Q & A transcript from our 4th Patreon event.
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Karl Fitzgerald (KF): To start off with our typical end-of-year topic: How have you seen this year’s economic trends play out? Has there been anything outstanding or worthy of note for you to bring to our attention?
Michael Hudson (MH): Nothing’s really changed from last time. There’s more and more awareness that when the Federal Reserve raises interest rates (ostensibly to fight inflation) it isn’t really to fight inflation at all. It’s that they worry that with the prices going up, wages may go up, and they want to cut American wages by about 10% because as the market shrinks it’s harder and harder for companies to make a profit. So the members of the Fed think, “Well, we can support corporate profits and the stock market if we just cause unemployment.” They want to raise the unemployment rate substantially in order to lower wages. They are pretending that, somehow, all this is the result of the money supply and credit, and that the inflation is all the workers’ fault.
[In their view,] any inflation is always the result of rising wages — it’s not the result of monopoly pricing, it’s not the result of American sanctions on Russian oil and food. It’s only the result of American workers wanting a free lunch off their employers by making enough that they can live without going into debt.
KF: How do you see the interest rate cycle, do you really think they’re going to keep pushing ahead with interest rates, to bring the economy back a peg? Or is that core inflation that’s winding back that’s starting to suggest that we’re not going to see such —
MH: Well over the last three months, inflation has come down very substantially. When they say “We’re up 7% in the United States for the last year” — or, actually, all of that was before the sanctions on Russian oil pushed gas [and food] prices way up. Now that our gas and food prices are coming back down, the inflation has gone way down. [But inflation is still higher than it was a] year ago because of all of the anti-Russian sanctions that the [U.S.] government has done.
John S: Why [are] China’s and Japan’s inflation rates at 2-3%, while the West is at 8-10%? [China and Japan] had supply chain issues also.
MH: Well, because [China and Japan] are not following American sanctions. They are getting inexpensive oil from Russia at a fraction of the cost that Europe has to pay. So the American sanctions are applied only against the United States and Europe, and not against Asia. So of course [China and Japan] have no reason to have their currency going up. The only thing [actually] pushing their currency up is the fact that the [exchange rate of the] U.S. dollar (USD) is rising as a result of the high interest rates [in the U.S.]. So [there are arbitrage movements of capital] *out* of Japan and China [and] *into* the USD. [The Japanese and Chinese] currencies are weakening, and because world mineral prices and oil prices and food are set in [USD], that increases domestic currency costs [for China and Japan] of [any] raw materials [that are priced in USD] that they have to import.
Now just yesterday, the Russian Foreign Minister [Sergey Lavrov] said1 that [Russia is] working on changing the prices that Eurasian countries have to pay, so that they will be repricing their oils, metals, and raw materials in an ‘own-index currency’ [that is] cut off from the USD so that they can move away from the USD. This is going to give them even more of a price advantage over the United States.
John S: Isn’t the West’s corporate greed (eg. rent seeking, monopoly pricing) also a big factor driving inflation?
MH: You don’t even have to be greedy. If you work for a corporation and you don’t use monopoly power to raise prices when you can, they’ll just fire you and hire somebody that is willing to do it. It’s not an emotional greed: it’s built into the economic management system of finance capitalism. It’s all about ‘monopoly rent‘.
KF: Yes, yes, it is. And that lack of competition that that’s occurred through these ‘economies of scale’. I go for a walk in my supermarket, and the supermarket brand is virtually the only product you can buy due to these agglomeration pressures. How far do you think it’ll go before government and this anti-monopoly movement that is growing in America through economists like Matt Stoller — how long until that becomes a hot political issue?
MH: I think by 2080, or 2090, people may begin to be concerned.
KF: One of the things with inflation is, as you suggested, in the last three months it has dropped right back. There is a growing thought that instead of combining the previous four quarters into that 6-8% [calculation] we should only look at the last three months and multiply that by four to see what the active inflation rate is at this point in time. Do you think that’s a fairer [statistic] for central banks to base their decisions on?
MH: [If you consider the real purpose of the central banks] it wouldn’t be fair for them at all, because their [real] purpose is to create a depression and cause unemployment. And if you [used the modified inflation statistic] then that would be too realistic, and [central banks] wouldn’t have the excuse to be so deceptive with their Junk Economics.
Tim: Warren Mosler thinks that the Fed rate hikes [are] driving inflation high because interest income is sustaining private sector spending, which may send the wrong message to the Fed (to hike the rate even higher), eventually causing something to break. So far the labor market and consumer spending in the U.S. remains relatively strong. What do you think this means for the U.S. economy and, by default, for the rest of the world?
MH: [Most of the people who earn interest are members of the] upper One Percent. They don’t spend money on goods and services (I mean, they may buy yachts) but they basically buy stocks, bonds, and real estate. [Investors] who are living on interest make more money, [but that money is not] going to spill into the industrial economy at all. Not all income is the same, and is not spent in the same way. The upper One Percent doesn’t spend its income in the same way that the bottom 50% spend it.
KF: Good point. What is the biggest employment generator through that spending? Is it the top 10% spending or the lower 50% spending?
MH: Well, obviously, it’s what the Real Economy — “the [bottom] 50%” — is spending on goods and services. [On the other hand,] you don’t need employment to make money financially. All you need is fraud and bought politicians.
KF: How is that market segmentation going, though? You can often see a lot of boutique, really beautiful, high-value, “yuppie” products for the wealthy, but then [for] the lower end we’ve got imported crap from China. Are we seeing the ‘two-speed economy’ evolve in ways that we hadn’t expected?
