[While industrial capitalism got rid of the landlord class,
capitalism still had economic rent, but instead of being paid to the
landlord class, it is now paid to the banks in the form of interest.]
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THE DESTINY OF CIVILIZATION: MICHAEL HUDSON ON FINANCE CAPITALISM,
THE ECONOMIC CONSEQUENCES OF UKRAINE AND THE END OF GLOBALIZATION  
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Michael Hudson, Eric Draitser
July 15, 2022
CounterPunch
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_ While industrial capitalism got rid of the landlord class,
capitalism still had economic rent, but instead of being paid to the
landlord class, it is now paid to the banks in the form of interest. _


, Nathaniel St. Clair

 

THE HISTORY OF FINANCE CAPITALISM

ERIC DRAITSER: Hello and welcome to CounterPunch Radio. My name is
Eric Draitser, thanks so much for tuning in, and coming back to the
show. First-time listeners finding the show, welcome aboard. Thank you
so much, we really appreciate your support. If you want to support
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that platform is something we have been doing for nearly 30 years. If
you appreciate that, get that CP+ subscription and also, consider
getting some books from Counterpunch, including from the wonderful
author that I have with me today, whose brand-new book is available
from CounterPunch we are going to talk about it. He is the
incomparable Michael Hudson. He is back with us. I just realized in
talking with him before we started recording that it has been like
seven years since he was on this show, so long overdue appearance.
Michael Hudson is the president of the Institute for the Study of
Long-Term Economic Trends. He is an economist and an author. You
probably all already know him, but the book probably most famously
Super Imperialism: The Economic Strategy of American Empire, that is a
classic, one that has shaped a lot of our thinking. And of course, the
most recent book, published by CounterPunch, Destiny of Civilization:
Finance Capitalism, Industrial Capitalism, or Socialism. Available
from Counterpunch. Michael Hudson, welcome back.

HUDSON: Well, it’s good to be here, Eric.

DRAITSER: Thank you so much for giving me some time, and for this
really important book, because it provides the kind of long-term
perspective that I think we really need to understand everything that
has happened economically in, I guess, the modern period. So, let’s
begin by talking about that. The book began as a series of lectures
around recent lectures around US globalization, the role of China and
its development, but it kind of expanded from there talking about
finance capitalism versus industrial capitalism. I guess we could
start there and have you explain this juxtaposition. What are the
differences? How do we understand these two ideas?

HUDSON: Well, most textbooks talk about industrial capitalism as if
the function of banks is to make loans to factories to build plants
and equipment and hire more labor to produce goods and keep the
economy going, and that’s what everybody expected banks to do in the
late 19th century. They expected banks to stop just lending to
governments and being predatory and somehow become part of the
industrial economy. And that was happening in Germany until World War
One, but after World War Two you had the rentiers fight back. You had
banks merge with real estate. The fight of classical economics and of
industrial capitalism was to get rid of the landlord class, to get rid
of everything that increased the cost of living to workers, so that
they could pay workers less, not to lower workers living standards,
because they know that if you’re going to hire labor, and you want
high productivity labor, it has to be well-fed, well- educated,
well-dressed, and have good housing. But the industrial class
certainly in America and in Germany wanted government to pick up as
many of these costs as possible. They wanted government to pay for
education and that’s what you had in the United States. In England
they wanted government to pay for health care, and it was a
conservative Prime Minister Benjamin Disraeli that said “…health
is everything, that’s what we really have to do”.  So you had
public health, you had  public pensions in Germany under Bismarck to
help build up the industrial working class.  And the objective was to
make every industrial economy into a low-cost economy by getting rid
of the rentiers, getting rid of the landlords. You don’t need a
class just collecting income without contributing to production. You
don’t need a banking class, you don’t need monopolists.

Well, everybody thought in the late 19th century that industrial
capitalism was evolving naturally into socialism, and there were many
different kinds of socialism: there was Christian socialism, anarchist
socialism, Marxian socialism, Co-op socialism, but one form or
another, everybody thought that the government was going to pick up
natural monopolies and basic needs. All of that changed after World
War One and really changed after 1980 with Margaret Thatcher and
Ronald Reagan. And by that time the financial class had merged with
the real estate class and as land landlords were phased out, because
of taxes and the whole political shift: democracy, you had private
owner-occupied housing. But if you’re an individual how are you
going to get a house? You have to go to a bank. So, while industrial
capitalism had gotten rid of the landlord class, capitalism still had
economic rent, but instead of being paid to the landlord class, it is
now paid to the banks in the form of interest.

In fact, most of the economic surplus today isn’t taking the form of
profits, it’s taking the form of interest payments and financial
charges. In fact, if you’re a credit card company, your late fees
and penalties give even more profit than the interest rate, and the
gross national income and product accounts treat late fees and
penalties and interests as if it’s a contribution to production, and
they count all the money going to monopolies, and to landlords, as a
contribution to production and output when actually it’s a transfer
payment–it’s an overhead charge, which is how the classical
economists treated it all.

So somehow instead of having industrial capitalism evolving into
socialism, we’ve had finance capitalism whose policy is not to raise
living standards but to impose an IMF-type program of austerity. And
that’s what we have in the United States today, especially since
2008 and the financial crash. The American economy, the European
economy, have been in a debt deflation even though our prices are
going up, the prices that are going up are monopoly prices for the
energy industry, monopoly prices for medical care. But the households
are left with less and less money after paying for finance, after
paying for insurance, and after paying for real estate, they have less
and less to spend on goods and services. So that’s why the economy
is being squeezed today, and my book explains how this transformation
took place. We’re not in the kind of capitalism that is in the
textbooks, and not really the one Marx and the socialists expected to
see.

