The crisis of bourgeois economics

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blindpig
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Re: The crisis of bourgeois economics

Post by blindpig » Sat Apr 30, 2022 2:24 pm

The United States has destabilised the world economy

The International Monetary Fund has announced that the global economy is entering
a major slowdown, downgrading the growth prospects of 143 countries. At the same
time, inflation rates have reached historic levels. Around the world, hundreds of millions
of people are falling into poverty, particularly in the Global South. Oxfam has sounded
the alarm that we are ‘witnessing the most profound collapse of humanity into extreme
poverty and suffering in memory’. What is producing this immense human suffering?
An economic crisis ‘made in Washington’
On 13 April, US Treasury Secretary Janet Yellen claimed that this global economic
deterioration was due to the Russian war in Ukraine. This is factually incorrect. Although
the conflict has worsened the situation, the key driver which has destabilised the world
economy is the massive inflationary wave that had already built up in the United States
and has now begun to crest on the world. Prior to the war in Ukraine, US inflation had
already tripled in recent years from 2.5% (January 2020) to 7.5% (January 2022) before
accelerating further to 8.5% (March 2022) after the war broke out.
‘This isn’t Putin’s inflation’, the Wall Street Journal editorial board noted. ‘This inflation
was made in Washington’.
The US consumer market absorbs a fifth of the world’s goods and services; as the
demand for these goods outstrips the global supply, the tendency for US inflation to
spread around the world is very high. The average Commodity Research Bureau Index,
a general indicator of global commodity markets, has risen astronomically: as of
25 April, year-to-year prices have soared for oil (60%), palm oil (60%), coffee (56%),
wheat (45%), natural gas (139%), and coal (253%). These price increases have sent
shock waves through the global economy.
This instability is inseparably connected to US economic policy. Since 2020, the United
States has increased its budget by $2.8 trillion. To finance this budgetary expansion,
US government increased borrowing to 27% of the gross domestic product
(GDP), and the Federal Reserve Bank increased the money supply (the quantity of
money issued) by 27% year-on-year. Both of these increases are the highest
in US peacetime history.
These huge US economic packages were generated to put cash in the hands of
consumers. The US government focused on the economy’s demand side by putting
money into circulation for consumption, but it did not increase spending on the
economy’s supply side by putting money into investment. From 2019–21, 98% of
US GDP growth was in consumption, while only 2% was in net investment. With a
large increase in demand by consumers and almost no increase in supply, a huge
inflationary wave grew in the United States.
Investing in Guns or People?
Inflation in the United States, which has global implications, is a by-product of its
economic priorities. For the past half-century, US governments have not used
the country’s social wealth to make substantial social investments in areas such
as education, healthcare, and infrastructure, nor have they invested in the
manufacturing sector to increase supply. Instead, to manage inflation the
government has chosen to push an agenda which cuts demand. These cuts in
demand have already lowered living standards; for instance, real wages in the
United States have fallen by 2.7% in the past year.
Instead of making social investments to prevent such economic downturns,
the US government has prioritised its military, which receives a budget increase
every year. In 2022, the Biden administration proposed a military budget of
$813 billion, a 9.2% increase over the military budget in 2021 – larger than the next
eleven highest spending countries combined. To justify this massive expenditure,
the Biden administration, like the Trump administration before it, has invoked the
need to ‘combat threats’ posed by China and Russia.
A reduction in US military spending would free up government funds to invest in
education, healthcare, infrastructure, and manufacturing. However, this would
necessitate a shift in US foreign policy, which does not appear to be on the horizon.
Until that time, the people of the United States and other countries will have to
sustain the costs of Washington’s new Cold War.

https://news.nocoldwar.org/wp-content/u ... g_2_EN.pdf

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Image
Takashi Murakami (Japan), Tan Tan Bo Puking – a.k.a. Gero Tan, 2002.

I cannot live on tomorrow’s bread: The Seventeenth Newsletter (2022)
Posted Apr 29, 2022 by Vijay Prashad

Dear friends,

Greetings from the desk of Tricontinental: Institute for Social Research.

On April 19, the International Monetary Fund (IMF) released its annual World Economic Outlook, which forecasted a severe slowdown in global growth along with soaring prices. ‘For 2022, inflation is projected at 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies–1.8 and 2.8 percentage points higher than projected in … January’, the report noted. IMF Managing Director Kristalina Georgieva offered a sobering reflection on the data: ‘Inflation is reaching the highest levels seen in decades. Sharply higher prices for food and fertilizers put pressure on households worldwide–especially for the poorest. And we know that food crises can unleash social unrest’.

What is the root cause of this extraordinary wave of inflation? U.S. President Joe Biden blamed Russia’s war in Ukraine: ‘What people don’t know is that 70 percent of the increase in inflation was the consequence of [Russian President Vladimir] Putin’s price hike because of the impact of oil prices’. However, even The Wall Street Journal editorial board noted that ‘this isn’t Putin’s inflation’. Georgieva of the IMF has tried to walk a middle ground, saying that ‘Russia’s invasion of Ukraine has created a crisis on top of a crisis’. Her view mirrored that of the World Economic Outlook, which pointed out that ‘the crisis unfold[ed] while the global economy was on a mending path but had not yet fully recovered from the COVID-19 pandemic’.

The No Cold War platform, with whom Tricontinental: Institute for Social Research has a close working relationship, has produced a very important intervention into this debate. Briefing no. 2, The United States Has Destabilised the World Economy, which appears below, makes the case that a governing factor in the current inflation crisis is the outsized impact of the United States on the global economy; here, U.S. military spending, the scale of the United States in global consumption, the role of the Wall Street-Dollar-IMF regime, and other factors play a key role. We hope you find briefing no. 2 useful and circulate it widely.

| NoColdWar | MR OnlineThe International Monetary Fund has announced that the global economy is entering a major slowdown, downgrading the growth prospects of 143 countries. At the same time, inflation rates have reached historic levels. Around the world, hundreds of millions of people are falling into poverty, particularly in the Global South. Oxfam has sounded the alarm that we are ‘witnessing the most profound collapse of humanity into extreme poverty and suffering in memory’. What is producing this immense human suffering?

An Economic Crisis ‘Made in Washington’

On 13 April, U.S. Treasury Secretary Janet Yellen claimed that this global economic deterioration was due to the Russian war in Ukraine. This is factually incorrect. Although the conflict has worsened the situation, the key driver which has destabilised the world economy is the massive inflationary wave that had already built up in the United States and has now begun to crest on the world. Prior to the war in Ukraine, U.S. inflation had already tripled in recent years from 2.5% (January 2020) to 7.5% (January 2022) before accelerating further to 8.5% (March 2022) after the war broke out.

‘This isn’t Putin’s inflation’, the Wall Street Journal editorial board noted.

This inflation was made in Washington.

The U.S. consumer market absorbs a fifth of the world’s goods and services; as the demand for these goods outstrips the global supply, the tendency for U.S. inflation to spread around the world is very high. The average Commodity Research Bureau Index, a general indicator of global commodity markets, has risen astronomically: as of 25 April, year-to-year prices have soared for oil (60%), palm oil (60%), coffee (56%), wheat (45%), natural gas (139%), and coal (253%). These price increases have sent shock waves through the global economy.

This instability is inseparably connected to U.S. economic policy. Since 2020, the United States has increased its budget by $2.8 trillion. To finance this budgetary expansion, the U.S. government increased borrowing to 27% of the gross domestic product (GDP), and the Federal Reserve Bank increased the money supply (the quantity of money issued) by 27% year-on-year. Both of these increases are the highest in U.S. peacetime history.

Image
Carmen Lomas Garza (USA), Tamalada, 1990.

These huge U.S. economic packages were generated to put cash in the hands of consumers. The U.S. government focused on the economy’s demand side by putting money into circulation for consumption, but it did not increase spending on the economy’s supply side by putting money into investment. From 2019–21, 98% of U.S. GDP growth was in consumption, while only 2% was in net investment. With a large increase in demand by consumers and almost no increase in supply, a huge inflationary wave grew in the United States.

Investing in Guns or People?

Inflation in the United States, which has global implications, is a by-product of its economic priorities. For the past half-century, U.S. governments have not used the country’s social wealth to make substantial social investments in areas such as education, healthcare, and infrastructure, nor have they invested in the manufacturing sector to increase supply. Instead, to manage inflation the government has chosen to push an agenda which cuts demand. These cuts in demand have already lowered living standards; for instance, real wages in the United States have fallen by 2.7% in the past year.

Instead of making social investments to prevent such economic downturns, the U.S. government has prioritised its military, which receives a budget increase every year. In 2022, the Biden administration proposed a military budget of $813 billion, a 9.2% increase over the military budget in 2021–larger than the next eleven highest spending countries combined. To justify this massive expenditure, the Biden administration, like the Trump administration before it, has invoked the need to ‘combat threats’ posed by China and Russia.

A reduction in U.S. military spending would free up government funds to invest in education, healthcare, infrastructure, and manufacturing. However, this would necessitate a shift in U.S. foreign policy, which does not appear to be on the horizon. Until that time, the people of the United States and other countries will have to sustain the costs of Washington’s new Cold War.

Image
Joseph Bertiers (Kenya), The Bar, 2020.

Against the shallow assessment that global inflation is caused by Russia’s war on Ukraine and the Western sanctions on Russia, No Cold War’s briefing no. 2 points its finger at the root of the crisis: the distortions produced by U.S. military spending and by the Wall Street-Dollar-IMF regime gripping the world economy.

In December 2021, the IMF’s Georgieva said that Europe’s governments must not allow economic recovery to be endangered by the ‘suffocating force of austerity’. This is part of the West’s astonishing double-standards: at the same time, the IMF has enforced harsh austerity measures on the countries of Africa, Asia, and Latin America. As Oxfam notes in a new analysis, during the pandemic’s second year (from March 2021 to March 2022), the IMF approved 23 loans to 22 countries in the Global South–all of which either encouraged or required austerity measures. For example, the IMF’s $2.3 billion loan agreement with Kenya required a four-year public sector pay freeze alongside higher taxes on gas and food, all while 63 percent of Kenyan households experience multidimensional poverty, according to a report by the Kenya Institute of Public Policy Research and Analysis (KIPPRA).

The austerity policies that impact the vast mass of the populations in these countries must be reversed. We need less money spent on war and more money spent to solve what Frantz Fanon called the obstinate facts of human life, such as hunger, illiteracy, and indignity.

Image

Langston Hughes’s poetry focused on the impact of these ‘obstinate facts’ on the lives of people in the United States, people who fought against a life built on wages that equalled ‘two bits minus two’. In 1962, the United States spent $49 billion on its military ($431 billion in 2022 dollars); in 2022, as noted in briefing no. 2, the U.S. government proposes to spend $813 billion on its military, larger than the military spending of the next eleven countries combined.

There is immense social wealth available to us, but it is spent on the parts of human life that are most destructive rather than productive. In 1962, as the U.S. military budget began to balloon, Langston Hughes wrote:

I tire so of hearing people say,
Let things take their course.
Tomorrow is another day.
I do not need my freedom when I’m dead.
I cannot live on tomorrow’s bread.

Freedom
Is a strong seed
Planted
In a great need.
I live here, too.
I want my freedom
Just as you.


We need to advance to the goal of human emancipation now. Not tomorrow, but now.

Warmly,

Vijay

https://thetricontinental.org/newslette ... on-crisis/

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Fossil fuel lobbyists continue to seize on Russia’s war in Ukraine to push long-term interests
Originally published: The Intercept on April 25, 2022 by Lee Fang (more by The Intercept) (Posted Apr 28, 2022)

Since the Mountain Valley pipeline was announced eight years ago, the proposal to transport fracked natural gas from West Virginia to export terminals in southern Virginia has faced regulatory hurdles and local opposition. The main concern is that the project runs through environmentally sensitive waterways and farmlands, putting them at risk of spills–while further promoting the development of fracking throughout West Virginia.

Now, after nearly a decade of lobbying, the energy crisis sparked by Russia’s war in Ukraine appears to have turned the tide, with federal regulators supporting a construction route that could bring the pipeline into service as early as next year.

Filings show that the pipeline’s boosters were quick to capitalize on the Ukraine crisis to sway policymakers. In federal appellate courts last month, attorneys for the pipeline project argued that with the U.S. ban on imports of Russian natural gas, “domestic supplies will become all the more important to the nation’s energy needs.” Completing the pipeline, the attorneys wrote, “indisputably would provide a meaningful step toward building out U.S. oil and gas infrastructure, freeing up additional natural gas for domestic consumption and export to Europe.” Other pipeline supporters, including Sen. Joe Manchin, D-W.Va., heavily cited the war in Ukraine to press administration officials to swiftly approve the project as a matter of national security.

Soon after, on April 8, the Federal Energy Regulatory Commission unanimously approved the plans to build the pipeline across 180 bodies of water and wetlands, a decision that analysts view as the final step in overcoming the hurdles that had placed the project in jeopardy for years.

The progression of the West Virginia pipeline project is one of many fossil fuel priorities now reshaped by the devastation wrought by the war in Ukraine. In the first days of the war, the American Petroleum Institute, which represents industry giants such as Exxon Mobil and Chevron, argued that it heightened the need for greater development of U.S. oil and gas reserves and for expedited approval of pipelines and other infrastructure.

“As crisis looms in Ukraine, U.S. energy leadership is more important than ever,” API tweeted at the outset of Russia’s incursion into Ukraine. Soon after, other oil and gas companies joined the fray. In early March, the chief executives of TC Energy, Enbridge, the Williams Companies, and Kinder Morgan cited the war to call for the rapid approval of natural gas pipelines that have faced opposition from activists and regulators.

Critics of the industry immediately countered that more fossil fuel development would take too long to provide any short-term relief. Gas and oil are global commodities, and small increases in U.S. production won’t have any immediate impact on domestic energy prices.

But rising utility and gas prices have rattled policymakers. Last month, following pressure from industry sources, including natural gas exporters, the Biden administration rolled back plans to evaluate natural gas pipelines on climate and environmental justice grounds. The Interior Department also announced a plan on April 15 to resume the sale of leases to drill on federal lands for oil and gas.

In recent weeks, more and more fossil fuel interests have piled on. This month, lawyers for Sempra Energy filed a letter to FERC urging approval of the North Baja pipeline, a project to transport liquified natural gas to export terminals on Mexico’s western coast. The project, the attorneys said, carried additional urgency “in light of the recent Russian invasion of Ukraine” and “concerns about energy security for Europe and Central Asia.”

TC Energy, formerly known as TransCanada, filed an amended request for approval of its Alberta XPress project, which would expand an existing natural gas pipeline system. The “beneficial domestic and international end uses” of the project, the company said, have “recently grown exponentially” with Russia’s invasion of Ukraine and the need for oil and gas exports to the global market.

K&L Gates, a law firm that represents Rio Grande LNG, a project to construct a site with five liquified natural gas trains in Texas, similarly petitioned FERC, calling for quick approval action given “Russia’s invasion of Ukraine and the stranglehold Russia has on Europe’s energy supply.”

Fossil fuel-backed interests are also attempting to use the Ukraine war to shape the Biden administration’s proposed rules around carbon capture and sequestration. Harry MacDougald, an attorney who has led industry-backed lawsuits to overturn the Environmental Protection Agency’s endangerment finding on greenhouse gas emissions, filed comments to the White House Council on Environmental Quality arguing that any carbon capture rules should not limit the potential for greater oil and gas development. “With Russia’s criminal invasion of Ukraine, the national imperative of increasing U.S. petroleum production is readily apparent,” MacDougald wrote.

Lobbyists for a range of other industries–including power plants, refrigerator manufacturers, software developers, and telecommunications providers–have also wasted no time in using Russia’s invasion of Ukraine as a talking point to influence decisions on a wide array of policies, from tariffs to environmental rules. The comments range from urgent calls to action on vital economic issues to precarious arguments that stretch the imagination to fit the Ukraine crisis into a domestic U.S. context.

The Competitive Enterprise Institute, a libertarian think tank backed by business interests including Google, filed a document with the Federal Trade Commission opposing new guidelines for enforcement against business mergers that pose monopolization risks. The think tank argued that a transparent process for such a potentially costly new enforcement regime was important to consider, particularly given the “geopolitical uncertainty surrounding Vladimir Putin’s invasion of Ukraine.”

The American Public Power Association, the lobby group that represents electric utilities around the country, including a large number of coal-burning power plants, in March submitted comments to the EPA opposing new limits on wastewater pollution, in part by pointing to the “immense pressure on fuel and energy prices” caused by “the recent war in Ukraine.”

Microsoft and the U.S. Telecom Association have filed letters with the Commerce Department urging greater government investments in semiconductor development by pointing to the supply chain problems worsened by the war in Ukraine. “The shortage has been further exacerbated by Russia’s war with Ukraine, which has strained the supply chain for critical minerals and other raw materials and exposed further vulnerabilities in the semiconductor supply chain,” wrote Sarah O’Neal, an attorney with Microsoft.

Ukraine provided about half of the global supply of semiconductor-grade neon, a colorless and odorless gas used to control lasers for the production of specialized computer chips. The shortage from the war, with plants in eastern Ukraine under occupation, has alarmed automotive manufacturers. The Motor & Equipment Manufacturers Association, the automotive parts trade group, called attention to the potential global shortage in a letter urging the Biden administration to take rapid action to bolster the domestic semiconductor supply.

And the Air-Conditioning, Heating, and Refrigeration Institute and the North American Association of Food Equipment Manufacturers are among the lobby groups pushing for a relaxation of U.S. tariffs on steel by citing the crisis in Ukraine.

Other petitioners urging relaxed U.S. government interference in the market are less persuasive. Mike Schafer, the head of a fish processing plant, petitioned the Biden administration for “laws changed to bring fish products to humanitarian use and K through 12 school lunch programs.” Schafer asked for a range of government support for the fishing industry, including grants for international marketing to feed “all the refugees from Ukraine” who “could really use fish protein.”

https://mronline.org/2022/04/28/fossil- ... interests/

War, starvation, environmental catastrophe, these are what we get when we allow the capitalists 'their' profit.

They spend a significant portion of those profits convincing us otherwise and still remain the richest ruling class in history. How long?
"There is great chaos under heaven; the situation is excellent."

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blindpig
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Re: The crisis of bourgeois economics

Post by blindpig » Fri May 06, 2022 2:17 pm

Has globalisation ended?

Apart from inflation and war, what grips current economic thought is the apparent failure of what mainstream economics likes to call ‘globalisation’. What mainstream economics means by globalisation is the expansion of trade and capital flows freely across borders. In 2000, the IMF identified four basic aspects of globalisation: trade and transactions, capital and investment movements, migration and movement of people, and the dissemination of knowledge. All these components apparently took off from the early 1980s as part of the ‘neoliberal’ reversal of previous national macro-management policies adopted by governments in the environment of the Bretton Woods world economic order (ie US hegemony). Then the call was to break down tariff barriers, quotas and other trade restrictions and allow the multi-nationals to trade ‘freely’ and to switch their investments abroad to cheap labour areas to boost profitability. This would lead to global expansion and harmonious development of the productive forces and resources of the world, it was claimed.

There was nothing new in this phenomenon. There have been periods of increased trade and capital export before since capitalism became the dominant mode of production in the major economies by the mid-19th century. In 1848, the authors of the Communist Manifesto noted the increasing level of national inter-dependence brought on by capitalism and predicted the universal character of the modern world society: “The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed…. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations.”

Indeed, we can distinguish previous periods of ‘globalisation’. There was the period of 1850-70 which saw trade and investment expand sharply in Europe and the US (after the civil war), under the auspices of the British hegemony. The depression of the 1870s to 1890s saw the end of that wave. But another wave of global expansion took place in 1890s through to WW1, as new capitalist powers usurped British hegemony. No one power established hegemony and that globalisation wave was stopped in its tracks by world war and continued to reverse through the Great Depression of the 1930s and up to WW2. Then there was a new wave of global expansion under Bretton Woods and US hegemony, before the profitability crisis of the 1970s led to slumps and retraction. From the mid-1980s and through 1990s, there was the largest expansion of trade and cross-border investment in the history of capitalism, with the US and European capitalism spreading its wings further and China entering global manufacturing and trading markets.

Indeed, according to the World Trade Organisation, a key indicator of ‘globalisation’, the ratio of world exports to world GDP, was broadly flat between 1870 and WW1, fell by nearly 40% in the interwar period; rose 50% from 1950-70; then stagnated until the 1990s, taking off until the Great Recession of 2009; after which, in the Long Depression of the 2010s, the ratio fell by about 12%, a decline not seen since the 1970s.

Image

The latest globalisation wave started to wane as early as the beginning of the 2000s when global profitability slipped back.

Image
Penn World Table 10.0, author calculations

In the 1990s, world trade rose by 6.2% annually, cross-border investment (FDI) by 15.3% a year and GDP globally by 3.8%. But in the long depression of the 2010s, trade rose only 2.7% a year, slower than GDP at 3.1% while FDI rose only 0.8% a year.

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Flows of cross-border investment in physical productive assets also stopped growing in the 2010s, while the global ‘value chain’ trade (ie internal multi-national company transfers) also flattened.

Global value chain trade
Image

World Trade Organisation

Of course, Marxist economics could have revealed this outcome of globalisation. David Ricardo’s ‘thought theory’ of comparative advantage has always been demonstrably untrue. Under capitalism, with open markets, more efficient economies will take trade share from the less efficient. So trade and capital imbalances do not tend towards equilibrium and balance over time. On the contrary, countries run huge trade deficits and surpluses for long periods, have recurring currency crises and workers lose jobs to competition from abroad without getting new ones from more competitive sectors (see Carchedi, Frontiers of Political Economy p282). It is not comparative advantage or costs that drive trade gains, but absolute costs (in other words relative profitability). If Chinese labour costs are much lower than American companies’ labour costs, then China will gain market share, even if America has some so-called “comparative advantage” in design or innovation. What really decides is the productivity level and growth in an economy and the cost of labour.

Contrary to the views of the mainstream, capitalism cannot expand in a harmonious and even development across the globe. On the contrary, capitalism is a system ridden with contradictions generated by the law of value and the profit motive. One of those contradictions is the law of uneven development under capitalism – some competing national economies do better than others. And when the going gets tough, the stronger start to eat the weaker. As Marx once said, “capitalists are like hostile brothers who divide among themselves the loot of other people’s labour.” (Theories of Surplus Value Vol 2. p29). Sometimes brothers are fraternal and globalisation expands as in the late 20th century; sometimes they are hostile and globalisation wanes – as in the 21st century.

For Marxist theory, globalisation is really the mainstream word for expanding imperialism. The 20th century started with world capitalism increasingly divided between an imperialist bloc and the rest, with the latter unable (with very few exceptions) to bridge the gap to the top table over the next 100 years. In the 21st century the grip of imperialism remains and if the imperialist economies start to struggle for profitability as they are now, then they start to fight and not cooperate, laying the basis for conflict and division.

Even the mainstream is now aware that free trade and free movement of capital that accelerated globally over the last 30 years has not led to gains for all – contrary to the mainstream economic theory of comparative advantage and competition. Far from globalisation and free trade leading to a rise in incomes for all, under the free movement of capital owned by the trans-nationals and free trade without tariff and restrictions, the big efficient capitals have triumphed at the expense of the weaker and inefficient – and workers in those sectors take the hit. Instead of harmonious and equal development, globalisation has increased inequality of wealth and income, both between nations and also within economies as trans-national corporations move their activities to cheaper labour areas and bring in new technology that requires less labour.

These outcomes are down partly to globalisation by multinational capital taking factories and jobs into what used to be called the Third World; and partly due to neo-liberal policies in the advanced economies (i.e. reducing trade union power and labour rights; casualization of labour and holding down wages; privatisation and a reduction in public services, pensions and social benefits). But it is also down to regular and recurrent collapses or slumps in capitalist production, which led to a loss of household incomes for the majority that can never be restored in any ‘recovery’, particularly since 2009. The capitalist world was never flat even in the late 20th century – and it is certainly mountainous now.

Take tariffs and protectionist measures – the anathema of globalisation theorists. There has been an upward trend in antidumping and countervailing duty investigations in the last ten years (see figure below).

Image

The Great Recession, the weak recovery afterwards in the Long Depression, the COVID pandemic and now the Russia-Ukraine conflict, has blown away global supply chains, stymied global trade and stopped capital movements.

During the 1990s and 2000s, mainstream economics (with few exceptions) lined up with Ricardo and the unblemished merits of globalisation. Just read this piece for the list of the usual suspects (https://www.theguardian.com/world/2017/ ... -the-world). In the teeth of current trends, some mainstream experts still stick to the view that globalisation will return. “It was inflation that helped create a new policy environment in the mid-19thcentury and in the 1970s. As the economic and political costs of inflation became more obvious and more damaging, it appeared more attractive to look for ways to calm inflationary pressures. For sure, the disinflationary cure — more globalisation as well as more effective government — was temporarily uncomfortable. But it drove the world to seize technical and geographical opportunities once ignored or neglected. There is, in short, a post-conflict future to which we might look forward with some degree of hope.”

One expert claimed that “Finally, call this blind faith, but the last rites for globalisation have been read several times, and on each occasion, it’s bounced up from its sickbed looking quite sprightly. Companies have been resourceful, technology supportive, and even actively destructive governments haven’t crashed it.” Sure, world trade and cross-border investment is not going to disappear and will continue to grow (somewhat) despite pandemics, wars and collapsed supply chains. But that is hardly an argument for saying the previous globalisation wave is not over.

The argument is that the profitability and inflation crisis of the 1970s was followed by the globalisation wave of the 1980s and 1990s. and this could happen again. It’s not a very convincing scenario. The 2020s looks more like the period leading up to WW1, with rival economic powers struggling to gain a chunk of profits (‘hostile brothers’). Writing in the late 1880s, Engels forecast, not harmonious global expansion as German Social-Democrat leader and theorist Karl Kautsky thought, but increased rivalry among competing economic powers resulting in a new European war: “the depredations of the Thirty Years war (of the 17th century) would be compressed into three to four years and extended over the entire continent… with an irretrievable relocation of our artificial system of trade, industry and credit.” (see my book Engels 200 p129). No return to the global expansion of 1850-70.