MH: Well, Andy Warhol paintings are going way up in price. Trophies are going way up in price. ‘Trophy women’ are going up in price. But it’s basically ‘trophies’ that are going up, not essentials, and consumers are based on essentials.
Rents [are also] going way up right now. It turns out that people have just discovered that almost all of the housing construction in America in the last 5 years has been for very wealthy people, not for normal people who make less than $100,000 a year. So, there’s a housing shortage, [and on top of that] there have been so many [mortgage] defaults that absentee housing ownership [is] going way up, and the absentee owners that now own most of the real estate [in the U.S.] are able to simply raise the rents and that’s putting a squeeze on the economy.
John Chadwick: Michael, In 2006 you predicted the 2008 crash. I haven’t heard you predict when the U.S. will fall, and the price of gold and precious metals will rise. [What] are the biggest factors that you look at? For example: Saudi [Arabia] selling oil to China in yuan [renminbi], China selling its U.S. Treasury Bills, [or] countries doing trade in their own currency.
[12:15] MH: Well, in a stable economy, like when I was working on Wall Street [50 to 60] years ago, the way you would forecast where gold prices, or commodity prices, or anything was [going], was to use a ‘trend analysis’. But today, the price of gold is something political, and more and more of the key elements ([for example, those having] to do with the NATO war with Russia and China) are political. So you’d think that the movement out of the USD, by Saudi Arabia [and] other countries who are afraid to hold USD holdings anymore (because the United States may simply grab their money like it grabbed2 Russia’s money, or like England grabbed Venezuela’s money) [is occurring because] they want to hold something where it can’t be grabbed. And if they hold their own gold, then it can’t be grabbed, unless they’re silly enough to leave their gold in London or New York. So [seen as a graph,] all of this is going to be a quick ‘step function’ — it’s not a curve, it’s not forecastable. You would have to forecast what the political system and the military developments would be, and that’s not something that you can do a mathematical chart of.
KF: So what is happening in terms of the percentages of trades? In terms of these bilateral deals, how much trade has moved away from the USD to these more multilateral currency exchanges?
MH: Well, even when trade moves into foreign currencies, it’s still related to the U.S. price of goods and services. [So, really, they’re just] using non-U.S. banks and trading in their own currency, but it’s still based on the USD, and USD pricing. Payments in many cases have to be made by using an intermediary or at least a reference point to the USD, so that’s the problem that Asian countries have to face. I think in the last week or so Yves Smith on [naked capitalism] had a whole series of articles3 saying how really difficult it is [for other countries] to have an alternative [transactions currency] to the USD. You can’t simply just bypass it when the basic pricing of so many raw materials [is denominated] in U.S dollars.
KF: What about the election of [Luiz Inácio Lula da Silva (“Lula”)] to president in Brazil and talk of creating a Latin American currency? Do you [think] that could withstand the pressures of global trade?
MH: That would have to be a long time coming.
[Let’s take the Euro as a case study.] The problem that the Euro has as a currency [is that there’s] no real central bank creating the same currency. Each country has its own budget and its own budget deficit or surplus. There’s no real central bank that federates everybody. You would need Latin America to be just like the United States [in order] to have its own currency. Because the key [to] having your own currency is: Who’s going to create the currency, and who is [the currency creator] going to give it to? Europe can’t decide what countries to give the Euro to to spend so it doesn’t give [it] to anybody.
Latin America would simply remain isolated if it followed the European pattern. And it’s not, politically, “up to” creating a United States of Latin America, any more than Europe is “up to” creating a United States of Europe.
[17:00] Tim: Latin America is electing socialist left-wing presidents. How can [Modern Monetary Theory (MMT)] be helpful for each country, individually. Can they somehow work together with an MMT economic philosophy?
MH: That’s a loaded question. When I was brought down to Brazil when Lulu was in power to meet with their Council of Economic Advisors, they said that in order to get elected Lula had to make a deal with the banks (which means the ruling families of Brazil) to go along with them, and essentially let the banks remain in control. Lula would be doing many social programs but certainly the banks would be left in control.
In 1990, when I organized the world’s first Sovereign Debt Fund with “Scudder, Stevens”, Brazil was paying 45% interest a year on its U.S. dollar debts, as was Argentina. And despite the fact that 45% is a huge amount (wouldn’t you like to get that?) Scudder, Stevens tried to sell the fund in the United States. They had their salesmen go all around. [Potential fund purchasers in the] United States said, “We don’t want any part of Latin America. We give up. They’ve defaulted.” [The Scudder people] went to Europe. Nobody in Europe would buy [the funds]. Merrill Lynch went down to Brazil and Argentina and they bought the 45% and they (that is, the 0.1% of the bankers, who are the families of the President, the families of the central banker, the big criminal gangs) bought it. But they bought it, holding it off shore, and I think the Dutch West Indies is where the fund was decided to be incorporated. And so essentially they want to make a killing on being able to finance governments.
The last thing that the ruling class in Brazil wants is for a government to be able to create its own money and finance its own spending, instead of relying on the One Percent to tell it what to spend on and how much to pay the One Percent. So you would need a social revolution to definancialize the economies of Latin America. You’d need a real social, a real socialist revolution in order to have MMT down there, because otherwise you’re going to have the ruling families of Argentina, Brazil, the big Latin American countries, remain in control, blocking any kind of MMT.