Marx in volume three of Kapital described the horror story of what
would happen with finance capitalism, and then he expressed the hope
that “industrial capitalism is going to prevent this from happening
and fortunately with industrial capitalism we’re going to make the
banks part of the financing real production.” But that’s not what
banks do. Banks make loans mainly against assets and property that’s
already in place. Then 80% of the loans are real estate mortgage
loans, the rest are corporate takeover loans speculation loans, loans
that are collateralized by stocks and bonds, and of course that’s
what the American central bank had been spending $9 trillion just
collateralized by stocks and bonds and junk mortgages and junk bonds.
So we’re having a perversion of everything that capitalism promised
to be, and it turns out that the road to serfdom, the literal road to
serfdom, is not a strong state like Hayek said, but a state that’s
too weak to control the financial sector and steer it to serve the
economy as a whole.

DRAITSER: Michael, we’re gonna get to the Austrian boys in a few
minutes, but before we can jump over to Austria and some of these
other larger historical questions I just want to deviate for two
seconds just to illustrate the point you’re making that now we’re
in a period just as you mentioned since 2008 where this process of
this sort of financialization of these assets in rent extraction has
reached a sort of zenith or something, where the financial
institutions themselves have become the literal landlords, buying up
the real estate and then turning around and renting it out. So, it’s
not just lending of money for individuals to have mortgages, they are
literally buying the land and the buildings.

HUDSON: That’s right, and that is a result largely of what happened
in the Obama administration. Obama decided to bail out the banks and
evict the seven million American families. At the same time, he
decided not to write down the debts to the real levels but to keep the
fraudulent junk mortgages on the books. Then 69% of Americans owned
their own homes, now it’s down to 61% as of last year and it’s
plunging probably towards 55%–way, way down and the reason is that
Obama directed the central bank to lower interest rates to such a low
rate that it would keep the stock market, and the bond market, and the
real estate market inflated. The policy of the central bank since 2008
has been asset price inflation. All of this $9 trillion has been spent
just to support the stocks and bonds held by the wealthiest 10% of the
Americans who own 72% of the stock market and much of the bond market.

Well, now that interest rates were down to 0, you had the emergence of
these companies you’ve just described like Blackstone and the
private capital companies and they said, “Well we can’t make our
money just by lending anymore because the interest rates are so low
because of the Fed. What we can do now that the economy is being
deflated by the post-Obama policies let’s just begin to buy up real
estate ourselves”. You have more and more real estate being bought
up by private capital companies without borrowing money because they
say we can’t even make as much money as we would have to pay as a
mortgage rate but we can buy up property and begin to monopolize
property and now that the financial class has replaced the old
landlord class we can shift back and become the _new_ landlord
class. You’re right that’s exactly what’s happening. Rents are
rising, the homeless rates are rising, the evictions, here in New York
City, are rising. If you take a subway, you’re going to find a lot
of homeless people sleeping on the seats there. The homeless camps are
rising all over the United States as this is occurring.

DRAITSER: So, your book talks a lot about financialization and
there’s a word that is used, and maybe it’s overused in our modern
lexicon, that I think is relevant here and I would just ask you to
define it to help us because it’s so nebulous sometimes.
Neoliberalism, we hear the term neoliberalism over and over again.
Neoliberal policies etc. What is neoliberalism, can you define it for
us, and is it just a synonym for a financialized economy? Or is there
more to it? Is it about the international flow of capital? How would
you describe neoliberalism?

HUDSON: Well, neoliberalism has always meant getting rid of the state.
It means reduce the state. The liberals in the 19th century wanted to
get rid of the state when it was controlled by the landlord class. The
House of Lords in England, the upper House of Parliament in Europe. Or
the Senate of the United States. Liberalism was to get rid of the
hereditary landlord monopoly class to get a free market, but
Neoliberalism reverts this. Neoliberalism says, “we want to get rid
of any state that is strong enough to regulate finance, to regulate
monopolies, or to protect the public interest against the rentier
class”. So, neoliberalism is the counter-revolution against
classical economics and against the whole dynamic of industrial
capitalism which was trying to get rid of the rentier class. It’s
basically a counter-revolution.

DRAITSER: So that would be Milton Friedman pushing back on John
Maynard Keynes or is that an oversimplification?

HUDSON: No, that’s pretty much it. When Friedman said “the
corporations should not take into account the public interest” he
added that “the government itself should not take into account the
public interest. The job of the government,” he said, “is to
simply let everybody make as much money as they can, however they
can”. Of course, the big advocates of Neoliberalism are the
criminals! The gangs! The gangsters! Because they don’t want the
police. Well, the monopolists don’t want the regulatory antitrust
police. The drug companies don’t want any kind of anti-monopoly.
Essentially you have what is called a free market. A free market means
the wealthiest people that dominate the market and the supply of
credit, the management of the economy that allocates credit, and who
gets what should shift from Washington to Wall Street. It should shift
from the government to the financial sector, and the financial sector
should essentially do the planning. Well, the problem with this is the
financial sector lives in the short run. So, neoliberalism means only
plan for the next three months, the next year’s balance sheet,
because the free market is so complex you don’t know what’s going
to happen. Well, of course, if you’re managing it from Wall Street
you do know what’s going to happen but you don’t want to tell
people exactly what’s going to happen.

DRAITSER: So, are neoliberalism and financialization intimately
intertwined in that way? Can one exist without the other?