The Keynesians seek to return to the days of Bretton Woods with its fixed exchange rates, government fiscal stimulus and gradually reduced tariffs. The Keynesians claim that this would lead to a revival of ‘multilateralism’ and global cooperation. This apparently can restore a world order of peace and harmony. But this is just a denial of history and the reality of the 2020s. The multilateral organisations of the post-war era like the IMF, World Bank and the UN were all under the kind ‘guidance’ of US capitalism. But now US hegemony is no longer secure; but more significant, the high profitability for the major economies post-1945 no longer exists. The brothers are no longer fraternal, but hostile. The current US attempt to maintain its hegemony is more like to trying herd cats into a bag.

It’s perfectly possible to argue that for capital, “Deglobalisation would decrease the efficiency of companies by raising prices and lowering competition and that “with any reversal predicted to slow growth, a deglobalized world would be “vastly inferior” to the past 30 years of open trade.” A recent study by the World Trade Organisation, based on measuring the dynamic impact of lost trade and technology diffusion, found that “a potential decoupling of the global trading system into two blocs – a US-centric and a China-centric bloc – would reduce global welfare in 2040 compared to a baseline by about 5%. Losses would be largest (more than 10%) in low-income regions that benefit most from positive technology spillovers from trade”. Indeed, the collapse of globalisation could turn, not just into a battle between two blocs, but instead into a melange of competing economic units.

But globalisation will only return if and when capitalism gains a new lease of life based on enhanced and sustained profitability. That seems unlikely to happen this side of another slump and maybe more war.

https://thenextrecession.wordpress.com/ ... ion-ended/

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Goldman Warns 'Dollar Dominance On A Downtrend'
BY TYLER DURDEN

TUESDAY, MAY 03, 2022 - 09:25 PM
As we have noted numerous times in the past (since 2014), nothing lasts forever...

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And while he falls short of the apocalyptic views of The World Bank's former chief economist:

"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank.

"The solution to this is to replace the national currency with a global currency."

...and Zoltan Poszar's recent warnings of the backlash against US weaponization of the dollar against Russia, noting that

"...wars tend to turn into major junctures for global currencies, and with Russia losing access to its foreign currency reserves, a message has been sent to all countries that they can’t count on these money stashes to actually be theirs in the event of tension... it may make less and less sense for global reserve managers to hold dollars for safety, as they could be taken away right when they’re most needed."

(more...)

https://www.zerohedge.com/markets/goldm ... -downtrend

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The Empire and the Dollar

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https://wcoats.blog/ | Mon, Mar 28, 2022

by Warren Coats

In our multicurrency world, the U.S. dollar is widely used for pricing internationally traded goods, for international payments, and for denominating the assets governments and companies hold as reserves. Why is that and what are its implications for U.S. behavior? What would a better system look like?

In a world of many different national currencies, the payment for international trade has found economy in using an intermediate, so-called vehicle currency to facilitate the exchange of the buyer’s currency into and delivery of the seller’s currency. Following the collapse in 1971 of the dollar-based gold exchange standard overseen by the International Monetary Fund, the dollar continues to dominate in this role. This role has given the United States important political power and financial benefits.

I will quickly review these benefits, and how they have come to encourage the U.S. to exploit them in exercising its international power, the forces that are building to seek an alternative, and the potential for the IMF’s Special Drawing Rights (SDRs) to provide an alternative.

The Dollar’s International Reserve Status

Cross border commerce and investments require a common currency to price and denominate them and the mechanisms for cross border payments. While modern technologies continue to increase the speed and ease and lower the cost of domestic payments of domestic currencies, cross border payments remain relatively slow and costly.

The payment and receipt of a currency is ultimately reflected/settled on the books of that currency’s issuer. If I pay you for something and your account is in a different bank than mine, the transfer of funds from my bank to your bank and to you will pass through a Federal Reserve Bank. My bank’s account at the Fed will be debited and yours will be credited. A fundamental difference between national and international currencies is that the central bank issuers of national currencies only hold deposits for banks that are domestically licensed, while the issuers of international currencies, such as the Special Drawing Right (SDR) of the International Monetary Fund, hold deposits from banks almost anywhere in the world, enabling the settlement of their payments to enjoy the efficiencies of domestic payments in domestic currencies.

The older gold standard functioned more like an international central bank issuer of currencies but without such an international central bank. Instead, national currencies were tied to gold by virtue of the commitment of central banks on the gold standard to redeem their currency for gold at a fixed price. Thus, any net flow of payments from one country to another was ultimately settled by transferring the ownership of the gold it was fixed to from the deficit to the surplus country. This could occur by debiting the deficit country’s gold account at the New York Federal Reserve Bank and crediting the surplus country’s gold account at the same place or by physically shipping the gold.

In today’s world, cross border payments generally involve the need to exchange one currency for another at exchange rates that fluctuate. To facilitate the comparison of prices of globally traded goods (e.g., oil, gold, copper, and other commodities) they are generally priced in one common currency. The U.S. dollar is the currency most widely used for this purpose (79%). This contributes to the use of the dollar for cross boarder payments as well even when the buyer’s currency differs from the seller’s ultimate currency (the currency paid to its workers, etc.). https://www.federalreserve.gov/econres/ ... 211006.htm

Some economy is brought to the markets for foreign exchange needed for cross boarder payments by using a common so called vehicle currency as a common go between. The adoption by airlines of a hub and spoke model for connecting all airports in a country or the world illustrates the economy of a single or small number of vehicle currencies (hubs) to exchange currency X for currency Y. The U.S. dollar is the most widely used vehicle currency for this purpose. This is supported by and reflected in the dominance of the dollar in invoicing internationally traded goods and in the foreign exchange reserves of banks (central and commercial) around the world. The Euro is the second most used currency in these ways.

In 2021 40.5% of international payments were made in US dollars. The use of Euros in international payments and in reserves has moved up to second place behind the dollar at 36.7% of payments. The Pound sterling is a distant third at 5.9%. Having passed the Japanese yen a few years back for fourth place the Chinese RMB achieved 3.2% of international payments in January of this year from almost zero a decade ago. “China’s currency scores a win during the Olympics” The Federal Reserve has constructed an “aggregate index of international currency usage.” The dollar has remained in the neighborhood of 70% for the last two decades. https://www.federalreserve.gov/econres/ ... 211006.htm

To pay for things with a currency, one must hold some amount of that currency. It is this demand for dollar reserves resulting from the widespread international invoicing and payments in dollars, that underlies foreign financing of US debt. For starters, about half of dollar currency (actual banknotes) are held abroad. That is the extent to which we pay for imports with cash and the sellers just hold the cash. Foreign central banks hold almost 13 trillion dollars in foreign exchange reserves of which over 7 trillion is in U.S. dollars (much of that is held in the form of US government debt). About 60% of the foreign currency claims of banks are dollar claims.

The dollar grew into its vehicle and reserve currency roles because of the size of the U.S. economy and its extensive trade with the rest of the world, the size and liquidity of financial assets denominated in dollars, public confidence in the stability of the dollar’s purchasing power, and in its trusted contract enforcement (rule of law).

U.S. Benefits from reserve currency status

The so-called exorbitant privilege of a reserve currency–the ability to borrow abroad in your own currency–makes it easier for the U.S. government to finance its military and other expenditures with debt. For countries to accumulate dollar reserves they must have a balance of payments surplus, i.e., they must sell more to the U.S. than they buy from the U.S.. As a result, American’s enjoy cheaper imports and the excess of dollars paid for such imports over those paid back for US exports are held in foreign reserves (generally in the form of US treasury debt).

As an aside, it is simply wrong to attribute much of the so-called offshoring of our manufacturing to the above phenomenon. The somewhat lower exchange rate for the dollar needed to generate the surplus China and other countries need for the trade surplus with which they buy American debt, does make imports somewhat cheaper. However, even if the dollar was totally replaced in foreign reserves and trade balanced, we would continue to be better off producing what we export and importing what China and the others produce and sell to us. Freely pursuing our comparative advantages increases our incomes and the incomes of the Chinese and others selling to us. Free trade is win-win. Contrary to the myth, U.S. manufacturing is at an all-time high. (Manufacturing employment is lower because of increased labor productivity). https://www.macrotrends.net/countries/U ... ing-output

The U.S. dollar’s dominance in global trade and finance contributes to the existence of the American Empire in two ways. It attracts foreign financing of the U.S. government and its military industrial complex thus reducing the burden of the empire on the American taxpayer and it provides a tool by which the U.S. can impose its will on other countries or individuals in managing its empire. Borrowing to pay our government’s bills is politically easier than raising taxes and avoids (or delays) a debate over guns versus butter.

Three factors now challenge the dollars reserve currency role. 1) Cumbersome payment technology: Existing arrangements for cross border payments via the Society for Worldwide Interbank Financial Telecommunication (SWIFT) are technically crude and outmoded. 2) Weaponization of the dollar: The U.S. has abused the importance of its currency for cross border payments to force compliance with its policy preferences not always shared by other countries, by threatening to block the use of the dollar. 3) Growing risk of a decline in the dollar’s value: The growing expectation of dollar inflation and the skyrocketing increase in the U.S. fiscal deficit are increasing the risk of holding and dealing in dollars.

The first factor–payment technology–is temporary. It is being modernized. While payment technology (ease, speed, security, and cost of making cross border payments) is important, it is not as important as the features of the currency being paid. As a currency, the dollar excels for the reasons given earlier.

The second factor–weaponization of the dollar–has been growing in importance as the U.S. has increasingly sanctioned trade and dollar payments without broad international support–Iran, etc. The EU has sought work arounds in Euros. China and Russia are building alternative payment arrangement using China’s Renminbi. Even with the dramatic increase in coordinated sanctions against Russia, restricting the use of dollars is less effective than directly blocking trade. https://wcoats.blog/2022/03/04/how-to-s ... n-ukraine/ The broad support for sanctions on Russia more likely increases support from the dollar as the dominant international currency rather than reducing it. On the other hand, those on the other side (e.g., Russia and China) will work harder to find alternatives. The balance of these contradictory forces is difficult to assess.

The third factor has never been taken very seriously until now. At the end of February (2022) the US national debt was over 30.1 trillion dollars or 125% of US output (GDP). Federal government interest payments on its net debt were $426 billion per annum. But with the increase in inflation, interest rates are rising. Uncle Sam’s debt service payments are likely to double or triple over the next five to ten years, rising to 15% to 20% of the Federal budget. The world still expects the US to regain control of its spending, but the risks of default are creeping up. Paul “Samuelson stated in 2005 that at some uncertain future period these pressures would precipitate a run against the U.S. dollar with serious global financial consequences.” https://en.wikipedia.org/wiki/Internati ... .S._dollar

It is the second factor, US abuse of its ability to sanction the use of the dollar that is most threatening to push the dollar over the cliff.

The Alternative to the dollar

An internationally defined and issued currency would have a number of advantages over the use of a national currency for cross border payments.

While the value of the dollar has been quite stable for many years, using a basket of major currencies for pricing internationally traded goods and financial instruments would be even more stable. This is what the International Monetary Fund’s unit of account–the Special Drawing Rights (SDR)– offers. The value of one SDR is equal to the current market value of fixed amounts of the US Dollar, Euro, British pound, Japanese yen, and Chinese yuan. Thus, its widespread use for pricing internationally traded goods and financial instruments would provide even greater stability than would any one of these currencies. Every morning when I check movements in the price of oil, I must ask myself whether it was really a change in the price of oil or in the exchange rate of the dollar. See my: “Why the World Needs a Reserve Asset with a Hard Anchor”

The IMF’s SDR can only be held and used by member central banks and a few international bodies. Thus, private SDRs–so called Market SDRs–are needed for payments by the private sector (perhaps issued by the IMF or the BIS). Being issued by an international body, such Market SDRs would have the equivalent of a central bank for settling cross boarder payments allowing the simplifications and economy increasingly available for domestic payments in the domestic currency. `

Moreover, as an internationally issued currency the SDR would be far better protected from the political abuse increasingly experienced with the US dollar and might be expected with the Chinese RMB or other national currencies.

Getting from here to there

But first things first. Before considering the reform of the international monetary system, let’s consider the reform of the dollar–the reform of U.S. monetary policy. The price of the dollar should be fixed to a hard anchor and issued according to currency board rules.

During the heydays of the gold standard (1820-1913) international trade flourished dramatically increasing global incomes and reducing poverty. According to Antoni Estevadeordal, Brian Frantz and Alan M. Taylor “Until 1913 the rise of the gold standard and the fall in transport costs were the main trade-creating forces.” https://www.jstor.org/stable/25053910 However, to cope with WWI, the Great Depression, and WWII, the gold standard failed and was abandoned because of weaknesses in banking systems and because the countries that fixed the value of their currencies to gold did not fully play by the gold standard’s rules.

Under a strict gold standard, the central bank would issue and redeem its currency whenever anyone bought it for gold at the official price of gold. In fact, however, by actively buying and selling (or lending) its currency for other assets whenever it thought appropriate, the Federal Reserve’s monetary liabilities (base money) were partially backed by U.S. treasury bills and other assets. In addition, the fractional reserve banking system allowed banks to create deposit money that was also not backed by gold. The market’s ability to redeem dollars for gold kept the market value of gold close to its official dollar value. However, the gap between the Fed’s monetary liabilities and its gold backing grew until the market (most conspicuously, France) lost confidence in the Fed’s ability to honor its redemption commitment and President Nixon closed the “gold window” in 1971 rather than tighten monetary policy.

Currency Board Rules

A reformed monetary system that returns to a hard anchor (firmly fixed price of the currency for gold or some other asset) should require the Fed to adhere strictly to currency board rules. Such rules oblige a central bank to buy and sell its currency at a set price in response to public demand. Under the Gold Standard, the price of the currency was set as an amount of gold (a gold anchor). For existing currency boards, the price is typically an amount of another currency or basket of currencies. See my book on the establishment of the Central Bank of Bosnia and Herzegovina (“One currency for Bosnia-creating the Central Bank of Bosnia and Herzegovina”). The Fed would provide the amount of dollars demanded by the market by passively buying and selling them at the dollar’s officially fixed price for its anchor. All traditional open market operations by the Fed in the forms of active purchases and sales of T-bills or other assets would be forbidden.

The Anchor
Another weakness of the historical gold standard was that the price of the anchor, based on one single commodity, varied relative to other goods, services and wages. While the purchasing power of the gold dollar was relatively stable over long periods of time, gold did not prove a stable anchor over shorter periods relevant for investment.

Expanding the anchor from one commodity to a basket of 5 to 10 commodities with greater collective stability relative to the goods and services people actually buy (as measured by, e.g., the CPI index), would reduce this volatility. The basket would consist of fixed amounts of each of these commodities and their collective market value would define the value of one dollar. There have been similar proposals in the past, but the high transaction and storage costs of dealing with all the goods in the valuation basket doomed them. However, with indirect redeemability discussed next, the valuation basket would not suffer from this problem.

Indirect redeemability

Historically, gold and silver standards obliged the monetary authority to buy and sell its currency for actual gold or silver. If the dollar price of gold in the market was higher than its official price, people would buy gold at the central bank increasing its market supply and reducing the money supply until the market price came down again. These precious metals had to be stored and guarded at considerable cost. More importantly, taking large amounts of gold and silver off the market distorted their price by creating an artificial demand for them. A new gold standard would see the relative price of gold rising over time due to the increasing cost of discovery and extraction. The fixed dollar price of gold means that the dollar prices of everything else would fall (deflation). While the predictability of the value of money is one of its most important qualities, stability of its value, such as approximately zero inflation, is also desirable.

Indirect redeemability eliminates these shortcomings of the traditional gold standard. Indirect redeemability means that currency is issued or redeemed for assets of equal market value rather than the actual anchor commodities. Market actors would still have an arbitrage profit incentive to keep the supply of money appropriate for its official value. As the economy grows and the demand for money increases, this mechanism would increase the money supply as people sell their T-bills to the Fed for additional dollars at its official (gold or whatever) price.

Towards a global anchor
The United States could easily amend its monetary policy to incorporate the above features – adopting a government defined value of the dollar as called for in Article 1 Section 8 of the U.S. Constitution and a market determined supply. The Federal Reserve would be restricted by law to passive currency board rules. Additional financial sector stability would be achieved by also adopting the Chicago Plan of 100% reserve requirements against demand deposits. This would be a natural byproduct of the Fed creating a two-tier Central Bank Digital Currency (CBCD) now under consideration.

The gold standard was an international system for regulating the supply of money and thus prices in each country and between countries and provided a single world currency (via fixed exchange rates). Balance of trade and payments between countries was maintained (when central banks played by the rules) because deficit countries lost money (gold) to surplus countries, reducing prices in the former and increasing them in the latter. This led to a flourishing of trade between countries. This was a highly desirable feature for liberal market economies.

The United States could adopt the hard anchor currency board system described above on its own and others might follow by fixing their currencies to the dollar as in the past. The amendments to the historic gold standard system proposed above would significantly tighten the rules under which it would operate and strengthen the prospects of its survival.

However, there would be significant benefits to developing such a standard internationally. One way or the other, replacing the fluctuating exchange rates between the dollar and other currencies with the equivalent of a single currency would be a significant boon to world trade and world prosperity. Replacing the U.S. dollar as the world’s reserve currency with an international unit would have additional benefits for the smooth functioning of the global trading and payments system.

In a small step to create an internationally issued currency the IMF created its Special Drawing Right (SDR) in 1969 in the expectation of supplementing the gold-based US dollar. But in today’s world of fiat currencies with floating exchange rates the SDR has several limitations as a reserve currency, most of which can be lived with for a while. The SDR allocated by the IMF can only be held and used by the central banks of IMF member countries and a few international organizations such as the World Bank and BIS. The SDR falls short as a challenger to the US dollar because of the absence of widespread private market use of the unit.

To become a serious supplement to, if not replacement for, the US dollar in the international monetary system the SDR would need to be usable for payments by private sector parties. This would require the creation of private or Market SDRs. This could be done in much the same way banks now create dollar deposits.

Digital SDR currency

As with national currencies, the internationally issued SDR needs a central issuer of the base money version of market SDRs (M-SDRs). The IMF should oversee the develop of a procedure for issuing M-SDRs following currency board rules and backed 100% by official SDRs or by an appropriate mix of sovereign debt of the five basket currencies.

The IMF might establish an IMF trust fund that would issue M-SDRs to AAA or AA international banks upon their request and payment of the equivalent value of one or more of the five basket currencies (and would redeem them under similar arrangements). As with other IMF trusts, the IMF might approach the BIS to operationally manage the issuance and redemption of M-SDRs and the maintenance of the official SDR asset backing (or its equivalent in the five currencies in the valuation basket).

Banks offering M-SDR deposits/currency to their customers would hold an M-SDR reserve backing with the IMF SDR trust fund. The base money M-SDRs issued by the IMF trust fund would perform the same payment settlement function as do central banks for the base money they issue, with the critical difference that its depositors/participants would be global rather than national. This would enable virtually instantaneous final settlement of M-SDR payments globally.

An M-SDR would facilitate and be facilitated by invoicing internationally traded goods and financial instruments in SDRs. More, if not most, internationally traded commodities could and should be priced in SDRs. Cross border borrowing can and should be denominated in SDR starting with bond issues and lending by international development institutions (as is now the case with the IMF, and to a very limited extent the World Bank). https://www.brettonwoods.org/article/pr ... arket-sdrs

To go all the way with SDRs, the IMF’s Articles of Agreement would need to be amended to replace the allocation of SDRs with issuing them according to currency board rules as discussed earlier. Furthermore, the valuation basket that now consists of key currencies would need to be replaced with a commodity basket as outlined in my Real SDR Currency Board proposal: (http://works.bepress.com/warren_coats/25/).

The shift from dollar to SDR international reserves, payments, and invoicing would give the world a more stable currency for all of these purposes. This would further promote trade because of more efficient cross boarder payments thus further lifting incomes around the world. Being an internationally issued and controlled currency, the potential for its political abuse by the U.S. would be greatly reduced. But eliminating the seigniorage that the U.S. now enjoys supplying its currency to the rest of the world, i.e., the foreign financing of some of its debt, would remain without further measures.

As central banks and foreign firms shifted from dollars to SDRs they might simply transfer the US treasury bills (and other US investments) that they now hold to the issuers of the M-SDRs. In that case the U.S. would continue to enjoy its exorbitant privilege of foreign financing in exchange for holding its currency. In this case M-SDRs rather than USD would also be backed by US debt. Thus, rules are need for what currency or assets must be paid to buy M-SDRs and/or what assets M-SDRs are backed by. This could take the form of buying M-SDRs with USD but the issuer exchanging the dollars for a more balanced portfolio of assets. While the SDR value continues to be defined by a basket of currencies, the assets backing issued SDR might reflect the same proportions of the same currencies.

The reduction in this way of the role of the dollar as a reserve currency would be win win. It would provide for more stable and more efficient international trade and payments. It would help demilitarize money and it would modestly increase the cost of US debt finance, hopefully encouraging more careful spending.

https://www.brettonwoods.org/article/th ... the-dollar
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Re: The crisis of bourgeois economics

Post by blindpig » Fri May 13, 2022 2:09 pm

Economist Michael Hudson on decline of dollar, sanctions war, imperialism, financial parasitism
Posted May 13, 2022 by Ben Norton

Originally published: Multipolarista on May 11, 2022 (more by Multipolarista)

In this interview with Multipolarista editor Benjamin Norton, economist Michael Hudson discusses the decline of the U.S. dollar, the sanctions war on Russia, his concept of “free-trade imperialism,” and financial parasitism.

We talk about these concepts explored in his new book “The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.”



Transcript

BENJAMIN NORTON: Hey, everyone. I’m Ben Norton, and this is the Multipolarista podcast. And I have the great pleasure of being joined today by one of my favorite guests, one of I think the most important economists in the world today. I’m speaking with Professor Michael Hudson.

If you’ve seen any of the interviews I’ve done with Professor Hudson over the past few years, you probably know that he’s a brilliant analyst. He always has, I think, the best analysis to understand what’s going on economically and also politically, geopolitically, in the world today.

And right now is, I think, a very important moment to have Professor Hudson on today. We’re going to talk about the economic war on Russia and the process of economic decoupling between Russia and China and the West, which is something that Professor Hudson has talked about for many years. And that really has accelerated with the Western sanctions on Russia over Ukraine.

We’re also going to talk about the decline in U.S. dollar hegemony. A recent report from the International Monetary Fund, which is dominated by the U.S., acknowledged that the use of the dollar in foreign bank reserves is gradually declining.

Now, it’s not going to disappear overnight. But even the IMF is acknowledging that dollar hegemony is eroding. And, of course, the IMF acknowledged that the Western sanctions on Russia are going to further erode the hegemony of the U.S. dollar.

We now see Russia doing business with China in the Chinese yuan. Russia is also doing business with India with the Indian rupee. And of course Russia has been telling Europe that if it wants to buy Russian energy, it has to do so with Russian rubles.

So there’s so much to talk about today, Professor Hudson, but I want to begin in the first half of this interview today talking about a new book that you’re just about to publish.

Today is Monday, May 9th. You said on Wednesday, May 11th, the book comes out. And it’s called “The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.”

And everything that I just prefaced this interview with, discussing the economic war in Russia and sanctions and decoupling, this is all deeply related to what you talk about in this book. And I had the pleasure of getting an early copy and reading through it. It’s a really important book, I think.

And you talk about this fundamental divide internationally–and this is a divide that actually goes back historically as well–between these three models for different economic systems you discuss: finance capitalism, industrial capitalism, and socialism.

And your argument is that the U.S. empire has been a force for imposing neoliberalism, which is a particular form of finance capitalism, which is nonproductive, in which finance capital destroys productive industries in pursuit of rent-seeking, and what you call the rentier class.

So instead of producing, as the classical bourgeois economists had said capitalism would be a productive system instead, finance capitalism is fundamentally a system of destruction and debt.

And your argument is that this is deeply rooted in U.S. foreign policy. This is the U.S. foreign policy strategy for expanding its economic power, is imposing this finance capitalist model on the world.

So can you expand further on your argument about the fight between finance capitalism, industrial capitalism, and socialism, and why you decided to publish this book now?


MICHAEL HUDSON: Well the book came out of a series of 10 lectures that I did for my Chinese audience. I’ve been a professor at Peking University for a number of years in economics, and have professorships at other universities, Wuhan and Hong Kong.

And I have a fairly large audience of about 65,000 people per lecture there. And I was asked to give my general overview, sort of a history of economic development in the West, for the Chinese.

And in order to understand today’s finance capitalism, you have to understand what industrial capitalism was, as it was described in the 19th century.

And it’s often forgotten, or played down, that industrial capitalism was revolutionary. What it was trying to do–from the physiocrats in France in the late 18th century to Adam Smith, John Stuart Mill, Marx, and the whole late-19th century flowering of socialism–the ideal of classical value theory and rent theory, was to say what is the actual value, the cost value of producing goods and services?

And what is earned by the capitalist, when he employs labor to make a profit, and what is unearned? And what is unearned was the landlord class. That was the hereditary warrior class that conquered all of the European kingdoms in the Middle Ages.

And the attempt by England’s industrialists was saying, look, we cannot become the workshop of the world; we cannot undersell foreign countries if we have a landlord class ripping off all of the money in land rent.

And if we have predatory banking, or the wealthy people just lend really for buying property, or making distressed loans or predatory loans that have nothing to do with financing actual capital formation.

Well, what made this capitalism revolutionary was the British industrialists and advocates of industry, even the bankers in Ricardo’s time, said, well, in order to overthrow the landlord class, which controls the House of Lords and all of the upper chambers of government in Europe, we have to have democratic reform.

If we have democratic reform and give voting to the people, they’re going to vote against the landlord class, and then we can have an efficient economy where our prices of our exports and our goods and services reflect the actual cost of production, not the rake off for the rentiers class, not the rake off of what landlords take, not the rake off of what predatory bankers take.

And the whole long 19th century leading up to World War One was this revolutionary value theory that depicted land rent and monopoly rent and financial returns as being unearned income and wanting to strip it away.

And all of this seemed to be moving toward socialism. The industrialists were all in favor of government public utilities, of government enterprise, because they said, if the government doesn’t provide health care, then individuals are going to have to pay it, and it’ll cost a lot of money, like it does in the United States.

And so you had the conservative prime minister of England, Benjamin Disraeli, saying, health, all is health, we’ve got to provide public health for the people.

