Recorded on 2023-03-02
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KARL FITZGERALD: Welcome everyone to our quarterly Q&A session here with our beloved Patreon supporters. Thank you so much for supporting Michael and his work as he continues to forge ahead, bringing some clarity to this world of mystifying news that just comes at him left, right, and center.
Michael, we were just talking about your family. What was it like growing up in a household where you had so many socialist influences and people of note coming to visit. What was an average dinner table conversation like?
MICHAEL HUDSON: My father was pretty quiet. He would only speak mainly when there were meetings at our house, and a lot of socialists would come to the house. Almost everybody we knew was in jail during WWII because of the — they were either arrested because they wouldn’t work with — they were against the Stalinists and were labor union leaders, or they were conscientious objectors.
So a lot of times they’d talk about their jail experiences. Otherwise they’d come to tell me the whole story of their political life. I was very young and they wanted to treat me sort of like an African Grille, the member of the community who would remember the whole history. And many of the people were members of the Communist International when Lenin was in power, or certainly had gone back to the Fifth Comintern of 1927 when Stalin told the Chinese to back Chiang Kai-shek. Just as he later told the German communists to back Hitler.
And also Olga Corey was a frequent visitor. She lived a block away and she was the daughter of Louis Fraina who was the founder of the American Communist Party.
So I knew the leaders of the various left-wing political groups, and they’d tell me the story of their political group.
Albert Goldman would tell me about his reminiscences of Rosa Luxemburg and Karl Liebknecht, and he’d spend his life trying to track down their murderers. Never quite succeeded.
That was basically it. They’d all tell me the history of the Russian Revolution basically, or the Spanish Revolution, and all of the fights in the United States against the the police state set up by Woodrow Wilson, who was probably the most hateful American president of the twentieth century, the most anti-Black president prior to Obama. And all of the problems they had with the FBI, and all of the tricks the FBI used.
So basically it was — I grew up realizing that the story I got from the people I knew was not exactly what was in the history books that we were taught at the University of Chicago’s Laboratory School, where I graduated from eighth grade and then high school.
But we also had some University of Chicago professors who would be over at the house, as was Maynard Krueger, socialist Party vice-presidential candidate in 1940 behind Norman Thomas, and Simon Patton’s major student Rex Tugwell, and also Prof. Jolles who translated “The close of its own war” and was head of the History of Culture Department who was one of my favorite professors.
So that would be basically what it was. Sometimes my musician friends would be over.
KARL FITZGERALD: So there would be long dinner table debates over what’s gonna happen next with “Reds under the bed”?
MICHAEL HUDSON: No, no. Monologues. Not debates.
KARL FITZGERALD: There was just one soapbox in the corner and everyone had a chance.
MICHAEL HUDSON: Basically they wanted to tell me their stories in the background.
KARL FITZGERALD: Right, so your intellect was already growing in reputation at a young age?
MICHAEL HUDSON: I’m not sure about the reputation. I think it was just the luck of being in Chicago and Hyde Park, and my father meeting a lot of good people in jail, that kind of thing.
I was told by my mother that he had the highest IQ in the federal penitentiary system, but I don’t know whether people thought very highly about IQ because mainly it was criminals and deviants who were given the IQ test back in the 1940s.
KARL FITZGERALD: And distilling all of these stories of various revolutions and battles against the state, if you could distill the theory of change, how was change meant to occur, from the real life conversations you had?
MICHAEL HUDSON: You always had to be aware that most of your followers are going to be FBI plants pretending to be people who they weren’t and would be writing up reports that were not usually very accurate, as I later found from the FBI files on my father and my friends.
They wouldn’t talk so much about the future change. They talked about where things went wrong. Especially how Stalinism had really destroyed Russia and what Russia really would have done if it would have been a truly socialist country as it set out to be instead of the way that it actually went.
So it was really where things had gone wrong. It wasn’t how to do it right. It was an awareness of all the things that can go wrong and all of the dangers.
KARL FITZGERALD: Just on McCarthyism — what was it like living through that period?
MICHAEL HUDSON: Well, none of my friends or people we knew were attacked. That was basically against the Stalinists at that time and gradually, by the time I wrote Super Imperialism, as I mentioned before, I was amazed when I was given a top-secret security clearance, because the FBI said they’d gone over my report and they knew for sure that I wasn’t Stalinist and wasn’t pro-Russian.
So all of a sudden all the McCarthyism sort of knocked out the Stalinists, and many of the liberals I knew were all standing up to the Stalinists, imagining that they were wrongly prosecuted like the Rosenbergs, and yet it was the Rosenberg’s cousin that had introduced Trotsky’s assassin, Jackson, to Trotsky, as his girlfriend.
So I was not very sympathetic with the Stalinists who were being attacked at that time.
KARL FITZGERALD: Of course, with your family connection there.
We’ve got quite a few questions coming through. A reminder to ask those questions in the Q&A if you can.
With the current US situation — I’ve seen Michael make various comments about the end of empire — do you see any similarities in the US situation today compared to the decline of past empires?
MICHAEL HUDSON: Each empire seems to fall for its own reason. Often by overreach.
Really, no. It was the United States that destroyed the British Empire and the French Empire by the way that it had settled WWII with the Lend-Lease to begin with and then the British loan of 1945. I just did a whole show on that with Radhika Desai on my bi-weekly show with Ben Norton. So if you go to the [Geopolitical Economy Hour] show, I described how the United States broke up the British Empire — its main rival — and it tried to avoid a military empire that usually has led to the collapse of past empires.
And instead of having to actually go to all the expense of mounting a military occupation, it’s ruled financially. By the way that it had organized the dollar standard — basically what I call the Treasury Bill standard — keeping loans to the Treasury the basis of foreign central bank monetary reserves. And that’s given it a free lunch that has enabled other countries to do the fighting. So you don’t have American troops in Ukraine; you have Ukrainians dying because Americans found out that instead of occupying a country all you have to do is bribe leaders.