HUDSON: It is the financial sector that has pushed neoliberalism,
because the financial sector wants to prevent any government from
controlling the supply of credit. Just compare the US system to
China’s system, for instance. What makes China unique is doing what
industrial capitalism in the 19th century hoped would occur. The
government creates the credit, and by creating money and the credit
with a Bank of China, that creates credit to spend into the economy.
To build high-speed railroads. To build housing. China’s banks do
not make money for corporate takeovers or for speculative purposes but
for the real economy. Neoliberalism tries to essentially make money
financially because that’s the quickest way to make it.
Neoliberalism focuses on creating credit not to create new means of
production, but to buy existing means of production. This began
already before World War One. When the Federal Reserve was created it
took out of the treasury, all of the functions the treasury had. The
Treasury Representative was not even allowed in the Federal Reserve.
Everything was shifted basically to Wall Street and Philadelphia and
Boston and other financial centers.

So, at that time banks were known as the “Mother of Trusts.” If
you wanted to make money financially you would buy all the different
copper companies and you would make a copper trust. You’d merge
them. You’d buy up all of the steel companies and make the steel
trust and charge monopoly prices. The easiest way to make money is not
to produce, but to be a rent extractor, a monopolist, and get in a
position where people have to buy what you’re producing and don’t
have any regulatory agency to prevent you from charging whatever you
want for basic needs, like you’re seeing in healthcare, education,
and everything that’s driving the economy into debt. So, the effect
of neoliberalism is to drive more and more families into debt. The
more debt they have, the less money they have to spend on goods and
services. So we end up looking like a country that has to borrow from
the IMF going into an austerity program.

DRAITSER: You just touched on it but let’s explore it a little bit
further. Can you explain a little bit how the Reagan/Thatcher period
entrenched the phenomenon that you’re describing? How it put all of
this into overdrive.

HUDSON: Well, let’s begin in England. After World War Two the
government of England had undertaken a huge public housing program.
They developed most of the basic utilities as public enterprises so
that they could provide telephone service, railway service, a bus
service, and housing, at a low cost. Thatcher said “let’s sell
everything off”, and the first thing she sold off was British
telephone. She sold off the company at such a low rate that all the
customers were allowed to buy a few shares in them and they could
double their money overnight because they underpriced the shares that
they sold a British telephone. Well, of course the big underwriters
were given enormous commissions. The underwriters, the banks, who said
we promise you’ll get X amount for the stocks that we sell, they
usually get a 3% Commission because they have to do research on little
companies. But now, the biggest companies in England, the commanding
heights, were sold off at huge commissions, and the big underwriters
would buy British telephone, I don’t remember the exact right
numbers, but let’s say it was issued a $3 a share, it doubled to $6
a share that day, $12 a share in the next day. All of the wealthiest
banks got huge fortunes. Thatcher then said, “let’s privatize all
the housing. You can sell your public housing”. All of a sudden,
instead of housing being available to people at low rents they could
afford, everybody began to grab for the real estate which is now so
expensive that workers in London can’t afford to live in London,
they have to live outside London, and that means they have to take a
train or a bus in.

Well, very soon after Thatcher took, over the wealthiest lady in
England became the daughter of a bus driver because Thatcher
privatized the bus lines. The father, one of the bus drivers, was able
to borrow money to buy out, buy control, of a very small bus line
company. What he did was he sold the bus line terminal, which was very
convenient in the middle of London so everybody could get it to go
wherever they were going, he sold the terminal to real estate
speculators, made enough money to pay off the money that he borrowed
to buy the bus line, and moved the terminal way to the outside of
London so you had to take a long subway ride to get to the bus line
and he bought up all of the different bus lines and all of a sudden it
became much harder to take a bus in England. Of course, once the bus
line is privatized, they cut all of the services to smaller outlying
areas of London or areas that weren’t making a profit and there
weren’t many buses going many places. The same thing happened with
the railroads. They privatized the railroads. Railway service went way
down, the prices tripled. By privatizing Public Utilities, you added
not only a huge monopoly rent but you also added a huge interest
charge because you add financiers coming in and saying, “Let’s buy
this railroad, let’s buy this bus line, let’s buy this”. The
banks would lend money to speculators or takeover artists or raiders
to buy these big companies, and they immediately would buy a public
utility like an electricity or water company that was selling water at
a low price. They would triple, quadruple, or increase by prices 10
times sometimes. So all the prices went up so high that England was
deindustrialized. Something similar happened in the United States
under Reagan. He began to privatize as much as possible. When he would
privatize a company, he would not only privatize them and they would
be sold at whatever they were earning it was sort of a multiple of
their earnings, a price-earnings ratio, but then Reagan deregulated
everything. They were called the Crazies from Utah. Mrs. Gorsuch, the
mother of the Supreme Court justice, wanted to deregulate absolutely
everything, give away the public domain, let timber companies cut down
the forest without charge, let oil companies drill without charge. It
was a bonanza for the rentier class. It was a bonanza for the rent
extractors. The cost of living went way up. Same thing with banking.
Banking was deregulated and the first thing you had was a gigantic
savings and loan fraud. The most money in banking you can make by
fraud.