And it was the conservative Bismarck in Germany that said, we’ve got to provide pensions. If labor has to save up for the pensions, then it’s not going to have enough money to buy the goods and services that we Germans are producing. We have got to make pensions public.

So all of this move towards socialism was not only in favor of increasing living standards, which soared in the 19th century, but also in freeing the economy from the rentier class, from the landlords, from the bankers.

And for the classical economists, a free market was a market free from landlords, free from bankers, free from monopolists.

Well, needless to say, the rentiers fought back. And by after World War Two, we’ve seen a continual anti-classical theory replacing the classical idea of free markets with a value of free theory, saying, well, everybody earns whatever they they have. All wealth is earned, not unearned. And if Goldman Sachs partners are paid more than anyone else, that’s because they’re so productive.

So you had a move rejecting classical economics, a junk economics, and a kind of artificial economics that doesn’t really talk about how finance capitalism has worked.

And as it turns out, the business plan of finance capitalism was so predatory that it was anti-industrial.

That’s why President Clinton in the United States moved to invite China into the International Labor Organization, saying, well, we can fight wage rises in America by a race to the bottom. We can we can hire Asians to do work, and that will cause unemployment here. And that’s wonderful for the industrialists. It will basically cut wages and keep American wages down.

Well, that basically is the strategy of finance capitalism, and the aim of finance capitalism is not to invest in factories, and plant equipment, and research and development, but to live in the short term, but to make money by financial engineering, not industrial engineering.

And it becomes predatory, and so you have the whole ideological attack on public enterprise. You have Frederick Hayek’s “The Road to Serfdom,” where you say, if government provides public healthcare, that’s “the road to serfdom,” where actually it’s finance capitalism that is the road to debt peonage and serfdom.

And you have now a whole disparagement of government. And all of this is a counter-revolution to the revolutionary impetus of industrial capitalism in its early stages.

And it’s true that corporations now are just as right-wing as the the banks and the hedge funds. But that’s because corporate industry has been taken over by the financial sector, and the heads of almost every industrial corporation are rewarded the how high they can push the stock price, to exercise the stock options they’re paid in.

And you increase the stock price not by investing more, not by hiring more labor or increasing productivity or increasing sales, but simply by using whatever income you have to buy back your stocks. And by buying back your stocks, this forces up their price.

And, most of all, by giving political contributions in this country to the Democrats and Republicans alike, who appoint Federal Reserve heads that have spent $7-9 trillion buying up stocks and bonds to increase the price of buying a retirement income, to increase Wall Street prices, to increase housing prices, and make America even less competitive industrially.

So finance capitalism is what has essentially de-industrialized the United States and turned the Midwest into a Rust Belt.

Well, the alternative, obviously, are the societies that have not followed this neoliberal finance capitalist plan. And the most successful economy, obviously, has been China, which is why it has been spending so much time there.

And China has done exactly what 19th-century United States, Germany, England, and France did. It has kept basic utilities, basic needs, housing, and above all, finance and banking, in the public domain, as public utilities.

Instead of having an independent financial sector operating on its own self-interest, the Bank of China creates the money. And the Bank of China lends money by deciding, where do we need to have investment in real estate to provide housing for the population at as low a price as we can make it? How do we build up the industry? How do we provide an educational system with training? How do we provide health?

And the fact is that the central planning in an efficient socialist style, not the Stalinist planning that everybody refers to of Russia, but a mixed economy as you have in China, which is truly a mixed economy, with guidance, like the French planification.

Well, that is obviously the way in which you survive and you avoid the kind of overloading the economy with debt service, with high rents, with high payments to the health-care monopoly in the United States, by avoiding all of this payment to a rentier class that has what the classical economists call unearned income, predatory income.

And instead of unseating them, we’ve put them in charge, and made the banks and Wall Street, and the city of London, and the Paris Bourse, the central planners.

So we do have central planning much more centralized than anything that was dreamed by the socialists. But the planning, the centralized planning is done by the financial sector.

And financial planning is short-termism; it’s short-term planning; it’s take your money and run. And that’s what is stripping and impoverishing the global economy today.

BENJAMIN NORTON: Absolutely. And, in your book, you write about the important distinction between the classical economic idea of a so-called free market, and how, you argue that, neoliberals turn that idea on its head.

So this is what you write in your book. And this is, again, Michael Hudson’s new book, “The Destiny of Civilization,” which is out this week. You write:

“The neoliberal ideology inverts the classical idea of a free market from one that is free from economic rent to one that is free for the rentier classes”–that is the rent-extracting classes–“to extract rent and gain dominance.”

So they they completely flip the idea of what it means to have a free market.

And then you note that, “in contrast to classical political economy, this neoliberal ideology promotes tax favoritism for rentiers, privatization, financialization, and deregulation.” And you discuss all of that.

That is, of course, what we could call the Washington consensus.

And then you argue that “U.S. foreign policy seeks to extend this neoliberal rentier program throughout the world.”

And you have a very interesting section of your book where you discuss this concept as “free-trade imperialism.”

So can you talk about what your idea of “free-trade imperialism” is and how it relates to U.S. foreign policy?


MICHAEL HUDSON: Well, the Nobel Prize is given basically for junk economics. And probably the worst junk economist of the century was Paul Samuelson.

He made the absurd claim that he proved mathematically that, if you have free trade then, and don’t have tariffs, and don’t have any government protection, then everyone will become more equal. At least the proportions between labor and capital will be more equal. Well, the reality is just the opposite.

And the term “free-trade imperialism” was actually created by a British historian of trade theory who pointed out that, wait a minute, when England went for free trade, the idea was, if we have free trade, we can stifle other countries from being able to industrialize, because if we have free trade, then we can tell America, we will open our doors to your markets–meaning the markets of the slave South, that Britain supported–and in exchange, you will open your markets to our industrial goods.

And America followed that until the Civil War, which was fought not only over slavery, but by the Republican Party after 1853 that said very explicitly, if we’re going to win the election–the Whigs never could win–if we, the new party, are going to win the election and industrialize America, we’ve got to integrate ourselves with the anti-slavery issue, with emancipation, but for us, the economic war of America is a war of, either we’re going to have protective tariffs in the North, or we’re going to end up as a non-industrial, raw materials-producing society, as the South wants.

And that was the debate from 1815, when the Napoleonic wars ended and world trade began again, until really the Civil War.

And America became strong in the way that Germany became strong too, by having protective tariffs, in order to have prices large enough to nurture what was called infant industry, to nurture American manufacturing.

And I wrote a long book about this, published some years ago based on my PhD dissertation, “America’s Protectionist Takeoff.”

Well, the English tried to fight against other countries protecting their economy, saying that if you just have free trade, you’ll get rich. Whereas the reality is, if we have free trade, you’ll get poor, if you’re not already able to have industrial and labor productivity and agricultural productivity on par with the most advanced countries.

Free trade was an attempt to prevent other countries from investing government money and building up their agriculture, and building up their industry, and building up their productivity, and creating a school system, to raise wages, to make wages more productive.

And the American protectionists said, well, we’re going to have a high-wage economy because high-wage labor undersells pauper labor. And skilled, well-fed, well-rested American labor can produce much more than the pauper labor of other countries that have free trade.

Well, what the leading American protectionist economist, Erasmus Peshine Smith, went to Japan and helped industrial help Japan break away from British free trade, helped Japan industrialize.

And other American economists, other foreign economists, all picked up the ideas of the American protectionist, like Friedrich List went to Germany promoting protectionism.

And Peshine Smith’s book, “The Manual of Political Economy,” was translated into all the foreign languages–Japanese, Italian, French, German.

And you had Europe realizing that free trade polarizes economies. Well, it was this that after World War One, and especially World War Two, when you had orthodox economics turning into basically propaganda.

That’s where you and Samuelson and others try to convince other countries, governments are bad, leave everything to the wealthy people, to the finance people, trickle-down economies, it’s all going to trickle down, don’t worry, just give more money to the rich, and don’t have any government interference with markets.

Whereas America had got rich by interfering with markets, to shape them in the years leading up to World War One.

But after World War One, America had already achieved its industrial dominance. And it was after World War One that America said, ok, now our protective tariffs have enabled us to outproduce all the other countries, and our protectionist agriculture especially–the most protected sector in America, has always been agriculture, since the 1930s.

Basically it said, well, now we can outproduce other countries, we can undersell them, now we can tell them to go for free trade.

And after World War Two, the Americans created the World Bank for economic impoverishment, and the International Monetary Austerity Fund.

And the World Bank’s leading objective was to prevent other countries from investing in their own food production.

The guiding line of the World Bank was, we’ve got to provide infrastructure for building up plantation agriculture in Latin America, and Africa, and other countries, so that they will grow tropical export crops, but they cannot be permitted to grow grain or wheat to feed themselves; they must be dependent on the United States.

And so the function of free trade, the World Bank, and the International Monetary Fund has been to finance dependency, backed up by the American support of dictatorships throughout Latin America who agree to have client oligarchies supporting pro-American trade patterns and avoiding any kind of self-reliance, so that the United States can do what it has recently done to Russia and other countries, impose sanctions–say, well, now that you depended on us for your grain, we can now impose sanctions, and you can’t feed yourself if you don’t follow the policies we want.

That was the policy that America tried to use against China after Mao’s revolution. And fortunately for China, Canada broke that monopoly, and said, well, we’re going to sell grain to China. And China was always very friendly to Canada in those earlier decades.

So basically, free trade means no government, no socialism. It means central planning essentially by Wall Street–countries should let American firms come in, buy control of their raw materials, resources, control of their oil and gas, and mineral rights, and forests and plantations, and basically let other countries send their whole economic surplus to the United States, where it will be duly financialized to buy out other countries’ raw materials and rent yielding resources.

BENJAMIN NORTON: Yeah, and in your book, you have a very funny passage that I think really encapsulates this ideology that you’re talking about here.

You referred to Charles Wilson, who was the secretary of defense under Eisenhower in the U.S., and he was also the former CEO of General Motors.

And he famously said, “What’s good for General Motors is good for the country.” And that idea has morphed into the idea that, “What’s good for Wall Street is good for America.”

And then you note that “this merged with evangelistic U.S. foreign policy that says ‘What’s good for America is good for the world.’ And therefore the logical syllogism is clear: ‘What’s good for Wall Street is good for the world.’”

And you describe this, you link it to the new cold war, this idea that what’s good for the U.S. is good for the world and what’s good for Wall Street is good for the U.S., therefore, what’s good for Wall Street is good for the world.

You argue, “We must recognize how finance capitalism has gained power over industrial economies, above all in the United States, from which it seeks to project itself globally, led by the financialized U.S. economy. Today’s new Cold War is a fight to impose rentier-based finance capitalism on the entire world.”

And this is such an important analysis. Because among those very few people of us who talk about this idea of the new cold war and how dangerous it is, there are very few people who frame it in economic terms.

Usually we frame it in political terms, right, the geopolitical interests between the U.S. and the EU on one side, and China and Russia on the other.

And going back to Brzezinski and The Grand Chessboard, his 1997 book, where he talks about the importance of preventing near strategic competitors from emerging in Eurasia. That’s of course a geopolitical discussion and economics is part of it, but it’s often not at the forefront.

But your analysis I think is even more important, and more accurate, because your argument is not only is it geopolitical, but the geopolitical struggle is rooted in economics. And this is an economic struggle between systems.

So talk talk more about the new cold war and how you see it.


MICHAEL HUDSON: Well, as we’re seeing now, the world is dividing into two parts. We can see that in the fight against Russia, which is also a fight against China, and against India, as you noted. And it seems Indonesia and other countries as well.

The United States is pushing a world that can be controlled by American investors. The ideal of the American neoliberal plan is to do to other countries what it did to Russia after 1991: take all of your public domain, your oil companies, your nickel mines, your electric utilities, give them all to the wealthy oligarchy, that can only make money once it’s taken control of these companies, by selling the stocks to the West.

The West will buy out oil, just like Mikhail Khodorkovsky tried to sell Yukos oil to Standard Oil in the West. And we’ve got to put an oligarchy that will sell all of the national domain, all of the patrimony and natural resources, and all the companies, to American investors on the cheap.

The Russian stock market led all the stock markets in the world from 1994 up to about 1998. This was a huge rip off. The United States wants to be able to do that to the rest of the world.

And it was furious when Russia said, we’ve lost more population as a result of neoliberalism than we did in all of World War Two fighting against Nazism. We’ve got to stop.

And Russia began to say, we’ve got to use Russia’s population, and industry, and natural resources for Russia’s benefit, not for the United States’ benefit.

Well, the United States was absolutely furious with this. And the fury has erupted in the NATO war against Russia in the last few months, and what’s ongoing now.

And the United States says, U.S. State Department officials have said, what we want to do is carve up Russia into maybe four different countries: Siberia, western Russia, southern Russia or Central Asia, maybe northern Russia.

And once we’ve done that, we cut Russia off from China, then we go into China. We finance, we send ISIS and al-Qaeda into the Uyghur areas, the Muslim areas, and we start a color revolution there. And then we break up China, into a northern part, a southern part, a central part.

And once we break them up, we can more or less control them. And we can then come in, buy up their resources, and take over their industry, their labor, and their government, and get richer to obtain from China, Russia, India, Indonesia, and Iran the wealth that we’re no longer producing in the United States, now that we de-industrialized.

So the world is dividing into two parts. And it’s not simply the United States and its European satellites on the one hand versus the non-white population on the other hand; it’s finance capitalism versus the rest of the world, which is protecting itself by socialism, which in many ways fulfills what was the ideal of industrial capitalism during the 19th century, when industrial capitalism was actually progressive.

And it was progressive. That’s part of the whole theme of my book. It was revolutionary. It tried to free economies from the legacy of feudalism, from the legacy of hereditary landlords.

And now the financial class is no longer the landlord class, but the landlord class pays most of its rent to the financial class in the form of mortgage interest, as it borrows money to buy property and housing and commercial sites on credit.

And you have the kind of financialization that has increased housing prices in the United States to over 40% of income, that is officially guaranteed for mortgages. That has priced American labor out of the market.

Privatized health care, 18% of GDP, that is pricing America out of the world market. Debt, auto debt, student debt, which in other countries education is free; that’s pricing America out of the market.

So you have a basically un-competitive economy that’s committing financial suicide, following the same dynamic that destroyed the Roman empire, where a predatory oligarchy took over and maintained power by an assassination policy of its critics, just very similar to what America has been doing in Latin America and other countries.

So you’re having history repeat itself with this same kind of world split. And this split couldn’t have occurred back in the 1970s, with the Bandung Conference in Indonesia. There were other attempts by the Non-Aligned nations to break free of American imperialism, but they didn’t have a critical mass.

So right now, for the first time, you have a critical mass. And you have the ability of China, Iran, Russia, India, other countries together to be self-sufficient. They don’t need relations with the United States.

They can handle their own; they can create their own monetary system outside of the International Monetary Fund, which is basically an arm of the Defense Department. They can give loans to build up the infrastructure of countries outside of the World Bank, which is basically an arm of the Defense Department, the deep state.

So you have the American economy–essentially a merger between the military-industrial complex and the Wall Street FIRE sector, finance, insurance, and real estate–really cannot develop any more than the Roman Empire could develop, by trying to obtain militarily what it could not produce at home anymore.

Well, China and other countries, now that they have their industrial base, the raw materials, the food, the ability to feed themselves, the agriculture, and the technology, they can go their own way.

And so we’re seeing in the last few months the beginning of a war that is going to go on for, I think, 20 years, maybe 30 or 40 years. The world is splitting away.

And it won’t be a pretty sight, because the United States and its European satellites are trying to fight to prevent an inevitable break away they cannot prevent, any more than Europe’s landlord class could prevent industrial capitalism from developing in the 19th century.

(Continued on following post.)
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Re: The crisis of bourgeois economics

Post by blindpig » Fri May 13, 2022 2:12 pm

(Continued from previous post.)

BENJAMIN NORTON: Yeah, and this is a good segue to what I wanted to ask you about, Professor Hudson, which is the economic war on Russia.

And I should say, of course, that today is May 9th. Today is Victory Day in Russia, celebrating the Soviet Union’s victory over Nazi Germany in World War Two. Not the U.S. and British victory over Nazi Germany, the Soviet victory, in which 27 million Soviets died.

And actually I should say that, here on YouTube, in the comment section, there are some Russians who are your fans, Professor Hudson, saying they’re thanking you for your cogent analysis of Russia.

But on the subject of Russia, Professor Hudson, we now have seen that since Russia’s military intervention in Ukraine on February 24th, we saw really what could be referred to as financial shock-and-awe. That’s a term that’s been used.

Just as when the U.S. invaded Iraq, it waged a military shock-and-awe campaign on Iraq. Well, now it is waging economic or financial shock-and-awe on Russia.

And Russia has been referred to as the most heavily sanctioned country in history. Which I think is probably accurate, although maybe the DPRK, maybe North Korea, is more sanctioned. But I mean we’re talking about levels of sanctions not seen against a country of this size ever.

And you can also refer to it as the contemporary equivalent of medieval siege warfare against Russia.

Joe Biden, in a speech in Poland, made it clear what Washington’s goal is: it’s regime change. The U.S. wants to overthrow the Russian government, as it did in the Soviet Union in 1991, and clearly install a a pliant alcoholic neoliberal puppet like Boris Yeltsin.

So can you talk about, from an economic perspective, what do you see as the effects of this economic war on Russia?

And specifically in terms of the concept of decoupling, which you have talked about for years, and you have said that the Western sanctions on Russia and China were accelerating that process of decoupling. And this was before the financial shock-and-awe we’ve seen.

So you talked about a move away from this neoliberal globalization where everything is interconnected, or at least capital is interconnected globally, to the creation of a kind of, what you could say is kind of an economic iron curtain.

But how do you see that also in terms of integrating the Eurasian economies more deeply?

And also what is the effect on the European economies, which my impression is that Europe is going to become what you call an economic dead zone, more and more reliant on the U.S., whereas Russia, China, and Iran, and even potentially India, Pakistan, Bangladesh, Indonesia–we’re seeing much more economic integration of Asia, which is, of course, where the majority of humanity lives.


MICHAEL HUDSON: Well you have used the words shock-and-awe, picking it up from the U.S. statements of shock-and-awe. There hasn’t been any shock-and-awe; there’s been a self-defeating piffle, and laughter.

That’s not all. There was an attempt to grab $300 billion of Russia’s foreign reserves, saying, well, any country that leaves their reserves in American banks or in the American Monetary Fund to stabilize their currency, we can grab if we don’t like their policy.

So the idea was, now Russia is going to go broke. It can’t afford to buy anything without U.S. dollars. And the people are going to get so angry, they’re going to vote against Putin. And then we can pour in our money to twerps like Navalny and other right-wingers who have promised to be the new Yeltsins.

Well, it didn’t work that way. They did grab the $300 billion of Russia’s reserves. Russia immediately said, ok, we have our own money. We now, fortunately, have enough oil and gas that we don’t have to sell to Europe and Germany. If they want to freeze in the dark and let their pipes burst when the weather gets cold, that’s their problem. We’ll sell to India, and China, and other countries.

And there was, for a few days, the ruble plunged, by saying, uh oh, what is Russia going to do? So all the foreign exchange traders thought, you can trust Biden to have a really brilliant policies.

I think Paul Krugman, the Nobel Prize winner, said Biden is the greatest American president since Roosevelt, or since Truman, that he was so smart. Well, that’s why Krugman got the Nobel Prize, for making statements like that.

So immediately Russia said, well, obviously we can’t get paid in dollars anymore, or in euros, because, you’ll just grab them, so you’ll have to buy oil and gas in rubles. We’re going to price it in our own currency. Just like China had talked about pricing its exports in yuan.

And so what has happened is that immediately the ruble not only recovered, but is now selling at a higher rate than it was before the American sanctions. So there was no shock at all. The Americans felt shock.

The Americans are shocked. The Americans are awed. The Russians are laughing and everything is going their way.

So it’s almost as if–I would not accuse Biden of being on the pay of Russia, and I would not say that the leaders of Congress are the Russian agents, but if they were Russian agents, if they were paid by Russia, they could not have done a better job of helping Russia catalyzing its protectionism that it wouldn’t do itself.

The fact is that President Putin and many of the people around him still were neoliberals. I mean, they began as neoliberals, in the ’90s.

They began by hoping that they could make an arrangement with Germany and Europe, that Europe would develop their industry and make Russia as efficient an economy as Germany or the United States. Well, obviously that hasn’t happened.

All the same, they didn’t think of imposing protective tariffs as the United States did. They didn’t protect their agriculture. They bought grain, and cheese, and other agricultural products from the Baltics, and from other countries.

Well, now that, once the Americans put on the sanctions, beginning already under the Trump administration, all of a sudden Russia had to produce its own food.

And it did. It made the investment. It is now the largest agricultural exporter in the world, not a food-deficit country. It’s not importing any more cheese from Lithuania and the Baltics. It has its own cheese segment.

And the sanctions are forcing Russia to do exactly what the United States, Germany, and other protectionist countries did in the 19th century, developing their own industry by isolating it from low-priced foreign imports that would be priced so low that the Russians otherwise could not afford to make the investment in factories, plants, equipment, research, and development.

So what the United States has done is actually catalyze Russia moving together.

And also, for three or four years, I have been talking with Russians, and with the Chinese, and other countries about the need to de-dollarize. If you want to develop your own economy, you have to develop your economy in your own interest with public spending and planning, independent from the United States.

Well, now everybody thought that, well, in a few years it may take a decade for China, Russia, Iran, all these countries to break away from the U.S. But America said, we’re going to help you, we’re going to speed up the breakaway process. We’re going to isolate you. So you’ve got to band together against us.

So that’s exactly what it has done. You can just imagine how the Russians are crying all the way to the bank about this.

And how China is watching what the Americans are doing to Russia, and listening to President Biden saying, you know, Russia is not our real enemy, our real enemy of China. And when we’re finished with Russia, then we’re going to go against China and do the same thing to it.

Well you can imagine what this is leading the Chinese government to try to plan to be sufficiently independent from the United States, so that similar type sanctions will not hurt it.

And President Xi in the last few weeks has said we’ve got to make China as independent as possible. We’ve got to make our own computer chips. We’ve got to not depend on the United States for anything, except maybe Walt Disney movies. That’s basically about it.

So it’s as if–you know, I had mentioned earlier that finance lives in the short term. American policy, being financial policy, lives in the short term. And it’s looking at if it can make a quick, a quick victory, and forget about what’s going to happen next.

I’m told that, years ago, already from the war with Iran, and then Iraq and Syria, in the State Department, if there were Arab specialists who spoke Arabic, they were all fired. Because they said, well, if you can speak Arabic, you must’ve learned Arabic because you’re sympathetic with them. You’re fired. We won’t have anyone who can read Arabic here.

Well, now in the last decade or so, they fired all the Russia specialists from the the State Department and CIA, saying, well, if you can read Russian, why would you want to learn Russian? You must like something in Russia. You wanted to learn it. You’re fired.

So they have people who have no idea of what’s happening in Russia, no idea what’s happening in these other countries. And they’re blinded by their ideology.

And if anyone would say, wait a minute now, public planning and making education a public utility is actually making them more competitive, well, that’s against the ideology. That’s not the corporate type.

And they’re taught, well, we really can’t trust people, maybe they’re tending toward socialism, and they’re out the door.

So you’re having American policy pretty much run by the blind, and the Europeans are simply taking orders, and money in little white envelopes from the United States, to just show their loyalty, and basically are willing to spend three to seven times as much for their energy, for their liquefied natural gas and oil, by buying from the United States, than they are by a long-term contract with Russia.

Europe is willing to spend now $5 trillion on putting together ports that can handle shipping tankers for liquefied natural gas instead of relying on the Russian pipeline, the Nord Stream Two, that’s already there.

So Europe is making an enormous sacrifice. If it doesn’t have Russian gas, and it refuses to pay rubles, it says, if you don’t give us our gas and oil for free, you’re attacking us, because we’ve been getting all of your oil and gas for free, because all the dollars, all the money we pay, you’ve recycled to the United States in your foreign reserves. Thank heavens, the U.S. can grab it all. If you don’t continue to give it to us for free, then you’re attacking us.

To the United States, other countries protecting their economy, other countries trying to raise their living standards, and especially other countries undertaking land reform, are viewed as enemies of the United States, because they’re an enemy of the neoliberal American financial system.

And the idea of the unipolar world where the United States gets all of the profits, and rents, and interests of the world economy, just as ancient Rome stripped its provinces by getting all of their wealth and income for themselves, not producing it at home, while impoverishing their own domestic population. It’s just an exact parallel.

So Europe is willing to say, well, ok, if we don’t have a Russian gas, well, that means that our chemical companies cannot buy the gas to make the fertilizer to make our crops grow, and our agricultural productivity is going to fall by about 50%.

We’re also going to spend a lot more money on America’s military, NATO arms to support NATO. So higher food, higher military spending, higher energy costs.

This ends Europe as an industrial rival to Asia, and Eurasia, I should say, because now the Chinese Belt and Road Initiative and other spending investment, capital investment, throughout Western Asia is creating a new productive plant that is not only self-sufficient, but is leaving the United States and Europe without any industrial competitive power. They’ve priced themselves out of the world market. They’re no longer competitive.

So the world is developing. And I’m sure the only way that the NATO countries can fight against it is militarily, by threatening to bomb. But they can’t fight economically. They can’t fight financially. They tried by disconnecting Russia from the SWIFT system. It put it in its own system very quickly.

It really is left without a strategy, except that it’s done a wonderful job of controlling the public relations dimension of this war, making it appear as if somehow other countries are the aggressors, in not letting America exploit them, and making it appear as if Russia is the aggressor in Ukraine, instead of NATO prodding and prodding Russia to say, we’re going to capture your port at Crimea, and we’re going to attack the Russian-speakers if you don’t fight back, and we’re going to keep bombing them year after year, from 2014 on, we’re going to keep bombing them until you protect them.

So all of this is treated as if America is purely defending itself. Well, this is what the Nazis said in World War Two. Hitler and Goebbels said, we can always mobilize a population to support our war by saying it’s a war to defend ourselves.