All you have to do is set up a group of non-governmental organizations to begin grooming future leaders like Ms. [Annalena] Baerbock in Germany. You set up something like the World Economic Foundation that appoints leaders like presumably the George Soros Foundation. And you’ll get people that look like they’re very smart but also very corruptible and basically who want a really good greedy life.
In the early 1970s the Catholic Church had sent me around the country. They were one of my first backers, for various reasons. I had gone to New Mexico and had a plan for state and local finances. And a man came up to me afterwards and said, “I’ve never heard a banker talk like that. That’s wonderful. Will you come to the Ford Foundation? I want to meet you next week. Let’s have lunch.”
He explained that he worked with the CIA and the Ford Foundation basically was a front for the CIA to recruit people. So I went and met with him and I found it was quite cool. I found that he was quite cool. I found that his demeanor had suddenly changed.
This was early in the 1970s, before the Carter election by about five years. He began by trying to impress me, and he said, “We’re trying to create future presidents of the United States. When I first met you I thought that you could be material. But we decided that a southern governor is basically the kind of person that fits. Somebody who’s progressive. Somebody who can sort of not be an anti-Black racist, but somebody who, being southern, has all of the ways of thinking that a southerner has.”
Today we would call that neoliberal, basically. Non-socialist.
He said that he had been brought up by Malcolm Moos who had written the part of the (unintelligible) Eisenhower farewell address warning about the military-industrial complex. And so of course that’s what we’re doing, we’re all here [at the Ford Foundation] to support the military-industrial complex.
And I could see that I was not going to have any future with the Ford Foundation and it was obvious to me that he’d gone to the FBI and said, “Look I think I got someone here, could you give me his file?” and then he read the file on me and said, “Uh oh.”
So his advice to me was that if I wanted, since I was at a PhD in economics, that if I wanted to rise in economics I should attach myself to some prize winner — a Nobel Prize winner ideally — it was just beginning to be given — and try to just jump up and find a backer among the prize winners.
I realized that, wait a minute, the Nobel Prize is going to be given to people who — what we know now is neoliberalism, in the Chicago School, the one thing that I don’t want to do is take this guy’s advice, and indeed the only Nobel Prize winner that I ever was friendly with was the Swedish prize winner of the second Nobel Prize who wrote An American Dilemma: The Negro Problem and Modern Democracy, [Gunnar Myrdal].
He invited me to come and work in Sweden and be his successor, but it turned out that almost all the Swedes in that group were mainly into disarmament and tended to fall asleep in an alcoholic daze at the end of each meal, so I never did follow him up there.
So I wasn’t groomed, to make a long story short.
KARL FITZGERALD: When you talk about Super Imperialism and the role of the US state as an empire, it’s almost, today, where states have been dismembered, if you like, in terms of protecting the public interest.
I haven’t heard enough of you discussing it from the situation of a US multinational company, particularly in light of your recent Geopolitical Economy Hour with Radhika. You were talking about Blackstone Capital going into Ukraine and buying up distressed assets as part of the arms deals going on there.
Can you provide us with a framework to understand how dollar hegemony helps US multinationals?
MICHAEL HUDSON: The key is in President Obama’s Trans-Pacific Partnership Agreement. The international dispute settlement part of that said that no government can sue any corporation for harming the environment. A corporation [can sue] a government for applying an economic policy that would cost more money to the corporation and reduce its profits. So no government could increase taxes on a corporation. No government could impose a land tax. No government could recoup the damage from oil pollution that was caused by Chevron and other super-polluters.
In The Destiny of Civilization I have a long discussion of exactly how this occurred. Essentially you make it impossible for any public interest to be defended under international law.
So I don’t think you can be more explicit than what Obama had wanted to do. It’s one of the most fascist, reactionary policies that has ever been expressed. It’s one of the things that made Obama the worst president in the century, rivaling Woodrow Wilson for the worst of all time. A person who was just completely representing the most reactionary Wall Street and neocon parts.
The fact that the Democratic Party did not realize the disaster that Obama did, and Clinton before him, shows why there cannot be any political change through the Democratic Party.
By the way, you asked what were the discussions when I was growing up. That reminds me now. The discussions were, at that time, Can there be really any hope of working through the Democratic Party? [That was in 1958 or 1959] when Max Shachtman’s Independent Socialist League merged with Norman Thomas’s Socialist Party [of America].
The whole idea was that they would merge, they would take it over, and then they would merge the socialists into the Democratic Party. The main person in that was a Shachtman protege Michael Harrington, who wrote The Other American.
Many of the discussions were, Can there really be any hope of working in the Democratic Party, or is the whole system so structured — and this was before campaign contributions shifted everything — is it so structured that you’d just be buried and sideline and co-opted? And of course that’s exactly what happened.
KARL FITZGERALD: So let’s just line Obama right up, because I remember you talking about Obama during his time as one of the worst presidents and shocking the progressive movement.
So we’ve got the Trans-Pacific Partnership Agreement. We’ve got of course the bailing out of the banks post the Great Recession. What are some of the other signature policies during his era that really slammed his long term reputation?
MICHAEL HUDSON: His anti-Black policies. What you call “bailing out the banks” should really be thought of as evicting almost ten million American families by the junk mortgages. He had run [for office] by promising to write down the mortgages, the junk mortgages that were way in excess of the ability to pay, and also way in excess of the properties’ real values. And in excess of any reasonable ability to be paid.
Essentially Black and Hispanic borrowers were charged twice as much as White borrowers for this. Instead of writing down the mortgage payments to reflect what it would normally cost to rent an apartment — which was the basis for how housing prices were set in the United States — instead of restricting the mortgage loan to not absorb more than twenty-five percent of the borrower’s personal income — the loan absorbed much much more. Much higher interest rates.
The banks basically sent borrowers to corrupt property appraisal firms that had over-appraised the property and had filled in false income statements. And that’s why the loans as I’ve said before were called NINJA. No Income, No Job, no Assets.