My colleague at Kansas City, Bill Black wrote a book, The Best Way to
Rob a Bank is to Own One. He was one of the prosecutors in the savings
and loan crisis. Then Reagan appointed a corporate lobbyist, Alan
Greenspan, as head of the Federal Reserve and he essentially refused
to regulate the banks. He said, “It wouldn’t pay a bank to
actually be dishonest because then people wouldn’t use it”. Well,
if a bank is dishonest and you’re a robber, that’s the bank you
want to use! You wanna say, “I’m gonna buy money so that I can buy
up this industry, triple the prices, and hurt the economy. That’s
how I make money!” And there was no oversight. There was no idea of
the public interest. And that’s what neoliberalism is. If
neoliberalism means there is no government, then there is no public
agency that’s looking for the public interest and trying to shape
the market to serve rising living standards, lowering the cost of
living, and promoting industrial growth. You have a reversion to what
life was like before capitalism, and it’s something like
neo-feudalism.

DRAITSER: I’m gonna be very unfair to you and ask you a large
question, and ask you to try to answer it in a short amount of time,
but you mentioned somebody very important in the book, and it’s
somebody whom I think, to a large extent, is unknown by a lot of our
contemporary listeners and viewers and that’s Joseph Schumpeter. You
talk about Schumpeter and the idea of creative destruction, and this
is one of these principles of capitalism that I think does need to be
understood and discussed at length.  How does creative destruction
relate to our traditional understanding of what we might call
classical economics or economic orthodoxy, and then the second part of
that is: how has the financialized capitalist system inverted the
concept of creative destruction?

HUDSON: Well, Schumpeter tried to put Marx’s ideas in middle-class
language without the socialist tinge on it. Marx had said that
“industrial capitalism was a competition to lower cost” and Marx
said, “capitalism is revolutionary” and what was revolutionary was
getting rid of all of the false costs of production, the needless
costs. Society doesn’t need landlords to produce. It doesn’t need
bankers, really, just to make unproductive loans. It doesn’t need
monopolies. The industrial countries fight against each other to lower
the cost of production so that their labor can undersell other labor.
Largely by having government pick up the cost, as I mentioned. Well,
look at when the steel industry in America was built, the head of US
steel had just built a factory, and then all of a sudden they heard
about how the Germans were building their factory. This brand-new
factory they just built was torn down and a whole new modern technical
factory was built. Schumpeter said, “as science advances, capital
becomes more and more productive with higher technology” that’s
counted in America’s labor productivity. But he says “there are
new ways of organizing capital and you have a new industry, and a new
firm, that is going to adopt the new technology and undersell the
price that the old firms sold and it’ll be the innovators are going
to end up underselling the old guard who don’t innovate and that’s
going to lower the cost and that’s how capitalism drives forward by
driving costs and what you’re destroying is the old technology that
really doesn’t pay anymore”.

When Marx talked about creative destruction, he meant really creative
destruction. In other words, you’re destroying a whole economy that
had a rentier class. Schumpeter only talked about technological
creative destruction, he didn’t go whole socialist and say wait a
minute what you’re really doing as a nation is competing with
another nation to minimize the cost of production by getting rid of
its overhead class, getting rid of its landlords, getting rid of
everybody who’s unproductive, getting rid of its military spending
for that matter. So, all of a sudden, what the neoliberals picked up
was the word destruction. They said destruction is good. One way that
we can lower costs is to deindustrialize the United States. American
labor is paid too much. Let’s lower labor costs. What we really want
to do is exactly what the current head of the Federal Reserve wants to
do: cause unemployment. Marx called this the reserve army of the
unemployed. In the 1980s and especially under Clinton mainly in the
1990s, they said: “Well we can cause permanent unemployment so the
capitalist can really have low priced labor let’s move everything to
China and Asia where there’s low price”. So, what creative
disruption meant for the neoliberals was “let’s destroy the United
States industrial economy and we can make money by shifting it to
China.” China will be the innovator, and the innovator is having
cheaper labor that doesn’t cost as much as American labor and that
sort of turned the idea of creative destruction from something driving
economies forward towards more productivity, to deindustrializing and
leaving a hollowed-out economy.

DRAITSER: And the other part of that that should be noted is the fact
that you now have an economy where there are thousands, maybe tens of
thousands of companies and various other enterprises that should have
long since been destroyed, but continue to exist as these zombie
entities sort of feeding off of capital.

HUDSON: Well, many of these zombies are zombies because of the debt
that they’ve taken on. There’s been so much corporate
raiding–that was the other thing that happened under Reagan. Before
the 1980s banks wouldn’t lend money to corporate raiding it wasn’t
considered very nice. But first, Drexel Burnham and their law firm
Skadden, Arps said, “Well, let’s begin borrowing money to buy
companies and we can essentially loot them for profit.” And I go
into great detail there as I did in my earlier book Killing the Host
[[link removed]] and
it became a predatory takeover, not a productive takeover. Banks
didn’t lend to create new companies they created debt to take over
companies and the debt was added onto the company’s expenses you
were adding to the cost of production, just the opposite of creative
destruction and cutting costs that Schumpeter talked about.
Schumpeter’s creative destruction was cutting costs. Reagan and
neoliberalism creative destruction is to destroy companies by adding
the costs and then letting them go bankrupt after you’ve already
looted them and paid out all of their capital to yourself.

THE END OF GLOBALIZATION

DRAITSER: Let me just reiterate the point CounterPunch is where you
can go to get an eBook The Destiny of Civilization: Finance
Capitalism, Industrial Capitalism, or Socialism
[[link removed]] if
you are like me and desperately want a physical hardcover book in your
hands that you can carry with you to the beach and get stained with
drinks and so forth then you should go and get yourself a hard copy
online wherever you can find them so these books are essential, really
all of my Michael Hudson’s books are essential so I highly recommend
that you do that. Alright Michael, coming back to the conversation. I
want to shift gears a little bit and talk about the financialized
global economy but specifically as it regards debt. What role does
debt play in this financialized global economy because debt today
functions very differently than it has historically, doesn’t it?