And that’s how the United States in Europe are doing it. Not only are they pulling a strategy out of Goebbels’ Nazi book, but a few weeks ago, Germany went to the museums, the military museums, where they had the old Panzer tanks from World War Two, and they sent the Panzer tanks, the Nazi tanks from World War II, to Ukraine, saying this is symbolic, now we can fight Russia with the same German Nazi tanks run by the neo-Nazi groups, that Zelensky is supporting, the same Nazi fight against Russia. We can reenact World War Two with the same tanks, even symbolically, to show that this is a fight of Naziism, and neoliberalism, against Eurasia.

BENJAMIN NORTON: We’ve also seen Germany not only re-militarizing, but also boosting its relations with Japan. There are some terrifying echoes of of World War Two.

But you mentioned something that I want to analyze a little bit more, which is the strength of the Russian ruble. I talked about the concept of financial shock-and-awe that was waged on Russia. And President Biden said, “the Russian ruble has become rubble,” he joked. He said the Russian ruble has become rubble.

Well, that’s actually not at all what happened. This is the value of the dollar to Russian rubles, right now [showing a graph]. Russian rubles are at 69 to the dollar. A few days ago, it was at 64, or 65 to the dollar, which is actually better than it was even before the Russian war in Ukraine, which began in February 24th.

And it did spike, and there was a peak here, at which it was devalued to 139 to the dollar, about half the value it has now. But in the months leading up to the Russian military intervention, in November and December, it was around 75 to the dollar.

So the ruble has actually strengthened despite these sanctions. And here’s a report from Reuters from five days ago, that was May 4th: the “Rouble leaps to over 2-year high vs dollar, euro as EU ups sanctions.” So the ruble is doing quite well.

And you talked about the Russian mechanism to force Europe to buy energy exports from Russia in the Russian ruble. And this graphic here, for people watching, it’s in Russian, but really it just shows this mechanism in which a European firm that wants to buy gas from Russia’s state owned gas giant Gazprom, it has to send the money in euros to the Gazprombank, which is the obviously the bank that works with Gazprom, and then it puts it in a special account in euros, and then that is sold in the Moscow exchange for Russian rubles.

And then those rubles are put in another special account, called a K account, that belongs to that European firm. It has two accounts, two special accounts with Gazprombank, one in euros, one in rubles. And then this special ruble account sends that money to Gazprom. And then once the money reaches Gazprom, that’s when Russia considers that the payment officially went through.

So this is the mechanism by which Russia is getting paid in rubles. And much of Europe claimed at first that they would not do so, but eventually they gave in. So that’s an incredible development.

And related to that, what I wanted to ask you about, is I think another reason that the Russian ruble has strengthened and stabilized is not only because Russia continues to maintain constant exports of energy to Europe and other parts of the world.

You can talk about the central bank policies. But one of the policies is that the Russian central bank has basically put the ruble on gold, which I think is a very interesting and historic development.

And we saw that from the beginning of April until the end of June, the Bank of Russia says that it’s going to buy gold at a fixed price of 5000 rubles per gram of gold. And then the question is whether or not in July, when this policy ends, if it’s going to continue, and if the ruble will basically become fixed, it become pegged to gold like the U.S. dollar was up until 1971.

So you don’t think it will be? So talk about this policy. Do you think that that the gold standard is going to come back? Or apparently you don’t think so.


MICHAEL HUDSON: No, Russia is not going on on the gold standard. What it is doing is investing, its foreign exchange in the only way that is not grabbable. It’s investing it in gold; it’s putting gold in its reserves.

It is not setting its exchange rate according to the price of gold, but it is buying gold with what it has been getting.

I want to go back to your talk about rubble. You talked about, “from ruble to rubble,” what President Biden said.

There have been a lot of pictures of rubble in the news for the last few days. For instance, there are talks of, here’s a Ukrainian picture, and look at this picture of a Russian tank, we shot it down, it’s rubble. Turns out it’s a Ukrainian tank, that they just say it was the Russian tank we shot down.

So basically, they’re taking their own destruction, and they’re saying that, while they’re being destroyed, they’re saying, no, this is a picture of Russia being destroyed, Russian assets, not Ukrainian assets being destroyed.

Well, the similar thing is with the Russian ruble. America says, look, we’ve isolated the the ruble. Well, what has happened? If you isolate the ruble and you say we’re not going to export anything more to Russia, so it’s not going to be able to spend any of its rubles on buying American or European products.

Well, meanwhile, Russia can continue to earn rubles from Germany and Europe, and it can continue to earn foreign exchange from other countries that it’s selling its agriculture to at rising prices, its oil and gas at rising prices, too. So obviously, the balance of payments is going way up.

And they believe that what is in store is a new monetary system that is an alternative to the dollar IMF system.

And in this system other countries will hold their reserves in each other’s currencies. In other words, Russia will hold Indian rupees and Chinese yuan. China will hold rupees and Russian rubles.

There will be the equivalent of what Keynes thought of as something like artificial special drawing rights that the banks will be able to create to help fund governments to undertake capital investment.

But for settlements settling balance of payments deficits among countries, once they don’t have enough foreign exchange to make a swap, they will use gold as the means of settlement, because gold is a pure asset. It’s not a liability.

Any foreign currency basically is held in a foreign country that has the power to do what America did to Russia and just grab it all, and say, we’re just wiping it all out.

It’s as if you have a bank account, and the bank says, we’ve just emptied out your account to give it to one of our friends, and you don’t have it anymore. You can’t do that if gold is held in your own country.

Venezuela made the problem of keeping its gold in England, trusting England, saying that, even if there is war, they’ll never interrupt gold and finance. And England just grabbed Venezuela’s gold.

So, obviously, countries are not going to leave their gold in other countries. Even little Germany has asked America to begin sending back the gold that it has in the Federal Reserve Bank of America because it’s worried that what if it ever buys Russian gas again? America will grab all of Germany’s gold, grab all the German money, and it’ll be like World War One all over again.

So this act that America did of grabbing Russian money, Afghanistan’s foreign reserves it grabbed, this is telling all the other countries, pull all your money out of dollars. What are they going to put it in? There’s not that much they can put it in that it is absolutely safe.

So gold is a flight to safety today, because it’s one of the things that all of the world realizes as having an international value for settling balance of payments deficits, that is independent of world politics.

So that’s the explanation. Russia is not going on gold. It’s going on an independent standard from the United States with gold as an element of its foreign reserve, just as it’s holding Chinese yuan and Indian rupees.

It’s not going on the rupee standard. It’s not going on the yuan standard. And it’s not going on the gold standard. But these are elements of its foreign reserves.

BENJAMIN NORTON: I have a question for you. It’s kind of a more technical question that I’ve always wondered. And I’ve tried to do research on this, because there’s not much information.

So we know that that the U.S. and European Union have frozen over $300 billion from Russia’s central bank foreign exchange reserves. And of course they did this after doing the same to Iran, to Venezuela, to Afghanistan, which is now threatening a famine in Afghanistan that could kill more people than died in the 20-year NATO-U.S. military occupation of Afghanistan, which is another topic that really needs to get more coverage.

And I should add, by the way, that the U.S. and the EU, they’ve frozen nearly half of Russia’s central bank’s foreign exchange reserves, and are now saying they’re not going to give it back. So they stole it. I mean, they stole half of its reserves.

My question is, what is the mechanism by which they effectively freeze and steal those reserves?

Because my understanding is that there is of course a physical element of those reserves, which you’re talking about, which is gold. But not all of the $640 billion in Russia’s central bank reserves is physical currency, right? A lot of it is just computerized? It’s number in computers and bank accounts.

So when when the U.S. and the EU steal this money from central banks like in Russia or Afghanistan–obviously in the case of Venezuela, as you mentioned, they physically stole the gold. But if it’s not gold, is it physical cash stored in Moscow, like physical dollars and euros? Or it’s mostly just numbers in a computer, which is why they can steal it?


MICHAEL HUDSON: Every country needs to manage its exchange rates, and there’s always like an up-and-down and a zigzag in the flow of payments for imports and exports, investment, capital movements, debt service, all of that.

So countries want to stabilize their exchange rate. How do they do that? Well, most of the big exchange markets are in New York and in London.

So countries would leave their money in correspondent banks. Like when Iran, at the time under the shah, kept that foreign reserve in the Chase Manhattan Bank. So when Iran, after the revolution and Khomeini came in, and Iran wanted to pay interest on the foreign debt that the shah had run up, they told Chase, please, here’s our bondholders, please pay them.

Well Chase was told by the Treasury, don’t pay them, just take the money and hold it. So Chase said, we put a freeze on your account. And so Iran defaulted, and then Chase and the State Department said, oh, Iran defaulted, it missed the payment. Now, all the money that it’s due for foreign debt has to be paid all at once. And Chase paid all of the bondholders off. No more money in the account. It was all emptied out.

Suppose you had an account in Chase Manhattan. And they said, ok, now you’ve done something really bad, you put Michael Hudson on the show. We’re going to grab your account. We’re going to give it to Mr. Guaidó, because he needs the money in Venezuela because the people still are not voting for him. So all of a sudden, you won’t have money in your account. It’ll go to Mr. Guaidó’s account.

Well, that’s what happened with Russia. They took the money. They grabbed the money from Russia’s account. And they said, half the money we’re going to give to, I think, to the 9/11 people, because we all know that it was Russia that bombed the World Trade Center on 9/11.

And we’re going to give it to all sorts of other people who suffered all over the world. It’s all Russia’s fault.

BENJAMIN NORTON: But Professor Hudson, when you say that they seized Russia’s assets, you mean the assets held by the Russian central bank in foreign bank accounts?

MICHAEL HUDSON: Yes, yes.

BENJAMIN NORTON: And these are not physical assets, these are numbers in a computer, right?

MICHAEL HUDSON: In Venezuela’s case, Venezuela had used some of its oil company earnings to buy oil stations and refining companies and the United States actually grabbed the ownership of the gas stations and the refineries and distribution system that Venezuela had in America.

BENJAMIN NORTON: It’s called Citgo.

MICHAEL HUDSON: Citgo, yeah. Russia doesn’t really have any capital investments in the United States. It did have bank accounts, and that was all that the United States could grab.

BENJAMIN NORTON: So when you say that, when Russia, at least for now, the central bank is allowing convertibility of rubles at a set rate into gold, that’s a temporary policy to make sure that they have a physical asset that their central bank can hold on to, because if they have dollars or euros in their reserves, my understanding is that’s not physical cash, it’s actually just numbers in a computer, so they don’t have it physically in their bank reserves, so it’s easy to steal that money.

Obviously, if they had billions of dollars worth of cash, of paper cash, it would be much harder to steal it, but if it’s just on a bank account, if it’s numbers in a computer, then they can just freeze it.

So I think this is also a reflection of a point that you’ve also made about the financialization of the economy, is it’s also just a lot of this capital is not even physical capital.


MICHAEL HUDSON: Yes. Savings take the form–one person’s savings is another person’s debt. So these are Russia’s deposits in American banks that it used to buy or sell rubles, or to buy goods from America, or to receive payments in, if Russia exports something such as oil. Americans buyers of Russian oil would put the money into the Russian bank account.

They never dreamed that this would be grabbed. But now Russia says, ok, you’ve grabbed our money, now that means that we get to grab all of your assets in Russia. This is great! All of your stock holdings in nickel, and Yukos, and all these other companies, ok, you’ve got the money, we have the assets, look at us as just buying the assets on the cheap.

And the Western investors in Russia have all been selling their Russian assets to show that they’re good American citizens in NATO, and the Russians are buying up these European and American assets on the cheap, largely by borrowing money from the banks, that get the money from the central bank, now that they’re so wealthy, and all of the foreign exchange reserves is a result of the American shock-and-awe statement, that’s sort of shock-and-awe in reverse.

So Russia is coming through just fine. And you can imagine how the American strategists are gnashing the teeth. They don’t understand how Russia was able to avoid being bankrupted by this.

They really are not economists. They’re not really financiers. They’re foreign-policy strategists. They’re ideologues that are not very well educated in how to think about the future and how to recognize the fact that the world can actually change from what it is today into something else. And sometimes that change is not in America’s interests. That is sort of not a permitted thought over here.

So essentially, Americans and Europe are operating in the blind, and Russia and China, and Iran, and India, are all looking at how are we going to restructure the world so that we come out of it more prosperous than we were before, not more impoverished. That’s really what the world is dividing into.

BENJAMIN NORTON: Professor Hudson, I don’t know if this is directly related, but it’s it’s something that’s always been a very curious question in my mind.

Germany, back in 2016 and 2017, it moved, physically moved, its central bank’s gold reserves, which had been stored in New York, London, and Paris, and it physically moved those reserves, those gold reserves, to Frankfurt.

Now this was before the U.S. and Britain stole Venezuela’s gold reserves and other reserves. But do you know anything about what motivated Germany’s central bank to move the physical location of its gold reserves into Germany itself?


MICHAEL HUDSON: I don’t think it’s all moved yet. It’s still going on. Gold is very heavy, as heavy has lead, basically. And America said, well, we can only do a little bit, trickle by trickle. So America has been returning the gold very slowly.

So I think Germany, with all of its history of hyper inflation, I think just realizes that, now that gold is not used to settle balance of payments deficits anymore–the gold that Germany had in America was all of the exports that it made to the United States during the Vietnam War. This is Vietnam War gold.

You remember that President de Gaulle would every month cash in, the dollars that America spent in Vietnam would all be spent from Vietnam to Paris, the dollars would end up there, the central bank of Paris would essentially buy gold on the London exchange and keep the gold either in New York or in London.

Well, Germany, because America defeated Germany, and it wasn’t going to keep its gold in Russia, that defeated it even more, it said, well, ok, we’re cashing in our surplus dollars for gold, but we’re going to hold the gold in America.

But now it says, well, America is never going to settle its balance of payments deficits and its foreign debt in gold again, because it doesn’t have any balance of payments surplus, any ability to do that.

It’s going to spend its export surplus and its investment surplus on war. So it’s never going to be able to pay. That’s obvious. Let’s get the gold back.

That was the calculation that every country was making already a decade ago. They realized that America can never repay its foreign debt, unlike other countries.

When other countries can’t pay their foreign debt, they have to go to the International Monetary Fund, that tells them, well, we’ll make you a loan, but you have to sell off your natural resource reserves to the Americans, or we won’t lend you the money.

Well, basically, that’s not going to happen anymore. They realized that America is just going to say, haha, we’re just not going to pay.

Well, now other countries are saying, wait a minute, if America’s never going to repay its foreign debt, why do the Global South countries have to pay their debt to the IMF and the World Bank, all this dollar debt to dollar bondholders?

If America won’t pay, we don’t have to pay. Let’s have a clean slate. Let’s start from the beginning. And we’re only going to have debt and credit relations with friendly countries, not countries that want to go to war with us like America did in Afghanistan, Syria, Iraq, Iran, and now Russia.

So that’s basically what’s happening.

BENJAMIN NORTON: Great. And just to wrap up here, I have another question. And I know your time is limited, so I really appreciate you being here.

I have a quick question about the decline in U.S. dollar hegemony. We were talking about the strength of the ruble, the economic war on Russia; we talked about the bilateral trade that’s growing between Russia and China using the Chinese yuan, between Russia and India using the Indian rupee. And Iran also is talking about doing business with a basket of currencies.

I want to point to a report that was recently published by economists who work with the IMF. And I published an article about this over at Multipolarista.com, “IMF admits U.S. dollar hegemony declining due to rise of Chinese yuan and sanctions on Russia.”

And there is this report that was published by the IMF, by these economists, and I cite you, Professor Hudson, in this report. It’s a working paper from the IMF, published in March, titled “The Stealth Erosion of Dollar Dominance.”

And here’s a graph, for people watching, here’s a graph from the report. And it shows not a large, but a noticeable and consistent decline in the use of the holding of the U.S. dollar in the foreign exchange reserves of central banks around the world. So this is around the world.

And it has declined in the past years from about 70% of central bank exchange reserves to about 60%. So a 10% decline. That’s not massive, but it’s steady and I think it’s going to accelerate.

And at the same time they’ve also found an increase in the use of what they call “non-traditional currencies” in the foreign exchange reserves of central banks around the world.

And here you can see this graph. I mean it looks like a significant influence because if you look at the y-axis it’s only from 90 to 100. But there is a significant increase in the use of other currencies in foreign exchange reserves, aside from the U.S. dollar, the euro, the Japanese yen, and the British pound. And the currency that is increasingly popular is the Chinese yuan.

So that’s one half of my question. The other half is about this interesting report that was published in the Financial Times, and it’s titled “Russia Sanctions Threaten to Erode Dominance of Dollar, says IMF.”

And the FT interviewed the IMF’s first deputy managing director, Gita Gopinath, who acknowledged that the sanctions imposed on Russia over its military intervention in Ukraine could lead to what she says “fragmentation at a smaller level.”

And she did say that the dollar is eroding influence, but “would remain the major global currency.”

So, that’s a two part question. I’m wondering if you could talk about the decline in U.S. dollar hegemony and how the sanctions will potentially erode that. And then the other half of the question is, can you comment on the declining use of dollars in foreign exchange reserves?


MICHAEL HUDSON: Well, this is what my book “Super Imperialism” was all about. When I first published it in 1972, I could see how the whole thing was unfolding for the next 50 years. And we just published last year a third edition of it, bringing it up to date.

Dollar hegemony means America’s entire balance of payments deficit in the ’50s, ’60s, and ’70s was military. So the dollars that were being pumped into the world economy were the result of military spending.

But the dollars would end up in foreign central banks, especially from Asia to France, Germany, others. What were they going to do with it? Well after 1971 they could not buy gold anymore, so all they could do was buy U.S. Treasury securities. IOUs.

And so they re-lent to the Treasury all the money that America was spending militarily. And the more money America spent in waging its cold war militarily against the world, the more money central banks would lend to the U.S. government to finance the U.S. deficit that was spent largely on the military-industrial complex and foreign military operations.

So dollar hegemony was a free lunch financing America’s almost 800 military bases across the world, to fight against communism, defined as any country that doesn’t let American industry and finance buy control of its raw materials, agriculture, resources.

And this has now come to an end. Right now America has grabbed Afghanistan’s, and Russia’s gold. All of a sudden it’s obvious that, this summer, there’s going to be an enormous squeeze on Third World countries, on the Global South.

Their energy prices are going to go way up, and that’s going to hurt them just like the oil shock of 1974 and 1975 did.

They’re going to have to pay higher food costs, because of food prices are going to go way up now that the Ukraine war is erupting.

And a lot of their foreign debt, dollarized debt service, is coming due. And they’re facing a choice: if they pay the foreign debt, they can’t afford to buy the oil and energy that they need to run their factories and heat their homes. They can’t afford to buy the food to feed their people. Whose interests are they going to put first?

Well of course their leaders are going to put America’s interests first, and their own interests second, because their leaders, if they’re a client oligarchy, are put in power by the U.S. military, as sort of miniature Pinochets, throughout Latin America and other countries.

So suppose other countries decide, well, we’re going to feed ourselves and we’re not going to wreck our economy just to pay foreign bondholders. We’re a sovereign country. We’re going to put our national interests first.

Well, then the United States can say, aha, we’re going to grab all of your foreign assets in the United States.

Well, other countries can say, oh, they’re going to do to us just what they did to Afghanistan and Russia. Let’s move our money out of the United States quickly. If we don’t have dollars, well, it’s true, we can’t pay our dollar bondholders, but at least we can, in international markets, we can buy the food and the energy we need.

And so the tensions, the disruption of world prices, and inflation, and trade that is a result of the NATO attack on Russia, now threatens to drive all of the southern hemisphere countries into an alliance with Russia, China, India, and all the rest.

So America basically is creating a new Berlin Wall, but the wall is isolating itself from other countries, and driving other countries all together into what I hope will be a happy, self-sufficient, non-U.S. globalized economy.

BENJAMIN NORTON: Well, I want to thank you, Professor Michael Hudson. It’s always a real pleasure having you. I know you’re very busy, so thank you for giving us so much of your time.

I’ll say that the comment section here on YouTube has been very vibrant, with some interesting conversation. And what’s nice is there are people from all over the world, from the U.S., Latin America, Europe, and from Russia. So it’s good to see a mix of people.

And for anyone who wants to listen to this, you can check out the podcast version if you look up Multipolarista on Spotify, and iTunes, and all the other podcast platforms.

And I’ll just say, while I wrap up here, that today we were talking about, at the beginning of this discussion, a new book that Michael Hudson is publishing this week. It is called “The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism.”

It’s a very good book. I had the privilege of getting a review copy early. So definitely check out that book. You can also find all of Professor Hudson’s writings at michael-hudson.com.

Thanks, Professor Hudson.


MICHAEL HUDSON: It’s really good to be here. It was a good discussion.

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Re: The crisis of bourgeois economics

Post by blindpig » Tue May 17, 2022 2:27 pm

IMF ‘double standard’ displays capitalism’s inherent inhumanity
May 16, 2022

Human lives in the periphery are worth less than human lives in the metropolis

Prabhat Patnaik’s recent books include A Theory of Imperialism (Columbia University Press, 2016) and Capital and Imperialism: Theory, History and the Present (Monthly Review Press, 2021), both co-written with Utsa Patnaik. This article was published in Peoples Democracy on May 15, 2022.

by Prabhat Patnaik

For over two years now, the world has been facing a pandemic the like of which has not been seen for a century, and which has already taken 15 million lives according to the WHO, without being anywhere near an end. This is an unprecedented crisis for humanity as a whole, which requires a massive effort on the part of every government, especially governments in third world countries where the people are particularly vulnerable not just to the disease but also to the destitution it brings in its train.

They have to expand hospital facilities, keep adequate numbers of hospital beds ready, create testing facilities, make vaccines available and set up vaccination facilities, and so on. In addition, the governments have to provide relief to the people through transfers, and succor to small producers who are likely to go under. All this requires an increase in expenditure on the part of governments.

But precisely because of the pandemic, production suffers and with it the government’s revenue at existing tax rates. Unless they raise wealth tax rates, they have to enlarge their fiscal deficits, therefore, as a proportion of GDP. They have in short to adopt policies that run directly contrary to the dictates of neo-liberalism, that violate all constraints imposed by so-called “fiscal responsibility” and that abandon all concern with fiscal “austerity.”

But let us see what has actually happened.

Precisely because of the slowing down or stagnation of the world economy, exports of third world countries suffer. To be sure, so do their imports because of the slowing down of their own GDP growth rates; but even assuming that exports and imports are affected to the same extent so that the trade deficit or surplus moves down in tandem with the GDP, the fact remains that inherited external debt commitments have to be met whose magnitude relative to GDP must increase. These debts need to be rolled over and their servicing has to be suitably deferred. In other words, even if the trade flows relative to the GDP remain the same for all countries after the pandemic as before, while the GDP itself stagnates, the external debt stocks rise relative to GDP because of this stagnation.

The debt burden, therefore, becomes greater and requires special accommodation to be offered to third world countries.

The most obvious way that this can be done is to have a debt moratorium for a certain number of years; and within contemporary world capitalism, the institution that has to be entrusted with implementing such a debt moratorium is the IMF, which should also be encouraging countries to abandon “austerity” and spend on people’s health and welfare during the crisis. In fact, the current managing director of the IMF, Kristalina Georgieva, has often told some member countries to abandon “austerity” in this time of crisis, from which one may get the impression that the IMF has at last seen the magnitude of the threat to mankind as a whole posed by the pandemic. For instance, she urged Europe recently not to “endanger its economic recovery with the suffocating force of austerity.”

But the reality, it turns out, has been quite different.

Oxfam has recently analyzed 15 loan agreements signed by the IMF with third world countries in the second year of the pandemic, and 13 of these explicitly insist on “austerity.” Such “austerity” measures include taxes on food and fuel and spending cuts by governments that would inevitably affect basic services like education and healthcare. In the case of six additional countries with which negotiations have been going on, the IMF is also insisting on similar measures being adopted by them.

This insistence on “austerity” cannot be dismissed as an exception. Earlier on October 12, 2020, Oxfam had reported that since March 2020 when the pandemic was declared, the IMF had negotiated 91 loans with 81 countries; and of these in as many as 76, namely in 84 per cent of loan agreements, there was an insistence on “austerity” which would not only make life harder for the poor people caught in the grip of the pandemic but also result in a squeeze on healthcare expenditure. The IMF’s insistence on “austerity” therefore continues as strongly as ever, even at a time when the people of the world can least bear its burden.

Not surprisingly, Oxfam has underscored the contrast between Kristalina Georgieva’s advice to Europe not to be constrained by “austerity,” and the actual program the institution she heads insists on for the third world, which is to observe “austerity.” On this basis, Oxfam has accused the IMF of using “double standards,” one for the advanced countries and a different one for the third world countries. The use of double standards is abhorrent at all times; but its use at the time of a pandemic which is affecting mankind as a whole is particularly abhorrent.

What the Oxfam analysis misses however is the fact that the double standards evident in the IMF’s behavior, are immanent in the nature of capitalism itself. Indeed, a class society necessarily entails double standards: a laborer cannot march into a bank and apply for credit, but of course, a rich person can apply for and obtain credit. Put differently, the amount of capital one can get from “outside” sources depends on the amount of “own” capital one has, which is why ownership over capital is an essential condition for being a capitalist. If this were not the case then anybody could become a capitalist, so that there would be perfect social mobility rather than a hiatus amounting to class division.

In fact, intellectual defenders of capitalism like Joseph Schumpeter who attributed the origin of profit not to the ownership of the means of production but to the fact that those who became capitalists had a special talent, which he called innovativeness, actually asserted that anybody with such innovativeness, namely anybody with an idea that can be used to create a new production process or a new product, can obtain a loan from banks and set up a business.

But such attempts to obliterate class divisions in society are palpably false; no agricultural laborer, no matter how innovative an idea he or she may have, can set up a business (though of course the idea can be stolen by a rich man to start a business).

Exactly in the same manner, in a world of imperialism where countries are divided into two distinct categories — metropolitan and peripheral countries — metropolitan banks would be much more loath to give loans to peripheral countries than to metropolitan countries; there will necessarily be “double standards” in the matter of giving loans. The IMF, as the custodian of international finance capital that is dominated by metropolitan financial institutions, has to maintain these “double standards” in sanctioning loans and in imposing conditions for getting back the loans.