KF: What was your take on the coup in Peru?4
MH: I can’t figure it out. I don’t know [that] I begin to follow it. It’s not clear to me. There are a lot of particular idiosyncrasies that have to do with Peru, and I haven’t followed it that much. I’m much more familiar with the Incan5 civilization.
[20:16] Soumyadip Ghosh: Why have oil prices moderated in recent months? Is it that we’re coming to terms with the sudden uncertainty created by the Ukrainian War, or is it demand destruction? Do you expect the oil price caps shenanigans to send prices, and hence inflation, back up?
MH: Well, the sanctions against oil have certainly cut back oil usage in Europe and to some extent in other countries that are loyal to the U.S. And the economic slowdown in China, as a result of the Covid restrictions, has cut oil. So a lot of it is a cut-back in demand that is going hand in hand with a cutback of supply.
Much of the jump in oil prices occurred before there was any shortage of oil. It occurred simply when the oil companies said, “Look, there’s sanctions against Russia, we can make a killing,” and they made a killing by raising the price of oil way up. They made billions of dollars for doing it, without any economic cause at all.6 But they were sort of jawboned7 by President Biden, who said, “Look, there’s an election coming up. I want to get elected in November and not have the Democrats thrown out of power by the Republicans. So, lower the prices.”8 And the oil companies did lower the prices. There never was a real reason for oil to have peaked at such high prices, as it was doing in the first place. That was all using the war in Ukraine as an excuse.
[As to] the war in Ukraine: we’re waiting for the winter. We’re waiting for Russia to finish off Ukraine in February or March [of 2023].
KF: [Returning to the original question:] What about the latest shenanigans at OPEC? Have you got any stories or historical [details] on how OPEC usually plays out these situations to manufacture those monopoly rents?
MH: There’s no historical precedent for what’s happening now, so you can’t say what is “usually” the case.
You could see how much better the Saudi Arabian Prince treated President Xi of China [compared to] how he welcomed President Biden. Biden got a Red Carpet but President Xi got a Purple Carpet and you could just see the closer connections there. It’s obvious that Saudi Arabia realizes that it has to reorient away from the United States. I don’t think it has any love for the United States. It also realizes that the main market is going to be China and the [Belt and Road] countries. It really is trying to reorient itself and, at the same time, make sure that its Islamic religion is not going to be a problem with China or Russia; it’s been told it’s not going to be a problem despite the fact that the United States is pretending that it is in [Sing Tao / Qingdao].
KF: In addition to the sanctions and rents extracted by monopolists, what impact did central planners’ 2020 policy decision to create bank credit for consumer consumption have on recent inflation?
MH: Not very much. The banks are lending to anyone who has the money to pay. Credit card rates have gone up. Mortgage rates have gone way up. That’s the big thing, and with mortgage rates so high, that’s killed the housing market. And by killing the [residential] housing market for most of the population, that’s stopped mortgage lending and construction. [Also,] the commercial property rates in the United States are only about 80% (maybe it’s a 75% now), so with people working at home much more, all the big companies are downsizing their office space so there’s really not going to be much construction, and hence there’s not going to be much construction lending, or mortgage lending, going on.
KF: In terms of all this reorientation of economies, it’s fascinating to hear you say that Saudi Arabia might be moving towards more multilateral trade with Belt and Road countries who might have the ability to upgrade to [Electronic Vehicle (EV)] transportation so quickly.
Climate is something we don’t often hear you talk about much, but within your FIRE Sector analysis is ‘Insurance’.9 How do you think insurance is going to survive in this world of continuous climate disasters? And what role is there for the future of insurance? Will the state have to take this over?
MH: I certainly hope not! The answer to your question is: Look at what’s happened in Florida — in the last two months the insurance rates have doubled, tripled, and quadrupled so much that people are now unable or unwilling to buy new homes in Florida because the insurance rates are so high. [It’s like] making a mortgage loan at 10% interest. Nobody could really afford that. The insurance is so high that people are going to decide not to move into Florida, because it’s just too dangerous.
The government getting into subsidized insurance has been a disaster. The one area that the government has got into are [beachfront] houses for millionaires. These houses, because they’re near the ocean — there [are] hurricanes, they [are] flooded again, and again, and again. So the government will (not quite every year, but every few years) for free, keep giving a 1 million dollars to rebuild a house. 5 years later, [it will] happen again, another 1 million dollars to [rebuild] the house. The government insurance for real estate is spent for the One Percent of the population that has beachfront property and it’s utterly corrupt.
It would be wrong for the government to pick up the risk of living in a flood-prone plain, like [the areas of] New Jersey below sea level. It would be crazy for the government to keep rebuilding the homes again, and again, and again. You have the people in New Jersey on the news here (in New York we’re right next to New Jersey so they keep having people from New Jersey [on the news]) and you’ll have the homeowners say, “Oh, it’s flooded again. It flooded last year. It flooded the year before. Why does God keep doing this to us? Why are we flooded?” And they don’t realize [that] it’s not God, [but] that you’re living 10 feet below sea level and that’s why you’re flooded year after year after year. It would be crazy for the government to actually subsidize real estate developers to build yet more housing below sea level to be flooded again, and again, and again, and [just] keep rebuilding it.
I know that John Maynard Keynes suggested making employment by building the Egyptian Pyramids just to ‘make work’. But building New Jersey real estate or Florida real estate is a travesty of this. It’s too risky. So when the insurance companies are raising the prices for risk, they really are raising the prices for the risk. It really is hurricane country in Florida. And I’m not sure you really want to think of moving there.
