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Not the most erudite of interviewers...so I left in Hudson and took out most of the dumb questions.
AMY GOODMAN: Michael Hudson, welcome to Democracy Now!
MICHAEL HUDSON: The object of warfare is to take over a country’s land, raw materials and assets, and grab them. And in the past, that used to be done militarily by invading them. But today you can do it financially simply by creating credit, which is what the Federal Reserve has done. It’s created $600 billion. It hasn’t gone into the economy. The head of the Fed is known as "Helicopter Ben" because he talks about dropping money into the economy. But if you see helicopters, they’re probably not your friends. Don’t go out and wait for them to drop the money, because the money is all going electronically into the banks. And the Fed has said, we want to give the banks so much money that they will lend it out so you can begin to bid up prices on real estate again and pull the banks out of the real estate negative equity that it’s in. So the purpose, according to the Fed, is to raise the price of real estate, to inflate asset prices. But that’s not happening. The actual banks have lent less today than they did in 2007. So the money is going abroad. And it’s going abroad not really to buy foreign companies so much, but to speculate in currency.
Now, the Fed and the Congress, two weeks ago, said, "We want China to raise its currency by 20 percent." This would create billions and billions of dollars of bonanza for Wall Street banks, and it would enable them to earn their way out of debt by essentially looting the China central bank, the Brazilian central bank, the Turkish central bank and the other central banks, because you can now borrow money in America at one percent. So you’d put down, let’s say, a billion dollars of your own—a million dollars of your own money, borrow $99 million of the bank’s money—that’s $100 million. You would buy Chinese currency, RMB, for $100 million. You then say, "Raise your currency by 20 percent," which is what the Fed has asked them to do. That means that your million dollars now has turned into a $20 million gain, because $100 million is now worth $120 million. You’ve made a 200 percent profit. And for Wall Street, they deal in billions, not millions. And so, this would enable the banks to make up their money by buying out, essentially, foreign currency. They’re doing the same in Australia. It’s currency gamble.
MICHAEL HUDSON: If people have money to put in pension funds or savings, they’re only able to get about one percent, if they keep it safe. Otherwise, they’re taking a risk in the stock market. But the key is not simply lowering interest rates. The idea is to flood the economy with credit so the banks will lend out more debt. And if the Fed’s policy works, then housing prices are going to go back up so high that most consumers are going to have to pay 40 percent of their income for housing. They’re going to have to pay more money for credit card debt. The purpose is to help the banks make money at the expense of the economy. It’s not to help the economy at all. That’s the really important thing. When they say the economy, they mean—the Fed means its constituency: the banks. And the banks’ product is debt. And that’s what they’re trying to produce.
It will inflate asset prices. It won’t inflate consumer prices. It’s actually deflationary for consumer prices, because if you’re an American consumer and you spend 40 percent of your income for housing, 15 percent for debt service to the bank, 11 percent goes out in your FICA wage withholding, and about ten to 15 percent in actual income taxes, that means that the average American has maybe one-third or a quarter of their salary to actually spend on goods and services. So they have to spend so much on debt service and finance and insurance and real estate that there’s no money to buy goods and services, so that’s why so many stores are closing throughout the cities on the big shopping streets. It’s deflationary for the economy, inflationary for the people who have wealth, inflationary for the banks. And it’s the banks really at the expense of the economy.
MICHAEL HUDSON: The world is dividing into two currency blocs. And over the last few months, China has gone to Turkey, Malaysia, Thailand, and said, "We want to avoid using the dollar altogether." They’re treating it like a pariah currency. They’re saying, "Well, let’s make a currency swap. We’ll give you our Chinese RMB, you give us your currency, the baht, and we’ll do our trade in our own currency. We are isolating the dollar, so that people are not going to use the dollar anymore." That’s why the dollar is plunging on world foreign exchange markets. The whole world that America created after World War II of open markets is now closing off. And it’s closing off, really, because the United States is trying to rescue the real estate market from all the junk mortgages, all the crooked loans, all of the financial fraud, instead of just letting the fraud go and throwing the guys in jail like other economists have suggested.