The Oxfam-type criticism of the “double standards” on the part of IMF, therefore, is based on the misconception that the IMF is a well-meaning humane institution that is supposed to look after the interests of mankind, rather than being a capitalist institution that is supposed to look after the interests of international finance capital.

The IMF’s behavior is thus reflective of the very nature of capitalism, of its essential inhumanity. I do not mean “inhumanity” merely in the sense that it places profits before people, but also in the sense which follows from it, namely that it does not see all human life as of equal value, that it necessarily applies “double standards” in every sphere of life. For instance, when the demand is raised that polluting industries should be shifted from the metropolis to the periphery, the obvious assumption behind this demand is that human life in the periphery is not worth as much as human life in the metropolis.

The invidiousness of a social system that is based on this fundamental discrimination, or “double standards” if you like, becomes evident especially in periods like now, in the midst of a pandemic. When both humanity and sagacity demand that we should be concerned with all human life, no matter where it is located, a social system that discriminates between them, that considers some lives to be of value, not others, stands out for its inhumanity and irrationality.

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Re: The crisis of bourgeois economics

Post by blindpig » Wed May 25, 2022 3:03 pm

Capitalism and Baby Formula
Margaret Kimberley, BAR Executive Editor and Senior Columnist 25 May 2022

Image
Image: Babylon Bee

The baby formula shortage is not a glitch in the system. It actually exemplifies everything that goes wrong when the profit motive rules. Capitalism can't ensure a food supply or anything else that humans need.

“Socialism doesn’t work” is repeated like a mantra. We’re told endlessly that capitalism provides jobs, housing, food, and health care in this country when it does a very bad job of doing all these things. The United States is said to be “the richest country in the world,” a strange statement which implies that the people are prosperous even though they aren’t.

Gig work, housing insecurity, medical debt, and student loan debt are all common experiences for people in the U.S. Now, to add insult to injury, the system said to be so superior can’t even keep little babies fed.

There is an historic shortage of baby formula. There are parts of the country where food for infants simply can’t be found at any price. This headline is the most honest about the situation. “America is running out of baby formula because 3 companies control the market and babies aren’t that profitable .” There are only three baby formula manufacturers and one of them, Abbott, had to shut down its plant after a whistleblower revealed their product was contaminated. Two infant deaths may be related to the contamination, which went undiscovered despite Food and Drug Administration regulatory authority.

The Biden administration has invoked the Defense Production Act to increase the supply and now allows formula from foreign countries to be imported. They are making quite a show of their late in the day response to a situation that should have been addressed sooner. But the stop gaps to resolve a temporary crisis should not allow a bigger problem to go unmentioned. Capitalism is the problem. Transportation Secretary and onetime presidential candidate Pete Buttigieg admitted as much even as he tried to defend the failed state. “But let's be very clear. This is a capitalist country. The government does not make baby formula, nor should it. Companies make formula.”

In a better society, a socialist society, baby formula wouldn’t be sold by private interests. It would be provided free of charge to every family and yes, the government would make it. The “market forces” which we are told solve every problem actually create very serious ones. In this country even the effort to provide infant formula to all, regardless of income, is yet another means of supporting monopoly capital.

The Women Infants and Children (WIC) program provides exclusive contracts with just two companies in exchange for discounts. The handful of companies providing formula get rich but the market does not do a good job of caring for kids. Formula doesn’t provide a big enough profit margin to be of interest to corporations. This market we’re told to believe in with semi-religious fervor doesn’t provide for other needs very well either. Only public outcry from desperate parents got the needed response after months of shortages.

Even cynical politicians eventually pay attention when babies’ lives are at risk, but this problem is not unique. Higher education should be free or at the very least inexpensive as it was before neoliberalism turned the country into a failed state. Health care should also be free but the one promise Biden has kept is to make sure that doesn’t happen. The very term “medical debt” is an abomination yet it is the reason for most personal bankruptcies. It seems that baby formula is the canary in the failed state coal mine.

This time the crisis is about feeding babies but there are more to come. Food shortages and rising prices, gasoline prices, and voracious hedge funds snapping up houses are all symptoms of a very big problem.

Of course, capitalism creates all these crises but levels of indoctrination are so high that very few people make the connections. While all fingers should be pointed at the market forces which create so much misery, some people prefer to shame women who don’t breastfeed. Others are angry that babies in immigration detention get the formula that the law requires them to have.

Pete Buttigieg isn’t alone in cutting off any discussion of alternatives. The “socialism doesn’t work” trope is quite effective. Even as the quality of life diminishes in a myriad of ways, there is little improvement in the willingness to reject American exceptionalism and its many lies. The cognitive dissonance required to face these many predicaments is too great for many people to experience, even as their expectations of basics such as a steady supply of infant formula crumble around them.

This particular crisis will ease but it will be followed by more. There is still $1.9 trillion in student loan debt incurred by people who only wanted to improve their lives. After allocating $30 billion for policing, the Biden administration is telling states and localities to use unspent covid stimulus funding for the police, who apparently can’t get enough public money. Covid hasn’t disappeared and neither have any other health care needs that could sorely use this funding. Of course, the Ukraine cash cow has to be milked to the tune of an additional $40 billion.

When the next calamity hits the fan the true villain has to be named. Regardless of other symptoms, it is capitalism that causes our problems.

https://www.blackagendareport.com/capit ... by-formula

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Pete Buttigieg: Hungry Babies, Regrettably, Are Just the Price of the Free Market
BY BRANKO MARCETIC

Pete Buttigieg says that in a capitalist economy, the government doesn’t and shouldn’t make baby formula. But around the world, even in the United States, the public sector has stepped in to correct market failures.

Image
Pete Buttigieg speaking in Washington, DC, 2019. (Mandel Ngan / AFP via Getty Images)

Someone save us from the free market ideologues before it’s too late.

Sitting down on CBS’s “Face the Nation” this week, transportation secretary and billionaire darling Pete Buttigieg addressed the infant formula shortage that’s sent parents around the United States scrambling to find some way to feed their babies. Asked about the sluggish federal response to a crisis regulators were informed about as far back as October, Buttigieg absolved the Biden administration through a little bit of neoliberal sleight of hand.

“Let’s be very clear,” he said. “This is a capitalist country. The government does not make baby formula, nor should it. Companies make formula.”

It was the company that screwed up, Buttigieg insisted, and now it was the government’s job to get the contaminated plant that helped lead to this shortage back up and running quickly and safely.

At heart, this is just a lazy bit of political ass-covering. In reality, the Biden administration has a great deal of responsibility for what happened: federal regulators took months to respond to the October whistleblower complaint about food safety issues at the Abbott Laboratories plant in question, only for two babies to die and another to be hospitalized a couple months later. Nor did regulators act on Minnesota health officials’ September warnings about a baby hospitalized after taking formula from the same plant; in fact, the Food and Drug Administration (FDA) did a routine inspection of the plant that very month and concluded its issues weren’t major.


It was only in January that FDA inspectors actually went to the plant in response to the complaint, and since Abbott shuttered the plant a month later and recalled its products, making the shortage worse, the administration hasn’t exactly acted with urgency. It failed to proactively deal with the problem, with the president claiming last week that he and others would have had to be “mind readers” to have acted earlier on a crisis that was being reported on as early as January. Then, even when the problem became unignorable, the administration had to be pressured for days by Democrats and Republicans alike to use the Defense Production Act to get formula on the shelves, despite (falsely) claiming to have been the first to suggest the wartime law as a way to deal with the pandemic.

So Buttigieg is wrong. But what’s maybe most interesting is how he’s choosing to be wrong.

In a line that no doubt prompted much high-fiving and backslapping from his comms team, Buttigieg passes the buck by suggesting there are simply some lines too sacred to be crossed even in a crisis — in this case, the government directly producing baby formula. It’s not just that in a capitalist system, according to Buttigieg, the government does not make baby formula; it’s that it should not.

But governments around the world — and even in the United States — are today, and have been in the past, engaged in production in a vast array of different industries, sometimes competing with the private sector, in other cases as monopoly producers. Even in capitalist societies, there has been a widely held principle that certain things are so critical to the functioning of life and the economy, they shouldn’t be left to the whims of unaccountable private actors looking to get rich at any cost, but be put under some kind of democratic control and their revenues allowed to be recycled for the common good.

An obvious and perennial case is health care, where countries that have state-dominated insurance systems — Medicare for All, in other words — have far, far better health outcomes than the privatized, corporate-controlled system in the United States, the richest country in the world. And in those countries where the state also owns and operates the bulk of the health sector itself, as a monopoly, those superior health outcomes are delivered at an especially low cost. The idea that the government “should not” be providing health care simply because This Is Capitalism, Damnit! has long been a talking point in the United States, but in the past it was at least mainly confined to spokespeople for corporations and the Right — and one they’ve tried to throw at virtually every other initiative meant to protect Americans’ economic security that we don’t find remotely controversial today.

But health care is just one example. Look at Sweden, where even after decades of neoliberal pressures, the government is still directly involved in producing and managing everything from pharmaceuticals, banking, and logistics, to housing, forestry, and telecommunications — even alcohol sales and airports. It’s a similar story across the rest of Scandinavia, all wealthy (and also capitalist) countries that have far higher standards of living and happiness than the United States.

It was the same in my home country of New Zealand, whose government once upon a time, in the words of the Centre for Public Impact, “owned much of the economic infrastructure” in the country, from banks and telecommunications to forests, power plants, and other industrial entities. Its corporatization and subsequent sell-off of many of those assets happened to coincide with soaring inequality and long-running cost pressures on working households. This cost of living crisis has gotten so bad now, a government agency recently suggested creating a state-owned supermarket chain to inject some actual competition into the grocery duopoly the free market has created — an idea rejected by the country’s current liberal government and a host of commentators for reasons not much more sophisticated than Buttigieg’s. (“It’s not their role to do that,” said one.)

Coming from someone who prides himself on his dogma-free pragmatism on every other question, it’s noteworthy that as soon as the subject turns to the purity of capitalism, Buttigieg smoothly morphs into a rigid ideologue. But ideological rigidity is probably a necessary prerequisite for anyone to take the position Buttigieg is adopting here. After all, being a private, for-profit company, Abbott’s main goal — as any fan of business and capitalism will tell you — is not to serve the public good, but to make as much money as possible. So rather than spending money on tending to equipment that was badly in need of repair, they spent hundreds of millions of dollars on stock buybacks to enrich themselves instead. Then they deceived inspectors and falsified records to hide the serious issues going on in their plant and keep the gravy train running, issues that workers in turn were too scared to blow the whistle on because they feared retaliation.

Incidentally, if they had the kinds of worker protections that the unionized, federal workforce enjoys, maybe this crisis would’ve been nipped in the bud. But heaven forbid the government should make stuff.

Buttigieg’s insistence that the government shouldn’t be involved in vital industries just because shows him to be fundamentally unfit to wield power in a crisis. But it also suggests that for all the talk of a bold, new, activist-government liberalism, elite liberals are still stuck in the mindset of a long-gone era.

https://jacobinmag.com/2022/05/pete-but ... capitalism

Dunno why Jacobin would expect a capitalist tool like Buttigieg to put people before profits... Oh, wait.

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Re: The crisis of bourgeois economics

Post by blindpig » Sat Jun 25, 2022 3:02 pm

We Need to Build the Architecture of Our Future: The Twenty-Fifth Newsletter (2022)

JUNE 23, 2022
Español Italian

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Diego Rivera (Mexico), Frozen Assets, 1931.

Dear friends,

Greetings from the desk of Tricontinental: Institute for Social Research.

In April 2022, the United Nations established the Global Crisis Response Group on Food, Energy, and Finance. This group is tracking the three major crises of food inflation, fuel inflation, and financial distress. Their second briefing, released on 8 June 2022, noted that, after two years of the COVID-19 pandemic:

the world economy has been left in a fragile state. Today, 60 per cent of workers have lower real incomes than before the pandemic; 60 per cent of the poorest countries are in debt distress or at high risk of it; developing countries miss $1.2 trillion per year to fill the social protection gap; and $4.3 trillion is needed per year – more money than ever before – to meet the Sustainable Development Goals (SDGs).

This is a perfectly reasonable description of the distressing global situation, and things are likely to get worse.

According to the UN Global Crisis Response Group, most capitalist states have already rolled back the relief funds they provided during the pandemic. ‘If social protection systems and safety nets are not adequately extended’, the report states, ‘poor families in developing countries facing hunger may reduce health-related spending; children who temporarily left school due to COVID-19 may now be permanently out of the education system; or smallholder or micro-entrepreneurs may close shop due to higher energy bills’.

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Renato Guttuso (Italy), La Vucciria, 1974.

The World Bank reports that food and fuel prices will remain at very high levels until at least the end of 2024. As wheat and oilseed prices have escalated, reports are coming in from across the globe – including in wealthy countries – that working-class families have started to skip meals. This tense food situation has led United Nations (UN) Secretary-General’s Special Advocate for Inclusive Finance for Development, Queen Máxima of the Netherlands, to predict that many families will move to one meal a day, which, she says, ‘will be the source of even more instability’ in the world. The World Economic Forum (WEF) adds that we are in the midst of ‘a perfect storm’ if you take into account the impact of increasing interest rates on mortgage payments as well as inadequate salaries. The managing director of the International Monetary Fund (IMF), Kristalina Georgieva-Kinova, said late last month that the ‘horizon has darkened’.

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Cândido Portinari (Brazil), Coffee Bean Mowers, 1935.

These assessments come from people at the heart of powerful global institutions – the IMF, World Bank, WEF, and the UN (and even from a queen). Although they all recognise the structural nature of the crisis, they are reluctant to be honest about the underlying economic processes, or even about how to adequately name the situation. David M. Rubenstein, the head of global investment firm The Carlyle Group, said that when he was part of US President Jimmy Carter’s administration, their inflation advisor Alfred Kahn warned them not to use the ‘R’ word – recession – which ‘scares people’. Instead, Kahn advised, use the word ‘banana’. Along those lines, Rubenstein said of the current situation, ‘I don’t want to say we’re in a banana, but I would say a banana may not be that far away from where we are today’.

Marxist economist Michael Roberts does not hide behind words such as banana. Roberts has studied the global average rate of profit on capital, which he shows has been falling, with minor reverses, since 1997. This trend was exacerbated by the global financial crash of 2007–08 which led to the Great Recession in 2008. Since then, he argues, the world economy has been in the grip of a ‘long depression’, with the rate of profit at a historic low in 2019 (just before the pandemic).

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Yildiz Moran (Turkey), Mother, 1956.

‘Profit drives investment in capitalism’, writes Roberts, ‘and so falling and low profitability has led to slow growth in productive investment’. Capitalist institutions have shifted from investment in productive activity to, as Roberts puts it, ‘the fantasy world of stock and bond markets and cryptocurrencies’. The cryptocurrency market, by the way, has collapsed by over 60% this year. Dwindling profits in the Global North have led capitalists to seek profits in the Global South and beat back any country (especially China and Russia) that threatens their financial and political hegemony, with military force if necessary.

Ghastly is the way of inflation, but inflation is merely the symptom of a deeper problem and not its cause. That problem is not merely the war in Ukraine or the pandemic, but something that is confirmed by data but denied in press conferences: the capitalist system, plunged into a long-term depression, cannot heal itself. Later this year, notebook no. 4 on the theory of crisis from Tricontinental: Institute for Social Research, written by Marxist economists Sungur Savran and E. Ahmet Tonak, will establish these points very clearly.

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Aboudia (Côte d’Ivoire), Untitled, 2013.

For now, capitalist economic theory starts with the assumption that any attempt to settle an economic crisis, such as an inflationary crisis, must not, as John Maynard Keynes wrote in 1923, ‘disappoint the rentier’. Wealthy bondholders and major capitalist institutions control the policy orientation of the Global North so that the value of their money – trillions of dollars held by a minority – is secure. They cannot, as Keynes wrote nearly a hundred years ago, be disappointed.

The anti-inflation policies driven by the US and the Eurozone are not going to ease the burdens on the working class in their countries, and certainly not in the debt-ridden Global South. Chairman of the US Federal Reserve Jerome Powell admitted that his monetary policy ‘will cause some pain’, but not across the entire population. More honestly, Amazon’s Jeff Bezos tweeted that ‘Inflation is a regressive tax that most hurts the least affluent’. Rising interest rates in the North Atlantic make money far more expensive for ordinary people in that region, but they also make borrowing in dollars to pay off national debts in the Global South virtually impossible. Raising interest rates and tightening the labour market are direct attacks on the working class and developing nations.

There is nothing inevitable about the class warfare of the governments of the Global North. Other policies are possible; a few of them are listed below:

Tax the global wealthy. There are 2,668 billionaires in the world who are worth $12.7 trillion; the money they hide in illicit tax havens adds up to about $40 trillion. This wealth could be brought into productive social use. As Oxfam notes, the richest ten men have more wealth than 3.1 billion people (40% of the world population).
Tax large corporations, whose profits have escalated beyond imagination. US corporate profits are up by 37%, far ahead of inflation and compensation increases. Ellen Zentner, the chief US economist of the leading financial services company Morgan Stanley, argues that, during the long depression, there has been an ‘unprecedented’ plunge in the share of Gross Domestic Product earned by the working class in the United States. She has called for a return to a more just profit-wages balance.
Use this social wealth to enhance social expenditures, such as funds to end hunger and illiteracy and build health care systems as well as non-carbon forms of public transportation.
Institute price controls for goods that specifically drive-up inflation – such as prices for food, fertilisers, fuel, and medicines.

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The great Bajan writer George Lamming (1927–2022) left us recently. In his 1966 essay, ‘The West Indian People’, Lamming said, ‘The architecture of our future is not only unfinished; the scaffolding has hardly gone up’. This was a powerful sentiment from a powerful visionary, who hoped that his home in the Caribbean, the West Indies, would be shaped into a sovereign region that could relieve its people of great problems. This was not to be. Strangely, the IMF’s Georgieva-Kinova quoted this line in a recent article while making the case for the region to collaborate with the IMF. It is likely that Georgieva-Kinova and her staff did not read all of Lamming’s speech, for this paragraph is instructive today as it was in 1966:

There is, I believe, a formidable regiment of economists in this hall. They teach the statistics of survival. They anticipate and warn about the relative price of freedom… would just like you to bear in mind the story of an ordinary Barbadian working man. When he was asked by another West Indian whom he had not seen for about ten years, ‘and how are things?’, he replied: ‘The pasture green, but they got me tied on a short rope’.

Warmly,

Vijay

https://thetricontinental.org/newslette ... ic-crisis/
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Re: The crisis of bourgeois economics

Post by blindpig » Sun Jul 03, 2022 8:53 pm

This is very good and very long. It required two posts

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Economist Michael Hudson on inflation and Fed plan to cut wages: A depression is coming
By Ben Norton (Posted Jul 02, 2022)

Originally published: Multipolarista on June 28, 2022 (more by Multipolarista)

Economist Michael Hudson explains the inflation crisis and the U.S. Federal Reserve’s “austerity program to reduce wages.” Western so-called economics experts are openly calling to boost unemployment.

Hudson warns a “long depression” is coming, in which the poor will suffer so the rich can get richer, in order to advance Washington’s new cold war on Russia and China.



Transcript:
BN: Hey, everyone, this is Ben Norton, and you are watching or listening to the Multipolarista podcast. I am always privileged to be joined by one of my favorite guests, Michael Hudson, one of the greatest economists living today.

We’re going to be talking about the inflation crisis. This is a crisis around the world, but especially in the United States, where inflation has been at over 8%. And it has caused a lot of political problems. It’s very likely going to cause the defeat, among other factors, of the Democrats in the mid-term elections in November.

And we’ve seen that the response of the U.S. government and top economists in the United States is basically to blame inflation on wages, on low levels of unemployment and on working people.

We’ve seen that the chair of the Federal Reserve, Jerome Powell, has said that inflation is being caused by wages supposedly being too high. We’ve also seen that the top economist and former Clinton administration official Larry Summers has claimed that the solution to inflation is increasing unemployment, potentially up to 10%.

So today I’m joined by economist Michael Hudson, who has been calling out this kind of neoliberal snake oil economics for many years. And Professor Hudson has an article he just published that we’re going to talk about today. You can find this at his website, which is michael-hudson.com. It’s titled “The Fed’s Austerity Program to Reduce Wages.” and I’m going to let Professor Hudson summarize the main points of his article.

Professor Hudson, as always, it’s a pleasure having you. Can you respond to the decision by the Federal Reserve to increase interest rates by 0.75%? It doesn’t sound like a lot–it’s less than 1%–but this was the largest rate hike since 1994.

And now we’ve already seen reports that there’s going to be a depression. The Fed chair is blaming this on wages. Can you respond to the position of the Fed and the inflation crisis in the U.S. right now.

MH: For the Fed, the only two things that it can do is, number one, raise the discount rate, the interest rate; and number two, spend $9 trillion buying stocks, and bonds, and real estate mortgages to increase real estate prices, and to increase the amount of wealth that the wealthiest 10% of the population has.

To the wealthiest 10%, especially the 1%, it’s not only inflation that’s a problem of wages; every problem that America has is the problem of the working class earning too much money. And if you’re an employer, that’s the problem: you want to increase your profits. And if you look at the short term, your profits go up the more that you can squeeze labor down. And the way to squeeze labor down is to increase what Marx called the reserve army of the unemployed.

You need unemployment in order to prevent labor from getting most of the value of what it produces, so that the employers can get the value, and pay that to the banks and the financial managers that have taken over corporate industry in the United States.

You mentioned that while the Fed blames the inflation it on labor, that’s not President Biden’s view; Biden keeps calling it the Putin inflation. And of course, what he really means is that the sanctions that America has placed on Russia have created a shortage of oil, gas, energy, and food exports.

So really we’re in the Biden inflation. And the Biden inflation that America is experiencing is the result basically of America’s military policy, its foreign policy, and above all, the Democratic Party’s support of the oil industry, which is the most powerful sector in the United States and which is guiding most of the sanctions against Russia; and the national security state that bases America’s power on its ability to export oil, or control the oil trade of all the countries, and to export agricultural products.

So what we’re in the middle of right now isn’t simply a domestic issue of wage earners wanting higher salaries–which they’re not particularly getting; certainly the minimum wage has not been increased–but you have to put this in the context of the whole cold war that’s going on.

The whole U.S. and NATO confrontation of Russia has been a godsend, as you and I have spoken before, for the oil industry and the farm exporters.

And the result is that the U.S. dollar is rising against the euro, against sterling, and against Global South currencies. Well, in principle a rising dollar should make the price of imports low. So something else is at work.

And what’s at work, of course, is the fact that the oil industry is a monopoly, that most of the prices that have been going up are basically the result of a monopolization, in the case of food, by the marketing firms, like Cargill and Archer Daniels Midland, that buy most of the crops from the farmers.

The irony is that while food prices, next to oil prices, are the major factor that is soaring, farmers are getting less and less for their crops. And yet farmers’ costs are going up–up for fertilizer, up for energy, up for other inputs–so that you’re having enormous profits for Archer Daniels Midland and the food monopolies, of the distributors, and enormous, enormous gains for the oil industry, and also of course for the military-industrial complex.

So if you look at what’s happening in the overall world economic system, you can see that this inflation is being engineered. And the beneficiaries of this inflation certainly have not been the wage earners, by any stretch of the imagination.

But the crisis that the Biden policy has created is being blamed on the wage earners instead of on the Biden administration’s foreign policy and the basically the U.S.-NATO war to isolate Russia, China, India, Iran, and Eurasia generally.

BN: Professor Hudson, I want to talk about the increase in interest rates by the Fed. There has been a lot of attention to this, although, again, it’s 0.75%, which is not that big. But it’s of course going to have an outsize impact on the economy.

In your article, again, this is your column at michael-hudson.com, “The Fed’s Austerity Program to Reduce Wages,” you talk about the Fed’s “junk economics,” and you say that the idea behind raising interest rates by 0.75% is that:

raising interest rates will cure inflation by deterring borrowing to spend on the basic needs that make up the Consumer Price Index and its related GDP deflator. But banks do not finance much consumption, except for credit card debt, which is now less than student loans and automobile loans. Banks lend almost entirely to buy real estate, stocks and bonds, not goods and services.

So you argue that one of the effects of this is that it’s actually going to roll back homeownership in the United States. You note that the rate of homeownership has been falling since 2008.

So can you expand on those arguments? What will be the impact of the increase of the interest rates by the Fed?

MH: Well, in order to get an economics degree which is needed to work at the Fed or at the Council of Economic Advisors, you have to take economics courses in the universities, and all of the textbooks say just what you quoted me as saying they say.

The pretense is that banks actually play a productive role in society, by providing the money for factories to buy machinery, and build plants, and do research and development, and to hire labor; and that somehow the money that banks create is all lent out for industrial economy, and that that will enable companies to make more money that they’ll spend on labor; and of course, as they spend more money on labor, that supports to bid prices up as the reserve army of the unemployed is depleted.

But that’s all a fiction. The textbooks don’t want to say that banks don’t play a productive role like that at all. And the corporations don’t do what the textbooks say.

If you look at the Federal Reserve balance sheet and statistics that it publishes every month, you’ll see that 80% of bank loans in the United States are mortgage loans to commercial real estate and mostly for home real estate. And of course the home mortgage loans have been nothing, like under 1% for the last 14 years, since 2008.

Only the banks and the large borrowers, the financial sector, have been able to borrow at these low rates. Homeowners all along have had to pay very high rates, just under 4%, and now it’s going above 4%, heading to 5%.

Well, here is the situation that the Federal Reserve has created. Suppose that you’re a family right now going out to buy a home, and you find out that in order to borrow the money to buy the home–because if the average home in America costs $600,000 or $700,000, people haven’t saved that much; the only way you can buy a home is to take out a mortgage.

Well, you have a choice: you can either rent a home, or you can borrow the money to buy a home. And traditionally, for a century, the carrying charge for financing a home with the mortgage has been about the equivalent of paying a rent. The advantage is, of course, that you get to own the home when it’s over.

Well, now let’s look at what’s happening right now. All of a sudden, the carrying charge of mortgages have gone way, way up. The banks are making an enormous gap. They can borrow at just around 1%, and they lend out at 4.5%. They get a windfall gain of the markup they have in mortgages, lending to prospective homeowners.

And of course, the homeowners don’t have enough money to be able to pay the higher interest charged on the mortgages that they take out. So they are not able to buy as expensive a home as they wanted before.

