstream oil and gas development, engineering services, storage, transportation and refining, and make full use of the Shanghai Petroleum and Natural Gas Exchange as a platform to carry out yuan settlement of oil and gas trade”. China is already Saudi Arabia’s top trading partner, and Beijing, Riyadh, and the GCC pledged to deepen their multilateral trade. These historic developments in the BRICS and Saudi Arabia are part of an international shift to a multipolar economic order. Prominent economist Zoltan Pozsar, global head of short-term interest rate strategy at Swiss investment bank Credit Suisse, described this transition in a January 20 op-ed in the Financial Times, titled “Great power conflict puts the dollar’s exorbitant privilege under threat“. Pozsar, who is something of a celebrity in contemporary economics and has been described as a “superstar” by the financial press, wrote that the “unipolar era” following the end of the first cold war, in which “the US was the undisputed hegemon”, is now coming to an end. In this increasingly multipolar world, “China is proactively writing a fresh set of rules”, he said, “creating a new type of globalisation through institutions such as the Belt and Road Initiative, the Brics+ group of emerging economies and the Shanghai Cooperation Organisation”. We are seeing a bifurcation of global economic and political institutions, in what “may eventually lead to ‘one world, two systems'”, Pozsar explained, referencing China’s model for Hong Kong of “one country, two systems”. Great power conflict puts the dollar’s exorbitant privilege under threat https://t.co/xSBTyJXCmo — FT World News (@ftworldnews) January 20, 2023 He wrote that the “dollar-based monetary order is already being challenged in multiple ways”, in particular by “the spread of de-dollarisation efforts and central bank digital currencies (CBDCs)”. “Recently, the pace of de-dollarisation appears to have picked up”, he observed. Pozsar pointed out: China and India have been paying for Russian commodities in renminbi, rupees and UAE dirhams. India has launched a rupee settlement mechanism for its international transaction while China asked GCC countries to make full use of the Shanghai Petroleum and Natural Gas Exchange for the renminbi settlement of oil and gas trades over the next three to five years. With the expansion of Brics to beyond Brazil, Russia, India and China, the de-dollarisation of trade flows may proliferate. Major countries like China, Russia, and Saudi Arabia are exporting more than ever, which means they have record current account surpluses, Pozsar noted. But their central banks are not buying US Treasury securities; instead they are investing in gold, commodities, and projects like the Belt and Road Initiative. “If less trade is invoiced in US dollars and there is a dwindling recycling of dollar surpluses into traditional reserve assets such as Treasuries, the ‘exorbitant privilege’ that the dollar holds as the international reserve currency could be under assault”, the Credit Suisse economist concluded.

Write an article about: What is really causing inflation? Neoliberal financialization decimated productive capacity. Use the themes and topics represented by the tags provided as guidance for the content. It's not necessary to include the exact tag words in the article, but the article should reflect the essence and context of these tags.

finance, financialization, inflation, neoliberalism

Both inflation hawks and doves miss the elephant in the room: Neoliberal policies of financialization raised the value of housing and commodities while allowing the rich to maintain their spending at inflated prices. (This article was first published at the New Left Review.) Geopolitical economist Radhika Desai discusses her essay in the interview below with Multipolarista editor Ben Norton: Federal Reserve chair Jerome Powell delivered a speech to an audience of central bankers from around the world this August. The economic symposium, called the Jackson Hole conference, was a highly anticipated event. He arrived there a chastened man, having previously claimed that US inflation was a transitory phenomenon while implementing the lax monetary policies that many blamed for its recent surge. Could he now pull off a ‘soft landing’, bringing inflation back down from its 40-year high of 9.1% to the desired 2%, without causing a recession? Central banks have various tools at their disposal for managing inflation: higher rates, quantitative tightening (i.e., selling assets to reduce liquidity in the system), and managing expectations about future monetary policy through ‘forward guidance’. Powell began raising the policy rate in March, taking it from the pandemic-era low of 0.25% to 3.25% by the time he arrived at Jackson Hole in late August, through a series of incremental rises. Yet these increases still left the headline rate well below inflation, making real rates negative. Meanwhile, the debate over monetary policy heated up. Inflation hawk Larry Summers accused Powell of underestimating the problem and doing too little too late. Another hawk, Henry Kaufman, advised him to shock the markets – to ‘hit them in the face’ as Paul Volcker had done in 1980, by hiking interest rates to 20%. By inducing a deep and prolonged recession, Volcker’s move had elicited a backlash from progressive economists, with Robert Solow likening it to ‘burning down the house to roast the pig’. Today, the prospect of a similar hike has prompted renewed criticism of the monetarist perspective which views inflation as the result of an increase in the money supply relative to output. For inflation doves, such as former Clinton Labor Secretary Robert Reich, the current period of inflation was not caused by the fiscal and monetary stimuli of the pandemic, unprecedented though they were. Nor is it the result of a wage-price spiral – since the uptick in union activity remains relatively modest in historical terms. Doves claim that inflation is rather the outcome of factors beyond the Federal Reserve’s ken: food and fuel price rises sparked by the war in Ukraine, plus ongoing price-gouging by large corporations. Hence, it cannot be solved by raising interest rates; it requires solutions such as those set out in Jamal Bowman’s Emergency Price Stabilization Act: monitoring and regulating consumer prices, alongside measures to safeguard the supply of essential goods and services. The hawks are certainly wrong to see inflation as a purely monetary issue. Indeed, very little of the pandemic-related stimulus, fiscal or monetary, made it into the pockets of ordinary people. When it did, it largely went towards debt repayments and had a limited impact on demand. Yet the doves are also wrong to identify war-induced food and fuel prices as a major contributor. In the US, the August 2022 inflation rate of 8.3% may have been boosted by these factors; but the core inflation figure of 6.3% – far higher than the European average – reflected a structural malady. The real culprit here is the diminution of US productive capacity, caused by four decades of neoliberal policies – disinvestment, deregulation, outsourcing – which have rendered the economy extremely vulnerable to supply chain disruption, and prevented supply-side measures to bring prices down. That diminution is the flip-side of the ceaseless growth in financial activity since the early 1980s. This process is usually termed ‘financialization’, although the plural ‘financializations’ would be more accurate, since each historic expansion of the financial sector has involved different structures, practices, regulatory regimes and assets. In recent decades, financialization has come to rest on asset bubbles sustained by lax monetary policy. This has created the conditions for today’s rising prices, while inhibiting the only sort of anti-inflationary policy of which the current system is capable. Yet this crucial dynamic is overlooked by economists across the political spectrum. Prima facie, hawks and doves pull at opposite ends of the ‘dual mandate’ that the Federal Reserve acquired in 1977, when the Humphrey-Hawkins Act added high employment levels to its original price stability mandate. Some progressive economists now point to Alan Greenspan’s tenure in the 1990s as ‘an instructive model of what a full employment economy can look like’, implying that the Federal Reserve’s current leadership can and should revert to this paradigm. Yet the full employment mandate – a last gasp of Keynesianism in an increasingly hostile political environment – was never taken seriously. Indeed, Volcker proceeded to violate it almost immediately with his historic rate hikes. Since then, the Federal Reserve has consistently curbed both employment and wages, although this has often been obscured by the statistical inflation of employment figures (for example, counting the partially employed while ignoring declining labour force participation). Greenspan made the dramatic decision to increase interest rates despite inflation running at a modest level. To justify this step, he cited Milton Friedman’s complaint that the Federal Reserve always raised interest rates too late, and insisted instead on getting ‘ahead of the game’, pre-empting inflation rather than responding to it. Greenspan thus extinguished the nascent manufacturing revival which, as Robert Brenner writes, held out the possibility of a ‘break beyond stagnation’. When Greenspan eventually decided to loosen monetary policy, it was not to support the expansion of production and employment, but to inflate asset bubbles, starting with the so-called ‘Greenspan put’: an injection of liquidity into the financial system in response to the stock market crash of 1987. This policy (which was continued by Greenspan’s successors, such that it became known as the ‘Federal Reserve put’) generated speculative bonanzas for the rapidly deregulating financial sector and provided generous liquidity after each inevitable crash. It was rightly criticised for creating systemic moral hazard by inducing financial institutions to increase their risk exposure. In the 2000s, asset bubbles grew by new orders of magnitude and loose monetary policy became a permanent strategy rather than an episodic fix. Yet, because not much of this money flowed into productive investment or translated into rising demand, its inflationary effect was negligible. Moreover, other secular trends kept inflation low: workers were too insecure to fight for wage increases, even amid relatively high employment; manufacturing supply chains extended to producers in lower-wage locations; immigration cheapened services; and income deflation in the Third World suppressed global demand and commodity prices. Dollar overvaluation was also deeply intertwined with the Federal Reserve’s bubbles. By diverting investible funds from productive to financial investment, these bubbles – the market stocks of the 1990s, housing and credit of the 2000s, the ‘everything bubble’ of the 2010s – attracted enough foreign funds to dollar denominated assets to counter the downward pressure of US current account deficits on the dollar. This, too, helped to subdue