KF: Well, maybe you have to sleepwalk to see it as a reasonable decision to move there.
MH: Well, you have Governor DeSantis of Florida saying that he’s very worried that this is going to affect his running for President against Trump in 2024. He says [that with] the cost of insurance, and the effect on real estate in Florida (Florida is all about real estate: it’s a real estate and tax avoidance state), and the hurricanes, and global warming accelerating, that [that] finishes off the whole ‘Florida model’.
KF: So are the insurance companies producing ‘risk maps’ that highlight where the higher premiums are going to be charged, and giving property owners at least some insight as to how those premiums are accelerating and giving [property owners] some sort of forecasting signals that this is not a wise economic decision?
MH: If they’ve been making risk maps, they’ve been keeping it to themselves. They don’t want to be sued, and don’t want it to be controversial, and they’re just raising the rates. I don’t know how scientifically they’re doing it, but you can certainly see where the hurricanes are, and you can calculate (or they’re calculating now): What are going to be the cleanup costs of the last two months’ hurricanes in Florida? What does it really cost? If we’re going to expect a once-in-a-century hurricane every two years, that’s 50 times in a century, then all of a sudden you have to look at this as ‘the new normal’. It’s not once in a century, it’s not once in a decade. It’s every year now.
KF: Will it be 2080, 2090 until the public recognizes this synergy, this corruption, this revolving door between government and real estate — particularly the planning departments of local municipalities — allowing houses to be built on flood plains? This is a corruption that’s gone on for centuries. How long until we finally call that out as something that just should never happen?
MH: You can never forecast when America is going to give up Christianity and [realize that] it’s not God that’s doing this — it’s economic reality.
It’s been exactly a century since Thorstein Veblen wrote Absentee Ownership. Veblen said that the way to understand any American town [or] any American city [is] as a real estate project. And the job of the mayors is to work with the banks to help get suckers to buy property. You want to promote civic pride and somehow promote the city or the state as a place that you’re going to want to have real estate in. So the real estate developers, speculators, [and] absentee owners can make money.
If you look at who finances the campaigns of mayors in the United States, it’s almost always the real estate interests. Donald Trump was a big funding [recipient] of New York City politics, which is what gave him the favoritism. Or the payoffs. (Sometimes it’s little white envelopes that are not on the record.) But American politics are all small-town politics, and it’s all about real estate and the bankers behind the real estate.
[33:07] Soumyadip Ghosh: Are there any examples from precolonial history (i.e. before Britain and the U.S.) where a country’s national currency has served as a universal reserve [currency] that has facilitated international trade outside the country’s borders or effective military domain?
MH: Well, you had the Roman currency as a silver coinage in the Roman Empire. From about the fifth to the ninth centuries in Europe almost all of the coinage had Levantine (ie. Near-Eastern) denominations, and then you had the Byzantine currency. But all these were silver currency. So you could say that during [these periods], no matter what the national currency was, it was always silver coinage in one denomination or another.
[That’s] before you had the paper currencies. Paper currencies are really a product of the modern world, and they were brought into being as a means of debt financing. Until you had national debts, you couldn’t really have a national currency, because the only way of giving [value] to a national paper currency is to accept it as payment for taxes to cover the national debt. (You couldn’t have this under kings, because if kings ran up a debt they could go bankrupt, like Edward III [who] went bankrupt and bankrupted the Bardi and the Peruzzi families in the fourteenth century.)
You needed part parliamentary democracy, which enabled Holland and the Low Countries to commit the whole country to paying a national debt. [They were able to] borrow money to fight Spain (which was their master) and get their independence from Spain because they were a democracy and Spain wasn’t. All of that had to develop really into the modern times.
KF: [When the Romans conquered] other countries, was their currency used inside those countries? And did it have an effective backing of value?
MH: It was all metal. Now, at a certain point of course, under the Empire, they degraded the currency. You had masses of coinage, and normally you’d weigh the coins ([usually from a variety of] city states) in order to decide what the actual metal content was. In practice, coinage circulated very much in terms of the commodity content, because there wasn’t much taxation then.
That’s because these countries were oligarchies and oligarchies don’t like to be taxed. Oligarchies like to control the money, and you control the money by (i) having it in gold or silver that other people don’t have and (ii) [the absence of a] democratic government that can come in and simply create it.
So you needed a democratic parliamentary government, with a national debt, in order to have a national currency that was not [simply] coinage of a different nomination.
[36:59] Sean (??): Is there a need for any one country to replace the U.S. as the issue of a global reserve currency? Can’t the majority of world trade be conducted by bilateral [or] multilateral settlement arrangements?
MH: [In] a way, we’re back to the 1950s. There was the Iron Curtain and there was a lot of trade with Russia, but it was barter deals. In effect, today’s Eurasian trade is like a gigantic complex system of barter deals that are being made, usually with reference to U.S. dollar valuations. So that’s the whole problem.
There can’t be a single country issuing its currency, without a single central bank, and that’s the problem that I mentioned that Latin America and Europe haven’t solved. If you have a national bank then you have to have national taxation in order to give value to your currency. And you have to have all the country, all the members of your currency group, represented politically, so they can decide what to create this government money for. Are you going to create it just to pay your richest One Percent? Are you going to create it to build railroads and roads in this country or that country? What about social welfare spending?
You really need a political unit in order to have a monetary unit. China and Russia and India and other countries are nowhere near having a political unit — a single, political, congressional unit, yet.