But they’ve been a declining part of the population. At the time Obama took office, over 68% of Americans owned their own home. Obama started the great wave of evictions, of 10 million Americans who lived in homes, essentially to throw them out of their homes, especially the victims of the junk mortgages, especially the lower income and racial minorities who were redlined and had to become the main victims of the mortgages.

America’s homeownership rate is now under 61%. What has happened? You’ve had huge private capital firms come into the market thinking, wait a minute, we can now buy these properties and rent them out. And we can buy them for all cash, unlike homeowners, we’re multibillionaires, we Blackstone, BlackRock.

You have these multibillion-dollar funds, and they say, well, we can’t make much money buying bonds or buying stocks that yield what they do today, now that the Federal Reserve has ground down interest rates. What we can do is make money as landlords.

And so they’ve shifted, they’ve reversed the whole shift away from the 19th-century landlordism to an economy based on financialization, and the wealthy classes making money on finance, to go back to making money as landlords.

And so they are buying up these homes that American homeowners can’t afford to buy. Because when you raise the mortgage rate, that doesn’t affect a billionaire at all. Because the billionaire firm doesn’t have to borrow money to buy the home. They have the billion dollars of their own money, of pension fund money, of speculative money, of the money of the 1% and the 10% to spend.

So what you’re having by increasing the interest rates is squeezing homeowners out of the market and turning the American economy into a landlord-ridden rental economy, instead of a homeowners economy. That’s the effect.

And it’s a windfall for the private capital firms that are now seeing that are making money as landlords, the old fashioned way, it worked for 800 years under feudalism. It’s coming back in style.

BENJAMIN NORTON: Professor Hudson, you point out in this article at your website that more than 50% of the value of U.S. real estate already is held by mortgage bankers. And of course, that percentage is increasing and increasing.

Now, you, Professor Hudson, have argued a point that I haven’t seen many other people make, although it’s an obvious, correct point, which is that there has actually been a lot of inflation in the United States in the past several years, but that inflation was in the FIRE sector: finance, insurance, and real estate.

We see that with the constant increase in real estate prices; they go up every single year; rent goes up every single year. The difference now is that there’s also a significant increase in the Consumer Price Index.

And there is an interesting study published by the Economic Policy Institute, which is, you know, a center-left think tank, affiliated with the labor movement; they’re not radicals, they’re progressives. And they did a very good study.

And they found–this was published this April–they found that corporate profits are responsible for around 54% of the increase of prices in the non-financial corporate sector, as opposed to unit labor costs only being responsible for around an 8% increase.

So they showed, scientifically, that over half of the increase of prices in the non-financial corporate sector, that is in the Consumer Price Index, over half of that inflation is because of corporate profits.

Of course, that’s not the way it’s discussed in mainstream media. That’s not the way the Fed is discussing it all. We see Larry Summers saying that we need to increase unemployment. Larry Summers, of course, was the treasury secretary for Bill Clinton.

He’s saying that the U.S. has to increase unemployment; the solution to inflation is increasing unemployment. Even though these studies show that over half of inflation in the Consumer Price Index is because of corporate profits.

I’m wondering if you can comment on why so many economists, including people as revered as Larry Summers, refuse to acknowledge that reality.

MH: Most economists need to get employment, and in order to be employed, you have to give a picture of the economy that reflects how well your employer helped society at large. You’re not allowed to say that your employer is acting in ways that are purely predatory. You’re not allowed to say that the employer does not earn an income.

You talked about corporate profits and the classical economists. If you were a free-market economist like Adam Smith, or David Ricardo, or John Stuart Mill–these are monopoly rents. So what you call corporate profits are way above normal corporate rates of return, normal profits. They’re economic rents from monopoly.

And that’s because about 10 or 15 years ago, the United States stopped imposing its anti-monopoly laws. It has essentially let monopolies concentrate markets, concentrate power, and charge whatever they want.

And so once you’ve dismantled the whole legal framework that was put in place from the 1890s, from the Sherman Antitrust Act, down through the early 20th century, the New Deal, once you dismantle all of this state control, saying–essentially what Larry Summers says is, we’re for a free market.

A “free market” is one in which companies can charge whatever they want to charge for things; a free market is one without government regulation; a free market is one without government; a free market is a weak enough government so that it cannot protect the wage earners; it cannot protect voters. A “democracy” is a country where the bulk of the population, the wage earners, have no ability to affect economic policy in their own interests.

A “free market” is one where, instead of the government being the planner, Wall Street is the planner, on behalf of the large industries that are basically being financialized.

So you’ve had a transformation of the concept of what a free market is, a dismantling of government regulation, a dismantling of anti-monopoly regulation, and essentially the class war is back in business.

That’s what the Biden administration is all about. And quite frankly, it’s what the Democratic Party is all about, even more than the Republican Party. The Republican Party can advocate pro-business policies and pro-financial policies, but the Democratic Party is in charge of dismantling the legacy of protection of the economy that had been put in place for a century.

BN: Yeah, and this is an article in Fortune that was originally based on an article in Bloomberg: “5 years at 6% unemployment or 1 year at 10%: That’s what Larry Summers says we’ll need to defeat inflation.” That’s how simple it is, you know, just increase unemployment, and then inflation will magically go away!

Now, I also wanted to get your response, Professor Hudson, to these comments that you highlighted in a panel that was organized by the International Manifesto Group–a great organization, people can find it here, their channel here at YouTube. And they held a conference on inflation. And you were one of several speakers.

And you highlighted these comments that were made by the Fed chair, Jerome Powell. And this is according to the official transcript from The Wall Street Journal. So this is not from some lefty, socialist website. Here’s the official transcript of a May 4 press conference given by the Fed chief, Jerome Powell.

In this press conference, he said, discussing inflation, he said, in order to get inflation down, he’s talking about things that can be done “to get wages down, and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially.”

So this is another proposal. Larry Summers says 6% unemployment for five years, or 10% unemployment for one year. The Fed chair, Jerome Powell, says the solution is “to get wages down.” I’m wondering if you can respond to that as well.

MH: Well, the important thing to realize is that President Biden re-appointed Jerome Powell. President Biden is a Republican. The Democratic Party is basically the right wing of the Republican Party, the pro-financial, the pro-Wall Street wing of the Republican Party.

Why on earth, if the Democrats were different from the Republicans, why would would Biden re-appoint an anti-labor Republican, as head of the Federal Reserve, instead of someone that would actually try to spur employment?

Imagine, here’s a party that is trying to be elected on a program of, “Elect us, and we will create a depression and we will lower wages.” That is the Democrat Party slogan.

And it’s a winning slogan, because elections are won by campaign contributions. The slogan is, “We will lower wages by bringing you depression,” is a tsunami of contributions to the Democratic Party, by Wall Street, by the monopolists, by all the beneficiaries of this policy.

So that’s why the Supreme Court ruling against abortions the other day is a gift to the Democrats, because it distracts attention from their identity politics of breaking America into all sorts of identities, every identity you can think of, except being a wage earner.

The wage earners are called deplorables, basically. And that’s how the donor class thinks of them, as sort of unfortunate overhead. You need to employ them, but it really it’s unfortunate that they like to live as well as they do, because the better they live, the less money that you will end up with.

So I think that this issue of the inflation, and what really causes it, really should be what elections are all about. This should be the economic core of this November’s election campaign and the 2024 election campaign. And the Democrats are leading the fight to lower wages.

And you remember that when President Obama was elected, he promised to increase the minimum wage? As soon as he got in, he said the one thing we cannot do is raise the minimum wage. And he had also promised to back card check. He said, the one thing we must not do is increase labor unionization with card check, because if you unionize labor, they’re going to ask for better wages and better working conditions.

So you have the Democratic Party taking about as hard a right-wing position as sort of Chicago School monetarism, saying the solution to any any problem at all is just lower wages and somehow you’ll be more competitive, whereas the American economy is already rendered uncompetitive, not because wages are so high, but because, as you mentioned before, the FIRE sector, the finance, insurance, and real estate sector is so high.

Rents and home ownership, having a home is too expensive to be competitive with foreign labor. Having to pay 18% of GDP on medical care, privatized medical care, prices American labor out of the market. All of the debt service that America has paid is pricing America out of the market.

So the problem is not that wages are too high. The problem is that the overhead that labor has to pay in order to survive, for rent, for medical care, for student loans, for car loans, to have a car to drive to work, for gas to drive to work, to buy the monopoly prices that you need in order to survive–all of these are too high.

None of this even appears in economic textbooks that you need to get a good mark on, in order to get an economics degree, in order to be suitably pliable to be hired by the Federal Reserve, or the Council of Economic Advisers, or by corporations that use economists basically as public relations spokesmen. So that’s the mess we’re in.

BN: Professor Hudson, in your article at your website, michael-hudson.com, you have an important section about the quantitative easing policies. We were talking about how there has been inflation in the past decade, but then inflation was largely in the FIRE sector, pushing up, artificially inflating the prices of real estate and stocks.

You note that:

While home ownership rates plunged for the population at large, the Fed’s “Quantitative Easing” increased its subsidy of Wall Street’s financial securities from $1 trillion to $8.2 trillion–of which the largest gain has been in packaged home mortgages. This has kept housing prices from falling and becoming more affordable for home buyers.

And you, of course, note that “the Fed’s support of asset prices saved many insolvent banks–the very largest ones–from going under.”

I had you on to discuss, in late 2019, before the Covid pandemic hit, we know that the Fed had this emergency bailout where it gave trillions of dollars in emergency repo loans to the biggest banks to prevent them from from crashing, trying to save the economy.

I do want to talk about this as well, because sometimes this is used by right-wingers who portray Biden hilariously as a socialist. You were just talking about how the Democrats have a deeply neoliberal, right-wing economic program.

But of course, there is this rhetoric that we see from Republicans and conservatives claiming that Biden is a socialist. They claim that the reason there is inflation is because Biden is just printing money and giving money to people.

Of course, that’s not at all what’s happening. What has happened is that the Fed has printed trillions of dollars and given that to stockholders, to big corporations, and to banks.

And this is a point that I saw highlighted in that panel I mentioned, the conference on inflation that was organized by the International Manifesto Group. A colleague of yours, a brilliant political economist, Radhika Desai, she invited everyone to go to the Fed website and look at the Fed balance sheet.

And this is the Fed balance sheet from federalreserve.gov. This is the Board of Governors of the Federal Reserve System website. And it is pretty shocking to see this graph, which shows the total assets of the U.S. Federal Reserve.

Back in 2008, the Federal Reserve had around $900 billion in assets. Now it’s at nearly $9 trillion in assets.

And we can see, after the financial crash, or during the financial crash, it increased to around $2 trillion. And then around 2014, it increased to around $4.5 trillion. And then especially in late 2019 and 2020, it skyrocketed from around $4 trillion up to $7 trillion. And since then, it has continued skyrocketing to $9 trillion in assets.

Where did all of that money go? And what was the impact on the economy, of course?

Image

MH: Well, the impact on the economy has been to vastly increase the wealth of the wealthiest 1% of Americans who own most of the stocks and bonds.

Sheila Bair, the former head of the Federal Deposit Insurance Corporation, pointed out that a lot of this $8 trillion is spent to buy junk bonds.

Here’s the problem. The problem really began with President Obama. He inherited a system where you had the largest wave of commercial bank fraud in American history.

As my colleague Bill Black at the University of Missouri at Kansas City has pointed out, everybody knew that there was a bank fraud on. The newspapers referred to junk mortgages and “NINJA” borrowers: “no income, no jobs, no assets.”

So banks had written mortgages way above the actual value of homes, especially to racial and ethnic minorities, without any ability of the borrowers to actually pay.

And then these banks had packaged these mortgages, and sold them to hapless pension funds, and other institutional investors and to the European banks that are always very naive about how honest American banks are.

You had this whole accumulation of what the 19th century called fictitious capital. Mortgages for property that wasn’t worth anywhere near as much as the mortgage is for.

So if the mortgage was defaulted, if homeowners had jingle mail–in other words, you just mail the keys back to the bank and say, ok, take the house, I find I can buy a house now at half the price that Citibank or one of these other banks lent out.

Well, normally you’d have a crash of prices back to realistic levels, so that the value of mortgages actually reflected the value of property, or the value of junk bonds issued by a corporation reflected the actual earning power of the corporation to pay interest on the junk bonds.

So by the time Obama took over, the whole economy was largely fictitious capital. Well, Obama came in and he said, my campaign donors are on Wall Street. He called in the Wall Street bankers and he said, I’m the guy standing between you and the crowd with the pitchforks, the people who voted for me. But don’t worry, I’m on your side.

Image

He said, I’m going to have the Federal Reserve create the largest amount of credit in human history. And it’s all going to go to you. It’s going to go to the 1% of the population. It’s not going to go into the economy. It’s not going to build infrastructure. It’s not going into wages. It’s not going to reduce the price of homes and make them more affordable to Americans.

It’s going to keep the price of these junk bonds so high that they don’t crash back to non-fictitious values. It’s going to keep the stock market so high that it’s not going to go down. It’s going to create the largest bond market boom in history.

The boom went from high interest rates to low interest rates, meaning a gigantic rise in the price of bonds that actually pay interest that are more than 0.1%.

So there was a huge bond market boom, a huge stock market, a tripling of stock market prices. And if you are a member of the group that owns 72% of American stocks, I think that’s 10% of the population, you have gotten much, much richer.

But if you’re a member of the 90% of the population, you have had to go further and further into debt just in order to survive, just in order to pay for medical care, student loans, and your daily living expenses out of your salary.

So if American wages were at a decent level, American families would not be pushed more and more into debt. The reason the personal debt has gone up in the United States is because families can’t get by on what they earn.

So obviously, if they can’t get by on what they earn, and they have to borrow to get by, they are not responsible for causing the inflation. They’re being squeezed.

And the job of economists, and of Democratic Party and Republican politicians, is to distract attention from the fact that they’re being squeezed and blame the victim, and saying, you’re doing it to yourself by just wanting more money, you’re actually creating the inflation that is squeezing you.

When actually it’s the banks, and the government’s non-enforcement of the monopoly policy, and the government support of Wall Street that is responsible for what is happening.

BN: Very, very well said.

Professor Hudson, I should have highlighted another part of this graph here. This is, again, this is at the Federal Reserve Board website. It’s even more revealing when you look at the selected assets of the Fed, and you see that all of these assets basically are securities, securities held outright by the Fed.

We see that around 2008, the Fed had less than $500 billion in securities. And you have this policy of quantitative easing. And since then, basically all of the increase has been in securities. Of the roughly $9 trillion in assets the Fed holds, about about $8.5 trillion is in securities.

I’m wondering if you can compare this to central banks in other countries. We’ve seen, for instance, that the Western sanctions on Russia were aimed at trying to destroy the Russian economy.

President Biden claimed they were trying to make the ruble into rubble. In fact, the ruble is significantly stronger now than it was before the sanctions. To such a degree that the Russian government and Russian national bank are actually trying to decrease the value of the ruble, because they think it’s a little overvalued; it makes it a little harder to be competitive.

So how does this policy of the U.S. Fed having $8.5 trillion worth of securities compare to the policies of other central banks?

You have experience working with the Chinese government as an advisor. Do other governments’ central banks have this policy?

And and that $8.5 trillion in securities, what are those securities? Even from the perspective of these neoliberal economics textbooks that you were talking about, that people are taught in universities, this seems to me to be totally insane. I don’t see how there is even an academic, neoliberal textbook explanation for this policy.

MH: Very few people realize the difference between a central bank and the national treasury. The national treasury is what used to perform all of the policies that central banks now do. The national treasury would be in charge of issuing money and spending it.

Central banks were broken off in America in 1913 from the Treasury in order to shift control of the money supply and credit away from Washington to New York. That was very explicit.

The original Federal Reserve didn’t even permit a Treasury official to be on the board of directors. So the job of a central bank is to represent the interest of the commercial banks.

And as we just pointed out, the interest of the commercial banks is to produce their product: debt. And they create their product against existing assets, mainly real estate, but also stocks and bonds.

So the job of the central bank here is to support the financial sector of the economy, and that sector that holds wealth in the form of stocks, bonds, and loans, and especially bank bonds that make their money off real estate credit.

Same thing in Europe, with Europe’s central bank. Europe is going into a real squeeze now, and has been going into a squeeze ever since you had the Greek crisis.

In Europe, because right-wing monetarist designed the euro, part of the eurozone rule is you cannot run a budget deficit, a national budget deficit of more than 3% of gross domestic product.

Well, that’s not very much. That means that you can’t have a real Keynesian policy in Europe to pull the economy out of depression. That means that if you’re a country like Italy right now, and you have a real financial squeeze there, a corporate squeeze, a labor squeeze, the government cannot essentially rescue either Italian industry or Italian labor.

However, the European central bank can, by the way that it creates credit, by central bank deposits, the European central bank can vastly increase the price of European stocks, bonds, and packaged mortgages. So the European central bank is very much like the commercial bank.

China is completely different, because, unlike the West, China treats money and credit as a public utility, not as a private monopoly.

And as a public utility, China’s central bank will say, what are we going to want to create money for? Well, we’re going to want to create money to build factories; we’re going to want to create money so that real estate developers can build cities, or sometimes overbuild cities. We can create money to actually spend in the economy for something tangible, for goods and services.

The Chinese central bank does not create money to increase stock market prices or bond prices. It doesn’t create money to support a financial class, because the Communist Party of China doesn’t want a financial class to exist; it wants an industrial class to exist; it wants an industrial labor force to exist, but not a rentier class.

So a central bank in a Western rentier economy basically seeks to create credit to inflate the cost of living for homebuyers and for anyone who uses credit or needs credit, and to enable corporations to be financialized, and to shift their management away from making profits by investing in plant and equipment and employing labor to produce more, to making money by financial engineering.

In the last 15 years, over 90% of corporate earnings in the United States have been spent on stock buybacks and on dividend payouts. Only 8% of corporate earnings have been spent on new investment, and plants, and equipment, and hiring.

And so of course you have had the economy deindustrialized. It’s this idea that you can make money financially without an industrial base, without a manufacturing base; you can make money without actually producing more or doing anything productive, simply by having a central bank increase the price of the stocks, and bonds, and the loans made by the wealthiest 10%.

And of course, ultimately, that doesn’t work, because at a certain point the whole thing collapses from within, and there’s no industrial base.

And of course, when that happens, America will find out, wait a minute, if we close down the economy, we’re still reliant on China and Asia to produce our manufacturers, and to provide us with raw materials, and to do everything that we need. We’re really not doing anything but acting as a world–well, people used to say parasite–as a world rentier, as getting something for nothing, as a kind of financial colonialism.

So America you could look at as a colonial power that is a colonial power not by military occupation, but simply by financial maneuvering, by the dollar standard.

And that’s what’s being unwound today as a result of Biden’s new cold war.

BN: Professor Hudson, you criticized the strategy of simply trying to increase the interest rates to bring down inflation, noting that it’s going to lead to a further decline in homeownership in the United States. It’s going to hurt working people. I think that’s a very valid criticism.

I’m curious, though, what your take is on the response of the Russian central bank to the Western sanctions. We saw that the chair of the Russian central bank, Elvira Nabiullina, she–actually this is someone who is not even necessarily really condemned a lot by Western economists; she is pretty well respected by even, you know, Western neoliberal economists.

And she did manage to deal with the sanctions very well. She imposed capital controls immediately. She closed the Russian stock market. And also, in a controversial move, she raised the interest rates from around 9% up to 20%, for a few months. And then after that, dropped the rates.

MH: A few days, not a few months. That was very short. And now she has moved the interest rates way down.

BN: Back to 9%.

MH: She was criticized for not moving them further down.

BN: Yeah, well go ahead. I’m just curious. So she immediately raised it to 20%, and then has dropped the interest rates since then. I’m curious what you think about that policy. Yeah, go ahead.

MH: There is very little that a central banker can do when the West has declared a war, basically, a war on a country that is completely isolated.

The response has come from President Putin and from Foreign Secretary Lavrov. And they pointed out, well, how is Russia going to going to trade and get what it needs. And this is what the recent meetings of the BRICS are all about.

Russia realizes that the world is now broken into two halves. America and NATO have separated the West. Basically you have a white people’s confederation against all the rest of the world.

And the West has said, we’re isolating ourselves from you totally. And we think you can’t get along without us.

Well, look at the humor of this. Russia, China, Iran, India, Indonesia, and other countries are saying, hah, you say we we can’t get along without you? Who is providing your manufacturers? Who is providing your raw materials? Who is providing your oil and gas? Who is providing your agriculture, and the helium, the titanium, the nickel?

So they realize that the world is breaking in two, and Eurasia, where most of the world’s population is concentrated, is going to go its own way.

The problem is, how do you really go your own way? You need a means of payment. You need to create a whole international system that is an alternative to the Western international system. You need your own International Monetary Fund to provide credit, so that the these Eurasian countries and their allies in the Global South can deal with each other.

You need a World Bank that, instead of lending money to promote U.S. policies and U.S. investments, will promote mutual gains and self-sufficiency among the countries.

So already, every day in the last few weeks, you have had meetings with the Russians about this, who said, ok, we’re going to create a mutual trading area, starting among the BRICS: Brazil, Russia, India, China, and South Africa.

And how are we going to pay? We can’t pay in dollars, because if we have money in a dollar bank, or a euro bank in Europe, they can just grab the money, like they grab Venezuela’s money. They can just say, we’re taking all your money because, essentially, we don’t want you to exist as an alternative to the finance capital world that we are creating.

So essentially, Russia, China, and these other countries are saying, ok, we’re going to create our own international bank. And how are we going to fund it? Well, every member of the bank will contribute, say, a billion dollars, or some amount of their own currency, and this will be our backing. We can also use gold as a means of settlement, as was long used among countries.

And this bank can create its own special drawing rights, its own bank order, is what Keynes called it. It can create its own credit.

Well, the problem is that, if you have Brazil, for instance, or Argentina, joining this group, or Ecuador, that sells almost all of its bananas to Russia, how is it going to get by?

Well, if there is a BRICS group or a Shanghai Cooperation Organization bank, obviously the Western governments are not going to accept this.

So Russia realizes that as a result of Biden’s Cold War Two, there is going to be a continued rise in energy prices. You think gasoline prices are not high now? They’re going up. You think food prices are not high now? They’re going up more.

And Europe is especially the case, because Europe now cannot buy Russian gas to make the fertilizer to make its own crops grow.

So you’re going to have a number of countries in the Global South, from Latin America to Africa, being squeezed and wanting to trade with the Eurasian group.

And the problem is Russia says, all right, we know that you can’t afford to pay. We’re glad to give you credit, but we don’t want to give you credit that you’re going to simply use the money you have to pay your dollar debts that are coming due.

Because one of the effects that I didn’t mention of the Federal Reserve raising interest rates is there is a huge flow of capital from Europe and England into the United States, so that if you’re a billionaire, where are you going to put your savings? You want the highest interest rates you want. And if the United States raises interest rates, the billionaires are going to move their money out of England, out of the euro, and the euro is going back down against the dollar. It’s almost down to a dollar a euro.

The British pound is heading downwards, towards one pound per dollar.

This increase in the dollar’s exchange rate is also rising against the currencies of Brazil, Argentina, the African countries, all the other countries.

So how are they going to pay this summer, and this fall, for their food, for their oil and gas, and for the higher cost of servicing their dollar debts?

Well, for Eurasia, they’re going to say, we want to help you buy our exports–Russia is now a major grain exporter, and obviously also an oil exporter–saying we want to supply you and give you the credit for this, but you’re really going to have to make a decision. Are you going to join the U.S.-NATO bloc, or are you going to join the Eurasian bloc?

Are you going to join the White People’s Club or the Eurasian Club? And it really comes down to that. And that’s what is fracturing the world in these two halves.

Europe is caught in the middle, and its economies are going to be torn apart. Employment is going to go down there. And I don’t see wages going up very much in Europe.

You’re going to have a political crisis in Europe. But also you’ll have an international diplomatic crisis over how are you going to restructure world trade, and investment, and debt.

There will be two different financial philosophies. And that’s what the new cold war is all about.

The philosophy of U.S.-sponsored finance capitalism, of making money financially, without industrialization, and with trying to lower wages and reduce the labor force to a very highly indebted workforce living on the margin.

Or you’ll have the Eurasian philosophy of using the economic surplus to increase productivity, to build infrastructure, to create the kind of society that America seemed to be growing in the late 19th century but has now rejected.

So all of this is ultimately not simply a problem of interest rates and central bank policy; it really goes beyond central banks to what kind of a social and economic system are you going to have.

And the key to any social and economic system is how you treat money and credit. Is money and credit going to be a public utility, or will it be a private monopoly run for the financial interests and the 1%, instead of a public utility run for the 99%?

That’s what the new cold war is going to be all about. And that’s what international diplomacy week after week is trying to settle.

(Continued on following post.)
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Re: The crisis of bourgeois economics

Post by blindpig » Sun Jul 03, 2022 8:56 pm

(Continued from previous post.)

************************************************

BN: Very, very well said.

Professor Hudson, I should have highlighted another part of this graph here. This is, again, this is at the Federal Reserve Board website. It’s even more revealing when you look at the selected assets of the Fed, and you see that all of these assets basically are securities, securities held outright by the Fed.

We see that around 2008, the Fed had less than $500 billion in securities. And you have this policy of quantitative easing. And since then, basically all of the increase has been in securities. Of the roughly $9 trillion in assets the Fed holds, about about $8.5 trillion is in securities.

I’m wondering if you can compare this to central banks in other countries. We’ve seen, for instance, that the Western sanctions on Russia were aimed at trying to destroy the Russian economy.

President Biden claimed they were trying to make the ruble into rubble. In fact, the ruble is significantly stronger now than it was before the sanctions. To such a degree that the Russian government and Russian national bank are actually trying to decrease the value of the ruble, because they think it’s a little overvalued; it makes it a little harder to be competitive.

So how does this policy of the U.S. Fed having $8.5 trillion worth of securities compare to the policies of other central banks?

You have experience working with the Chinese government as an advisor. Do other governments’ central banks have this policy?

And and that $8.5 trillion in securities, what are those securities? Even from the perspective of these neoliberal economics textbooks that you were talking about, that people are taught in universities, this seems to me to be totally insane. I don’t see how there is even an academic, neoliberal textbook explanation for this policy.