inflation. Since Greenspan lowered interest rates to deal with the 2000 dot-com crash, they have never returned to their 1990s peak. Meanwhile, quantitative easing – effectively Federal Reserve asset purchases – has become a systemic imperative to keep both asset markets and the dollar high. With fiscal policy largely missing in action (aside from tax cuts for the rich), this monetary policy created a highly peculiar political economy. Thanks to declining industry, low investment and fiscal austerity, the consumption of a narrowing well-to-do layer, facilitated by the ‘wealth effects’ of asset bubbles, came to act as the country’s primary economic motor. As a result, anaemic growth and extreme inequality is all that contemporary US capitalism can manage. In this context, Powell’s priority is to avoid Volckeresque rate rises on the wing of slight rate increases and the prayer of forward guidance. Why? Because hawkish rate hikes – the only effective weapon against inflation from a monetary policy perspective – would burst the asset bubbles on which the American financial sector and ultra-rich depend. Back in the late 1970s, Volcker did not have to worry about this risk; but in the early 2020s, Powell very much does. Policy interest rates of 5% triggered the collapse of the housing and credit bubbles in 2007; the current 3.25% rate has hit real estate and venture capital, while stocks have suffered the worst streak of quarterly losses since 2008. Given the fragile makeup of the US economy, rate hikes constitute a real risk, which means that the Federal Reserve has become largely impotent. No wonder it is described in the pages of the Financial Times as ‘the least credible Fed in the markets’ estimation since the 1970s’. The markets’ lack of confidence reflects a structural dilemma. If Powell increases rates to required levels, the US can expect a recession that will make that of the 1980s seem like a boom. But if, as I believe is more likely, he refuses to do so, the US can expect chronic inflation whose origins lie in the productive debility of the US economy, recently exacerbated by supply chain disruption, trade and technology wars with China, and self-destructive sanctions on Russia. The Federal Reserve faces a fork in the road: one where both paths will damage working-class incomes and wellbeing. In this sense, both hawks and doves miss the elephant in the room: financializations backed by easy money. The dynamics of financialization contribute to inflation by raising the value of housing and commodities while allowing the rich to maintain their spending at inflated prices. While doves rightly emphasize the need to expand production to ease inflation, they fail to appreciate the scale of state intervention this would entail. For four long decades, neoliberal policies have entrenched the Long Downturn, reversing Janos Kornai’s old adage that socialism is a supply-constrained system while capitalism is a demand-constrained one. Making contemporary US capitalism productive again would involve not only reversing the logic of financialization; it would require a state-led programme to lift supply constraints, which is almost unthinkable within the parameters of the present system.

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Ann Pettifor, colonialism, debt, Geopolitical Economy Hour, IMF, International Monetary Fund, Michael Hudson, neocolonialism, Ukraine, World Bank

Political economists Radhika Desai, Michael Hudson, and Ann Pettifor discuss how the international financial system traps Global South countries in debt, reinforcing a neocolonial order. Political economists Radhika Desai, Michael Hudson, and Ann Pettifor discuss how the international financial system traps Global South countries in debt, reinforcing a neocolonial order. You can find more episodes of Geopolitical Economy Hour here. RADHIKA DESAI: Hi, everyone, and welcome to this 13th Geopolitical Economy Hour, the fortnightly show on the political and geopolitical economy of our times. I’m Radhika Desai. MICHAEL HUDSON: And I’m Michael Hudson. RADHIKA DESAI: And today, as last time, we are joined by Ann Pettifor to discuss the urgent issue of our time, the Third World debt crisis. And as I said last time, we couldn’t find a more authoritative guest for this show. Ann hardly needs any introduction, but I do feel I should remind everyone of what she’s done, particularly in relation to the debt and also the fuller range of her contributions. Ann is a prolific writer on issues of debt, finance and development. And she has also been one of the most important activists on the issue of Third World debt in particular, and has had a great effect on the area. In particular, she launched the Jubilee campaign at the end of the last century to a campaign for debt forgiveness for the poorest countries. She has served as an advisor to the British Labour Party, important figures such as Margaret Beckett. And more recently, she was on Jeremy Corbyn’s Economic Advisory Council. She is the author of many books and articles on these subjects, including Debt, the Most Potent Form of Slavery. I’m sure that has a lot in common with what Michael’s been writing about debt. Another of her books is The Production of Money: How to Break the Power of Bankers. Welcome, Ann. ANN PETTIFOR: Hi, thank you so much, Radhika, lovely to be here again. RADHIKA DESAI: Yeah, exactly. And so let’s get on with our raging conversation that we were having last time. So what we were going to talk about is really the Third World debt crisis, the new Third World debt crisis. How similar and how different is it from the one that hit the Third World back in the 1980s? What has been the specific contribution, if any, of the pandemic and the war? And what is the future of the Third World, given that in addition to all the other calamities, it is now hit with this debt crisis? Now, last time we started with a list of seven questions and we only got through the first two. So let me just go through the seven questions and then we will begin with the third question. So the first question was, what was the genesis of the 1980s debt crisis? Number two, what are the causes of the crisis today? Number three, are Third World countries responsible for their own plight? Number four, how has debt been an instrument of world power and imperialism? Number five, is China putting Third World countries in a debt trap? Number six, what does the debt crisis have to do with the dollar system? And finally, number seven, is there a way out? So last time we said many things about the specific causes that we recalled the first Third World debt crisis, and then we talked about the second one. And just some of the ideas that we had about the differences between the two is, of course, there’s a greater extent of financialization today. And also there are many similarities, of course, the vast availability of money in the First World countries, the inability to invest it in First World countries, the essentially touting of loans to Third World countries, all these are common. But we are looking, of course, at a much greater degree of financialization. So that’s one of the main differences. But let’s launch into the third question, are Third World countries responsible for their own plight? And Ann, I thought we’d start with you because, you started the Jubilee campaign, you had a very clear understanding of the causes of that crisis and why Third World countries should be forgiven. So what was your understanding then? And how does it relate to what’s going on now? ANN PETTIFOR: So first of all, can I just say this, that we fought a long battle and a losing battle during the Jubilee 2000 campaign to remove the word Third World and First World and to instead talk about low income countries. And I just want to stress that. And the second thing is that, during that campaign, one of the reasons that it latched on, if you like, and we were able to form a North-South coalition was that we talked about co-responsibility for the crisis. That, yes, there were dictators in the South who were wicked and who’d borrowed hard currency from rich countries for the purposes of buying jets and posh houses in the south of France, or used a fair amount of that for those purposes because hard currency is so scarce in those countries. So, yes, there is an element of co-responsibility because, of course, those loans were pushed by the rich countries for reasons to do with the imbalances in trade between North and South. So, Britain, for example, has a massive trade deficit. So one of the ways to correct those deficits, back in the day, in the 80s, was to lend money to Nigerian dictators so that they would buy British armored cars and other weaponry and create jobs, help create jobs back home and generate income from exports here, but at the same time to help the dictator repress his own people. So we argued that there was co-responsibility. But I want to take it a step further and say that whatever country it is, whether it’s a rich country or poor country, it is victim to a system. And the system is one based, of course, on the dollar, but above all, based on the deregulation of capital across the world. Now, we saw that the first world debt crisis, the first global debt crisis was caused by the collapse of Bretton Woods in 1971, but it’s actually been triggered even earlier with the establishment of the euro dollar market here in the UK. And that was a way of evading financial regulation by governments. And the point is that what that did was to undermine the economic autonomy of governments in the north as well as the south, right? So if money is able to flow across borders, the capital is able to flow across borders, it can do so. By doing so, it can undermine policymaking at home. For example, if the central bank and the government want to set interest rates quite low to suit local conditions at home, and if those who own capital feel that they’re not getting enough money, earning enough rent or interest on their loan, on their money, they can take their money to another country like Brazil, where interest rates are much higher. And so that undermines the willingness of a government to lower interest rates, to stimulate investment at home. And there are other ways in which capital mobility undermines policy autonomy at home. But of course, the most disastrous is for poor countries. But there’s another element to this, is that at least Western governments have a degree of policy autonomy. They have central banks. They have the institutions which underpin the nature of credit and the management and the regulation of credit. Poor countries are discouraged from investing and building those public institutions, an independent, fairly independent central bank run by competent technocrats, a system of taxation, which is absolutely vital to the monetary system, a system of accounting, which enables countries to balance surpluses and deficits and so on, a system of regulation and management of credit creation. I’ve worked in countries like Malawi where those institutions do not exist, a criminal justice system for enforcing contracts. We have criminal justice systems