John Schreiner: As the U.S. reserve currency starts to dwindle, what impact will that have on U.S. residents?
MH: Not necessarily much at all. I mean, the U.S. will not be able to buy Russian or Chinese products, or products of countries that America is boycotting. It means that your taxes are going to go way up to pay the military industrial complex and there’ll be much less social spending. Homelessness will probably go up.
My friend Steve Keen is in London right now, and he says that London is looking like New York. It’s a few degrees below freezing and people are freezing to death in the streets. I guess you’d call that certainly one [end] of the spectrum of what’s happening.
We’re dealing with a multi-layered economy. The ‘macro’ is going to be that America doesn’t make manufacturers, it has to import everything. If it boycotts the rest of the world as an enemy — sort of excommunicating the rest of the world — then what are we going to do here? Nobody can even figure that out. I guess if you want things to buy they’ll have to be antiques.
KF: That’s the fascinating state of play we’re at. We’ve gone through this globalization phase, where manufacturing and pollution has been exported, and that’s being replaced by housing, production, and big infrastructure projects, particularly here in Australia (but I suppose in America the military expenditure has maintained that manufacturing base). Where do you see this ‘services-orientated economy’, that finance, insurance and real estate takes so much of — is there another step going forward? Many people thought Silicon Valley and you know the whole I.T. thing, was going to be the next stage. How do you see this playing out?
[41:20] MH: Silicon Valley is sort of a layer of output over other things. Most of its effort has been on [how to] use artificial intelligence so they don’t have to employ living labor anymore. If you’re in Silicon Valley, you say, “How can we create a world of 70% unemployment, where only 30% of the people work? How are we going to deal with that, starving the 70%? How can we make them die quickly?” That’s really the ‘technology problem’ that Silicon Valley has, and, of course, that’s the problem that the World Economic Forum (WEF)] in Switzerland is trying to “solve”.
And the war in Ukraine — America’s war against Russia and the sanctions is part of this. [They say,] “Let’s start by starving the world. Let’s start by patenting all of the anti-covid and pharmaceutical technology. We need a number of things. We need global warming to flood the highly populated parts of the world. We need starvation. We need to cut off the oil supply so they can’t heat the homes.” That’s a start in getting the kind of world that Silicon Valley [can cope with].
KF: My God, you’ve gone Malthusian on us! You really think that’s what’s coming up?
MH: You asked me what the plan was and what Silicon Valley’s role is. That’s its role. Either it can take up all of your time in Internet stuff and just watching entertainment all day long. Or it can replace you so that you don’t have a job, [which would] give you the free time to use Facebook and social networking [platforms].
KF: It’s often this battle between old and new money. And I must say you must be chuckling a little bit of recent. Have you seen any good crypto exchanges to invest in?
MH: I’ve never bought any crypto. Fortunately, I’m too stupid to understand it, and I can never figure out how it works. So I never [bought it]. I don’t like to play other people’s games. So I was immune from the whole thing.
KF: Well, it must have been a real worry for the banking system to see this tokenization come through, but perhaps the wise heads in the old money thought that a deregulated, self-interested-run currency system would undo itself in time.
MH: Obviously the purpose of regulation is to prevent fraud. That’s why people want the banks to have regular bank inspectors. When I worked for banks in the 1960s you could just see they were always very concerned when the bank inspectors were coming around, very deferential. Back in W.C. Fields comedies in the 1930s you had the bank inspector coming and oh, you have to give them everything, you’re gonna look at everything, you want to break his glasses, step on his glasses, and then he has another pair, just in case.
Government regulation is needed because crooks love to go into finance. Just like Willie Sutto said, he robbed banks because that’s where the the money is.11
My colleague at the University of Missouri – Kansas City, Bill Black, says the best way to rob a bank is to own one.[enf_note]In fact, Professor Black has written a book with this title, _The Best Way to Rob a Bank is to Own One_ (University of Texas Press 2005), which treats primarily the savings and loan crisis of the 1980s and 1990s.[/efn_note]
So obviously if you’re dealing with an inherently criminal and criminalized sector — which the finance sector has almost always been — of course you need some kind of government oversight to last as long as it can before the financial sector has regulatory capture and takes over the regulators.
John Chadwick: What’s going to happen with housing prices, with mortgage rates as they are? Will speculators step in to fill the gap? I’m in Canada and the housing prices have far outpaced U.S. housing prices, especially in the last 15 years. I suspect my kids should buy a house ASAP.
MH: Canadian housing doesn’t make any sense to me. When I went up to the [Western provinces](https://en.wikipedia.org/wiki/Western_Canada), I was driven past utter shacks, and [even] the shacks cost a million dollars. I don’t know how you can make enough money to carry the mortgage. In the United States it’s typical for housing now to take over a third of the budget, maybe 40% of many people’s budgets. Whereas when I first got a job, 25% of the budget was a normal expense for housing, either renting or for buying a house. So I can’t figure out where all of this is going.
Certainly, as private families don’t have enough money to buy housing, you’re going to have absentee owners buy them at auctions. Arrears on mortgage payments are sharply rising in the United States, so they’re expecting a wave of foreclosures, and that will probably lead to yet more absentee ownership. Right now if you look at the chart of equity versus debt, and American real estate as a whole, the equity is less than 50 [percent]. It’s been that way for 10 years. So the value of the price of housing is almost all accounted for by the amount of debt associated with it, and that’s one of the things that is driving spending away from goods and services, and is shrinking the market for what people produce, and having it all being paid to the landlord to pay the rent to the banks as interest.