AMY GOODMAN: I want to play a comment from the Nobel Prize-winning economist Joseph Stiglitz. We interviewed him recently. He was talking about the Federal Reserve and its attempt to inject liquidity into the US economy.
MICHAEL HUDSON: That was, I think, the best interview on your show that Professor Stiglitz has ever done. Last Saturday, I was in Germany at an economic meeting, and we were discussing this very interview there. And what they’re pointing out is that in Europe, in Germany and all of Europe, it’s illegal for the central bank to finance government debt. All of Europe is being subjected to austerity now because of the way in which their constitution is written. So they’re saying, "Wait a minute. When we run a deficit, we have to raise interest rates and impose austerity. And in the United States, they are doing just the opposite. They’re lowering interest rates to buy us out."
And the interview of Professor Stiglitz here was quite right. America is doing all of this. The Fed is doing this to cover up the huge fraud that he talks about. He’s right. These people should be in jail, and you shouldn’t bail them out. You’re keeping the debt that was run out by the junk mortgages and the fraudulent lending, you’re keeping that in place, pricing American labor out of the market, and making it impossible for America to earn its way out of debt. So, in Europe, they’re saying, "How can America ever repay these dollar debts that they’re running up?" They can’t repay, and that’s why the euro is going up against America. And that’s why they say, "We want to now talk to the BRIC countries, to China, to the third world, and move into a currency area with them and just isolate the dollar, so they can’t do the kind of financial warfare that they’ve been engaging in.
JUAN GONZALEZ: Well, in terms of how countries can respond, one of the things that obviously a lot of the Asian countries did during the financial crisis in late 1990s was currency controls—in essence, trying to prevent foreign capital from either leaving or entering the country. Is that something that you envision something this country is beginning to do?
MICHAEL HUDSON: Yes, there is only one country that did that, and that was Malaysia under Prime Minister Tun Mohamad Mahathir. He would not sell the domestic currency to the foreign speculators, so George Soros and the others who sold the currency short, hoping that the central bank would use all of its money just to defend its currency and then be emptied out, they couldn’t cover their position, so they were squeezed. But countries like Korea, where the meetings, the G20 meetings, are this week—the IMF went and said, "You owe money you can’t pay. George Soros has raided you. You have to sell Americans your electric companies. You have to sell Americans your car companies." And this was a grab that, in the past, in past centuries, there would have had to be a military invasion to take over. And now they’re doing it financially. And they’re angry over there.
MICHAEL HUDSON: Obama has always represented Wall Street’s interest. The deal he—his protector in the Senate was Joe Lieberman and part of the Democratic Leadership Council. And during the last presidential campaign, he won because he said he was for change. And Dennis Kucinich kept saying, "Here is the change in the law that I’ve recommended." He said exactly what he would do. Mr. Obama never said what he would do. And it’s obviously the case that he saw that the public wanted change. If you want to get elected, you say that you’re for change.
But what he’s turned into is the third Bush-Cheney administration. He’s reappointed the worst of the Bush people, like Tim Geithner as the Treasury secretary. He’s kept on the most right-wing of the Clinton people as his economic advisers. He is essentially in Wall Street’s pocket. And that’s not changed at all. And that’s why so many people were so disappointed. They believed that he was going to be for change, and he’s a good speaker, but he had no intention of doing the change at all, as we now see.
And he still has not come out and said that America needs anything except more debt, more bailouts for the banks. People were angry because the banks were bailed out. And now the Republicans will say he didn’t give them enough. They’re angry because he didn’t give Wall Street enough and cut taxes enough on the rich. That’s not why people are angry. They’re angry because he gave money to the rich, the exact opposite. So, I guess you could say Mr. Obama and Mr. Kucinich are at opposite ends of the political spectrum.