here and the World Bank advocates for criminal justice systems precisely to enforce contracts precisely because they’re afraid that if there’s a contract to provide, I don’t have military gear to a poor country that won’t be honored ultimately. And so the World Bank is dead keen on a criminal justice system. But a criminal justice system has to be publicly financed and publicly created. And at the same time, the international institutions prohibit, if you like, the spending on and investment in these public institutions and the employment. You know, I’ve worked in Nigeria and Nigeria could really do with a well-trained, well-resourced, well-paid police system, a policing system and criminal justice system because they have an awful lot of crime, an awful lot of really clever people who can dodge the regulations. But it’s very hard to build a proper criminal justice system with very little money. And when your policemen are low paid, it’s easy as pie to take a bribe from the local driver in order to avoid penalizing him for speeding or running over a poor child or some such thing. Same is happening in South Africa, the country of my birth. I see that happening where, but here in Britain, we pay our police fairly well. They can still be pretty corrupt, but we give them status and money and we give them resources. And we understand that in order to enforce contracts on the one hand, but also to maintain economic stability, we need public stability. So poor countries are deprived of the sort of autonomy that would enable them to raise finance at home instead of having to go abroad and to raise finance in somebody else’s currency. And even when they do have a degree of autonomy, which is what South Africa has, it’s an incredibly rich country. It has its own central bank. It has relatively sophisticated taxation institutions. It has quite a lot of those. And it still chooses to withhold borrowing, to refrain from borrowing to finance employment, the creation of employment at home. And it still prefers to borrow from abroad because that imposes apparently a form of discipline on capital. So even where the low income country will have these institutions, they’re discouraged from using them because of the export orientation of their economy. So that’s quite a long intro to saying why, there is co-responsibility. Both rich and poor countries are penalized by an international financial system designed effectively to serve the interests of the one percent, nobody else, whether those one percent live in Kenya, whether they live in China, whether they live in Dubai or whether they live in New York, they all benefit from it. The rest of us suffer. RADHIKA DESAI: Great, thanks. And Michael, do you want to add? MICHAEL HUDSON: Well, you’ve described the kind of economic and ideological interference from the IMF and World Bank. Most other countries have suffered from US political interference in their domestic affairs. A whole century of Latin American dictators have been installed, leaving a residue of client oligarchies that are responsible for actually much of the death. But on a broader level, US diplomats, as you’ve just pointed out, weaponized the IMF and the World Bank to confront other countries with a take it or leave it offer. Either you play by the US rules, the neoliberal rules, or you’re going to be treated like Venezuela and Iran and Russia. So there’s force behind what you’ve described. And the debtor countries have been obliged since 1945 to follow these demands of the IMF and not just advice, but demands, because neocolonialism really has taken a financial turn, much more than armed force. Well, except in Chile and Guatemala, Iraq, Syria, Libya, Afghanistan, the color revolution countries, Ukraine, Indonesia with the CIA. I guess it has been imposed by force, as finance is just the gentle gloved hand of colonialism. And I think one can talk of financial colonialism. And if you think of the debtor countries of having, after World War Two, thrown off the colonial powers and nominally got their economic liberty, they didn’t get their financial liberty. They were forced into a financial dependence. And countries that did not enact these neoliberal laws suffered currency raids and the IMF simply wouldn’t lend to them. And there could be basically the U.S. and NATO countries would raid Chile’s currency or Argentina’s. And the IMF will only help countries that actually follow the U.S. Like today, it’s found the most creditworthy country in the world is now Ukraine, judging from the IMF’s statement that it only lends to countries that are at peace, like Ukraine, that are not in war and that have every ability to repay the foreign debt like Ukraine. ANN PETTIFOR: Iraq was another one. MICHAEL HUDSON: Yeah. But Ann, you used the word borrowed. Most of these Global South debts were not borrowed. They’re simply in accrual of interest all through the 1970s and onward. The banks and bondholders simply added the interest on to the debt. And the U.S. statistics show America’s foreign aid will lend Latin American countries enough to pay the banks and the bondholders. I was at meetings with the Federal Reserve where they made this very clear. They’ll always lend friendly countries, meaning right wing dictatorships, the client oligarchies, the money to pay the debt. So they actually borrowed it 50 years ago. All the rest is just added on. ANN PETTIFOR: And currency and also exchange rate instability as well. MICHAEL HUDSON: Right. So to me, I think these debts should be treated as bad loans. You talked about, Gee, the debtors can’t pay. If a creditor makes a loan that can’t be paid, it’s a bad loan and bad loans should be wiped off. But uniquely for the Global South countries, instead of saying we’re at a market for finance to take responsibility, it says it’s going to make sure the loans are for credit worthy purposes. That whole principle is suspended for post-colonial countries, the Global South countries. So, yes, of course, you can’t hold them responsible if their policy has been dictated by the creditor countries themselves, which to me makes them bad loans as well as odious debts. RADHIKA DESAI: Yeah. I mean, I just wanted to add a couple of points to some of the points you raised quite rightly. So both of you mentioned the analogy with colonialism. And I just like to remind you of a couple of things. Number one, if you think about, for example, anything colonialism does is really for the purposes of extraction, right? So, for example, colonial powers built railways in colonial countries. The purpose of these railways was not to integrate the economies of those countries to help make them more productive. It was to extract what the colonial countries wanted to extract out of those countries, bring it from the hinterland up to the coast and export it. So that’s how you got situations in which countries that were suffering famines were still having food exported during colonial times, even in the midst of famines. So similarly, Rosa Luxemburg in her book, The Accumulation of Capital on a World Scale, has a special chapter on how exactly, as Michael says, indebtedness is made into an instrument of colonialism, whether it is the velvet glove or the iron fist or it doesn’t matter, but it is an instrument of colonialism. And she even points out, and this relates to the point you were making about government laws and infrastructure and institutions. She said that there is a tendency to insist on a certain type of constitutionalism so that the indebted country, by its own laws, becomes obliged to prioritize the repayment of debt. And this is and this, of course, we see today in the form of good governance and so on and so forth in the IMF and the World Bank. So in that sense, I would say that. And there’s a third thing that is very critical. And indebtedness also essentially empowers those people, a sort of comprador class that has an interest in keeping the country indebted, that has an interest in actually borrowing, as you said, in international currency. And although in many countries the borrowing has been used for developmental purposes, there are also many other countries in which it was not used for developmental purposes. And so, for example, today, the greater freedom of capital flows allows big Indian companies to raise foreign capital for completely vanity purchases of foreign corporations and so on. This is not something that the Indian people should be responsible for. But in the end, they will be made responsible for it. So that’s one set of points. That is to say that in Third World countries, all the things that used to happen through formal colonial control or nearly all of them today happen through the mechanisms of indebtedness. And that’s all the more reason why, as Michael says, since these are bad debts, they should be repudiated because they are the denial, they are at the core of the denial of development. So the second set of points I wanted to make is also connected with what both of you are saying, that it has to do with the international financial system and the way it’s created. And as we’ve talked, Michael, in the past, in many of our shows, and I think we also talked in the first episode of this set of shows on the Third World debt crisis, the international financial system is the accompaniment of the dollar system. And the fact of the matter is that if Keynes’s original proposals for bancor and an international clearing union had been accepted or if a new such system is created as elements, elements of which are being put up as we speak by various Third World countries or developing countries, I’ll go into Third World countries later, because I’ve always argued that people object to Third World because they think Third World means third class. But it doesn’t. Third world is the self-designation of the Bandung countries, the non-aligned movement, they said that they represented a third way, not communist and not capitalist, but a third way. And of course, this third way always leaned distinctly to the left, but anyway, we’ll leave that aside. So I don’t have a problem calling them Third World countries. But anyway, the thing is that Third World countries or developing countries, they essentially would never have these problems of chronic indebtedness, debt crisis, et cetera, if we had had that kind of system, but we didn’t have that kind of system because the United States insisted on imposing the dollar on the rest of the world, leaving them with no other option. And it sort of, it has succeeded. And after 1971, of course, the dollar system has required financialization. So it requires the creation of vast quantities of monies chiefly for financial transactions. And then as both of you have pointed out, and I think, Ann, you said, there’s so much money sloshing around in the First World, which cannot be invested in First World countries because First World countries are themselves undergoing their own growth slowdown. So then all these banks are going around touting loans to the rest of the world. The IMF and the World Bank have acted as cheerleaders to this increase of indebtedness of Third World countries, saying, isn’t