MH: Very few people realize the difference between a central bank and the national treasury. The national treasury is what used to perform all of the policies that central banks now do. The national treasury would be in charge of issuing money and spending it.

Central banks were broken off in America in 1913 from the Treasury in order to shift control of the money supply and credit away from Washington to New York. That was very explicit.

The original Federal Reserve didn’t even permit a Treasury official to be on the board of directors. So the job of a central bank is to represent the interest of the commercial banks.

And as we just pointed out, the interest of the commercial banks is to produce their product: debt. And they create their product against existing assets, mainly real estate, but also stocks and bonds.

So the job of the central bank here is to support the financial sector of the economy, and that sector that holds wealth in the form of stocks, bonds, and loans, and especially bank bonds that make their money off real estate credit.

Same thing in Europe, with Europe’s central bank. Europe is going into a real squeeze now, and has been going into a squeeze ever since you had the Greek crisis.

In Europe, because right-wing monetarist designed the euro, part of the eurozone rule is you cannot run a budget deficit, a national budget deficit of more than 3% of gross domestic product.

Well, that’s not very much. That means that you can’t have a real Keynesian policy in Europe to pull the economy out of depression. That means that if you’re a country like Italy right now, and you have a real financial squeeze there, a corporate squeeze, a labor squeeze, the government cannot essentially rescue either Italian industry or Italian labor.

However, the European central bank can, by the way that it creates credit, by central bank deposits, the European central bank can vastly increase the price of European stocks, bonds, and packaged mortgages. So the European central bank is very much like the commercial bank.

China is completely different, because, unlike the West, China treats money and credit as a public utility, not as a private monopoly.

And as a public utility, China’s central bank will say, what are we going to want to create money for? Well, we’re going to want to create money to build factories; we’re going to want to create money so that real estate developers can build cities, or sometimes overbuild cities. We can create money to actually spend in the economy for something tangible, for goods and services.

The Chinese central bank does not create money to increase stock market prices or bond prices. It doesn’t create money to support a financial class, because the Communist Party of China doesn’t want a financial class to exist; it wants an industrial class to exist; it wants an industrial labor force to exist, but not a rentier class.

So a central bank in a Western rentier economy basically seeks to create credit to inflate the cost of living for homebuyers and for anyone who uses credit or needs credit, and to enable corporations to be financialized, and to shift their management away from making profits by investing in plant and equipment and employing labor to produce more, to making money by financial engineering.

In the last 15 years, over 90% of corporate earnings in the United States have been spent on stock buybacks and on dividend payouts. Only 8% of corporate earnings have been spent on new investment, and plants, and equipment, and hiring.

And so of course you have had the economy deindustrialized. It’s this idea that you can make money financially without an industrial base, without a manufacturing base; you can make money without actually producing more or doing anything productive, simply by having a central bank increase the price of the stocks, and bonds, and the loans made by the wealthiest 10%.

And of course, ultimately, that doesn’t work, because at a certain point the whole thing collapses from within, and there’s no industrial base.

And of course, when that happens, America will find out, wait a minute, if we close down the economy, we’re still reliant on China and Asia to produce our manufacturers, and to provide us with raw materials, and to do everything that we need. We’re really not doing anything but acting as a world–well, people used to say parasite–as a world rentier, as getting something for nothing, as a kind of financial colonialism.

So America you could look at as a colonial power that is a colonial power not by military occupation, but simply by financial maneuvering, by the dollar standard.

And that’s what’s being unwound today as a result of Biden’s new cold war.

BN: Professor Hudson, you criticized the strategy of simply trying to increase the interest rates to bring down inflation, noting that it’s going to lead to a further decline in homeownership in the United States. It’s going to hurt working people. I think that’s a very valid criticism.

I’m curious, though, what your take is on the response of the Russian central bank to the Western sanctions. We saw that the chair of the Russian central bank, Elvira Nabiullina, she–actually this is someone who is not even necessarily really condemned a lot by Western economists; she is pretty well respected by even, you know, Western neoliberal economists.

And she did manage to deal with the sanctions very well. She imposed capital controls immediately. She closed the Russian stock market. And also, in a controversial move, she raised the interest rates from around 9% up to 20%, for a few months. And then after that, dropped the rates.

MH: A few days, not a few months. That was very short. And now she has moved the interest rates way down.

BN: Back to 9%.

MH: She was criticized for not moving them further down.

BN: Yeah, well go ahead. I’m just curious. So she immediately raised it to 20%, and then has dropped the interest rates since then. I’m curious what you think about that policy. Yeah, go ahead.

MH: There is very little that a central banker can do when the West has declared a war, basically, a war on a country that is completely isolated.

The response has come from President Putin and from Foreign Secretary Lavrov. And they pointed out, well, how is Russia going to going to trade and get what it needs. And this is what the recent meetings of the BRICS are all about.

Russia realizes that the world is now broken into two halves. America and NATO have separated the West. Basically you have a white people’s confederation against all the rest of the world.

And the West has said, we’re isolating ourselves from you totally. And we think you can’t get along without us.

Well, look at the humor of this. Russia, China, Iran, India, Indonesia, and other countries are saying, hah, you say we we can’t get along without you? Who is providing your manufacturers? Who is providing your raw materials? Who is providing your oil and gas? Who is providing your agriculture, and the helium, the titanium, the nickel?

So they realize that the world is breaking in two, and Eurasia, where most of the world’s population is concentrated, is going to go its own way.

The problem is, how do you really go your own way? You need a means of payment. You need to create a whole international system that is an alternative to the Western international system. You need your own International Monetary Fund to provide credit, so that the these Eurasian countries and their allies in the Global South can deal with each other.

You need a World Bank that, instead of lending money to promote U.S. policies and U.S. investments, will promote mutual gains and self-sufficiency among the countries.

So already, every day in the last few weeks, you have had meetings with the Russians about this, who said, ok, we’re going to create a mutual trading area, starting among the BRICS: Brazil, Russia, India, China, and South Africa.

And how are we going to pay? We can’t pay in dollars, because if we have money in a dollar bank, or a euro bank in Europe, they can just grab the money, like they grab Venezuela’s money. They can just say, we’re taking all your money because, essentially, we don’t want you to exist as an alternative to the finance capital world that we are creating.

So essentially, Russia, China, and these other countries are saying, ok, we’re going to create our own international bank. And how are we going to fund it? Well, every member of the bank will contribute, say, a billion dollars, or some amount of their own currency, and this will be our backing. We can also use gold as a means of settlement, as was long used among countries.

And this bank can create its own special drawing rights, its own bank order, is what Keynes called it. It can create its own credit.

Well, the problem is that, if you have Brazil, for instance, or Argentina, joining this group, or Ecuador, that sells almost all of its bananas to Russia, how is it going to get by?

Well, if there is a BRICS group or a Shanghai Cooperation Organization bank, obviously the Western governments are not going to accept this.

So Russia realizes that as a result of Biden’s Cold War Two, there is going to be a continued rise in energy prices. You think gasoline prices are not high now? They’re going up. You think food prices are not high now? They’re going up more.

And Europe is especially the case, because Europe now cannot buy Russian gas to make the fertilizer to make its own crops grow.

So you’re going to have a number of countries in the Global South, from Latin America to Africa, being squeezed and wanting to trade with the Eurasian group.

And the problem is Russia says, all right, we know that you can’t afford to pay. We’re glad to give you credit, but we don’t want to give you credit that you’re going to simply use the money you have to pay your dollar debts that are coming due.

Because one of the effects that I didn’t mention of the Federal Reserve raising interest rates is there is a huge flow of capital from Europe and England into the United States, so that if you’re a billionaire, where are you going to put your savings? You want the highest interest rates you want. And if the United States raises interest rates, the billionaires are going to move their money out of England, out of the euro, and the euro is going back down against the dollar. It’s almost down to a dollar a euro.

The British pound is heading downwards, towards one pound per dollar.

This increase in the dollar’s exchange rate is also rising against the currencies of Brazil, Argentina, the African countries, all the other countries.

So how are they going to pay this summer, and this fall, for their food, for their oil and gas, and for the higher cost of servicing their dollar debts?

Well, for Eurasia, they’re going to say, we want to help you buy our exports–Russia is now a major grain exporter, and obviously also an oil exporter–saying we want to supply you and give you the credit for this, but you’re really going to have to make a decision. Are you going to join the U.S.-NATO bloc, or are you going to join the Eurasian bloc?

Are you going to join the White People’s Club or the Eurasian Club? And it really comes down to that. And that’s what is fracturing the world in these two halves.

Europe is caught in the middle, and its economies are going to be torn apart. Employment is going to go down there. And I don’t see wages going up very much in Europe.

You’re going to have a political crisis in Europe. But also you’ll have an international diplomatic crisis over how are you going to restructure world trade, and investment, and debt.

There will be two different financial philosophies. And that’s what the new cold war is all about.

The philosophy of U.S.-sponsored finance capitalism, of making money financially, without industrialization, and with trying to lower wages and reduce the labor force to a very highly indebted workforce living on the margin.

Or you’ll have the Eurasian philosophy of using the economic surplus to increase productivity, to build infrastructure, to create the kind of society that America seemed to be growing in the late 19th century but has now rejected.

So all of this is ultimately not simply a problem of interest rates and central bank policy; it really goes beyond central banks to what kind of a social and economic system are you going to have.

And the key to any social and economic system is how you treat money and credit. Is money and credit going to be a public utility, or will it be a private monopoly run for the financial interests and the 1%, instead of a public utility run for the 99%?

That’s what the new cold war is going to be all about. And that’s what international diplomacy week after week is trying to settle.

BN: Very, very well said. And I really agree about this increasing kind of bipolar order, where the U.S.-led imperialist system is telling the world they have to pick a side. You know, as George W. Bush said, you’re either with us or you’re against us; you’re with us or you’re with the terrorists.

That’s what Biden is saying to the world. And we see the West has drawn this iron curtain around Russia. And now they’re threatening to do the same around China.

Now, of course, the difference is that China has the largest economy in the world, according to a PPP measurement. It’s even larger than the U.S. economy. I don’t know how they can try to sanction the Chinese economy, considering China is the central factory of the world.

But this is related to a question I had for you, Professor Hudson, and this is from a super chat question from Manoj Payardha, and it’s about how Chinese banks say they’re not ready yet to develop an alternative to the SWIFT. He asked, how will the Third World pay Russia for resources?

And we’ve seen, maybe you can talk about the measures being implemented. India has this rupee-ruble system that they’ve created.

But I want to highlight an article that was published in Global Times. This is a major Chinese newspaper, and this is from April. And it quotes the former head of China’s central bank, who was speaking at a global finance forum in Beijing this April.

And basically he said, we need to prepare to replace Swift. He said the West’s adoption of a financial nuclear option of using SWIFT to sanction Russia is a wake up call for China’s financial development. And he said, “We must get prepared.”

So it seems that they’re not yet prepared. But this is something that you’ve been talking about for years. Or maybe you disagree and maybe you think they already are prepared with the SWIFT alternative?

MH: Well they’re already using an alternative system. If they weren’t using an alternative system–Russia is adopting part of the Chinese system for this–they wouldn’t be able to have banks communicate with each other.

So, yes, they already have a rudimentary system. They’re making it a better system that can also be immune from U.S. computer espionage and interference. So yes, of course there’s already a system.

But I want to pick up on what you said about Biden, how Biden characterizes things.

Biden characterizes the war of the West against Eurasia as between democracy and autocracy. By “democracy,” he means a free market run by Wall Street; he means an oligarchy.

But what does he mean by autocracy? What he means by autocracy, when he calls China an autocracy, an “autocracy” is a government strong enough to prevent an oligarchy from taking power, and taking control of the government for its own interests, and reducing the rest of the economy to debt peonage.

An “autocracy” is a country with public regulation against monopolies, instead of an oligarchic free market. An “autocracy” uses money and credit, essentially, to help economies grow. And when debts cannot be paid in China, if a factory or a real estate company cannot pay debts, China does not simply say, ok, you’re bankrupt, you’re going to have to be sold; anybody can buy you; the Americans can buy you.

Instead, the Chinese say, well, you can’t pay the debts; we don’t want to tear down your factory; we don’t want your factory to be turned and gentrified into luxury housing. We’re going to write down the debt.

And that’s what China has done again and again. And it’s done that with foreign countries that couldn’t pay the debt. When a debt that China has come due for China’s development of a port, or roads, or infrastructure, it says, well, we understand that you can pay; we will delay payment; we will have a moratorium on your payment. We’re not here to bankrupt you.

For the Americans, to the international funds, they’re saying, well, we are here to bankrupt you. And now if we lend you, we the IMF, lends you money to avoid a currency devaluation, the term is you’re going to have to privatize your infrastructure; you’re going to have to sell off your public utilities, your electric system, your roads, your land to private buyers, mainly from the United States.

So you have a “democracy” supporting bankruptcy, foreclosure, financialization, and privatization, and low wages by a permanent depression, a permanent depression to keep down wages.

Or you have “autocracy,” seeking to protect the interests of labor by supporting a living wage, to increase living standards as a precondition for increasing productivity, for building up infrastructure.

You have these two diametrically economic systems. And, again, that’s why there’s a cold war on right now.

BN: And there’s another super chat question here, Professor Hudson. You mentioned the International Monetary Fund, the IMF. We have talked about that many times. This is from Sam Owen. He asked, why do countries continue to accept bad IMF loans when they have such a poor track record? Is it just the U.S. government meddling in the national politics? Are there cases of good IMF loans?

MH: Well, what is a country? When you say a country to most people, people think, ok, let’s talk about Brazil; let’s talk about all the people in Brazil; you have a picture in the mind of the Amazon; you have a big city with a lot of people in it.

But the country, in terms of the IMF, is a group of maybe the 15 wealthiest families in Brazil, that own most of the money, and they are quite happy to borrow from the IMF, because they say, right now there’s a chance that Lula may become president instead of the neo-fascist Bolsonaro. And if Lula comes in, then he is going to support labor policies, and he may stop us from tearing down the Amazon. So let’s move our money out of the country.

Well, normally this would push the exchange rate of the cruzeiro (real) down. So the IMF is going to make a loan to Brazil to support the cruzeiro (real), so that the wealthy 1% of Brazil can move their money into dollars, into euros, into foreign currency and offshore bank incentives, and load Brazil down with debt, so that then when there is an election, and if Lula is elected, the IMF is going to say, well, we don’t really like your policies, and if you pursue a pro-labor, socialist policy, then there’s going to be a capital flight. And we’re insisting that you pay all the money that you borrowed from the West right back now.

Well, that’s going to lead Lula either to sit there, follow the IMF direction, and let the IMF run the economy, instead of his own government, or just say, we’re not going to pay the foreign debt.

Well, until now, no country has been in a strong enough position not to pay the foreign debt. But for the first time, now that you have the Eurasian group–we’ll call it BRICS, but it’s really Eurasia, along with the Southern groups that are joining, the Global South–for the first time, they can say, we can’t afford to stay in the West anymore.

We cannot afford to submit the economy to the IMF demands for privatization. We cannot submit to the IMF rules that we have to fight against labor, that we have to pass laws banning labor unions, that we have to fight against laborers’ wage, like Western democracies insist on. We have to go with the Chinese “autocracy,” which we call socialism.

And of course, when America accuses China being an “autocracy,” autocracy is the American word for socialism. They don’t want to use that word. So we’re back in Orwellian double-think.

So the question is what, will the Global South countries do when they cannot afford to buy energy and food this summer, without an IMF loan? Are they going to say, ok, we can only survive by joining the break from the West and joining the Eurasian group?

That is what the big world fracture is all about.

And I described this global fracture already in 1978. I wrote a book, “Global Fracture,” explaining just exactly how all of this was going to happen.

And at that time, you had Indonesia, you had Sukarno taking the lead, the non-aligned nations, India, Indonesia, were trying to create an alternative to the financialized, American-centered world order. But none of these countries had a critical mass sufficient to go their own way.

Well, now that America has isolated Russia, China, India, Iran, Turkey, all these countries, now it has created a critical mass that is able to go its own way. And the question is, now you have like a gravitational pull, and will this Eurasian mass attract Latin America and Africa to its own group, away from the United States? And where is that going to leave the United States and Europe?

BN: And we saw one of the clearest examples yet of this bipolar division of the world between, you know, the West and the rest, as they say, with this ridiculous meeting that was just held of the G7.

Of course, the G7 are the white, Western countries. And then they’ll throw in U.S.-occupied Japan in there, to pretend they’re a little more diverse.

But we saw that the G7 just held a summit, and basically the entire summit was about how can we contain China? How can we expand the new cold war on Russia into a new cold war on China?

And here’s a report in BBC: “G7 summit: Leaders detail $600bn plan to rival China’s Belt and Road initiative.” Now, I got a chuckle out of this. The idea that the U.S. government is going to build infrastructure in the Global South, I mean, it’s pretty laughable.

It’s also absurd considering that China’s Belt and Road Initiative, which involves over half of the countries on Earth, is estimated at many trillions of dollars in infrastructure projects. So the U.S. and its allies think that they can challenge that with $600 billion in public-private partnerships.

I should stress, of course, what they announced is going to be a mixture of so-called public initiative and then contracts for private corporations.

So it’s yet another giveaway to the private sector, in the name of building infrastructure.

But I’m wondering if if you can comment on the G7 summit that just was held.

MH: Well, nothing really came out of it. They all said that they could not agree on any more sanctions against Russia, because they’re already hurting enough. India, in particular, stood up and said, look, there’s no way that we’re going to join the sanctions against Russia, because it’s one of our major trading partners. And by the way, we’re getting a huge benefit from importing Russian oil, and you’re getting a huge benefit by getting this oil from us at a markup.

So the G7 could not get any agreement on what to do. It is already at a stalemate. And this is only June. Imagine the stalemate it’s going to be in September.

Well, next week, President Biden is going to Saudi Arabia and saying, you know, we’re willing to kill maybe 10 million more of your enemies; we’re willing to help Wahhabi Sunni groups kill more of the Iranian Shiites, and sabotage Iraq and Syria. We’ll help you back al-Qaeda again, if you will lower your oil prices so that we can squeeze Russia more.

So that’s really the question that Saudi Arabia will have. America will send give it more cluster bombs to use against Yemen. And the question is, is Saudi Arabia going to say, ok, we’re going to earn maybe $10 billion less a month, or however much they’re making, just to make you happy, and so that that you will kill more Shiites who support Iran?

Or are they going to realize that if they throw in their lot with the United States, all of a sudden they’ll be under attack from Iran, Russia, Syria, and they’ll be sitting ducks? So what are they going to do?

And I don’t see any way that Biden can actually succeed in getting Saudi Arabia to voluntarily earn less on its oil prices. Maybe Biden can say it’s only for a year, only for one or two years. But as other countries know, when America says only for a year or two, it really means forever. And if you don’t continue, then somehow they have a regime replacement, or a regime change and a color revolution.

So Biden keeps trying to get foreign countries to join the West against Eurasia, but there is Saudi Arabia sitting right in the middle of it.

And all that Europe can do is watch and wonder how it’s going to get by without without energy and without much food.

BN: Yeah, in fact, Venezuela’s President Maduro just confirmed that the Biden administration has sent another delegation basically begging Venezuela to try to work out some deal because, of course, the U.S. and the EU have boycotts of Russian energy.

So it’s really funny to me that, after years of demonizing Venezuela, portraying it as a dictatorship and all of this, the U.S. had to decide, well, the war in Venezuela is not as important as the war on Russia right now; so we’re going to temporarily pause our war on Venezuela to stick the knife deeper into Russia.

But on the on the subject of the the G7 meeting, this was the hilarious comment made by the European Commission President Ursula von der Leyen, in an article in Reuters titled “Europe Must Give Developing Nations Alternative to Chinese Funds.”

So echoing the same perspective that we hear from Biden, U.S. government officials constantly say that the U.S. needs to challenge China in the Global South. So Europe pledged €300 billion–however, once again, important asterisk–“in private and public funds over five years to fund infrastructure in developing countries.”

So once again, we see another neoliberal private-public partnership. It’s going to be another public giveaway to private corporations.

And “she said that this is part of the G7’s drive to counter China’s multitrillion-dollar Belt and Road project.”

Now, this is really just tying everything together that we have been talking about today, Professor Hudson–in your article “The Fed’s Austerity Program to Reduce Wages,” you conclude the article noting that the depression that people in the United States are on the verge of facing because of these neoliberal policies–telling workers in the U.S. that they need to decrease their wages and be unemployed in order to stop inflation–you point out that:

Biden’s military and State Department officers warn that the fight against Russia is just the first step in their war against China’s non-neoliberal economy, and may last twenty years. That is a long depression. But as Madeline Albright would say, they think that the price is “worth it.”

And you talk about the new cold war against the socialist economy in China and the state-led economy in Russia.

So you predict not only a depression is coming. We have seen that in mainstream media outlets. Larry Summers said, you know, a depression could be coming for a few years. But you say, no, not only is a depression coming; it’s going to be a long depression. We could be seeing 20 years.

And basically the U.S. government and other Western leaders, as we see Ursula von der Leyen from the EU, they’re basically telling their populations, tighten your belts; we have decades of depression coming, because we have collectively decided, as Western leadership, that we are going to force the world through a long depression economically, or at least forced the West through a long economic depression, in order to try to halt the rise of China and Russia.

They’re basically telling their populations, suck it up, tighten your belts for decades, because in the end, the price is worth it in order to prevent the collapse of our empires.

MH: That’s right. When they’re talking about private-public initiatives, they’re talking about Pentagon capitalism. That means the government will give trillions of dollars to private firms and ask them to build infrastructure.

And if they build a port or a road in a Global South country, they will operate this at a profit, and it will be an enormously expensive infrastructure, because to make financial money off this infrastructure, you have to price it at the cost of production, which is Pentagon capitalism, hyper inflated prices; you have to pay management fees; you have to pay profits; you have to pay interest rates.

As opposed to the Chinese way of funding as equity. The Western mode of funding is all debt leverage. China takes as collateral for the infrastructure that it pays, an equity ownership in the port or whatever infrastructure in the Belt and Road that it’s building.

So you have the difference between equity ownership, debt-free ownership, where if it can afford to pay, fine; if it doesn’t make an income, there are no dividends to pay.

Or you have the debt leverage that is intended that the government cannot pay it, so that the government that will be the co-signer for the debt for all of this infrastructure will somehow be obliged to tax its whole population to pay the enormous super-profits, the enormous monopoly rents, the enormous debt charges of von der Leyen’s Margaret Thatcher plan.

Von der Leyen thinks that she can do to Europe and to America what Margaret Thatcher did to England. And if she does, then then America and Europe deserve it.

BN: And Professor Hudson, as we start wrapping up here, I know you have to go pretty soon, just a few short questions here at the end.

I’m wondering if what we’re also seeing is not only this fundamental crisis in the Western neoliberal, financialized economies, but it’s also this bubble that has burst, or at least this phase that is over.

At least this is my reading, I’m curious if you agree. In the 1990s, the peak of, you know, the so-called golden age of neoliberalism; we had Bill Clinton riding this wave, and it was the “end of history,” in Francis Fukuyama’s nonsense prediction and all that.

How much of that was not only based on this exorbitant privilege, as the French call it, of the dictatorship of the U.S. dollar–we talked about that based on your book “Super Imperialism,” how the U.S. was given this massive global free lunch economically because of dollar hegemony–but how much of it was not just that, but also the fact that in the 1990s and the first decade of the 2000s, the U.S. and Western Europe had access to very cheap consumer goods from Asia and very cheap energy from Russia?

To me, it seems like those two factors are some of the most important reasons why this golden age of neoliberalism in the ’90s and early 2000s was even possible.

It was on the back of low-paid Asian workers, and based on this idea that Russia would permanently be, what Obama called it: a gas station.

Well, we’ve seen that, one, East Asian economies have lifted themselves up of poverty, especially China has ended extreme poverty and raised median wages significantly.

And now, of course, the West has sanctioned itself against buying Russian energy, massively increasing the cost of energy around the world.

So do you think that that bubble, or that brief moment of the end of history, the golden age of neoliberalism, that can never come back?

Because unless the West can succeed in overthrowing the Russian government and imposing a new puppet like Yeltsin, and overthrowing the Chinese government, it seems like that that the golden in the 1990s is never going to come back.

MH: Well, you’ve left out the key element of the golden age: that is military force, and the willingness to assassinate any foreign leader that does not want to go along with U.S. policy.

BN: Of course.

MH: You’re neglecting what America did to [Salvador Allende]; you’re neglecting how America took over Brazil; America’s meddling and control, and in Europe, the wholesale bribery and manipulation of Europe’s political system, to put in charge of the [German] Green Party a pro-war leadership, an anti-environmental leadership, to put in charge of every socialist party of Europe right-wingers, neoliberals.

Every European socialist and labor party turned neoliberal largely by American maneuvering and meddling in their foreign policy.

So it’s that meddling that was intended to prevent any alternative economic philosophy from existing to rival neoliberalism.

So that when you talk about the end of history, what is the end of history? It means the end of change. It means stop; there will be no reform; there will be no change in the neoliberal system that we have locked in.

And of course, the only way that you can really end history is by what Biden is threatening: atomic war to blow up the world.

That is the neoliberal end of history. And it’s the only way that the neoliberals can really stop history. Apart from that, all they can try to do is to prevent any change that is adverse to locking in the neoliberal order.

So the “end of history” is a declaration of war against any country that wants to go its own way. Any country that wants to build up its own economy as a way that will keep the benefits of its economic growth in its own country, instead of letting it go to the global financial class centered in the United States and Britain.

So we’re talking about, neoliberalism was always a belligerent, implicitly military policy, and that’s exactly what you’re seeing in the proxy war of U.S. and NATO in Ukraine today.

BN: Yeah, very well said. That’s the other key ingredient: overthrowing any government that is a challenge, that shows there is an alternative, to try to prove the maxim that “there is no alternative.”

MH: Yes.

BN: Here’s an interesting comment from Christopher Dobbie. He points out that in Australia, the average age for their first homeowner was 27 in 2001; now it’s 35, and increasing more and more by the year.

Now, in the last few minutes here, Professor Hudson, here’s another brief question that I got from someone over at patreon.com/multipolarista–people can go and support this show. One of my patrons asked this question: who who is hurt most by the Fed or other central banks raising interest rates? People, average consumers, or companies?