KF: Michael, surely you could explain the difference between Canadian and American real estate prices through the U.S. property tax that funds schools?
MH: People don’t realize that American urbanization was all based on dividing the country into a chessboard-type arrangement of local school districts. The great book [Ancient Society by Lewis Henry Morgan14 in the United States, now that you sort of privatized election financing. So the problem isn’t simply power. If you had good, democratic, social leaders in power (like I like to think the Chinese Communist Party is aiming at) that would be ‘people power’. But if you have ‘financial power’, that’s ‘One Percent power’, and it’s used to hurt the 99%.
There’s always going to be power, but the question is: What will it be used for? That’s why you had religions developing in the first place. To sort of make power used for socially productive purposes to maintain economic and social resilience, rather than economic polarization that ends up impoverishing the economy and leading to the Dark Age.
Again, [the important question is:] what kind of power are you talking about?
KF: The supposed theme for today was to talk about [NATO’s] influence in inflaming tensions around Russia and Ukraine. Has NATO made any statements looking to de-escalate situations in that part of the world?
MH: Well, the NATO spokesman is probably the stupidest person that Norway could produce, Mr. Stoltenberg, and he couldn’t do any regular work so they made him Prime Minister, apparently, and now they bumped him up to head of NATO. And he says, “NATO wants to help Ukraine conquer the Russian naval base in Crimea. And the war will go on until Russia gives up.” In other words it’ll go on until Russia drops the atom bomb in six months and blows up the world.
I worked with these people years ago at the Hudson Institute. There are a group of people in the United States that *want* atomic war, and they want war now, because they’ve made a calculation — and I think they’re correct in their calculation. They say, “Russia and China are pulling way ahead of the United States. We cannot compete with them, because we don’t have the money to compete with them, because we’ve given it to the financial sector. And [Russia and China are] putting their money into research and development. Each year that goes by, they have more of an ‘overkill’ on us than we have on them.” ‘Overkill’ means: how many times over you [could] annihilate the whole population of an enemy country.
NATO is run by the Pentagon, which is run by the State Department. I won’t say the individuals who are doing it, but these are really crazy people like Miss Nuland and her husband Kagan. It’s that group of people. And they really want war.
President Biden has said the war with Ukraine is only the opening in a war that will [last] at least 20 years. We are in a permanent war to the death with China and first of all with China supporter, Russia. This is the NATO position: permanent war. If America is losing the war they would rather blow up the world than lose the war. And especially that’s true of the Republicans, the former CIA head [Pompeo], the Christian who said “Well, there’s one good thing about atomic war ending the world, Jesus will finally come and send all the Christians to Heaven and everyone else to Hell.” If you have crazy Christians who believe that, and they’re in charge of the military policy, you’d better break away as quick as you can.
KF: Is anyone talking about just how many NATO bases surround Russia? And has there been any olive branch offered to to pull a couple of those back particularly with this de-dollarization trend coming through?
MH: Absolutely none, no. They’ve simply hardened their line. You can read the speeches of the Russian Foreign Minister Lavrov or [President] Putin and they’re very open in what they’re stating. And you can read this statements of NATO, what NATO Secretary General Jens Stoltenberg says, or the [German Foreign Minister (and former co-leader of The Greens) Baerbock.
The Green Party in Europe is absolutely set. They want to accelerate global warming. They want to accelerate the rise in sea levels. They hate Russia. They want to have people go back to wood and coal, kind of Paleolithic heating. [It’s as if] the German leadership has a death wish. Well, it’s not really a death wish. It’s the money wish, because they’ve been groomed by U.S. NGOs for many years to support US policy, and they know where their money has been coming from, their support. And you have the United States having meddled in Europe to have Europe’s leading politicians — certainly on the left and the center — all be American proxies.
So you have only the nationalists, who the Americans didn’t try to infiltrate, because [America] was supporting ‘the nationalist-right’ before, and all of a sudden the parties that the Americans didn’t infiltrate — Alternative for Germany — and the other right-wing parties, are the only people who are trying to move against this increased belligerence.
It’s as if Europe is committing not only economic suicide, but a political and demographic suicide. Where are Germany’s industrial workers going to emigrate now that they don’t have jobs in the steel industry, in the fertilizer industry, and any other German industry that they’ve been working for for the last 50 years?
[59:50] Dena Lebowitz: As we discussed last time, the U.S. is basically asking Germany to commit economic suicide. [Have] there been any updates on that? Have any of the German [political] parties started to really question these sanctions?
We just recently had a German living with us and he said, “Look, the energy prices have gone up but they haven’t been as extreme as we thought. It hasn’t been too bad.” According to the nineteen-year-old who was staying with us, [Germans] can handle this. Are there any ripples occurring through German politics?
MH: Well, the reason German energy prices haven’t gone up more is because the steel industry stopped using energy; the glass industry stopped using energy; the fertilizer industry stopped using energy. So of course the German homeowners are able to heat their homes with gas. The oil prices I’m told have gone up very [sharply], maybe 5 or 6 times in Germany. Well, that’s a lot of money to go up. There’s been a lot of people fired. So your friend obviously isn’t a steel worker who’s been laid off because the company’s just closed down operations.
So what do you do if your whole industry has gone down and will not open? That’s the important thing — Russia and Germany have each made it clear there will not be any Nord Stream rebuilt. This is a permanent shift from Russia all the way east to the rest of Asia. They’ve ended the reliance on Germany, Italy, France, and the rest of Europe.