it wonderful that now the private sector is able to lend to Third World countries? And so all this lending has taken place. And today, for reasons entirely having to do with the preservation of capitalism in First World countries, interest rates are being jacked up, which is why we have the creation of this debt crisis, which is coming on top of the pandemic, on top of the problems created for the Third World in terms of supply constraints and so on through the conflict in Ukraine, et cetera. Interest rates are being jacked up in First World countries entirely because to tackle inflation in any other way would be to question the existence of capitalism because the other and more sensible way of tackling inflation is to increase supply. And you can increase supply by making public investments. If the private sector will not increase supply, you can increase supply by making investments and expanding supply. And of course, as many people have pointed out, another way to tackle inflation would be to stop what’s called the greedflation, the ability of big multinational corporations to jack up prices because they are monopoly suppliers of what they are saying. So all these ways of tackling inflation would be to put capitalism in question. This is what First World countries are refusing to do. And that is why, one of the key reasons why, we have this Third World debt crisis. In addition to the creation of the debt in the first place. But the fact of the matter is as in the 1970s and 80s, so today, the debt was incurred in much easier credit conditions. But now we have a debt crisis because suddenly credit conditions have tightened. So yeah, and I would say that, and therefore Third World countries are essentially, I mean, in some nominal sense, they may be responsible for the debt crisis, but they are the victims, as you say, of essentially this international financial system whose existence is again guaranteed only by the United States. And I think the rest of the world has to go back, essentially create a different financial system. So in closing, I just like to say that, to say the Third World countries are responsible for their own plight, forgets the principle of creditor responsibility, which you reminded us of. And essentially what happens is that the principle of creditor responsibility is officially denied in general, but of course it naturally crops up. It cannot be completely erased and it crops up in the form of debt reschedulings and moratoria and so on and so forth. ANN PETTIFOR: So I wanted to make several points. First of all, the IMF and the World Bank are important and they are, there’s no question, Michael, they are the levers used by the United States Treasury to influence and to impose pressure on countries. But actually capital flows from the IMF and the World Bank are tiny relative to capital flows from the shadow banking system. So in a sense, from the 1970s and 80s, the system has evolved even more into this new form of hyper capitalism where shadow banks, which operate beyond even the regulatory frameworks of the United States, the powerful United States of America, and is what caused the 2007-8 crisis. The 2007-8 crisis began in a shadow bank as a result of the activities of a shadow bank, right? The IE, one that the treasury doesn’t, the Americans do not regulate. The flows from those to low income countries are enormous. And as Brett Christophers has shown in his latest book about asset managers, in the shadow banking sector, a small number of powerful capitalists are using our savings, our pensions, our insurance, our money we’ve set aside as a result of our economic activity and using that to lend to low income countries. And for example, the worst example is the proposal by these rich institutions to create a green boundary across the North of Africa, below the Saharan desert. And, but they won’t do that without one, guarantees from the United States taxpayer, the British taxpayer and European taxpayers, that they will never make any losses on those investments in a green belt across Africa, number one. And number two, that they should be free to do as they please essentially, regardless of what local governments think and so on. But it’s the risk free nature of that lending, which I find extraordinary. We’re now in a form of capitalism, which Rosa Luxemburg fortunately was one of the few to foresee. And I’m always despairing at the left for failing to understand the scale of what’s happened to capitalism today. But the lending by those institutions, and I just summarize them by calling them Wall Street, makes the lending by the IMF and the World Bank look puny. So that’s my one point. But that’s not to say that I don’t completely agree with you, the IMF, World Bank are there as enforcers. They’re there as the enforcers. And they are the gatekeepers to all capital essentially. MICHAEL HUDSON: Well, many of these private lenders will not make a loan unless the World Bank is part of it. So it may be only 1% or 2%, but it says we set the rules for all of the 98% of the private loans. They’re in cahoots. I think it’s worse than that, Michael. I think they will not make any loan, even in combination with the World Bank, unless they’re guaranteed against losses. This is not capitalism. For me, this is Soviet style economics. And I hope people aren’t too insulted by that. But under Soviet style economics, the capitalists of those days were protected wholly by the state, by ordinary Russians. They were not allowed to make losses. So we’re back in that. So I call this Soviet style capitalism really, to mock it really, because it’s a pretense at so-called free market capitalism. So that was one point I wanted to make. And, the thing is that, I just don’t know, until we have a level of awareness about that, we’re not going to be able to tackle them because they are invisible. You can’t see them. You know, you can see, you can go to Washington and bang on the door of the IMF and the World Bank. You can throw bricks at the IMF and the World Bank. You can’t throw bricks at the asset management sector and what it’s doing, because it’s utterly invisible. So that poses the left with an enormous problem. And secondly, I just wanted to say one of my great passions, as you know, we began the Jubilee 2000 campaign. We’re backed by the churches and by the NGOs. And they said to us, look, cancel the debts because these countries can’t pay. So we began a cancel the debt campaign, but no sooner had we got going on, then it became clear to me that we could write off the debt. And we did write off about $100 billion of debt. And then in 2005, I worked with Ngozi Okonjo-Wala and we cleared $30 billion of debt for Nigeria. But that wasn’t going to prevent the buildup of future debts, really. So we needed what we have in private capitalism, which is a form of bankruptcy for countries. Now that is opposed by countries. The last thing they want anyone to think is that they’re bankrupt. And I understand that completely. But there comes a point at which they’re not solvent. They’re not able to mobilize the hard currency needed to repay the debt. And in those circumstances, we need an independent arbitration process between creditor and debtor. And that, Radhika, is where we say, sorry, the creditor made the mistake here. I always think of Charles Dickens’ novels, right? Charles Dickens’ father went to Marshallsea Prison because he failed to pay his debts. And Charles Dickens, as a child, had to visit his father in this ghastly prison, which is still there, actually, in South London, just across the Thames, the bridge across the Thames. It was the most cruel thing. And in the 19th century, capitalists realized that it really wasn’t, didn’t make economic sense. Because if you locked up a man behind prison bars, that meant, or a woman, that meant they weren’t any longer economically active and they couldn’t undertake new loans. So the best thing to do was to clear their debt under something called bankruptcy. And that was invented in the 18th and 19th century by old-fashioned capitalists. You cleared their debts and you pulled them back into the market so that they could participate, and again, and perhaps take out a new loan. So they saw the logic of having a framework of dissolving and dealing with debt, which we cannot see in the world economy, because creditors, the shadow banking system, the IMF, the World Bank, but also governments are too blind with their own power to understand that actually they would benefit the whole of the world economy. If they had a system of arbitration where there was a decision made, sorry, you lent money to build a nuclear power station on a volcanic fault, you will lose that money. You know, it’s not rocket science. I think I may have said this in the first session, so forgive me if I’m repeating myself, but we failed in the campaign to call for this independent arbitration process and we’ve watched the dramas of Argentina, because you’re quite right, Radhika, Argentina is the IMF’s oldest client. When I last looked, and that was some time ago, 2001, Argentina had been an IMF client for 50 years. So for 50 years, Argentina’s economic policies were dictated by the IMF, and it only led to one succession of debt crises after another. So, I mean, Argentina is the case, is our case, the case to be made. And after the 2001 crisis, there was an examination by the independent, whatever they are called at the IMF, into the way in which the institution had conducted itself in Argentina in 2001. And they found it should have failed dismally, but then, and for a while, so interesting, because in 2003, Nigeria wrote off or wrote down $30 billion of debt. There was a period between 2003-7 where all the higher income, low income countries, Brazil, Nigeria, all of those countries pulled their money out of the IMF. The IMF and the World Bank were almost going bust, right? The guys employed by the IMF and the World Bank, all of whom have got two PhDs, not one, each one of them has two PhDs, had no work. And then thank God came the financial crisis and Greece, and suddenly they were back in business. So, there was a period in which low income, I call them low income, Third World countries, whatever you want to call them, understood they had the power to withdraw from and get out from underneath the IMF. And they did for a while. RADHIKA DESAI: Yeah, exactly. And this is a great segue into our next question, because, what you’re saying, by the way, about Argentina is really important and interesting. Argentina, at the end of the Second World War was one of the richer countries of the world. Everyone expected that it would essentially become a First World country. So the role of the IMF in ensuring that it has remained one of the poorer countries of the world, or not much more than a sort of middling income country, but the IMF has played a central role in it. So our next question is really, how has debt been an instrument of world power and imperialism? And again, essentially what we are saying is that, you were talking about the emergence of a bankruptcy law in Britain, after putting people in debtors’ prison and so