Michael Hudson joins Lena Petrova to explain why the current economic crisis cannot be understood through the usual inflation story. He argues that higher interest rates are not protecting the economy from overheating, because the economy is not overheating. Wages are not surging, employment is not booming, and the productive economy is already under stress. Instead, rising rates are tightening the screws on households, firms, commercial real estate, private equity and the banking system itself.

The discussion links the Iran war, oil disruption, bond market panic and the post-2008 debt boom into one larger argument: finance capitalism has turned the economy into a debt-leveraged Ponzi structure. Low rates inflated real estate, stocks and bonds, while debt service hollowed out the productive economy. Now, with energy costs rising and refinancing becoming impossible, the likely result is not recovery but default, austerity and a transfer of property from debtors to creditors.

Hudson also contrasts today’s crisis with the 1970s. Then, inflation was tied to military spending, high employment and rising wages. Today, the pressure comes from war, oil, financial fragility and the limits of debt expansion. The deeper question is whether Western economies can accept that debts which cannot be paid will not be paid, or whether they will allow another crash to become a bonanza for banks, private equity and vulture funds.