Obama basically said, “Well somebody has to lose. Either ten million Americans, basically Black and Hispanic families, lose, or my campaign contributors lose.”
Well he invited his campaign contributors to a party at the White House and said, “Hey guys, I’m the only person standing between you and the mob with the pitchforks.”
“The mob with the pitchforks” is how he characterized the Black population and the Hispanic population.
He had done exactly the same thing in Chicago. His job was to tear down the Black communities. To get rid of them. Right in Chicago now — there was an election in Chicago two days ago. And the Black Chicago mayor [Lori] Lightfoot was voted out of office because she did nothing to stop Obama’s final anti-Black move, which was to tear down the one part — the nicest part in Chicago — that was designed by the designer of Central Park in [New York City] — to tear it down to build [Obama’s] incredibly ugly library and just displace the Black population there.
And the [Chicago] South Side Black population had really had come to realize that Obama had torn down so many of their houses, attacked so many Black families, and now was taking away their park as the last post-presidential act that the Black mayor Lightfoot only got fifteen percent of the vote. So at least Chicagoans are aware of Obama’s hatred of Black people.
And I know people who were friends with his roommates in Chicago — I went to the University of Chicago as I said — and they said that he had often made anti-Black comments and had not gone out with Black people. And I knew his professors at Harvard, who warned me about how they were always mistrustful of him because of his always taking an anti-Black position even as a student at Harvard.
And I knew his classmates in Harvard, who also said that he seemed to be quite a suck-up. And it’s amazing to me that somebody in the public eye, who has been president, that there is such an expunging in history of his real character. And that as a result, the Democratic Party, as you see with Biden’s politics today, are still trying to hope for a Democratic victory by attracting the Black votes. And so of course they’re not going to let the Black population realize how much they were injured by Obama, and of course by the Clintons before him.
KARL FITZGERALD: I’m pleased you didn’t hold back Michael. Thanks for that, that was a good one.
I’ve got to get to these questions, some great ones coming through.
New patron DAVE HAWKINS says, when he was growing up, Castro in Cuba was seen as a horrible evil. “Now I think that’s probably an unbalanced view.”
What do you say about Cuba and Castro now Michael? And I’m going to add in: What has happened in Cuba since they’ve opened up property to investors now?
MICHAEL HUDSON: Oh let me talk about — Castro goes back to the meetings at my house. (You see you have to keep reminding me of things.) One of the visitors to the house just before the Cuban Revolution was one of Castro’s foreign policy advisors, and he had wanted to meet with my father to talk about how to gain support for Castro’s coming revolution against Batista.
He kept saying nasty things about the Republicans and how they were going to try to fight about it and my father kept saying, “Well why do you think the Democratic Party is going to be friendly with you?”
And you can see that Castro was doing everything he could — the man explained, “Well we’re trying to show that we want to be friends with the United States. If the United States will give us the economic aid to rebuild. We realized that of course it doesn’t like expropriation, but the people we’re expropriating are the Batista dictatorship. We want to ally with the United States because really you’re the closest and strongest ally.”
And that was his hope and my father said that he didn’t think the incoming [Democratic Party] president Kennedy was really going to go along with this, and of course that’s exactly what happened.
American policy could have kept Cuba and made it a showplace of how America could build democracy after a dictatorship like Batista. And it missed the point. That was a very early lesson for me. And also the fact that — the idea of foreign countries, that if one party, like the Republicans, are bad, that somehow the other party must be a good alternative. And they don’t realize that it’s a two-step — that they’re the same party using a different rhetoric to make it appear to be a real choice.
So the result is that Castro was forced into reliance on the Soviet Union. And when the Soviet Union dissolved, it had been paying Cuba twenty-nine cents per pound for sugar, and it had been single-handedly keeping Cuba’s balance of payments afloat.
And when sugar prices fell down to one or two cents a pound, that essentially wrecked Cuba’s economy. Castro did not shift away from sugar. He didn’t even shift the sugarcane fields to grain, to vegetables. He was importing all of the green vegetables — lettuce and other things — from neighboring islands — a huge balance of payments costs.
Ramsey Clark brought me down to meet with Castro twice, and on both the occasions I was supposed to be — we were talking about real estate, and how Castro should develop his real estate. (I don’t know if I’ve mentioned that in these talks before, I think I have.)
Cuba had not been able to get any country to work with developing its seafront except Israeli investors, which were given a free hand by the United States. And the idea was that Cuba would contribute the land, and the Israeli investors would build a hotel on the seafront, and they would share the profits fifty-fifty.
And if the deal didn’t work out after ten years, they would then sell the property on the market and split the capital gain fifty-fifty.
I told Castro that the great value of these hotels on luxurious property was the view, the land — not the hotel. The ideal of an investor would to be to build a chintzy a hotel as possible, and there wouldn’t be any profits because they would use depreciation flows and interest charges and all sorts of costs that had nothing to do with the construction cost but were a financialized costs, so Cuba couldn’t expect much profit.
And when they finally sold the property, he didn’t realize that most of the value wasn’t in the hotel that was built, but the land. And I think one of his economic advisors for real estate said, “But the beach doesn’t cost anything.” And I said, “Yes, that’s the point. It doesn’t cost anything. Nature gives it, and it’s there, but it has — believe me, people are willing to live on the beachfront — we call that ‘rent of location’.”
One of the problems with Cuba is they’ve never read Marx. So Cuba I think was the first country I’d gone to that was completely ignorant of Marxism. They thought that what — they had maybe the speeches of Stalin, they had plenty of KGB people working there. But not having read Marx, they never got to volume two and volume three where Marx discussed land rent and finance, and they had no understanding of the classical economics that led up to Marx, and had no concept of rent.
I had been put in the Hotel Nacional which is a beautiful Art Nouveau hotel overlooking the beach and I said, “You’re having a balance of payments problem now that nobody’s buying your sugar. You could rent out this beachfront property and have enough money to be able to import the vegetables that you’re refusing to grow at home.”