on. What you’re talking about is a sensible financial system. A sensible financial system is what every country needs. And a sensible financial system would be one which is focused on giving long-term patient, productive credit for creating productive enterprises and not engaging in speculation and not being a loan shark, et cetera. But such a sensible financial system is precisely what is denied to the world by the US system, by the insistence on imposing the dollar, by the choices made by the First World countries in terms of expanding the financial sector in the way that they have and so on, in opposition to the productive sector. So this denial lies at the core of the denial of development, which is the core of imperialism today. And it is not surprising, therefore, that the elements of a response to this, which are now emerging in the form of China-centered finance, in the form of agreements between countries to pay each other in one another’s currencies, in the form of initiatives like the Chiang Mai Initiative or the New Development Bank or the Contingency Reserve. These are all small initiatives, but they embody the beginnings of an alternative set of principles, which will be based, I think, Ann, again, you rightly recall, based on the kind of consciousness that has now emerged in the Third World, which came in the aftermath of the series of financial crises in the Third World, which culminated in the East Asian financial crisis of 2007 and 2008. And when the world saw the way in which the IMF and the World Bank acted as bailiffs for private creditors, in the case even of a country as advanced as South Korea, people said, okay, if they can do this to South Korea, God knows what they’ll do to us. And that was the beginning of the shrinkage of the World Bank IMF loan portfolio. So we are really at the cusp of the financial structure being an instrument of world power and imperialism and the beginnings of the creation of a totally different type of financial structure. MICHAEL HUDSON: Yeah, the big feature of the [Argentine] debt is that the debt is not to be settled under Argentine courts. Any dispute over debt in Argentina has to be subject to U.S. courts. Argentina waived its rights to be a sovereign country. So what you’re really talking about is, yes, the financial system has been weaponized as a tool of U.S. political control, but it’s also directly, the U.S. is the creditors or the judge, not the debtors. The government of Argentina has no voice at all in the terms of this debt, as you saw from Judge Grisa in the United States, turning over Argentina’s debt that was bought for 15 cents on the dollar, saying that Paul Singer gets to collect all of this debt in full. So you can buy Argentine debt for $15 million and immediately seize its assets abroad, its naval assets they tried to seize, for $100 million. And that’s why the IMF promised in 2001, no more Argentinians. Many of their people resigned from the IMF. They said, we’re supposed to judge the credit worthiness. It can’t pay. And it’s all overwritten by the U.S. thugs that are telling us what to do and overrule what we want. And they said directly, the IMF is a tool of the U.S. State Department. And what you’ve seen is that financial control has been just as powerful as military control under the old colonialism. And you can think of it, maybe we should use the word financial colonialism, because one of the conditions of the IMF and the World Bank is, well, you have to sell off your mineral rights to pay your debt. So you have plenty of ability to pay your debt. Look at all the land that the government has. Sell your government to the foreign countries. This goes against the 1648 principle that every country should be in charge of its own internal affairs. If you could reestablish that 1648 principle at the end of Europe’s 30-year wars, any country is a sovereign country in charge of its own affairs, then you would have the legal ground saying these debts were not taken over under conditions that we agreed to. Argentina not only was an occupied country by the mass assassinations that the United States held in Argentina out of Chile, but basically a whole political oligarchy there. It’s not only the debtor countries of the Global South today. The IMF and the World Bank began this way in 1944 and 45 at Bretton Woods when the main debtor country in the world that had to be crushed was England. And my [book] Super Imperialism goes over all of the discussions there that England was told, you have to essentially give up your empire to the United States. And if you look at England, there were many debates in the House of Commons and the much more intelligent House of Lords that saw that, wait a minute, all of our assets are being stripped by the country we thought was our ally, but there’s nothing we can do because we’re broke. And so the IMF had to promise, instead of the IMF telling England, you have to devalue your currency to pay, the United States under the British Act said, you cannot devalue your currency, you have to leave your pound so overpriced that nobody can afford to buy from you, and the sterling area countries, especially India, will have to buy from the United States. So if you look at how the United States did a dress rehearsal for the Global South debt and breaking up the British Empire, it’s a wonderful way of seeing what happened. The real problem is behind all of this political control, there’s a way of thinking, and the real thing, what we’re all really talking about is the kind of neoliberal thinking that the IMF and the World Bank and the universities all over the world are teaching, that somehow the debts must be paid without any consideration of the effect of paying the debt on overall domestic growth and overall economic independence. That’s really the key. We have to change the way of thinking, which is what we’re trying to do today, before we can actually mobilize enough support to change the law. ANN PETTIFOR: So I would go further and I’d say we’ve got to change the system, Michael, and I mean by that not just we in the West, I also mean countries of the Global South, as you say. So I wanted to make two points. One was, the system is export-oriented, and I think I explained that before. I mean, very deliberately, everybody thinks the only way to survive, and it is the only way to survive, if you want to buy an Apple computer and you want dollar bills to pay for it, you’ve got to flog your oil or whatever assets you have to those rich countries. We’ve got to persuade countries of the Global South that there must be a reorientation back onto the domestic economy, and that applies most particularly to China. China is neglecting its home base. It’s neglecting social benefits for its people. It’s neglecting the kind of welfare state necessary to China in favor of the export orientation of the economy in order to make China more powerful in the world and to build up the dollar reserve it needs to maintain that power. Now, I understand that, but I think there’s something deeply wrong, and I think President Xi, and you will be able to tell us more, Radhika, has begun the process of looking away from the world and back onto the domestic economy, which after all is a huge economy. The Chinese people find it hard to move from the rural areas to the cities because there isn’t welfare support in making that transfer and so on and so forth. And incomes are too low. Incomes are low in China. They’re low in South Africa. They’re incredibly low in South Africa. They’re low in the United States. They’re low in Britain. They’re low in Europe. And that’s very deliberate policy because markets can’t stand to spend too much on labor costs. So, that orientation has to shift, number one. Number two, we need new financial institutions. And I just wanted to get on to this talk about replacing the dollar. And I think replacing the dollar is to take us down a blind alley, essentially. It’s not the dollar that’s the problem. You’re not going to fix the dollar by having the Chinese currency or European currency or the Sudanese currency or whatever. And the way to fix the dollar is to change the system. And I was so excited when the President of Kenya spoke to Macron’s meeting recently. What was it called? It was on the Internet in the new institutional architecture he called for at this conference convened by Macron on the 23rd of June. And he said this. We need to hammer out in this Paris agreement and need a new financial mechanism to deal with climate change that is not controlled by a shareholder or is not subjected to the interest of any one country. This new mechanism, he said, would be akin to a global green bank and should be funded by green taxes and levies applied globally. And this could include, he argues, taxes on financial transactions, which is the Tobin tax, fossil fuels and levies on shipping and aviation, which would generate, according to the World Bank, something like 60 billion dollars in revenues every year. Now, this is a radical proposal. And I think he’s on to the right case because he’s arguing for an institution independent of China and independent of the United States, because ultimately China will also use that power of her currency to enforce, to serve her own interests naturally. And this brings us back to what Radhika mentioned earlier, which was Keynes’s proposal. We need to remember that Keynes was defeated heavily at Bretton Woods. The Bretton Woods agreement that emerged was not Keynes’s. It was Harry Dexter White’s agreement. And he knew, he understood that by making the dollar the key currency that actually he’d been, that killed him, actually. He came home and died soon after. So, but what President Ruto is talking about is something independent of the interests of any country that would serve just like a commercial bank and the central bank, just as the central bank operates relative to the commercial banks. They clear transactions overnight. So if you’ve built up, if you’ve lent out a mortgage of 300,000 pounds in this bank and that bank has had 300,000 pounds deposited in the bank, this is going to cause imbalances between banks. And the role of the central bank is to clear those imbalances overnight and to enable the banking system to thrive. Keynes went further and argued that there should be penalties for countries that build up surpluses and there should be penalties for countries that build up deficits. The United States has the biggest trade and capital account deficit of all the countries of the world. It should be penalized for that, right? China has the biggest surplus. It should be penalized for that. And it has a surplus because it’s oriented its economy and hasn’t invested enough in its own people. And I know that’s changing. And Radhika, please help us on that. RADHIKA DESAI: Well, yeah, no, I’d love to come in exactly here. So you raise a number of really key points. There’s a substantial agreement among us, but probably a couple of points of disagreement as well. So first of all, I mean, I agree with you that at the end of the day, that it’s not the issue of the dollar. I mean, if the dollar was the United