What he should do is, essentially, bring the debts down to the ability to pay. He had promised that he was going to renegotiate mortgages to the current value of housing. That would mean writing down housing by about 30 percent, so it could be affordable again. But he hasn’t done that. In the government, he has prevented the state attorney generals from prosecuting financial fraud and from forcing the banks to renegotiate the mortgages down to what American consumers can afford. And Mr. Obama has blocked this. And so, all fifty—
JUAN GONZALEZ: What is the real value of many of those properties?
MICHAEL HUDSON: The market—either the market price or the rental price. So, essentially, people would pay for the—to own a house pretty much what you’d pay to rent. That’s the definition of equilibrium in economics. But right now they’re paying much more on their mortgage than they could go and rent an apartment for, and they can’t afford it. People are out of work. And the result is that there is a debt squeeze. And so, that’s why I said this is deflationary, not inflationary. What should be inflated are American wages, American living standards, tangible investment. Instead, what’s inflated is debt and the financial sector at the expense of the production and consumption.
JUAN GONZALEZ: And what do you expect to happen at the G20 meeting that’s coming up now?
MICHAEL HUDSON: The same thing that happened two weeks ago: absolutely nothing. They will all agree that the soup was very good, that the food was nice, and that they will have further discussions. But America will not get any of what it’s asking for from them, because they’re going to say, "Look, we’re not going to let you create electronic keyboard credit and buy out our real estate and our industry and empty out our bank reserves like you did in the 1997 Asia crisis." That’s never going to happen again, and the world is going to begin splitting into two currency blocs: the BRIC bloc and the dollar bloc.
AMY GOODMAN: We’re going to have to leave it there.
http://www.democracynow.org/2010/11/...us_fuels_fears
AMY GOODMAN: Michael Hudson, welcome to Democracy Now!
MICHAEL HUDSON: The object of warfare is to take over a country’s land, raw materials and assets, and grab them. And in the past, that used to be done militarily by invading them. But today you can do it financially simply by creating credit, which is what the Federal Reserve has done. It’s created $600 billion. It hasn’t gone into the economy. The head of the Fed is known as "Helicopter Ben" because he talks about dropping money into the economy. But if you see helicopters, they’re probably not your friends. Don’t go out and wait for them to drop the money, because the money is all going electronically into the banks. And the Fed has said, we want to give the banks so much money that they will lend it out so you can begin to bid up prices on real estate again and pull the banks out of the real estate negative equity that it’s in. So the purpose, according to the Fed, is to raise the price of real estate, to inflate asset prices. But that’s not happening. The actual banks have lent less today than they did in 2007. So the money is going abroad. And it’s going abroad not really to buy foreign companies so much, but to speculate in currency.
Now, the Fed and the Congress, two weeks ago, said, "We want China to raise its currency by 20 percent." This would create billions and billions of dollars of bonanza for Wall Street banks, and it would enable them to earn their way out of debt by essentially looting the China central bank, the Brazilian central bank, the Turkish central bank and the other central banks, because you can now borrow money in America at one percent. So you’d put down, let’s say, a billion dollars of your own—a million dollars of your own money, borrow $99 million of the bank’s money—that’s $100 million. You would buy Chinese currency, RMB, for $100 million. You then say, "Raise your currency by 20 percent," which is what the Fed has asked them to do. That means that your million dollars now has turned into a $20 million gain, because $100 million is now worth $120 million. You’ve made a 200 percent profit. And for Wall Street, they deal in billions, not millions. And so, this would enable the banks to make up their money by buying out, essentially, foreign currency. They’re doing the same in Australia. It’s currency gamble.