Europe no longer is going to have a trade and investment relationship with the rest, because they’ve shown that they can’t be trusted. And, thanks to the fact that there’s been the American sanctions, that has led these countries to realize that they need to become independent in producing basic needs — basic industrial goods, basic requirements — so that the United States and Europe never again can say, “We’re going to hurt you by cutting off something you need that’s essential.” They’re all relying on each other for essentials.
So European progress has ended. We’re seeing the end of a 1,000 year takeoff ever since the Crusades.15 We’ve seen the end of European prosperity that’s irreversible for at least a century, and I don’t think the population has understood that.
Today I had an [hours-long] discussion on German radio about this, and they [said] that there’s no discussion of the kind of thing that you and I have been talking about here, or that we talked about on Patreon, that has occurred in Germany, at all, in the newspapers. It’s just like a news blackout of topics about where all this [is] really leading to — no discussion whatsoever.
KF: Yeah, day to day reporting and no medium to long-term analysis. It’s a great way to keep the blinkers on, isn’t it? Long live the Internet to allow some of this necessary analysis to occur.
If we look at this energy trend that is being enforced upon Europe, obviously it’s going to affect inflation rates there; and we look at the effect of natural disasters around the world as well, that are going to lead to pricing spikes in various commodities additionally.
Is there a role for central banks to change the way they apply pressure to inflation, through the interest rate mechanism?
MH: I hope not. I don’t think central banks should exist. Central banks are a disaster. They were created essentially by the wealthy financial sector — especially foreign creditors16 — in order to gain control over governments. No government needs a central bank. The United States did very fine with a Treasury long before there was a Federal Reserve. The Treasury — any national treasury — can do everything that a [central] bank can do. A central bank [takes] economic management and financial management out of the hands of democratically elected officials and puts it in the hands of the commercial bankers.
[Regarding the] Federal Reserve, I have an article17 on my website that I published in India some years ago (the article will be part of the book that I’m working on now on the Tyranny of Debt) on the origins of the Federal Reserve. After the Crash of 1907 David Kinley wrote a huge set of volumes,18 looking at economic banking history throughout the world. He pointed out how the Treasury was doing everything that the Federal Reserve did. When the Federal Reserve was created, they did not even permit a Treasury or Washington official to be on the board. They said, “We’ve got to take all management out of the hands of democratic politics, because if you have the people voting on what to do, they won’t vote for what we, the 0.1%, want to do.”
So they moved the central bank out of Washington, to New York City, and they had other brands and other banking centers, Philadelphia, Boston, Chicago, now twelve banking centers — the same places where you’d had sub-Treasuries before that.
Central banks are basically the planners and the sponsors of the financial sector. They’re inherently anti-democratic, so there’s nothing that they can do that’s positive because they’re created for the same reason you see in the United States today: What does the central bank produce? Unemployment. That’s its job — to prevent the economy from growing. And to make sure that more and more of the national income is paid to the banking sector, because central banks are the lobbyists and the protectors of the banking sector, protecting them from government.
KF: People who read the mainstream news may well say that sounds like a giant conspiracy, Michael.
John Chadwick wants to add to our new vocabulary the phrase ‘global coup d’état’ which is taken from a Twitter thread posted by Archbishop Carlo Maria Viganò:
For two years now we have been witnessing a global coup d’état, in which a financial and ideological elite has succeeded in seizing control of part of national governments, public and private institutions, the media, the judiciary, politicians and religious leaders.19
MH: That’s not a coup d’état, that’s how the world’s been operating for so many years! Where’s the “coup d’état”? What’s new? We’re only [describing] the result of financializing the economy. There’s nothing secret, there’s no conspiracy. This is how the logic of financialization works, as distinct from industrialization. It’s a different set of economic interests. If you have the entire financial sector, in almost every country, following this financial logic, there’s no conspiracy there. To them, that’s how the world works and even how it should work.
The coup d’état they’re worried about is a democratic coup d’état of having economic reforms that definancialize the economy, and have the kind of a fair progressive tax system that you and I have spoken about.
All this has happened before. This is not new. This is part of a long historical trend.
KF: Well, thank you very much for another fascinating discussion, and thanks to our beloved Patreon community.
MH: The question is, how do we spread our knowledge? How do we institutionalize ourselves? How do we spread and really become ‘agents of influence’.
KF: Well, why don’t we do a session on that next year? — Just have an operational discussion on what the various people within our Patreon group could bring. And how we could work together to help take Michael’s work to a wider audience, and bring the rest of the community along.
MH: I think that a lot of you have the same logic that I have, and there are many people that have it. But it’s not institutionalized, and it’s not discussed in the “polite mass media”. It’s discussed a lot on the Internet. But how do we go beyond that?