And obviously, you talked earlier about how the U.S. Federal Reserve is different from other central banks, but it’s kind of an open question. Who is hurt more by raising interest rates?

MH: Well, companies are certainly hurt because it means that any possibility of getting productive credit is raised. But they’re also benefited, because if interest rates raised go up high enough, then it will not pay corporate raiders to borrow money to take over and raid companies and empty them out, like they did in the 1980s.

So everything cuts both ways. Raising the interest rates have given commercial banks an excuse to raise the interest charges on credit card loans and mortgage debts.

So raising interest rates, to the banks, have enabled them to actually increase their margin of monopoly profits on the credit that they extend.

And that certainly hurts people who are reliant on bank credit, either for mortgages or for consumer debt, or for any kind of loans that they want to take out.

Basically, raising interest rates hurts debtors and benefits creditors.

And benefiting creditors very rarely helps the economy at large, because the creditors are always really the 1%; the debtors are the 99%.

And if you think of economies, when you say, how does an economy benefit, you realize that, well, if the economy is 1% creditors and 99% debtors, you are dealing with a bifurcation there.

And you have to realize that the creditors usually occupy the government, and they claim we are the country. And the 99% are not very visible.

Democracy can only be afforded if they population’s voting has no effect at all on the government, that it’s only symbolic. You can vote exactly which oligarch you want to rule your country. Ever since Rome that was the case, and it’s the case today.

Is there really any difference between the Republicans and Democrats in terms of their policy? When you the same central bank bureaucracy, the same State Department blob, the same military-industrial complex, the same Wall Street control, what does democracy mean in a situation like that?

The only way that you can have what democracy aims at is to have a government strong enough to check the financial interests, to check the 1%, acting on behalf of the 99%. And that’s what socialism is.

BN: Very well said.

Here is another brief question from patreon.com/multipolarista–people can become a patron and help support the show over there.

This question, Professor Hudson, is about the proposal of an excess profits tax as an alternative to try to contain inflation. What do you think about the proposal of an excess profits tax?

MH: Well, only the little people make profits. If you’re a billionaire, you don’t want to make a profit; you want to essentially take all of your return in the form of capital gains. That’s where your money is.

And the way you avoid making a profit is you establish an offshore bank or creditor, and you pay out all of your profits in the form of interest, which an expense. You expense all of what used to be, what really is, income. And you show no profits at all.

I don’t think Amazon has ever made a profit. You have huge, the biggest corporations, with all the capital gains, have no profits. Tesla is a gigantic stock market presence, and it doesn’t make a profit.

So the key is capital gains, is financial gains, stock market gains, gains in real estate prices, unearned income. That’s what the free lunch is.

You want to prevent profits being paid out in the form of interest. So I would vastly increase profits, by saying you cannot deduct interest as a business expense. It’s not a business expense. It’s a predatory parasitic expense. So you’re going to have to declare all of this as profit, and pay interest on it.

Pricing your output from a foreign offshore banking center, so that you don’t seem to make any profit, like Apple does, pretending to make all its money in Ireland, you can’t do that anymore. You’re going to have to pay a real return.

So the accounting profession has made profits essentially tax free. So the pretense of making money by taxing profits avoids talking about capital gains and all of fictitiously low profits that are simply pretended not to be profit, like interest, depreciation, amortization, offshore earnings, management fees.

All of these should be counted as profits, and taxed as such as they were, I’d say back at the Eisenhower administration levels.

BN: And finally, the last question here, Professor Hudson, someone asked about the U.S. government pressuring countries in Africa not to buy Russian wheat. And the U.S. is, of course, claiming that this wheat is supposedly stolen from Ukraine.

This article, this headline at Newsweek, it summarizes pretty well: “U.S. Warns Starving African Nations to Not Buy Grain Stolen by Russia.” Again, that “stolen” is alleged by the U.S.

But you actually have a really good column about this over at your website, which again is michael-hudson.com: “Is U.S./NATO (with WEF help) pushing for a Global South famine?”

I know this could be a long point of discussion; it could be the entire interview. And I know you have to go soon. But just concluding here, I’m wondering if you could comment.

The United Nations itself has warned that there could be a famine, especially in Global South nations.

What do you think the role of these neoliberal policies and Western sanctions are in fueling that potential crisis?

MH: Well, the wealthiest families in the world used to go every year, now they go every few years, to Davos, to Klaus Schwab’s Davos World Economic Forum. And they say, the world is overpopulated; we need about 2 billion human beings to starve, preferably in the next year or two.

So it’s as if the wealthy families have got together and say, how can we thin out the population that really we, the 1%, don’t need?

And in all of their policies, it is as if they’ve decided to follow the World Economic Forum and deliberately shrink the world population, especially in Africa and Latin America.

Remember, these are white people at the World Economic Forum, and that is their idea of how to retain equilibrium.

They’re always talking about “equilibrium,” and equilibrium is going to be for countries that cannot afford to grow their own food, because they have put their money into plantation crops and cotton to sell to the West, instead of feeding themselves–they’re just going to have to starve to contribute to world “equilibrium.”

BN: And while we’re on the subject of the World Economic Forum, I guess I should just briefly add–we’ve talked about this a little bit, but I just feel remiss not mentioning it–it’s interesting to see how right-wingers have seized on the World Economic Forum and begun criticizing it a lot.

Obviously, it’s worth criticizing. It’s a horrible neoliberal institution that represents the Western capitalist class. But we’ve even seen, you know, Glenn Beck, the right-winger, former Fox News host, he published a book about the Great Reset and the World Economic Forum.

I’m just wondering really quickly if you could respond to the idea that the World Economic Forum is like some “socialist” organization. Obviously, it’s the exact opposite.

But what do you say to these conservatives who have a right-wing critique of the World Economic Forum, and think it’s like secretly socialist, and Biden is a socialist.

MH: They look at any government or managerial power as socialist, not drawing the distinction between socialism and oligarchy.

The question is government power can be either right-wing or left-wing, and to say that any government power is socialist is just degrading the word.

However, as I mentioned before, almost all of the European “socialist” parties are neoliberal. Tony Blair was the head of something that called itself the British Labour Party. Gordon Brown was the head of the British Labour Party.

You can’t be more neoliberal and oligarchic than that. And that’s why Margaret Thatcher said her greatest success was creating Tony Blair.

You have the same thing in France; the French “socialists” are on the right-wing of the spectrum. The Greek “socialist” party, on the right-wing of the spectrum.

You have “socialist” parties around the world being neoliberalized.

So what does the word socialism mean? You want to go beyond labels into the essence.

And the question is, in whose interest is the government going to be run for? Will it be run for the 1% or the 99%?

And the right wing wants to say, well, the 1% can be socialist, because they’re taking over the government and that’s the big government, and we’re against it.

Well, the right-wing is taking over the government, but it’s not really what the world meant by socialism a century ago.

BN: Yeah, very well said. I just always laugh when I see these right-wing critiques of the World Economic Forum. I mean, the World Economic Forum is the embodiment of capitalism. It is the group of the elite capitalists who get together to talk about how they can exploit the working class and help monopolize the global economy on behalf of Western capital.

So with that said, there still are many questions, but I know you have to go, and we’re already at an hour and a half.

I do want to thank everyone who joined. We’re at 1200 viewers right now, so it has been a really good response.

Professor Hudson, you’re very popular. You should do your own YouTube channel. Maybe we can talk about that, because every time I have you on, it’s always an amazing response that I get. And hopefully we can do this again more in future.

Aside from people going to your website, michael-hudson.com, is there anything else that you want to plug before we conclude?

MH: Well, the book that I just wrote, “The Destiny of Civilization,” is all about what we’ve been talking about. It’s about the world’s split between neoliberalism and socialism. So that was just published and is available on Amazon. And I have two more books that are coming out very shortly.

BN: Yeah, for people who are interested, I did an interview with Professor Hudson here at Multipolarista a few weeks ago about his new book, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.”

And of course, anyone who wants to support this show, you can go to patreon.com/multipolarista. And as always, this will be available as a podcast, if you want to listen to the interview again. I’m certainly going to listen to this discussion again. You can find that anywhere there are podcasts.

Professor Hudson, it’s always a real pleasure. Thanks so much for joining me.

MH: I enjoyed the discussion.

BN: And like I said earlier at the beginning, for me, I truly think it’s always a privilege, because I do think you’re one of the greatest living economists. So I always feel very privileged to have the opportunity to pick your brain about all of these questions.

And I want to thank everyone who commented, who watched, and who listened. I will see you all next time.

https://mronline.org/2022/07/02/economi ... cut-wages/
"There is great chaos under heaven; the situation is excellent."

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Re: The crisis of bourgeois economics

Post by blindpig » Mon Jul 11, 2022 2:51 pm

From Junk Economics to a False View of History: Where Western Civilization Took a Wrong Turn
By Michael Thursday, July 7, 2022

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A presentation to the Building bridges around David Graeber’s legacy conference, Paris, Friday July 7, 2022

It may seem strange to invite an economist to give a keynote speech to a conference of the social sciences. Economists have been characterized as autistic and anti-social in the popular press for good reason. They are trained to think abstractly and use a priori deduction – based on how they think societies should develop. Today’s mainstream economists look at neoliberal privatization and free-market ideals as leading society’s income and wealth to settle at an optimum equilibrium without any need for government regulation – especially not of credit and debt.

The only role acknowledged for government is to enforce the “sanctity of contracts” and “security of property.” By this they mean the enforcement of debt contracts, even when their enforcement expropriates large numbers of indebted homeowners and other property owners. That is the history of Rome. We are seeing the same debt dynamic at work today. Yet this basic approach has led mainstream economists to insist that civilization could and should have followed this pro-creditor policy from the very beginning.

The reality is that civilization could never have taken off if some free-market economist had got into a time machine and travelled back in time five thousand years to the Neolithic and Bronze Age. Suppose that he would have convinced ancient chieftains or rulers how to organize their trade, money and land tenure on the basis of “greed is good” and any public regulation is bad.
If some Milton Friedman or Margaret Thatcher had persuaded Sumerian, Babylonian or other ancient rulers to follow today’s neoliberal philosophy, civilization could not have developed. Economies would have polarized – as Rome did, and as today’s Western economies are doing. The citizens would have run away, or else backed a local reformer or revolutionist to overthrow the ruler who listened to such economic advice. Or, they would have defected to rival attackers who promised to cancel their debts, liberate the bondservants and redistribute the land.

Yet many generations of linguists, historians and even anthropologists have absorbed the economic discipline’s anti-social individualistic world view and imagine that the world must always have been this way. Many of these non-economists have unwittingly adopt their prejudices and approach ancient as well as modern history with a bias. Our daily discourse is so bombarded with the insistence by recent American politicians that the world is dividing between “democracy” with “free markets” and “autocracy” with public regulation that there is much fantasy at work about early civilization.

David Graeber and I have sought to expand the consciousness of how different the world was before Western Civilization took the Roman track of pro-creditor oligarchies instead of palatial economies protecting the interests of the indebted population at large. At the time he published his Debt: The First Five Thousand Years in 2011, my Harvard group of assyriologists, Egyptologists and archaeologists was still in the process of writing the economic history of the ancient Near East in a way that was radically different from how most of the public imagined it to have occurred. David’s and my emphasis on how royal Clean Slate proclamations cancelling debts, liberating bond-servants and redistributing the land were a normal and expected role of Mesopotamian rulers and Egyptian pharaohs was still not believed at that time. It seemed impossible that such Clean Slates were what preserved liberty for the citizenry.

David Graeber’s book summarized my survey of royal debt cancellation in the ancient Near East to show that interest-bearing debt originally was adopted with checks and balances to prevent it from polarizing society between creditors and debtors. In fact, he pointed out that the strains created by the emergence of monetary wealth in personal hands led to an economic and social crisis that shaped the emergence of the great religious and social reformers.

As he summarized “the core period of Jasper’s Axial age … corresponds almost exactly to the period in which coinage was invented. What’s more, the three parts of the world where coins were first invented were also the very parts of the world where those sages lived; in fact, they became the epicenters of Axial Age religious and philosophical creativity.” Buddha, Lao-Tzu and Confucius all sought to create a social context in which to embed the economy. There was no concept of letting “markets work” to allocate wealth and income without any idea of how wealth and income would be spent.

All ancient societies had a mistrust of wealth, above all monetary and financial wealth in creditor hands, because it generally tended to be accumulated at the expense of society at large. Anthropologists have found this to be a characteristic of low-income societies in general.

Toynbee characterized history as a long unfolding dynamic of challenges and responses to the central concerns that shape civilizations. The major challenge has been economic in character: who would benefit from the surpluses gained as trade and production increase in scale and become increasingly specialized and monetized. Above all, how would society organize the credit and debt that was necessary for specialization of economic activities to occur – and between “public” and “private” functions?

Nearly all early societies had a central authority in charge of distributing how the surplus was invested in a way that promoted overall economic welfare. The great challenge was to prevent credit leading to debts being paid in a way that impoverished the citizenry, e.g., through personal debt and usury – and more than temporary loss of freedom (from bondage or exile) or land tenure rights.

The great problem that the Bronze Age Near East solved – but classical antiquity and Western civilization have not solved – was how to cope with debts being paid – especially at interest without polarizing economies between creditors and debtors, and ultimately impoverishing the economy by reducing most of the population to debt dependency. Merchants engaged in trade, both for themselves and as agents for palace rulers. Who would get the profits? And how would credit be provided but kept in line with the ability to be paid?

Public vs. private theories of how land tenure originated

Ancient societies rested on an agricultural base. The first and most basic problem for society to solve was how to assign land tenure. Even families who lived in towns that were being built up around temples and civic ceremonial and administrative centers were allocated self-support land – much like Russians have dachas, where most of their food was grown in Soviet times.

In analyzing the origins of land tenure, like every economic phenomenon, we find two approaches. On the one hand is a scenario where land is allocated by the community in exchange for corvée labor obligations and service in the military. On the other hand is an individualistic scenario in which land tenure originated by individuals acting spontaneously by themselves clearing land, make it their own property and producing handicrafts or other products (even metal to use as money!) to exchange with each other.

This latter individualistic view of land tenure has been popularized ever since John Locke imagined individuals setting out to clear the land – apparently vacant wooded land – with their own labor (and presumably that of their wives). That effort established their ownership to it and its crop yield. Some families would have more land than others, either because they were stronger at clearing it or had a larger family to help them. And there was enough land for everyone to clear ground for planting crops.

In this view there is no need for any community to be involved, not even to protect themselves from miliary attack – or for mutual aid in times of flood or other problems. And there is no need for credit to be involved – although in antiquity that was the main lever distorting the distribution of land by transferring its ownership to wealthy creditors

At some point in history, to be sure, this theory sees governments enter the picture. Perhaps they took the form of invading armies, which is how the Norman ancestors of landlords in John Locke’s day acquired English land. And as in England, the rulers would have forced landholders to pay part of their crops in taxes and provide military service. In any case, the role of government was recognized only as “interfering” with the cultivator’s right to use the crop as he saw fit – presumably to trade for things that he needed, made by families in their own workshops.

My Harvard-sponsored group of assyriologists, Egyptologists and archaeologists have found an entirely different genesis of land tenure. Land rights seem to have been assigned in standardized plots in terms of their crop yield. To provide food for these community members, late Neolithic and early Bronze Age communities from Mesopotamia to Egypt allocated land to families in proportion to what they needed to live on and how much they could turn over to the palace authorities.

This tax yield turned over to palace collectors was the original economic rent. Land tenure came as part of a quid pro quo – with a fiscal obligation to provide labor services at designated times of the year, and to serve in the military. It thus was taxation that created land-tenure rights, not the other way around. Land was social in character, not individualistic. And government’s role was that of coordinator, organizer and forward planner, not merely predatory and extractive.

Public vs. private origins of money

How did early societies organize the exchange of crops for products – and most important, to pay taxes and debts? Was it simply a spontaneous world of individuals “trucking and bartering,” as Adam Smith put it? Prices no doubt would have varied radically as individuals had no basic reference to cost of production or degrees of need. What happened as some individuals became traders, taking what they produced (or other peoples’ products on consignment) to make a profit. If they traveled large distances, were caravans or ships needed – and the protection of large groups? Would such groups have been protected by their communities? Did supply and demand play a role? And most important, how did money emerge as a common denominator to set prices for what was traded – or paid in taxes and to settle debts?

A century after Adam Smith, the Austrian economist Anton Menger developed a fantasy about how and why ancient individuals may have preferred to hold their savings in the form of metals – mainly silver but also copper, bronze or gold. The advantage of metal was said to be that it did not spoil (in contrast to grain carried around in one’s pocket, for instance). It also was assumed to be of uniform quality. So pieces of metal money gradually became the medium by which other products came to be measured as they were bartered in exchange – in markets in which governments played no role at all!

The fact that this Austrian theory has been taught now for nearly a century and a half is an indication of how gullible economists are willing to accept a fantasy at odds with all historical records from everywhere in recorded world history. To start with, silver and other metals are not at all of uniform quality. Counterfeiting is age-old, but individualist theories ignore the role of fraud – and hence, the need for public authority to prevent it. That blind spot is why U.S. Federal Reserve Chairman Alan Greenspan was so unprepared to cope with the massive junk-mortgage bank crisis peaking in 2008. Wherever money is involved, fraud is omnipresent.

That’s what happens in unregulated markets – as we can see from today’s bank frauds, tax evasion and crime that pays very, very well. Without a strong government to protect society against fraud, lawbreaking, the use of force and exploitation, societies will polarize and become poorer. For obvious reasons the beneficiaries of these grabs seek to weaken regulatory power and the ability to prevent such grabitization.

To avoid monetary fraud, silver and subsequently gold coinage from Bronze Age Mesopotamia down through classical Greece and Rome was minted in temples to sanctify their standardized quality. That is why our word for money comes from Rome’s temple of Juno Moneta, where Rome’s coinage was struck. Thousands of years before bullion was coined, it was provided in metal strips, bracelets and other forms minted in temples, at standardized alloy proportions.

Purity of metals is not the only problem with using bullion money. The immediate problem that would have confronted anyone exchanging products for silver is how to weigh and measure what was being bought and sold – and also to pay taxes and debts. From Babylonia to the Bible we find denunciations against merchants using false weights and measures. Taxes involve a role of government, and in all archaic societies it was the temples that oversaw weights and measures as well as the purity of metallic metals. And the denomination of weights and measures indicate their origin in the public sector: fractions divided into 60ths in Mesopotamia, and 12ths in Rome.

Trade in basic essentials had standardized customary prices or payments to the palaces or temples. Taxes and debts were the most important used for money. That reflects the fact that “money” in the form of designated commodities was needed mainly to pay taxes or buy products from the palaces or temples and, at the end of the harvesting season, to pay debts to settle such purchases.

Today’s neoliberal economic mainstream has created a fairy tale about civilization existing without any regulatory oversight or productive role for government, and without any need to levy taxes to provide basic social services such as public construction or even service in the military. There is no need to prevent fraud, or violent seizure of property – or the forfeiture of land tenure rights to creditors as a result of debts. But as Balzac noted, most great family fortunes have been the result of some great theft, lost in the mists of time and legitimized over the centuries, as if it were all natural.

These blind spots are necessary to defend the idea of “free markets” controlled by the wealthy, above all by creditors. This is claimed to be for the best, and how society should be run. That is why today’s New Cold War is being fought by neoliberals against socialism – fought with violence, and by excluding the study of history from the academic economics curriculum and hence from the consciousness of the public at large. As Rosa Luxemburg put it, the fight is between socialism and barbarism.

Public vs. private origins of interest-bearing debt

Interest rates were regulated and stable for many centuries on end. The key was ease of calculation: 10th, 12th or 60th.

Babylonian scribes were trained to calculate any rate of interest as a doubling time. Debts grew exponentially; but scribal students also were taught that herds of cattle and other material economic output tapered off in an S-curve. That is why compound interest was prohibited. It also was why it was necessary to cancel debts periodically.

If rulers had not cancelled debts, the ancient world’s takeoff would have prematurely suffered the kind of decline and fall that impoverished Rome’s citizenry and led to the decline and fall of its Republic – leaving a legal system of pro-creditor laws to shape subsequent Western civilization.

What makes Western civilization distinctly Western? Has it all been a detour?

Civilization could not have developed if a modern Milton Friedman or kindred Economics Nobel Prize winner had gone back in time and convinced Hammurabi or the Egyptian pharaoh to just let individuals act by themselves and let wealthy creditors reduce debtors to bondage – and then to use their labor as an army to overthrow the kings and take over government for themselves, creating a Roman-style oligarchy. That is what Byzantine families tried to do in the 9th and 10th centuries.

If the “free enterprise” boys had their way there would have been no temple coinage or oversight of weights and measures. Land would belong to whomever could grab, foreclose on or conquer it. Interest would have reflected whatever a wealthy merchant could force a needy cultivator to pay. But to economists, everything that occurs is a matter of “choice.” As if there is no outright need – to eat or to pay.

An economic Nobel Prize was awarded to Douglass North for claiming that economic progress today and indeed throughout all history has been based on the “security of contracts” and property rights. By this he means the priority of creditor claims to foreclose on the property of debtors. These are the property rights to create latifundia and reduce populations to debt peonage.

No archaic civilization could have survived for long by following this path. And Rome did not survive by instituting what has become the distinguishing feature of Western Civilization: giving control of government and its lawmaking to a wealthy creditor class monopolizing the land and property.

If an ancient society had done this, economic life would have been impoverished. Most of the population would have run away. Or else, the Thatcherite/Chicago School elite would have been overthrown. The wealthy families that sponsored this grabitization would have been exiled, as occurred in many Greek cities in the 7th and 6th centuries BC. Or, discontented populations would have walked out and/or threatened to defect to foreign troops promising to free the bondservants, cancel their debts and redistribute the land, as occurred with Rome’s Secessions of the Plebs in the 5th and 4th centuries BC.

So we are brought back to David Graeber’s point that the great reformers of Eurasia rose at the same time that economies were becoming monetized and increasingly privatized – an epoch in which wealthy families were increasing their influence over how city-states were run. Not only the great religious reformers but the leading Greek philosophers, poets and dramatists explained how wealth is addictive, and leads to hubris that leads them to seek wealth in ways that injure others.

Looking over the sweep of ancient history, we can see that the main objective of rulers from Babylonia to South Asia and East Asia was to prevent a mercantile and creditor oligarchy from emerging and concentrating ownership of land in their own hands. Their implicit business plan was to reduce the population at large to clientage, debt bondage and serfdom.

That is what occurred in the West, in Rome. And we are still living in the aftermath. Throughout the West today, our legal system remains pro-creditor, not in favor of the indebted population at large. That is why personal debts, corporate debts, public debts and the international debts of Global South countries have mounted up to crisis conditions threatening to lock economies into a prolonged debt deflation and depression.

It was to protest this that David helped organize Occupy Wall Street. It is obvious that we are dealing not only with an increasingly aggressive financial sector, but that it has created a false history, a false consciousness designed to deter revolt by claiming that There Is No Alternative (TINA).

Where Western civilization went wrong

We have two diametrically opposed scenarios depicting how the most basic economic relationships came into being. On the one hand, we see Near Eastern and Asian societies organized to maintaining social balance by keeping debt relations and mercantile wealth subordinate to the public welfare. That aim characterized archaic society and non-Western societies.

But the Western periphery, in the Aegean and Mediterranean, lacked the Near Eastern tradition of “divine kingship” and Asian religious traditions. This vacuum enabled a wealthy creditor oligarchy to take power and concentrate land and property ownership in its own hands. For public relations purposes, it claimed to be a “democracy” – and denounced any protective government regulation as being, by definition, “autocracy.”

Western tradition indeed lacks a policy subordinating wealth to overall economic growth. The West has no strong government checks to prevent a wealth-addicted oligarchy from emerging to make itself into a hereditary aristocracy. Making debtors and clients into a hereditary class, dependent on wealthy creditors, is what todays economists call a “free market.” It is one without public checks and balances against inequality, fraud or privatization of the public domain.

It may seem amazing to some future historian that the political and intellectual leaders of today’s world hold such individualistic neoliberal fantasies that archaic society “should” have developed in this way – without recognizing that this is how Rome’s oligarchic Republic did indeed develop, leading to its inevitable decline and fall.

Bronze Age debt cancellations and modern cognitive dissonance

So we are led back to why I was invited to speak here today. David Graeber wrote in his Debt book that he was seeking to popularize my Harvard group’s documentation that debt cancellations did indeed exist and were not simply literary utopian exercises. His book helped make debt a public issue, as did his efforts in the Occupy Wall Street movement.

The Obama administration backed police breaking up the OWS encampments and did everything possible to destroy awareness of the debt problems plaguing the U.S. and foreign economies. And not only the mainstream media but also academic orthodoxy circled their wagons against even the thought that debts could be written down and indeed needed to be written down to prevent economies from falling into depression.

That neoliberal pro-creditor ethic is the root of today’s New Cold War. When President Biden describes this great world conflict aimed at isolating China, Russia, India, Iran and their Eurasian trading partners, he characterizes this as an existential struggle between “democracy” and “autocracy.”

By “democracy” he means oligarchy. And by “autocracy” he means any government strong enough to prevent a financial oligarchy from taking over government and society and imposing neoliberal rules – by force. The ideal is to make the rest of the world look like Boris Yeltsin’s Russia, where American neoliberals had a free hand in stripping away all public ownership of land, mineral rights and basic public utilities.

https://michael-hudson.com/2022/07/from ... rong-turn/

And there they are again, the goddamn Romans. I've been carping about the foul residue of those swine on the so-called Enlightenment for over a decade so this work is gratifying.

A Roman patrician of any means started his day early: an audience with the managers of his properties, persons seeking favors, debtors and bondsmen(including freemen). Anybody who had a few bits of silver would loan it out for various rates of interest, usually usurious.(And by the way, he would scoff at the notion that this brief attention to his property was work, as so many of the wealthy and their sycophants do today. Work was for other people.)

Thomas Sankara was speaking of African nations but I think his statement can be generally applied: 'If you are in debt you are not free.' Other than the rich and the handful of free tradesmen and merchants few were free in ancient Rome and the same applies today.
"There is great chaos under heaven; the situation is excellent."

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