And one of the cabinet people in Cuba said, “Oh but that be for the working class.” And it dawned on me that when Cuba’s government people said they’re “for the working class” they meant “us, the government, we’re the working class too! and we’re the ones who live there!”
It’s just like, in the Middle Ages the Catholic Church kept saying, “Give to the poor. Give to the poor.” And “the poor” were the church members, the ecclesiastical establishment. They were the poor. The priests, not the actual poor people.
So I could see that there was no way that I could get the idea of how to price property and how to actually realize that, even in a socialist economy, some locations are more desirable than other locations, and especially, even though it didn’t cost any money to build a seashore and put an ocean there, this had a great value that could help sustain them, as it did Caribbean islands all around them.
KARL FITZGERALD: Well, looking at some preliminary numbers here. Mortgage as a percentage of income in Cuba is at 466 percent, and so the recent opening up of the real estate market in Cuba spells probable- disaster there, and what a pity they didn’t bring you back for a third and fourth time and really get stuck into some decent policy work for them.
MICHAEL HUDSON: It wouldn’t help. There have to be two people to have a conversation and they didn’t want the conversation. I mean they really thought that — they were trying to be socialists without realizing how capitalist economies work, and in fact how every economy works.
They thought that somehow Cuba could be a unique economy, that they could make it all up. They just didn’t think of the difference between economic rent and profits, and of course that’s what most of my books are about, which I’m sure is why you’re always able to steer our questions along those lines.
KARL FITZGERALD: Well DAVE HAWKINS talks about the collapse of Russia, the USSR, and in some of these long-range arc-of-time sort of discussions: Do you ascribe the fall of Russia to America’s one-upmanship when it came to expenditure on the military industrial complex?
MICHAEL HUDSON: No, when I went to Latvia where I was the research director and a professor at the Riga Graduate School of Law, I was told all about the role of the University of Latvia assistant head Lochansky, and his money laundering for the the KGB and the military.
Already by the time that Gorbachev came to office — I won’t say power — but came to office in the late 1980s, already the army, and the KGB, and really the whole bureaucracy realized that Stalinism wasn’t working, and they were already moving their money out.
They moved it out largely by false invoicing of Russian oil that was sold through Ventspils, which was the port of Latvia where Russian oil was sold and shipped across the Baltic.
So there were already all sorts of the insiders the desire to jump ship. And there wasn’t any — I went to Russia a couple of times. Fred Harrison brought me over twice to talk before the Duma about land policy and so I met many of the politicians there, and members of the Russian Academy of Sciences, and it was clear that some of the Russians I’d meet just said, “How can you get me to America? Can you get me out?”
There was no attempt at all by Russians to create an alternative to Stalinism — they just wanted to jump ship. And Jeffrey Sachs has written recently a very good article about how when he was there, as organizing the shock therapy that helped destroy Russia, how different the American administration of shock therapy in Russia was from what he had organized in Poland.
He had expected with the shock therapy that America would come in and give aid and actually help replace — dismantle — Russian industry and mining and oil with good economic organization. But that didn’t occur. What the Americans wanted indeed was simply to take it over by finding suitably greedy Russians who wanted to become tutored about how to become a kleptocrat, as if they already didn’t know how to do embezzlement and false invoicing.
The only way that you could survive I think under late Stalinism was to falsify economic records, to embezzle, to somehow manage to game the system so that you could come out. There was no attempt at all to reform this by either the Americans or Russians. So it’s very easy to blame American neoliberalism for providing a destructive economic doctrine that certainly dismantled the Russian economy and to handle the shock therapy in a way that was much more of a shock to Russia than it was when it was applied to friendly countries like Poland.
Here again, Russia is one of those countries like Cuba where they had no background of Marxism. I did see a volume of Capital that was used to prop open a window, and it was raining, so obviously the role of the volume was to prop open a window and it’s like, what volume don’t we need. I don’t think anyone would really read Marx’s works, they would simply look for suitable quotes sometimes to put before a speech.
So, not reading Mark, they didn’t read Adam Smith or John Stewart Mill or Ricardo or Malthus or any of the nineteenth-century classical economists that would have explained to them that the economy is not only industrial engineering, but also had a financial dimension, a land dimension, a rent dimension. It was just foreign to them.
And the politicians who had sponsored my lectures before the Duma were actually maneuvered out of office by crooked electioneering in Russia that were pushing the pro-kleptocracy candidates and perhaps the Americans showed them how to fix an election, but somehow I think the Russians didn’t need any coaching when it came to that.
JOHN CHADWICK: When I asked about the price of gold, you responded that you would have to forecast what the political system and the military developments would be, and that’s not something you can do a mathematical chart of. However, political and military decisions by the US are based on making the oligarchy rich, at least in the short term.
Ukraine war. The fall and sudden rise back in the rouble seemed predictable and logical. I understand you can’t predict the particular coup like Pakistan and Peru. I would like to see you make some broad predictions since you know history so well.
Relevant to this topic, the IMF is forecasting for 2023-2024 that China and India’s economy will grow by five to six percent, whilst US, Canada, and Europe near one percent. Especially of interest is what Wall Street gets wrong, like you predicted the 2008 crash.
MICHAEL HUDSON: Well, what Wall Street gets wrong is not knowing what to look at. And what do you look at?
You begin by a question about gold. Obviously Russia cannot hold the dollar because the dollars that it did hold have all been grabbed. And the US just a few days ago grabbed all of the bank deposits of [RT (formerly Russia Today) and of the employees of [RT] to give to Ukraine.
So obviously Russia is not going to be able to pull dollars.
Yesterday’s Financial Times I think had a chart of Russia’s foreign exchange holdings, China’s foreign exchange holdings. Obviously the dollar is going down, and what’s taking its place? Other currencies are going up. Basically they’re holding Chinese yen. I think they’re probably holding Saudi currency now. And gold is one of the — still becoming again one of the bases.