- Lavrov speaks at International Inter-Party Conference ‘Eurasian Choice as a Basis for Strengthening Sovereignty’
- [Moscow braces for rouble to crash at least 25% as new sanctions hit | Rouble | The Guardian](https://www.theguardian.com/business/2022/feb/27/ukraine-moscow-braces-for-market-meltdown-monday-as-new-sanctions-hit) [Russia ‘preparing legal action’ to unfreeze $600bn foreign currency reserves | Rouble | The Guardian](https://www.theguardian.com/business/2022/apr/19/russia-preparing-legal-action-to-unfreeze-600bn-foreign-currency-reserves); [US and allies bar Russian Central Bank from accessing reserves worldwide – ABC News](https://abcnews.go.com/Politics/us-allies-bar-russian-central-bank-accessing-reserves/story?id=83155896); [Russia: About $300 Billion of Foreign Exchange Reserves Frozen | News | teleSUR English](https://www.telesurenglish.net/news/Russia-About-300-Billion-of-Foreign-Exchange-Reserves-Frozen-20220313-0013.html); [Economist Michael Hudson on decline of dollar, sanctions war, imperialism, financial parasitism – Multipolarista](https://multipolarista.com/2022/05/11/michael-hudson-dollar-sanctions-imperialism/)
- [Dethroning the Dollar: Why the Alternatives Are Not Ready for Prime Time | naked capitalism](https://www.nakedcapitalism.com/2022/12/dethroning-the-dollar-why-the-alternatives-are-not-ready-for-prime-time.html); [Debunking the Petrodollar Myth: Pricing Oil in Dollars Is Just a Convention | naked capitalism](https://www.nakedcapitalism.com/2022/11/debunking-the-petrodollar-myth-pricing-oil-in-dollars-is-just-a-convention.html); [“Why the Ukraine Crisis Will Make Little Difference to Dollar Supremacy” | naked capitalism](https://www.nakedcapitalism.com/2022/06/why-the-ukraine-crisis-will-make-little-difference-to-dollar-supremacy.html)
- Peru rises up after coup against elected President Pedro Castillo – Multipolarista
- From Sacred Enclave to Temple to City | Michael Hudson
- [Exxon and Chevron share $100bn in profit after surge in oil prices | Financial Times]
- **jawboning** n. _U.S._ _slang_ name applied to a policy, first associated with the administration of President Lyndon Johnson (1963–1969), of urging management and union leaders to adopt a policy of restraint in wage and price negotiations. Also in extended use. (“jawbone, n.”. OED Online. December 2022. Oxford University Press (accessed January 04, 2023).)
- [Facing record inflation, Biden chides Exxon, oil companies for profits](https://news.yahoo.com/biden-urges-congress-pass-bills-172845129.html)
- the “I” in “FIRE”
– [Democracy and Debt | Michael Hudson](https://michael-hudson.com/2011/12/democracy-and-debt/)
– [Banking Wasn’t Meant to Be Like This | Michael Hudson](https://michael-hudson.com/2012/01/banking-wasnt-meant-to-be-like-this/)
- There may be some dispute as to the origin of this quote. See [Willie Sutton – ‘That’s Where the Money Is’](https://www.snopes.com/fact-check/willie-sutton/)
– [Ancient Society by Lewis Henry Morgan](https://www.gutenberg.org/ebooks/45950)
– [How Privatization Sterilizes Culture](https://michael-hudson.com/2004/02/how-privatization-sterilizes-culture/#:~:text=or%20school%20districts.-,In%20Ancient%20Society,-the%20great%20anthropologist)
12, that Engles and Marx spent such attention on, traced the whole idea of urbanization as culminating in this ‘American school district’. Each real estate district would be based on schools, and it would be financed through taxes.
Here in New York, Westchester County (just north of New York City) has very high taxes, but they also have excellent public schools, public high schools. Whereas the public schools in [the center of] New York City are just awful, and you almost have to go to private schools to get a good education, because New York is run by the landlords and big investors. Westchester isn’t an industrial commercial city, it’s basically a bedroom community for New York, a satellite community, and so they pay out for schools.
If taxes are used for schools, people are quite willing to pay [them], because it’s cheaper to have the government run public schools through your taxes than to send your kid to a [private] school that now costs $70,000 a year in New York City.
KF: Zeroing in on that difference between U.S. and Canadian property prices: What effect does that property tax have on U.S. land and housing prices?
MH: It depends on what the tax is spent on. If you’re in Westchester and the taxes are the local property tax and ( in America, the property taxes are local, not national) if it’s spent on education then people think that you’re paying for a service, and you’d rather pay $70,000 to the city to pay to the school teachers, than $70,000 in mortgage interest to a bank to just charge you more for the house Canadian-style.
KF: Okay. So [local property taxes do in America] have an effect on keeping a lid on those property prices?
KF: It would be fantastic if more people recognized that it’s better to pay some tax to fund services rather than fund banking profits, which seems to be the way societies run in a property-owning democracy.
John Shriner: If we, the people, reclaimed ownership of our natural resources, if we owned any good or service that was commodified and we eliminated compound interest rates, wouldn’t that resolve our ongoing global problems?
MH: I wouldn’t want to come in with a panacea. We have so many problems that it can’t be solved simply by a tax policy. Tax policies will solve a lot of financial problems, they’ll solve social problems, [but] they won’t solve the global warming problem, or the military problem, or the political problem of democracies turning into oligarchies.
KF: How do you explain what we’ve discussed today in terms of just raw power? How does what we’ve discussed reflect a sense of power?
MH: The question is: Who has the power, and what are you going to use the power for? Today, you have power in the hands of the financial sector. They’ve centralized planning in their hands. Money pretty much controls elections by the ‘donor class’13[Class comprised of people with enough money to donate to political figures in exchange for favorable policies (ie. legalized bribery)]
- [The End of Western Civilization | Michael Hudson
- [Foreign creditors are people or institutions in foreign countries that have lent money to the country in question.]
- Federal Reserve System
- [The Independent treasury of the United States and its relations to the banks of the country