States’ currency, just as the rupee’s India’s currency, nobody would have a problem. The problem is that the dollar is not that and therefore it’s imposed on the rest of the world. And this is done precisely by the very financial system to which you two object. So I think that’s our agreement on that. Now, I also wanted to clarify that, yes, Keynes was defeated, but the defeat was a political defeat, not an intellectual defeat. And the principles of the new system that we will have to have, for example, you just mentioned that the United States is the biggest deficit country. It has the biggest current account deficit. The system that the U.S. has created relies on the systematic generation of imbalances. Keynes’ system relied on precisely discouraging imbalances and encouraging a balanced system of trade, financial flows, etc. And of course, the other big difference is that the U.S. system relies completely on the most unproductive types of financial flows, whereas Keynes was determined to focus the financial system both at the national level and such as it was at the international level in the form of the International Clearing Union to focus on increasing productive capacity in every country. So in that sense, I think those are the principles to which we need to go back to. Now, I think this is a good segue. The points you made about China are a good segue into our next question, which is about China. So let me just say that, I think you’re absolutely right that, it may have been that between about the middle of the 1990s and the middle of the 2000s, there was a certain extent to which we heard a lot about China’s exports. But you have to remember, China is a huge economy and the proportional reliance on exports of the Chinese economy has always been exaggerated, even for that period. And then what you got was, you saw after the 2008 crisis in particular, you saw the ability of the Chinese authorities to turn this massive economy on a dime. So immediately, they realized that even their relatively limited reliance on exports was now in danger with the crisis in the United States. They immediately engaged in a massive investment boom. And that really has helped the Chinese economy. And as that boom petered out, because you can have only so much investment in one big boom, they have since then followed the policy of allowing wages to rise so that, you are right that, of course, Chinese wages could be higher, but they have risen quite substantially over the last decade or 12, 14 years. And so much so that there are now industries that can no longer thrive in China, they are now in the old sort of the wild geese pattern, they are moving down to other lower income countries, Vietnam, we are being told is one of the major beneficiaries of this, and there will be other countries that will also benefit. And now, that increased focus on domestic consumption, which I agree with you is important, has been formalized in the so-called dual circulation model. And the dual circulation model involves an understanding that domestic demand has to be a much bigger stimulus to growth in China. But at the same time, not neglecting foreign engagement, whether it is in the form of exports or investment. And the reason is, I think the Chinese use foreign investment and export strategically. They want their companies to produce at world market levels of quality, and so on. That little exposure ensures that the production remains effective. But at the end, they also take investment as a way of expanding the capacities of the Chinese economy. So this strategic external orientation is also very good. So China is actually already on that path. And I would say with President Xi’s declared ambition to create a moderately prosperous society, the focus will be on Chinese internal demand. But I totally agree with you that in the rest of the world, wages, incomes of ordinary productive workers, whether they are employees, informal sector workers, or petty producers, or peasants, and so on, incomes are a problem. And the overall financial system, which we have today internationally, which is supported too much by internal, by the internal laws and economic policies of too many countries are the problem. Today, if countries want to develop, they will have to not just partner with China, they will have to learn from China, that you need to have something like the sort of socialist economy China has, otherwise, going down the capitalist road is not going to work. And just one final point before we go, relating to our last question, the whole point of the IMF and the World Bank and the current financial system, the reason why it operates as a instrument of imperialism, colonialism, whatever you want to call it, is because it functions to pry open non-Western economies to service the need of First World economies and particularly First World corporations to supply them with cheap, to serve as markets and investment outlets, safe markets and investment outlets, which means they must always not have capital controls. So that means they are giving up their one major way of controlling, having policy autonomy. China has very substantial capital controls, that’s right. And in fact, the importance of capital controls was underlined, the importance of capital controls was underlined when in the 2000, in the 1997-98 financial crisis, because the countries that suffered the most were the ones that had recently lifted capital controls. Meanwhile, Taiwan, India, Vietnam, China, all the [places] that had capital controls. So anyway, the point I’m just trying to make is that they pry open these economies, supply cheap labor, supply cheap goods and accept commodities and accept capital, but on the terms of the First World. So essentially, it means that Third World countries cannot develop. This is not the way to develop. The way to develop is precisely to control flows of capital and flows of trade and to invest in your own country’s capacity to produce. So with that, maybe I can just pose the next question, is China putting Third World countries in a debt trap? Michael, do you want to go first? MICHAEL HUDSON: Well, the only comment that I have on that is that China has not insisted that other countries impose austerity on their economy. It doesn’t have conditionality for its loans. China has been developing the infrastructure of these countries in a way that helps their own countries develop and their mutual trade with each other, not dependency on the United States. So the whole purpose and the aim, as you just pointed out, of China’s loans is different from the IMF loans. And if you look at what is the purpose of these loans, what’s the difference? Well, you see that the system of Chinese lending is different from the US dollarized system. And the United States is trying to say, well, we want China as a creditor too. We want other countries for the debt breakdown to put China on the same page as the dollar bondholders. And it’s a completely different system, not the same thing. RADHIKA DESAI: Thanks, Michael. Ann, did you want to add anything? ANN PETTIFOR: I mean, I don’t think that they’re setting a debt trap, but I do think there are big dangers with China’s lending. And that’s because China is desperate to get its hands on scarce commodities, essentially, but also land. Africa is the site of immense competition between the countries of the Middle East and China for this huge, vast quantities of land there are in Africa. And buying it up cheaply, cheating local chieftains and ordinary peasants of the value of their land, essentially, because of this urge to have these resources. So you saw, for example, and I think there’s a risk of corruption also associated with that. So if you look at Ghana, when there was even the rumor of oil, offshore oil supplies for Ghana, money from China rushed into Ghana. I remember visiting Accra at the beginning of that boom, and house prices in Accra were as high as they were in London. It was quite extraordinary. So my friends, Ghanaian friends, were finding it impossible to put a roof over their heads. Now, that’s a function of the global flow of capital. I mean, globally, residential housing is now a global market. It’s not a national market or a local market. It’s a global market. Any money from anywhere can land on or could be aimed at a finite resource like land or property. And that happened. But that happened most particularly to Ghana at the beginning of what was seen to be an oil rush. So I think there isn’t a conditionality, but there is such a desperation for China to get her hands on these resources and, of course, global competition for those resources that there is a risk of being able to buy off local elites in order to have access to those. That’s my only concern. But on the whole, I’ve seen that China doesn’t impose the kind of imperialist conditions that we’ve seen from the IMF and the World Bank. The deeply, deeply reactionary and old-fashioned and out-of-date economics imposed by the IMF and the World Bank. And indeed, countries of the North. RADHIKA DESAI: Yeah, and I just like to say, well, thanks for that. And on China and whether China sets a debt trap, I mean, basically, I think one has to understand that this whole discourse of debt trap diplomacy is actually emerging as a way of muddying the waters of the discourse on the Third World debt crisis, because the Western countries themselves essentially want to be repaid the full amount and essentially want the Chinese to take whatever haircuts that they have to take. And I think in return, the Chinese are saying that, folks, that’s not going to work. We are willing to participate in any kind of debt restructuring you like, but everyone has to take a haircut. Bondholders cannot be excepted. The IMF and the World Bank cannot be excepted. So that’s the first thing. Secondly, I think China actually invests in long-term investment, provides long-term patient infrastructure capital. It’s actually not true that they only invest in resources. They are investing in manufacturing in Third World countries as well. And I would say, by the way, Ann, that you should look at the figures more closely. But the last time I looked at the figures, the countries and agencies that were buying land and resources, the pension funds of First World countries and certain agencies, for example, Indian capital going out and buying land were proportionately much greater. And I think that this issue has to be examined more closely. I think even if China wanted resources, I think China has the ability to get resources from mutually beneficial deals with Third World countries that are far superior to anything the West has ever done. So I just like to point this out. And I think we should probably be closing because we are nearly at one hour. I think we’ve talked a lot about what the relationship is between the debt crisis and the dollar system. So I think we should skip quickly to the final question, which is what is the way out? And as a segue into what is the way out, I’d simply say that, Ann you were talking about the imposition of austerity via the mechanisms of debt and so on. And the fact of the matter