But the fact that countries — China, Russia, and other countries — are buying gold doesn’t mean that the prices go up, because gold is a manipulated market. It’s manipulated by the Federal Reserve selling gold 1short. And by selling it short you’ve promised to buy it at a given price later on and at a very low price. And the market is being manipulated down in a way that Paul Craig Roberts has described numerous times for the manipulation of the gold market.
So just knowing that countries are going to be replacing the dollar with gold and the Euro with gold doesn’t mean that the price is going to go up at all. You really can’t tell at all.
A week from today I’ll be doing another show on Ben Norton’s site with Radhika, and we’re going to discuss this very thing. What does de-dollarization mean? How are countries going to create a new system of international reserves to handle balance of payment surpluses and deficits among themselves? Are they just going to have currency swaps, or are they going to create something like [Special Drawing Rights] or what Keynes discussed as bancor back in the 1940s? Are they going to use paper money just for settlement among central banks, not for general spending at the grocery store?
All of this is in the process of being discussed right now and I don’t think any country really has thought through exactly what’s going to happen, because it’s still in the process of being negotiated. And America, ironically, is acting as the catalyst for all of this. [An] early question said, “How do Empires fall?” Well if the American empire, since WWII and especially since 1971 has been based on the dollar standard, it’s the United States itself that’s destroying the dollar standard — not other countries withdrawing from the American empire but the American empire driving out Russia, China, Iran, India, and Eurasia.
It’s very rare that an empire deliberately self-destructs its strongest part and that’s one of the things that makes today’s economic history so different from everything that’s gone before.
KARL FITZGERALD: There’s a lot of questions here about the impact of rising interest rates, and building off JOHN CHADWICK’s question: Has your analysis of foreign exchange reserves revealed that another country has made the sort of tragic mistakes that Iceland made in denominating mortgages in foreign currencies? Is that sort of behavior still going on?
MICHAEL HUDSON: It wasn’t only Iceland, it was all the Baltic states — Latvia, Estonia, Lithuania — were offered — the Swedish banks that were the main Nordic bank there would give them a choice — “Here’s a high interest rate that we make a loan for you to buy a house in Latvian currency, but you can borrow even cheaper in Swiss francs or German marks or US dollars.”
And of course they borrowed in foreign currency and that meant that as their property increased in value, the mortgage payments that capitalized the value of their real estate and their corporate sector, had a rising balance of payments deficit.
But it wasn’t simply the post-Soviet countries and Iceland. It was Canada. In the late 1970s, my book Canada In The New Monetary Order: Borrow? Devalue? Restructure. That’s on my website. Canadian provinces were told [by] bondholders, “We will lend you money in Canadian dollars at say six percent, seven percent. But if you denominate your debt in German marks or Swiss francs you can get only three percent or two percent.”
And the result is that the provinces only looked at the interest rate that they had to pay and the result was that the Canadian dollar fell from $1.08 to about $0.80 (US dollars). And it was a disaster.
The government had asked me to write a study of why Canada should not borrow abroad, but why the Bank of Canada — which had been an ideal bank in the 1960s and 1970s — should simply monetize this.
And my point is that Latvia, Iceland, and other countries didn’t have to borrow a penny in foreign currency because, after all, all the money that they were spending for houses or for infrastructure was all domestic. The central bank could have created all of this money. And when Latvia or Iceland would borrow in a foreign currency — a stronger currency, like euros or dollars — the currency would be turned over to the central bank, and the central bank would then create the domestic Icelandic currency.
And as long as you’re going to have the central bank of Iceland or Canada or Latvia creating the domestic currency anyway, why do you need a foreign central bank? Why do you need foreign bondholders and bankers to arrange this?
Well we had a meeting in Canada, and the bankers said, “Well we’re honest brokers. You need us to advise you. We want to make sure that, [since] governments tend to make bad decisions, we’ll make better decisions.”
This was the Bank of Nova Scotia. And I said, “Look, your bank is the crookedest bank in Canada. You’re a money laundering bank. You’re telling the government that you can arrange a foreign loan because you’ll make a profit on this loan. You’re telling the government to do something that makes you a profit, and you’re selling out the country.”
And so then they brought a Catholic priest in, and the Catholic priest said, “But Professor Hudson, you’re recommending a strong government. That is the first step to the gas chambers. You can’t have a strong government, only banks and individuals. It’ll lead to the gas chambers, a strong government.”
Well obviously this Catholic priest knew nothing about the history of Catholicism and how it was created in the thirteenth century, popes and everything. Somehow the banks had found a corrupt priest to think that they could play the religious card. And they ended up bribing — I mean I didn’t have twenty million dollars to bribe the Canadian officials to sell out the country, but the banks did. So you can imagine who won that argument.
It wasn’t intellectual. It was just plain bribery and political support, the American way.
KARL FITZGERALD: Well, “the banking way.”
An anonymous attendee asks the good old question, “Will US interest rates continue to rise, for how long, and how high? And how’s that going to play out for the US dollar?
BRITT STERN: Have these Fed rate hikes served their goals of undercutting labor, maintaining dollar supremacy internationally and domestically.
What do you think?
MICHAEL HUDSON: Well I think the high interest rates are certainly hurting much of the country. The purpose of high interest rates was indeed to create a recession so that there’d be less employment so labor’s wages would go down.
Today the Wall Street Journal front page has a chart. Here is the cost of living. Here is spending on consumption. Consumption in America lags the increase in the cost of living. So in that sense labor is being squeezed much more.
The article to go with this in the Wall Street Journal is that bankruptcies are the highest they’ve ever been in the United States. And the bankruptcies are a lot of companies with forty million, fifty million dollars, especially in commercial real estate, now that people are not all showing up at work anymore. They’re talking about commercial real estate buildings in New York being turned into luxury condominiums.