HUDSON: Well, the theory historically, a century ago, was that if you
run into debt, debts can be paid by investing the proceeds
productively to make enough money to pay. Adam Smith said the rate of
profit is usually two times the interest rate because you make a
profit of $100 you pay half of that $50 to the banker or the financier
and you have 50% profit that ends up, you’re in a 50/50 profit
sharing with the creditor. But now debt is not created to actually
make an income. If you buy a house to live in that doesn’t add to
your income. If you borrow from a credit card that doesn’t give you
an ability to earn more. Or, if you’re a global South country, Latin
American country, the IMF will lend you money to help the domestic
kleptocrats get their money out of the country before there’s a
devaluation then you devalue, and all of a sudden, you’re in
trouble.

Well, people borrowed anyway to buy houses because under today’s
economy and under finance capitalism you don’t get wealthy by making
profits. Almost all the wealth of the richest Americans the richest
Europeans they didn’t save up their wages, they didn’t save up
their profits, they make it by capital gains. And they make capital
gains by the banks lending so much more money to real estate. A house
is worth whatever a bank is going to lend, and banks are lending more
and more of the house’s value to whoever is willing to pay them
more. So, finance capitalism doesn’t add to production, it doesn’t
add to profits, it adds to paper wealth by inflating the prices of
stocks, inflating the prices of bonds, and inflating housing prices.
But suppose you’re a global south country in Latin America. Look at
what’s going to happen this summer: oil prices are going way up
because the Biden administration has put sanctions against Russian oil
and gas and that leaves American oil companies in control of the world
oil trade and they raise their profits enormously. The stock market
may be going down while oil companies are going way up. Biden has also
said you can’t buy grain from Russia, so grain prices are going way
up and that’s one of the mainstays of America’s balance of
payments, grain exports! Essentially, think of America as a gas
station and farm with atom bombs. I think that’s how John McCain had
described Russia, but he was describing America. Very often when you
accuse a country of being something, you’re accusing yourself.

So, America is making a killing on oil and on grain prices and it’s
raising its interest rates, while telling other countries like England
and Japan keep their interest rates low, so the dollar is getting much
more expensive relative to European, English, South African, and other
third world currencies. How are these countries going to pay their
debts? How are they going to get by this September? They have a
choice. If they buy enough food to avoid starvation, if they buy
enough energy and oil at the higher prices from American companies to
run their factories and to keep their lights on at night, then they
can’t afford to pay all of the dollar debts that they’ve borrowed.
These dollar debts were simply lent to governments. They won’t lend
to companies or governments to build more means of production to earn
the money to repay the debt. They were just lent at the cost of
telling of the government to do something to earn the money to repay
us and the IMF advised governments, “well, you earn money by
forbidding labor unions, you earn money by lowering wages, and by
devaluing your currency.” But what you really devalue is the price
of Labor, because there’s a fixed price for world materials
everybody pays the same price for machinery, everybody pays the same
common price for oil. A devaluation means you’re just lowering the
price of labor and squeezing it. So, there’s going to be a huge
labor squeeze and hence a political crisis in Latin America, Africa,
and much of Asia. What is going to happen this fall is that countries
are going to decide: do we want to go along with the American dollar
standard and continue to pay debts and impoverish our country or do we
want to join a new bank the BRICS Bank that China and India and Russia
and Iran and other countries are all creating?

You’re having a whole split of the world into two opposing economic
systems. China is not a rival for America. America is not trying to
industrialize like China is. America’s trying
to _deindustrialize_ and make money financially. China is not trying
to make money financially. It is trying to develop its economy and
that of its  allied countries in the Belt and Road Initiative to
produce more. So, you’re having for the first time a choice: are you
going to have industrial capitalism evolving into socialism like
people expected a century ago, or are you going to have American-style
neoliberal finance capitalism, which is just going to make you poorer
and poorer and impose austerity programs on you?

DRAITSER: I’m coming right back to that issue of the US dollar in
just a minute but I want to finish up this issue of debt. You describe
debt and talked about it and its economic terms and that’s obviously
critical but debt is also a political weapon. It’s one of the
primary political weapons that has been used by the US. You talk about
it in Super Imperialism and you talked about it in some of your other
books as well. Can you explain how debt becomes a political weapon?
You mentioned the IMF and austerity that’s an obvious example. What
are some of the ways that the United States and other former colonial
powers are using debt and have used debt as a weapon?

HUDSON: Right now by following the World Bank and the US investment
strategy, countries are not able to break even in the balance of
payments. So in order to avoid devaluation, they have to borrow from
the IMF. And the IMF will not lend to a left-wing government. The big
explosion in IMF loans now is to Ukraine. They’ll lend money to
Ukraine, they would not lend money to left-wingers in Argentina. But
now that Argentina would have a right-wing head the IMF will lend
money to countries to support right-wing client oligarchies and if it
looks like there’s going to be an election and the client oligarchy
is going to be outvoted as people vote for socialists, then you’re
going to have the big oligarchy moving its money out of its currency
into dollars or into foreign currencies.