is that, sometimes I like to put it to my students, explain it to my students like this. You know, if you owe money, there are two ways of repaying. Number one, restrict your consumption, which is essentially a punishment to yourself, or increase your capacity to earn. That is an investment in yourself. The second one would be far better for everyone. The creditors would be repaid and the debtors would not suffer. But the fact of the matter is not only does the current world financial system dominated by Western financial institutions, particularly US financial institutions, not only does it lend for unproductive purposes, but it actually in the process denies by imposing austerity, by restricting and putting policy conditions and so on. It denies these countries the capacity to make money, to expand their productive capacity, thereby lightening their debt load, because that will be the result of the expansion of productive capacity. So this is the miserable, punitive, miserly, and financial system that we have. And that is essentially denying the possibility of development and essentially killing off people, killing off economies. So the question then is what is the way out? And Michael, I think you wanted to go on this one first. So please. MICHAEL HUDSON: Yes, I wanted to sort of set the scope of what we’re talking about. The advocates of today’s financial colonialism say there is no alternative. And their whole philosophy of development is to say that we’re all for central planning. American neoliberals are for central planning by Wall Street and by the financial sector. Financial imperialism wants to take planning out of the hands of government and put it in the hands of the financiers. And obviously, this is what the whole fight of the British countries is about. And we’re in a position today, much like 1944 and ‘45, which is why we’ve all been talking about that for the last hour. We’re really creating a new system, the system that was not created in 1944 and ‘45. This is the first time, and it’s taken over 75 years to actually develop. How should an international financial system be structured if it’s going to help everybody? We’re asking that question. That is not the question that the World Bank and the IMF and the US Diplomacy and the European Guard talk about. They really don’t believe there’s an alternative. So we’re watching a new alternative being created right now. And the whole idea is to free the global majority from the debts that would hold them and lock them into colonialism, just like Haiti got its nominal political independence, but owed France so much debt that it never could get out of it, or Greece owed so much debt after 2015 that it couldn’t get out of it. So we’re really dealing almost with ideological imperialism and it’s the intellectual control over how to think about what an ideal or workable alternative structure become. And China has pointed out, well, if we’re going to have this discussion, we have to realize that all these countries have different political systems. Obviously, there has to be some new means of settlement. A new system won’t work until they get rid of the existing debt overhead. You can’t have a new system and still have governments having to pay the accumulation of debts, mainly compound interest, that’s been in the past. There really has to be a break. And the break of an intellectual system and the policy is a break from having to pay these debts. That’s why we’re focusing on who to pay the debts. And obviously, as long as the foreign debts are handled along the current relations, then the countries are going to have to impose austerity, just like Germany imposed austerity in the 1920s to try to pay its foreign debts. It doesn’t work. If a country’s told to destroy its economy and make itself less able to pay its foreign debts in the future in order to pay debts now, there has to be, in principle, a way of wiping these out. So what we’re really talking about is a kind of constitution of principle, the Bill of Rights for debtor countries that would shape the new system as really their kind of America’s Revolutionary War. So the problem then is to outline, we’re talking about a remedy. So the remedy of the current problem is you begin with a debt cancellation that needs to clean the slate for any kind of a new system. You need to renationalize basic utilities that have been forfeited to foreigners. And you can do this under local law. What foreigners wanted, as Radhika pointed out in the very first statement today, they wanted the resources of the colonies. They wanted the raw materials and the mines and the land. All of this can simply be fixed with a rent tax. You can tax away the raw materials rent and the land rent, and that’s all under domestic national rights. So that would not only free the country from foreign debt, it would free them from the foreign ownership that has carved out the control of basic infrastructure away from government control, away from the government’s ability to provide basic services on a subsidized basis like the United States and Europe did. So the tax system has to be part of the reform of the debt system. And that requires a whole economic analysis of what is a country’s ability to create an economic surplus. And that’s really, you need a national accounting system to reflect these ideals. So we’re talking about something much more than settling the debt problem. We’re talking about settling the whole financialized economic structure that debts have put in place. ANN PETTIFOR: So sure, I mean, I have to agree with Michael that actually it is cheering and it is optimistic that we are talking about new systems and that hasn’t been the case for a while. It’s exciting to hear of the alliances building up around China and so on to discuss replacing the dollar. However, there is another way in which we can deal with this American imperialism and that is protectionism, authoritarianism and the rise of fascism. And here I am with Polanyi. Polanyi was right that the whole notion which we have today of a global market in capital, the shadow banking system, governing the world is a utopian notion, right? And it would lead to so much annihilation of human civilization, the ecosystem that society would react and demand protection. And that gives the rise to authoritarianism. And I’m afraid it’s very exciting to see Lula elected as president of Brazil but he cannot get a thing through his Congress. He got a single item of policy through his Congress because of the far right domination of the Congress. We look around the world and we see authoritarian dictators pulling up the protectionist walls. Now, I’m not against all forms of protection but from a capitalist point of view, from the point of view of this Soviet style capitalism, it is disastrous because that will bring down the dollar. That will defeat the system. That will, fascism will deal with this form of utopian capitalism. So, I think while we must be encouraged by the discussions that are happening, we must also be very alive to the, I mean, I’m watching my own country, Britain, so-called home of liberalism and parliamentary democracy. We’re being read now by a very far right government which is overtaking our institutions, our broadcasting institutions, our health services, doing everything it possibly can to break down, if you like, the liberal democracy on which Britain is based. And it’s terrifying to watch because it is, you can see the rise of fascism in some of our political leaders. So I don’t wanna, I know this is not a cheerful way to end this podcast but I just want to warn us that, and I want to warn if you like, hyper-capitalism, that if you go along that road of actually treating countries in this way, you are going to get fascism as you did in the 1930s. RADHIKA DESAI: Yeah, I think, Ann, you’re absolutely right to remind us of Polanyi and I think you’re absolutely right that he exactly, he said that when you have this kind of hyper-liberal system and of course, as you rightly pointed out, it’s no longer even liberal, it’s some kind of risk-free government guaranteed capitalism but let’s leave that aside. But what it does is it imposes these relations, liberal relations on the rest of us. And in that situation, you do face, humanity faces a choice between fascism and socialism. And I think that the point is that yes, fascism is, I completely agree with you, it’s a danger. I mean, look at India, for example, right now. I mean, there we have, just kind of full-blown fascistic type of government, fascist type of government, whatever you want to say. So, and of course we had Bolsonaro in Brazil and you still like, as you say, the Congress is packed with right-wing people in Brazil today and so on. And I would say that the fascism is rising across Europe. The West is allying with fascist forces in Ukraine. I mean, the things, the contradictions are multiplying and that’s really why we need to raise the whole issue of socialism today. Because I think the only sensible way out of this is actually, because once liberalism fails and it’s bound to fail, it’s too contradictory, then you’re faced with the two forms of non-liberal societies or anti-liberal societies. One is fascism, the other is socialism. And you have to say that socialism is the way forward. You cannot have authoritarian fascism. So I thought, I mean, first of all, let me say, I think this has been a wonderful discussion. Again, thank you very much to everyone, to Paul and of course to our audience. I thought I would just end by making the following remark. You know, somebody mentioned planning just now. I forget which one of the two of you it was, but you know, one way of thinking about the system today is that, all financial systems are a form of planning. There’s no doubt about it. So the real issue is, do we have planning for broad-based prosperity and the development of productive forces for equal societies, for ecological societies, for prosperous societies? ANN PETTIFOR: And for managing the climate crisis. And exactly, for ecological and attacking the climate crisis and dealing with the other two ecological emergencies as well, the loss of biodiversity, pollution, all these things. So do we have that kind of planning or do we have the kind of planning we have right now, which is essentially financial planning to subordinate the whole world to the big corporations of a small number of rich countries, not even the rich countries as a whole, just the big corporations of these rich countries. This is the choice before humanity. This is the choice that we confront when we are trying to face, when we are trying to answer the question, what kind of financial system do we have? Because if there’s one question that the current debt crisis is raising, current debt crisis of the developing world, the Third World is raising, it is this question. And so I think we thought we would leave you with that question. Thank you very much for joining us. Thanks to Ann for joining us. Hopefully we’ll have you back soon on another exciting set of discussions like this. And so yes, goodbye until another fortnight. Bye-bye. Goodbye. Cheers.