MICHAEL HUDSON: If people have money to put in pension funds or savings, they’re only able to get about one percent, if they keep it safe. Otherwise, they’re taking a risk in the stock market. But the key is not simply lowering interest rates. The idea is to flood the economy with credit so the banks will lend out more debt. And if the Fed’s policy works, then housing prices are going to go back up so high that most consumers are going to have to pay 40 percent of their income for housing. They’re going to have to pay more money for credit card debt. The purpose is to help the banks make money at the expense of the economy. It’s not to help the economy at all. That’s the really important thing. When they say the economy, they mean—the Fed means its constituency: the banks. And the banks’ product is debt. And that’s what they’re trying to produce.
It will inflate asset prices. It won’t inflate consumer prices. It’s actually deflationary for consumer prices, because if you’re an American consumer and you spend 40 percent of your income for housing, 15 percent for debt service to the bank, 11 percent goes out in your FICA wage withholding, and about ten to 15 percent in actual income taxes, that means that the average American has maybe one-third or a quarter of their salary to actually spend on goods and services. So they have to spend so much on debt service and finance and insurance and real estate that there’s no money to buy goods and services, so that’s why so many stores are closing throughout the cities on the big shopping streets. It’s deflationary for the economy, inflationary for the people who have wealth, inflationary for the banks. And it’s the banks really at the expense of the economy.
MICHAEL HUDSON: The world is dividing into two currency blocs. And over the last few months, China has gone to Turkey, Malaysia, Thailand, and said, "We want to avoid using the dollar altogether." They’re treating it like a pariah currency. They’re saying, "Well, let’s make a currency swap. We’ll give you our Chinese RMB, you give us your currency, the baht, and we’ll do our trade in our own currency. We are isolating the dollar, so that people are not going to use the dollar anymore." That’s why the dollar is plunging on world foreign exchange markets. The whole world that America created after World War II of open markets is now closing off. And it’s closing off, really, because the United States is trying to rescue the real estate market from all the junk mortgages, all the crooked loans, all of the financial fraud, instead of just letting the fraud go and throwing the guys in jail like other economists have suggested.
AMY GOODMAN: I want to play a comment from the Nobel Prize-winning economist Joseph Stiglitz. We interviewed him recently. He was talking about the Federal Reserve and its attempt to inject liquidity into the US economy.
JOSEPH STIGLITZ: So the money isn’t going into the American economy. The lending is actually below what it was in 2007. In a globalized economy, the money is looking for the best place to go. And where is it finding it? In the emerging markets. So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of "beggar thy neighbor" policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar. The flood of liquidity abroad is trying to push the exchange rates abroad. And they say—they’re saying, "We can’t allow that."
AMY GOODMAN: That’s economist Joe Stiglitz. Professor Hudson, your response?MICHAEL HUDSON: That was, I think, the best interview on your show that Professor Stiglitz has ever done. Last Saturday, I was in Germany at an economic meeting, and we were discussing this very interview there. And what they’re pointing out is that in Europe, in Germany and all of Europe, it’s illegal for the central bank to finance government debt. All of Europe is being subjected to austerity now because of the way in which their constitution is written. So they’re saying, "Wait a minute. When we run a deficit, we have to raise interest rates and impose austerity. And in the United States, they are doing just the opposite. They’re lowering interest rates to buy us out."
And the interview of Professor Stiglitz here was quite right. America is doing all of this. The Fed is doing this to cover up the huge fraud that he talks about. He’s right. These people should be in jail, and you shouldn’t bail them out. You’re keeping the debt that was run out by the junk mortgages and the fraudulent lending, you’re keeping that in place, pricing American labor out of the market, and making it impossible for America to earn its way out of debt. So, in Europe, they’re saying, "How can America ever repay these dollar debts that they’re running up?" They can’t repay, and that’s why the euro is going up against America. And that’s why they say, "We want to now talk to the BRIC countries, to China, to the third world, and move into a currency area with them and just isolate the dollar, so they can’t do the kind of financial warfare that they’ve been engaging in.