So the IMF will lend the right-wing government enough money to keep
their currency high enough so that their oligarchy can move their
money out of Venezuela or Argentina or Brazil especially, at a high
rate, and then when the socialist government comes in the IMF won’t
lend them money. The banks will gang up in a currency raid against
these currencies, the currency will devalue causing a crisis and the
IMF will say, “well you see that’s socialism when you don’t have
a neoliberal running that’s what it is” and all of a sudden the
dollars that Brazil or Argentina, I should not have mentioned
Venezuela, have borrowed all of a sudden they have to pay much more of
their domestic currency to repay the dollar debts and if they can’t
repay them then the bondholders can grab whatever property they have.
In the case of Venezuela, the IMF refused to lend money to Venezuela,
because it said you are a socialist government, we’re not going to
lend money to you, we only lend to right-wing governments.

The American government grabbed Venezuela’s holdings of oil
distribution companies in the United States. England grabbed
Venezuela’s gold holdings, and America said “look we’re for
democracy against autocracy. We are the democracy in the world, we get
to say who Venezuela’s president is, because we elect them, because
we’re America that’s why we’re a special country. And we’ve
appointed Mr. Guaido, who doesn’t get many domestic votes, but we
want Mr. Guaido to be the Venezuelan Boris Yeltsin, who’s promised
to sell all of your resources to the United States and so they just
grabbed Venezuela’s money just like they’ve just grabbed all of
Russia’s foreign exchange reserves and in the West.” So, Venezuela
couldn’t pay the foreign debt and as a result, it’s not able to
finance its trade and investment on credit, because almost all trade
and investment is just like buying a house, it’s done on credit. The
idea is supposed to be that well, the credit is going to enable you to
invest in more production and you’ll make a profit or if it’s a
government infrastructure the economy will grow and you’ll get
enough tax revenue to pay the creditor. But that’s not what’s
happening at all. It’s the reverse of everything that the textbooks
talk about. So we’re in an inside-out world where what the textbooks
talk about is 100 years out of date. They don’t talk about predatory
credit. The assumption is that all debts can be paid if you just can
lower the wages and lower living standards enough to pay the upper 1%.

DRAITSER: You’ve also already touched on it a little bit, but I’d
like you to go a little bit further and explain the role of the US
dollar specifically in a financialized global economy. We know this is
the global reserve currency, oil is traded in dollars etc. A lot of
talk from a lot of different quarters both on the left and the right
about a move away from the dollar toward a bifurcated global economic
system. I’m a little bit skeptical of that, at least in the nearer
term. If you look at some of the numbers, global reserves held by all
countries combined were in dollars of like 72% and now they’re like
66%. So, it’s an extremely slow process that we’re witnessing, but
it is happening. So, my question is what is the role of the dollar in
the modern financialized global economy and what will the role of the
dollar be given all of these changes–the sort of East/West
split–that we’re seeing?

HUDSON: Well, that’s really what my book Super Imperialism is all
about, but I summarize it in its economic form in The Destiny of
Civilization
[[link removed]].
The whole dollar hegemony began in 1971 when the United States went
off gold. Before 1971 when a country would run a balance of payments
deficit it would have to pay in its foreign reserves, mainly gold. In
the 1950s, 1960s, early 70s, America’s entire balance of payments
deficit was military spending and so America’s gold stock went down
and down and down, because as America would spend money dollars would
be converted into local currency in Vietnam and Southeast Asia.
Vietnam and Southeast Asia were French colonies; they would send the
dollars to their head office in France and General de Gaulle would
decide, well let’s take these dollars and get gold. So, the United
States stopped paying in gold. All of a sudden what were people going
to use to settle their balance of payments deficits? The United States
as a result, of emerging from World War Two so strongly, controlled
the world oil trade. Oil was priced in dollars, most products are
priced in dollars, so the United States continued to spend money
abroad and even accelerated its military spending abroad, so it was
pumping more dollars into the end of the world economy. But what
happened to these dollars? People would get them; they turned the
dollars into their central bank for domestic currency. German mark, or
Swiss francs, or whatever. And what were the central banks  going to
do with the dollars? In order to prevent their currency from going up,
they would recycle the dollars to the United States and buy treasury
bonds. So in effect, the United States was getting a free ride
internationally it could simply print dollars and other countries
would end up keeping their savings in dollars. Imagine that you went
to a grocery store and you buy your groceries by writing an IOU. Then
you go back the next week and say well you know another IOU and the
grocery store would say, “Well, wait a minute what am I gonna do
with these IOUs. Can you pay?” “No, I can’t pay, maybe you can
use these IOUs to pay your suppliers the people that give you your
vegetables and your milk and your meats, but I can’t pay”.

That’s the position the United States is in. Other people have kept
their savings in the United States thinking that the United States was
secure, because everybody knows the United States can simply print its
own dollars. It can’t go bankrupt because it can create as many
dollars as it wants, as we’ve seen in quantitative easing. So, all
of a sudden the United States has been able to spend whatever it
wants, and other countries, if they’re running a balance of payments
deficit, have to borrow dollars by raising their interest rates to
borrow. And raising the interest rates will slow all their economic
activity. But the United States doesn’t have to raise us interest
rates, it can do whatever it wants. That’s why the US is the
exceptional country, right now. But since it’s begun to grab the
foreign reserves of Venezuela and Russia, everybody is afraid to hold
dollars anymore. They’re beginning to move out of it. It is a very
slow move so far, but they’re moving out every single month. Russia,
China, other countries, are replacing dollars with gold or with
Chinese currency, or with each other’s currency. It’s still
happening very slowly, but amazingly enough, President Biden’s war,
the NATO war in Ukraine, and the grabbing of Russian foreign reserves
has ended this free ride! You’d think that the one thing that the
United States would try to do was keep this idea of writing debts
without any idea of how you’re going to repay. Well, all of a sudden
countries are cashing in. They’re getting rid of the dollar, and if
they don’t use the dollar if they begin to denominate trade say,
between India and Russia in rubles and Indian currency and Chinese
currency, then there won’t be any need for the dollar and it won’t
have this free ride. How is it going to be able to keep spending on
its almost 800 military bases around the world, if the dollar goes
down and down and down because all of a sudden people are treating the
United States like a third world country.