I’m not sure what kind of air conditioning you can have for them. I lived for a while in an old loft building that was converted. Loft buildings are easy to convert into condominiums. Somehow I can’t see living in a big financial office building and making it into a luxury apartment without —
The talk now is how we’ll be going — we’re not only de-industrializing, we’re decommercializing. The only way of really making money is financially. Well if the making money financially is — there are two ways. Either you get a high income by higher interest rates and being a bondholder, a coupon clipper, or you make money by capital gains, by the stock market. By rising the interest rates, you stop the stock market growth and that [stock market growth] really has been the key factor in increasing the wealth of the 1% — since the Obama Depression began in 2008 — has been the rise in the bond market, the greatest bond rally in history, the rise in the stock market — all that as a result of the low interest rates.
Now that the interest rates are going up, somehow the stock market has not really reacted much to that yet. The bond market has been going down obviously, but the stock market hasn’t collapsed.
And that’s why there are more and more money managers who are saying, “Now that the economy is shrinking, the consumers have less and less to pay on goods and services that companies produce and are paying more and more in rent and debt service of monopoly rent. How can the stock market earnings continue to go up unless the companies simply dismantle themselves and just pay themselves out to make a last-ditch, light-everything-on-fire [effort].”
And that seems to be it. So the question is, How long will the high interest rates persuade company just to give up long-term investment and just sort of dismantle themselves to make short-term gains so that the insiders can all jump ship and leave the stock market to plunge — [with] mainly the pension funds and the mutual funds left holding the bag?
KARL FITZGERALD: Grim. Back to the international front, our good friend KARL SANCHEZ is asking, “If you had the opportunity, how would you restructure Keynes’s 1944 proposals to fit today’s reality?”
I think he’s talking about the bancor discussion that you had with Radhika recently.
MICHAEL HUDSON: Well we’re going to elaborate that next Thursday. It’ll be very much like it. The key part of what Keynes suggested is not simply that a new international central bank other than the IMF will create artificial credits to fund balance of trade and payment deficits. But [also] that a surplus country after a point will write down the debts.
Because Keynes said that creditor nations have a moral and even mathematical obligation to buy the exports of the debtor countries. If you’re going to get paid in your own currency from a debtor country — you have to provide this currency to the debtor country, and you do that by buying its imports.
Well the United States actually had a switch on that. It said, “Well you don’t have to buy its imports, you can buy its companies.” That’s what the IMF does. It forces sale of its raw materials, its oil, its mining, its land, its public infrastructure, electric companies, roads. So it can do all of this.
So the question is, How are China, India, and Belt and Road countries going to create something that is considered fair so that, though we realize that there’s going to be imbalances in trade and payment, how will surplus countries, such as China, that not only have export surpluses, but are also investing in these countries, how will this basically enable countries to maintain a circular flow?
Well if China goes into Belt and Road countries and spends its currency there, that will provide the countries the ability to balance their international payments, and the question really will end up, How will you arrange the debt equity situation? So that debts have to be repaid. Equity owners will — if the project is not remunerative, the stock will go down.
How do you make the debt situation just like an equity situation, so that if a debt can’t be paid, it won’t be paid? It’s not going to enforce austerity on a country — it will simply lose value just like stocks in a company that isn’t very successful lose value. That is exactly what is being discussed right now. I’m not a finance minister, so I’m not part of the discussions that are taking place in the G20 countries.
I’m told that the United States is trying to prevent any discussion like this by talking about making the whole finance meeting about Ukraine. Do anything to stop countries from talking about how international money and finance works. Just let’s talk about Ukraine. They’re being very unpopular and are almost told, “Well we’re not going to have another G20 meeting if the US is involved, and its satellites, and not Russia and China.”
They realize that they’re using propaganda there. So I think that one result of the meetings that just occurred in the last day or two is to convince other countries, we’ve got to solve this problem of how to handle the problem that Keynes dealt with in 1944 when it looked like the United States was going to be running a surplus and England would be running a deficit. How does England avoid being wrecked? Well the United States had every intention of breaking England, so there was no contest between Keynes and his counterparts in the US.
KARL FITZGERALD: Can you go back to the interest rate question and explain a bit more about the role of the US dollar. Our questioner here is wanting to know whether the dollar will be devalued. But isn’t that exactly the opposite of what’s going to happen under rising interest rates?
MICHAEL HUDSON: The dollar rising increases the prices of raw materials, oil, and minerals, whose price is set in US dollars. So if you’re exporting something whose price is set in dollars, then you’re benefiting.
Except if you’re an oil exporter the United States is going to come in and bomb your country and grab your oil and kill you. That’s the only problem with getting more money through your oil. You get killed and occupied and you end up like Libya and Iraq and Syria. So maybe that’s not a good idea.
And if you’re a mineral exporter you can gain, but then the IMF comes in and makes sure to organize the currency rate until it says you have to sell off your mineral rights. But countries that do export minerals will get — in one sense they will get a increase in their export revenue, but this increase in export revenues won’t belong to them. The increase in export revenues will belong to the multinational firms that own their oil and mineral exports. So you have to look at this as the whole system.
So basically the effect of the US dollar going up is that most countries have their debts to the IMF and the bondholders denominated in dollars, and as the dollar goes up with higher interest rates you’re going to have financial bondholders move to borrow cheap — they’ll borrow in Japan at one percent — and buy US Treasury Bonds at over four percent and make a short-term profit. That will push up the dollar. That means that other countries who own dollar debts are going to have to pay much more of their own currency to pay a given amount of dollars that are falling due in debt service.
So there’s an expectation that there’s going to be a break in the chain of payments for many Third World countries. Well you can imagine what China and Russia and other countries are saying. They’re saying, well look, countries, you can either pay the US money, or you can not pay the United States dollars at all.”
There is a long discussion I had with Pepe Escobar some time ago that I think you have on the website over this, and they’re saying, “Don’t pay the dollar. Decouple from the US. Couple with our economy. Sure enough the United States is going to impose sanctions on you, but so what if they impose sanctions on you? You can deal with us, not them. We don’t have any loans to you. And we’ll help protect your balance of payments.