JUAN GONZALEZ: Well, in terms of how countries can respond, one of the things that obviously a lot of the Asian countries did during the financial crisis in late 1990s was currency controls—in essence, trying to prevent foreign capital from either leaving or entering the country. Is that something that you envision something this country is beginning to do?
MICHAEL HUDSON: Yes, there is only one country that did that, and that was Malaysia under Prime Minister Tun Mohamad Mahathir. He would not sell the domestic currency to the foreign speculators, so George Soros and the others who sold the currency short, hoping that the central bank would use all of its money just to defend its currency and then be emptied out, they couldn’t cover their position, so they were squeezed. But countries like Korea, where the meetings, the G20 meetings, are this week—the IMF went and said, "You owe money you can’t pay. George Soros has raided you. You have to sell Americans your electric companies. You have to sell Americans your car companies." And this was a grab that, in the past, in past centuries, there would have had to be a military invasion to take over. And now they’re doing it financially. And they’re angry over there.
MICHAEL HUDSON: Obama has always represented Wall Street’s interest. The deal he—his protector in the Senate was Joe Lieberman and part of the Democratic Leadership Council. And during the last presidential campaign, he won because he said he was for change. And Dennis Kucinich kept saying, "Here is the change in the law that I’ve recommended." He said exactly what he would do. Mr. Obama never said what he would do. And it’s obviously the case that he saw that the public wanted change. If you want to get elected, you say that you’re for change.
But what he’s turned into is the third Bush-Cheney administration. He’s reappointed the worst of the Bush people, like Tim Geithner as the Treasury secretary. He’s kept on the most right-wing of the Clinton people as his economic advisers. He is essentially in Wall Street’s pocket. And that’s not changed at all. And that’s why so many people were so disappointed. They believed that he was going to be for change, and he’s a good speaker, but he had no intention of doing the change at all, as we now see.
And he still has not come out and said that America needs anything except more debt, more bailouts for the banks. People were angry because the banks were bailed out. And now the Republicans will say he didn’t give them enough. They’re angry because he didn’t give Wall Street enough and cut taxes enough on the rich. That’s not why people are angry. They’re angry because he gave money to the rich, the exact opposite. So, I guess you could say Mr. Obama and Mr. Kucinich are at opposite ends of the political spectrum.
What he should do is, essentially, bring the debts down to the ability to pay. He had promised that he was going to renegotiate mortgages to the current value of housing. That would mean writing down housing by about 30 percent, so it could be affordable again. But he hasn’t done that. In the government, he has prevented the state attorney generals from prosecuting financial fraud and from forcing the banks to renegotiate the mortgages down to what American consumers can afford. And Mr. Obama has blocked this. And so, all fifty—
JUAN GONZALEZ: What is the real value of many of those properties?
MICHAEL HUDSON: The market—either the market price or the rental price. So, essentially, people would pay for the—to own a house pretty much what you’d pay to rent. That’s the definition of equilibrium in economics. But right now they’re paying much more on their mortgage than they could go and rent an apartment for, and they can’t afford it. People are out of work. And the result is that there is a debt squeeze. And so, that’s why I said this is deflationary, not inflationary. What should be inflated are American wages, American living standards, tangible investment. Instead, what’s inflated is debt and the financial sector at the expense of the production and consumption.
JUAN GONZALEZ: And what do you expect to happen at the G20 meeting that’s coming up now?
MICHAEL HUDSON: The same thing that happened two weeks ago: absolutely nothing. They will all agree that the soup was very good, that the food was nice, and that they will have further discussions. But America will not get any of what it’s asking for from them, because they’re going to say, "Look, we’re not going to let you create electronic keyboard credit and buy out our real estate and our industry and empty out our bank reserves like you did in the 1997 Asia crisis." That’s never going to happen again, and the world is going to begin splitting into two currency blocs: the BRIC bloc and the dollar bloc.
AMY GOODMAN: We’re going to have to leave it there.
http://www.democracynow.org/2010/11/...us_fuels_fears
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