DRAITSER: Michael, that all sounds well and good but the pushback from
that would be, but no investors around the world look at China as a
safe place to park their money. It still remains the US treasury’s
market that people are rushing back to park their assets, their
wealth, to protect themselves against global instability, etc. China
doesn’t seem to have any interest in moving towards an open market
model. So, the idea that China, or a bank sponsored by China, is
somehow going present a true alternative to this US-centric capitalist
system seems a bit far-fetched, no?

HUDSON: You’re right, China has no intention at all of becoming a
home for other countries borrowing. It wants to minimize. If China
would do with the United States did and create an investment vehicle
itself, then dollars and British sterling and others would flow into
it and then China would be in debt. If you put money into a bank, then
this is a liability, the bank owes you money. China doesn’t want to
any money at all from foreign private investors and it doesn’t want
to provide a safe haven for foreign investors. So, when people talk
about the BRICS Bank they’re not talking about a bank for private
investors at all, they’re talking only about a means of settling
balance of payments deficits among governments. This bank is only
going to be for governments to create its own special drawing rights
or arrange its own currency swabs. Private investors will continue to
invest in, and put their money in US treasury securities because the
US treasury can keep on printing them. It’s still the measure of
value by which oil and raw materials and minerals and movies are
transferred. So, you’re having a bifurcation between a monetary
system that only works for governments and the monetary system that
works for the private sector.

DRAITSER: And one of the aspects of this bifurcation or this split
that has really come to the fore since Russia’s invasion in Ukraine
is this idea of US financial imperialism. I think this is something
that a lot of people didn’t really pay close enough attention to in
the previous decade. The US tried this out with Venezuela. We saw that
with Iran, a number of other countries: the freezing of reserves, the
sanctions, all of the other tools that the US treasury uses. So my
question to you is: has U.S. financial imperialism, or the tools of US
hegemony on the financial side, has that exposed the US too much in
the world, in your view?

HUDSON: Here’s the problem that most of the debts of the global
South, Latin America, all countries, are denominated in U.S. dollars.
The idea of debts is they bear interest, and you have to keep rolling
them over. You have to pay interest and amortization, just as if you
have a mortgage. Well, all of this is coming to a head, as I
mentioned, this fall, because if you’re the average Latin American
or African or South Asian country something has to give. You can’t
afford to buy your food and energy and pay your foreign depts, so
there’s going to be the threat of default and if there is a threat
of default, then this whole superstructure of debts where banks
guarantee debts, their derivatives betting on whether the debts will
 be repaid or not, what will the value of the debts be. You’ll have
something like what occurred in the 1980s after Mexico couldn’t pay:
interest rates for Brazil and Argentina went up to 45% and in Mexico
interest rates on government, dollar debts went up to 22%. Something
like that’s going to occur again.

The prices of bonds in these countries will fall. The countries are
going to say to Russia, for instance: we would like to buy your oil,
 you know we’re not going to follow the US sanctions. We’d like
to buy your grain, and they’ll say to China, we’d like to buy your
manufacturers. Russia and China can say, “well we’d like to lend
you the money, and then you’ll repay us ’cause we know you don’t
have the money now but if we lend you the money I don’t see how you
can afford to repay us, the money we would lend you to buy our oil and
food would just be enough money so you could pay your dollar debts,
why would we want to do something like that?” That’s the crisis
that’s going to occur in the fall. People are going to have to
decide: can we default on the dollar debts? If they default, what will
the US do? Brazil could say, “well we’ve we’re part of the BRICS
bank and they’re going to lend us money, but we can’t afford to
pay you in dollars.” Now the United sSates will say, “well you
know if you do that then we’ll put sanctions on you.” And then
Brazil will say, “well if you put sanctions on us and you can’t
buy our exports, then you’re just hurting yourself! You’re hurting
your own exporters and you’re driving us to countries that will
export for ourselves.” And the United States is going to have to
say, “Who are we going to put in first? Whose interests are we going
to look after? Will it be our dollar bond holders in the banks or will
it be our corporations that make the exports to these countries?”
Something has to give. There’s not enough money both to buy our
exports and to pay the bondholders what’s going to happen? Well,
nobody knows yet, but that’s what the fight is going to be about.

DRAITSER: And to your point about financial imperialism, the United
States has, I think for the first time, or at least for the first time
of notable example, essentially manufactured a major economy’s
default. And that’s what’s happening with Russia. They’re
claiming that Russia has defaulted on its deb,t but that’s because
they have prevented Russia from actually repaying that debt because
the debt has to be repaid in dollars, and the Russians can’t do that
for all of the reasons that are obvious. So, the question is do you
believe that this is going to cause a shattering of faith in the
United States as a good faith partner for other countries that might
also find themselves in the crosshairs?