So again, the rise in the dollar ostensibly is helping the US balance of payments, but it’s creating pressure to fracture the world between debtor country and creditor country, and between Eurasia, along with the Global South, against the United States and Europe.
KARL FITZGERALD: CONRAD writes that you wrote about how hard it was to find a publisher who would promote your argument that, at the center of Adam Smith was the belief that excess price was about bringing prices in line with cost value. How can academics deny that Smith’s analysis is based, just like Marx, Mill, and Ricardo, on the labor theory of value?
MICHAEL HUDSON: They can deny it because they got into the habit of eating when they were young, and want to get a job, and if they talk about the things that I talk about, they are not given tenure.
I don’t think any of my friends are academic economists. Steve Keen’s a friend but he’s a mathematician, not an economist as such.
Economics as an academic discipline has just become a science fiction story. It’s not about how the real world works anymore. And there hasn’t been a good name for another discipline that’s taking its place. Maybe some of you can think of a good public relations name for what should take the place of what used to be called economics.
They had this discussion a century ago and people thought, well let’s call it sociology. And then the University of Chicago ossified sociology into a study of status instead of the laws of motion of society.
So really, what would you call it? You could call it history, but nobody’s studying history anymore. That’s part of the literary arts and science curriculum that’s been dropped from the university courses.
So I don’t know what you can say. A few of us are writing on this topic, and we’re a friendly group, but we don’t have a name for ourselves.
KARL FITZGERALD: How does the labor theory of value play out in a world where labor’s negotiating power has been undermined through the diminishing nature of unions?
MICHAEL HUDSON: That means that the market value is less and less. Ultimately the question is — the labor theory of value is really a theory of costs. What is it that companies actually have to cost to produce goods and services, and how much of the price is over-and-above value — the excess of price over value?
And this is what the nineteenth century economists called economic rent. How do you basically distinguish these?
Well the last century said, “Well there’s no such thing as economic rent. Everybody earns just what they want and the landlord produces as much value as the banker produces value and the industrialist produces value.”
So that’s what my book J is for Junk Economics is all about. I probably should have called it The Economic Vocabulary of Deception, which I think is what I’ll call it in the Chinese translation that’s being prepared.
KARL FITZGERALD: Talking China, we’ve got a question here from new attendee JACK TINKLER. He wants to know who are the best economists in China that we should be following?
MICHAEL HUDSON: Professor Wen [Tiejun] is probably the person I’ve worked closest with. And he’s working on state and local finances of the rural economy. China is still basically a rural country. People don’t think of it that way, you think of it as an industrial power, but it’s really a rural country.
And the big strains that are occurring are between the rural parts and the urban part and that is exactly what the government is focusing most of the policy on now. I don’t know the individual economists because I don’t speak Chinese, but the only one that is being translated into English is Professor Wen. He has a very good book, Ten Crises: The Political Economy of China’s Development (1949-2020).
I wonder whether I should put that on the website?
Wen wrote the introduction to my The Destiny of Civilization. Karl, if you think I should put his book on the website I’d be happy to do that.
KARL FITZGERALD: Yeah let’s promote it and let’s see a different perspective from China. What university is he based at?
MICHAEL HUDSON: One in the southwest. [The Renmin University of China.]
KARL FITZGERALD: Jack asks, What is your daily news routine?
And I want to ask, Michael, do you have a boxing ball near where you read the newspapers?
MICHAEL HUDSON: I write in the morning. I get up — I begin writing — from nine to twelve I do my own writing. I don’t read the newspapers. I look very quickly at the news. I do look at the stock market in the Wall Street Journal. I look at Naked Capitalism. I touch base with some of the military websites to see if there’s anything new — the Moon of Alabama, Andrei Martyanov at Smoothex and Amarynth’s site on the Global South.
But basically after a very quick scan of that, I spend my time writing. After lunch I go on a brief walk and then I read the newspapers in the afternoon. I don’t want to read the newspapers and distract from my good writing time. Newspapers are when I’m calming down and being receptive late in the day.
So I haven’t read today’s newspapers yet. I looked at the front page and that’s about it. I read the Naked Capitalism articles and CounterPunch, and did my writing on the fourteenth century.
KARL FITZGERALD: Okay, good. We’re starting to get to the bottom of these questions.
Karl Sanchez asks, I’m in the process of re-evaluating the narrative attached to FDR given what was done to ensure US dominance post-WWII. Do you think that’s a worthwhile pursuit?
MICHAEL HUDSON: I don’t know what you’re — if you re-evaluate, I would have to know what your evaluation was in the first place. So that’s a question that, unless I know where you’re coming from, and where you’re going to go, I can’t answer.
Charles Beard, in President Roosevelt and the Coming of the War, 1941: Appearances and Realities, shows how Roosevelt really forced Japan into the war.
Roosevelt’s attorney general Biddle wrote in his autobiography that the one thing he feels ashamed about was putting my father’s group in jail — framing them up — and he said that by no stretch of the imagination were these people guilty, but we were told to do it by the mafia and the Stalinists. They wanted to take over the Truckers Union and Minneapolis that the Trotskyists were really running — creating the leadership of the Teamsters Union. Minneapolis, where I was born, was the only Trotskyist city in the world and that had to be stopped.
So I have my own — my own family attitude was, “Well, Roosevelt saved capitalism. Is that good or bad? Depends where you’re coming from.”
Roosevelt did set out very deliberately to destroy the British Empire and that was certainly a good thing. Unfortunately Eisenhower came in and tried his best to save the French Empire in Vietnam, and that was a disaster.
So you have to say that Roosevelt is a social democrat, did save capitalism by moving it forward towards social democracy, and in that sense it was good. He was sort of a one-off unique character, and it’s just too bad that, at the end, he was so weak that he let the southern racist knock out his vice presidential candidate and push for Harry Truman to be president. And Truman really started the Cold War.
So Roosevelt — the fact that Roosevelt was very sick as he was elected for the fourth term —you really can’t put most of the blame on him, but his legacy was of a Cold War and the awful corrupt Truman.