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dollar, economics, IMF, International Monetary Fund

The US-dominated International Monetary Fund warns of an “erosion of dollar dominance,” noting use of Chinese yuan in global central bank reserves is increasing, while Western sanctions on Russia could strengthen other currencies. The US-dominated International Monetary Fund (IMF) has acknowledged that the hegemony of the dollar is in noticeable decline. At the same time, the Chinese currency, the yuan or renminbi, is slowly growing in influence, along with other currencies, according to the IMF. In 2000, roughly 70% of global foreign exchange reserves were held in US dollars. As of 2021, that figure had fallen to just under 60%. Meanwhile, the IMF noted that there is a rise in “nontraditional currencies” from smaller countries being held in international reserves. The United States has veto power over IMF decisions, and the institution is notorious for acting as an instrument of US political influence. Economist Michael Hudson has explained that “the IMF was created as an arm of US foreign policy,” and that Washington has historically weaponized the fund “to use debt leverage to force other countries to impose austerity on their populations, and to essentially say we will control what government you have, because if your government does something that the United States officials don’t like, we’re just going to raid your currency, force of austerity on you, and you’ll be voted out of power.” The IMF has helped maintain the US dollar as the de facto global reserve currency since the fund was created in the 1944 Bretton Woods Agreement. Hudson showed in his book “Super Imperialism: The Economic Strategy of American Empire” that Washington has used the power of this global reserve currency status to essentially make other countries pay for its wars. But the dollar’s power is eroding, and even the IMF has begun to publicly acknowledge this fact. The International Monetary Fund published a working paper on March 24 titled “The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies.” The report documents “a decline in the dollar share of international reserves since the turn of the century,” with central banks around the world increasingly diversifying their holdings. The study notes that this “decline in the dollar’s share has not been accompanied by an increase in the shares of the pound sterling, yen and euro, other long-standing reserve currencies and units that, along with the dollar, have historically comprised the IMF’s Special Drawing Rights.” Instead, “the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role as reserve currencies.” The researchers describe this “evolution of the international reserve system in the last 20 years” as a “gradual movement away from the dollar.” The IMF working paper explained that “the decline in the dollar’s share has been matched by a rise in the share of what we refer to as nontraditional reserve currencies, defined as currencies other than the US dollar, euro, Japanese yen and British pound sterling.” In addition to the Chinese yuan, some of these “nontraditional currencies” that are becoming more prominent include the Canadian dollar, Australian dollar, Korean won, Singapore dollar, and Swedish krona. In 2000, more than 98% of international foreign exchange reserves were held in the “big four” hegemonic currencies: the US dollar, euro, Japanese yen, and British pound. Less than 2% of reserves were held in what the IMF calls “nontraditional currencies.” But as of 2021, the share of nontraditional currencies had shot up to 10% – and there is every indication that this figure will only keep growing. The IMF report noted that this “shift is broad based,” identifying 46 central banks that have been diversifying their holdings with nontraditional currencies. The euro is unlikely to challenge US dollar hegemony. The article pointed out that the “euro has gained little ground as a reserve currency since its creation in 1999,” remaining relatively static at around 20% of global reserves. Yet “while the renminbi has gained some ground, it remains leagues behind the dollar as a form of international reserves,” the researchers added, on a cautious note. The working paper was authored by Barry Eichengreen, a professor of economics at the University of California, Berkeley, along with IMF economists Chima Simpson-Bell and Serkan Arslanalp. Their study concludes that, while the dominance of the US dollar is far from over, and certainly will not end overnight, its power is waning. A top official at the International Monetary Fund made remarks reflecting this historic shift, in a report by the Financial Times, titled “Russia sanctions threaten to chip away at dominance of US dollar, says IMF.” The mainstream British newspaper interviewed the IMF’s first deputy managing director, Gita Gopinath, and wrote that the crushing Western sanctions imposed on Russia over its invasion of Ukraine, “including restrictions on its central bank, could encourage the emergence of small currency blocs based on trade between separate groups of countries.” The senior IMF official conceded that “fragmentation at a smaller level is certainly quite possible,” although she added that the US “dollar would remain the major global currency even in that landscape.” Russia sanctions threaten to chip away at dominance of US dollar, says IMF https://t.co/D0qtv9rlrr — FT Economics (@fteconomics) March 31, 2022 The IMF executive acknowledged that the world “might see some slow-moving trends towards other currencies playing a bigger role [in reserve assets]” held by countries’ central banks. “We are already seeing that with some countries renegotiating the currency in which they get paid for trade,” Gopinath added. Western sanctions on Russia – one of the world’s largest exporters of oil, gas, wheat, and fertilizers – have forced Moscow’s trading partners to seek alternative payment mechanisms. Despite the sanctions, the European Union still gets 40% of its natural gas from Russia. And the Kremlin has demanded that Europe pay for this gas in Russian rubles. Russia’s demand that the European Union pay for its gas exports in rubles could shake up the global economy, undermining Western sanctions and forcing Europe to decide if it truly wants to be independent from the US. Important analysis by @bidetmarxmanhttps://t.co/pIvWWXkXXp — Benjamin Norton (@BenjaminNorton) March 25, 2022 China and Russia have also moved toward boosting their bilateral trade in each other’s currencies. Western sanctions pushed Russian financial institutions, including both state-owned and private banks, to encourage clients to open accounts in Chinese yuan. Bangladesh has said it is considering using yuan to evade sanctions and continue trading with Russia. Even India, which has a right-wing, pro-US government, has created an alternative payment mechanism using rupees and rubles, to get around Washington’s sanctions. The IMF has been careful, however, not to overstate the drop in US dollar holdings in international reserves. Gopinath, the IMF official, predicted that “the dollar’s dominance will stay for a while.” While US dollar hegemony is not going to suddenly disappear, it is facing more and more challengers.