HUDSON: Well, everybody is talking about that. This is exactly what
Global South meetings are all about and you’re even having Saudi
Arabia, which is one of the biggest dollar holders, I talk about that
and that’s what that president Biden’s meeting with Mohammed bin
Salman Al Saud (MSB) was about. Everybody realizes that we’ve run to
the end of a whole cycle of expansion, debt expansion, that begin in
1945 when almost the whole world emerged from the war with no private
sector debt. Now there’s a huge private sector debt. Government debt
went way down, because there wasn’t a war on but now there is
government debt just to finance the failure of the global South
countries to develop. Something has to give. And that’s not what was
supposed to happen in the textbook, but that’s what’s happening.
My book is really about the different dynamics that are shaping the
way in which the world is going to be dividing into these two separate
trade and investment and monetary blocks.

DRAITSER: Final question. Between the war in Ukraine, all of the
turmoil surrounding that, and then of course everything that has
happened since the beginning of COVID, the disruption to global supply
chains, all of these things, does this mean that we have reached what
might be called the end of the globalized neoliberal era?

HUDSON: Absolutely. That’s the one thing that, for the last two
years, if you read the speeches of President Putin, President Xi, the
Indian speeches, they’ve all realized that globalization is over and
especially if you read what President Biden and what Donald Trump had
said. Donald Trump said we’re now ending globalization. We are
putting America first. Any deal we make, America has to come out on
top, and that’s pretty much it. It was the United States itself that
has led the breakup of globalization by becoming so exploitative and
one-sided with other countries that it’s gaining at other
countries’ expense, and other countries are driven to protect
themselves by de-dollarizing. Everybody had been talking about
de-dollarization for maybe three or four years, but nobody expected
that the United States itself would lead the de- dollarization during
the Biden administration. The word used is “shooting yourself in
your own foot”. Which basically is what the neocons are doing in the
Biden Administration. Both from US point of view and from China,
Russia, India, Iran, the BRICS countries there’s a common interest
in going their own way.

DRAITSER: But it wasn’t that really a product of the capitalist
forces that were behind Trump and those elements that Trump
represented? I mean there was clearly a divide in capital. You have a
neoliberal globalized capital that opposed Trump and a lot of those
ideas and then you had a sort of a domestic petrochemicals capital
formation that was supportive of Trump, the dirty polluting
industries, the construction industries, the petty-bourgeois, small
business owners, etc. So, to me, I mean not to get too Marxist about
it, but it represented a split within the ruling class. A split within
the capitalist class, more than, you know, America necessarily
deciding to go its own way.

HUDSON: Well, the split you describe really is between raw materials
suppliers, oil, gas, mining, and monopolists on the one hand against
industry on the other. So we’re right back to the fight that
industrial capitalism was supposed to sweep aside these rentier
interests and the rentiers are fighting back. And the question is, can
America become a prosperous economy just by making money financially?
And just by making money by controlling monopolies that other people
have to pay special commissions for, and a monopoly rents like
they’d have to pay for a Hollywood movie, intellectual property
rights, information technology? Can a country preserve its living
standards and get richer without industry? The answer we saw from
Trump is; “Well, the country is us, the 1%. We can get richer maybe
not the 99%. So when we say America gets richer, we mean our companies
in our sector, not the people. The people don’t really fit into the
equation that we’re talking about.”

So yes, there’s a fight between which companies will prevail and
whether America will  be a rentier society? Will Biden appoint
anti-monopoly regulators to lower costs? Can America continue to
function with 18% of its GDP going for healthcare, instead of
providing lower healthcare costs? How can American industry, even
information technology companies, compete if it has such expensive
healthcare overhead that people have to pay, if it has such expensive
housing for rental or for purchase that people have to pay? Can
America really get rich, just on capital gains for its real estate
stocks and bonds and monopoly companies? That’s the question. The
idea of the 19th century is no, that’s that was what feudalism was
all about. It can’t survive that way. So can America have a new
feudalism for it’s 1% and somehow survive? That is the question.

DRAITSER: I suppose that’s the $25 trillion question isn’t it.

HUDSON: Yup.

DRAITSER: So okay, we will leave it there. Michael Hudson thank you so
much for being so generous with your time. I know I kept you over the
time I said I would. Michael Hudson is the president of the Institute
for the Study of Long-Term Economic Trends, he’s an economist and
author, many books to his name. I of course recommend Super
Imperialism to understand so many of these dynamics and the brand new
book The Destiny of Civilization: Finance Capitalism Industrial
Capitalism or Socialism
[[link removed]] get
your eBook from CounterPunch, get your hard copy wherever books are
sold. Michael Hudson thank you as always for coming to CounterPunch
and helping us understand all of these issues.

HUDSON: well I’m glad we were able to cover the ground that we did,
thank you.

DRAITSER: Thank you and listeners thank you as always and we will chat
again next time.

_MICHAEL HUDSON is the president of the Institute for the Study of
Long-Term Economic Trends. He is an economist and  author of  Super
Imperialism: THE ECONOMIC STRATEGY OF AMERICAN EMPIRE, and THE DESTINY
OF CIVILIZATION: FINANCE CAPITALISM, INDUSTRIAL CAPITALISM, OR
SOCIALISM._

_ERIC DRAITSER is an independent political analyst and host
of CounterPunch Radio
[[link removed]].
You can find his exclusive content including articles, podcasts, audio
commentaries, poetry and more at patreon.com/ericdraitser
[[link removed]]. You can follow him on
Twitter @stopimperialism [[link removed]]._

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* capitalism
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* socialism
[[link removed]]
* debt
[[link removed]]
* monopolies
[[link removed]]
* class
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* U.S. dollar
[[link removed]]
* China
[[link removed]]
* IMF
[[link removed]]
* Trade
[[link removed]]
* Globalization
[[link removed]]
* Banks
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* Karl Marx
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* Neoliberalism
[[link removed]]

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