KARL FITZGERALD: When we were talking earlier about Jeffrey Sachs and shock therapy in Russia, it struck me — I’ve never heard you really speak about the role of General MacArthur post-WWII through the “Asian Tiger” economies. What can you tell us on that front?
MICHAEL HUDSON: I’m not a military historian. He wanted to start an American fascist party and run on the “America First” party.
He was an opportunist, incredibly arrogant. Not really a very good general, although he did have the brilliant idea of invading Korea in Incheon and cutting it in half. But he was responsible really for introducing fascism to Japan and to the Philippines.
Japan after WWII had potentially a very strong socialist movement, and MacArthur turned the Japanese government over to the gangsters — to the gangs. And the gangs basically were beating up or assassinating the socialist leaders. MacArthur was one of the most evil generals in American history since the Civil War. Totally negative, evil, opportunistic, and Truman was quite right to fire him.
I remember in Chicago there was a big parade for him, and the mother of one of my friends wanted to go to the parade and I remember we watched them go by and it was a fascist demonstration.
KARL FITZGERALD: Okay Karl Sanchez is apparently a “Beardian”.
MICHAEL HUDSON: Oh, a Beardian — he likes [Charles] Beard. Good.
KARL FITZGERALD: Jack asks, again — and we’re getting close to the end I reckon — what do you think about Warren Mosler saying, since the US government is the monopoly issuer of the US currency, does it set the price level for it?
MICHAEL HUDSON: Yeah. Yes. So, Warren’s a good guy — he’s part of our MMT group, and was really the sponsor of the MMT-ers going to the University of Missouri at Kansas City for many years.
KARL FITZGERALD: When’s the new book coming out, mate? That’s the big one people want to know. When’s The Collapse of Antiquity coming?
MICHAEL HUDSON: Tomorrow. The final typeset is being made.
It’s taken two weeks just for us to make some maps. Someone a month ago said, Wouldn’t it help to have some maps? And every single day we’ve had a little fix-up with a map. We can’t take a map that’s copyrighted because otherwise we’d be sued if we used something. So we had to pretty much work from scratch to have maps of the Roman Empire, Asia Minor, and the Greek States.
The whole book is typeset. We’re just waiting for a black border around the maps to make them look nicer and to adjust the size on the page, and the cover designer today had to expand the width of the spine because it’s 510 pages long, and it’ll be set out tomorrow, probably.
It won’t be submitted to the publisher on Monday because my publisher fell down and broke her shoulder in four places and has difficulty raising her arm. So that sort of slowed things down a bit. But it’ll be sent to the publisher on Monday. It’ll take about a week or two for it to be put up on Amazon. So The Collapse of Antiquity will be up very quickly.
KARL FITZGERALD: Well we better get writing on a press release then, hey?
Thanks John Chadwick for reminding me of the Patreon questions.
BEN SMITH asks, “I testified at a state housing committee hearing and got confused by a question. I described an aspect of the landlord’s free lunch being the increased property value due to public spending on infrastructure and he replied that this point about landlords and property owners not contributing to roads, sewers, etc. was wrong. He responded that municipalities raised the funds for public works primarily through property taxes that landlords contribute to the public projects, and that to say that a landlord does not contribute to their community and their public works is false.
Could Michael respond to this?
MICHAEL HUDSON: Fred Harrison came out with the long study of Taken For a Ride by Mr. [Don] Riley. When the Jubilee Line was built in London it increased property values all along the line by about, what, thirteen million pounds, and it only cost a fraction of that to build.
London could have recaptured the entire cost of building the subway by collecting the increased land value that was created by this transportation.
Same thing in New York. I know I’ve spoken about this before with you. The Second Avenue subway in New York that went to the Upper East Side along Second Avenue to relieve the overcrowded Lexington line, raised property prices all throughout the Upper East Side. The city had to borrow huge amounts of money to build this subway, and it could have recaptured all this money by taxing the increase in land prices and rents all along the Second Avenue line.
It didn’t do it because really the landlords control New York City, as they control most of the cities in the United States, so you can just look at the facts.
Oh by the way, I should mention that Dennis Kucinich, the former presidential candidate for whom I was an economic advisor in 2008, is going to be on Tucker Carlson — the most popular cable TV show in the country — tomorrow on Friday at eight o’clock. I just wanted to get a little plug for Dennis in there.
KARL FITZGERALD: Just to back up — landlords do pay something back, but it’s only really a fraction of the gains they’ve received, despite the screeching headlines the property lobby pounds the media with in press release after press release. Meanwhile the property data is largely hidden and very costly for any housing researchers to look at. So that’s been one of the sort of linchpins behind the rentiers is to cover up all the data and hide it behind this huge cost barrier so that we can’t plug it into the sort of geospatial analysis that could reveal to everyone exactly what’s been happening.
KARL FITZGERALD: Michael, I reckon we have to wrap it up.
MICHAEL HUDSON: I’m really glad you’re all members. I like your questions. It’s important to have sort of a whole community that understands what’s happening and can spread this knowledge throughout the rest of the world. That’s the only way things can grow. We don’t have an academic discipline. We don’t have a religion. We don’t have a vehicle to promote the ideas that I think a lot of you, and Karl, and I all share in common — how do we institutionalize ourselves?
The only way we can do it is throw the bread upon the water and talk with all of you guys. And the more meetings we have I think the better, so that we can all develop a sort of a common explanation of where things have gone wrong and why it doesn’t have to be this way.
KARL FITZGERALD: I’m seeing all the people — Jack’s saying he’s a “proud Hudsonian”. So that’s good to hear. Some real gems came through in today’s discussion. Hadn’t heard you talk about Cuba before. Some great perspectives there. Fantastic to delve into the archives, and I hope all Hudson supporters throughout the lands can take on board some of these messages. So thanks everyone for joining us. We look forward to speaking to you in June and to more interaction on the Patreon page.