Michael Hudson & Radhika Desai: Geopolitical Economy, New Season

Who Plans the Economy?

RADHIKA DESAI: Hello and welcome to a new season of Geopolitical Economy Hour, the show that explores the fast-changing political and geopolitical economy of our time. We are beginning this new season with our 50th episode. I’m Radhika Desai, and joining me today is one of our regulars and favorites, indeed, the person with whom I inaugurated this show, Professor Michael Hudson. Welcome again, Michael.

⁣MICHAEL HUDSON: Good to be back here.

⁣RADHIKA DESAI: Great. Now, as we record this, the Federal Open Markets Committee of the U.S. Federal Reserve, whose decision set interest rates, has just finished its six-weekly meeting. And as some of you may know, they have agreed to decrease interest rates, the first decrease this year, by 25 basis points.

Not a big move, but the fact is the Federal Reserve has been the focus of a lot of controversy recently. And much of the controversy comes from Donald Trump. Anyone paying the slightest attention to the news these days cannot have failed to notice that Trump has a thing about the Federal Reserve, an itch, shall we say, one that he can’t help scratching.

He’s called Powell a numbskull and too late – which is to say he’s, according to Trump, always too late to lower interest rates – while demanding that Powell reduce interest rates. He undertook a theatrical visit to the renovations of the Federal Reserve’s Marriner Eccles building, disputing a difference of $300 million in costs in front of TV cameras, as if this few million dollars were consequential in a country whose debt is shooting north of 150% and 37 trillion US dollars.

It’s long been clear that he’s not going to renew the tenure of the current chair Jerome Powell and has already used the early retirement of one governor to place a loyalist on the board. And while he has recently named four candidates that he is considering for the position of chair, speculation rages far wider.

So some people are talking about more than 10 candidates. In yet another salvo at the Federal Reserve, Trump has, of course, tried to fire one of its governors, Lisa Cook, for cause he says, but so far he’s been unsuccessful with the most recent legal ruling, leaving her in place for today’s critical Federal Open Markets Committee meeting. So many questions arise from this.

While economists loyal to Trump have been publishing papers and writing commentaries on the Federal Reserve’s problematic easy money policies, Trump actually demands that the Federal Reserve keep monetary policy easy. So is there a coherent Trump administration policy towards the Federal Reserve? Secondly, while Trump wants the dollar to remain the world’s currency, he also seems determined to undermine the much doubted independence of the Federal Reserve.

So even as the easy money he wants certainly ensures that the Federal Reserve will not be able to rein in inflation, a standing threat to the dollar system. Inflation raises yet another question. While general inflation remains high – and it has gone up ahead of this meeting despite low energy prices – driven by high food prices, undoubtedly a result of Trump’s own tariffs, and core inflation – that is inflation discounting volatile food and energy prices – also remains high, Trump, on the one hand, continues to insist that he has brought down living costs, meanwhile ensuring that nothing that the Federal Reserve does will reduce it.

And then there’s the matter of cryptocurrency. With the passage of the Genius Act, a whole new set of assets, very dodgy assets, namely cryptocurrency, which any sane analyst would consider highly volatile, risky, and inherently speculative, have been given the imprimatur of government regulation.

This means that one way or another, these assets will enter the financial system and become one more thing in the everything bubble, taking the fragility of the U.S. financial system, which is already at breaking points, even closer to it. Any crash that now occurs can only consign the dollar system to the dustbin of history, as we’ve discussed so many times, Michael. So Michael, what’s your favorite drive about this morass of contradictions in which Trump is only further muddying with his attacks on the Federal Reserve? Go with whatever is on the top of your head because there’s so much to discuss. We can start anywhere.

⁣MICHAEL HUDSON: Trump’s head is full of junk economics. He wants to depreciate the dollar. He wants the dollar’s exchange rate to go down because he imagines that this will make U.S. exports more competitive. As the dollar goes down, its price against European currencies and foreign currencies gets cheaper. The problem is America has been deindustrialized over the last 30 years, and there’s not that much to export.

And by lowering interest rates, what he’s actually doing is the exact opposite of what his Secretary Treasurer Scott Bessent, has done. It’s as if he wants to go back to the zero interest rate policy of making money by debt leveraging, by inflating the prices of stocks and bonds because you can borrow inexpensively from the banks and you can buy a stock whose dividends are higher or a bond whose rates are higher. He wants to make the economy safe for speculators again because they’re his constituency, after all.

Well, here’s the problem. The sane people on Wall Street, I guess the 1%, or people like you and me, are criticizing him from the point of view of what’s the independence of the Federal Reserve. If you have Donald Trump intervening in Federal Reserve policy, micromanaging under his imagination of how the Federal Reserve affects policy, or his pretense or cover story for serving his campaign contributors, then you’re going to have instability and probably inflation.

And of course, Trump pretends that he’s against inflation. But as you’ve just pointed out, tariffs are increasing inflation. And his vast, wonderful budget cuts (budget deficit), by slashing taxes on the wealthiest 10% and raising them on the bottom 90%, are going to inflate the economy. So he’s sort of overseeing instability.

And the question for many years – there’s been this mantra for the last century: the central bank has to be independent because central banks are responsible. And we all know that governments are irresponsible because they’re elected and they’re democratic and they want to spend money for welfare into the economy, and that’s inflationary. And they want full employment, and that’ll push up wages.

Instead the Fed’s job, ever since Paul Volcker, is to create enough unemployment to prevent wages from going up. What’s wrong with this picture, again, as you and I have discussed, is the Federal Reserve serves its member banks, the commercial banks. And if there’s any sector of the economy that’s more irresponsible, it’s the banking sector, because that’s what’s led to the financialization of the economy and the deindustrialization and the incredible debt overhead that we have today.

So there’s no reason to believe that the Federal Reserve is more responsible than the government. I’m not saying the government’s responsible because the same Wall Street billionaires that control the banks control the government itself. So you’re going to lose either way around. So the problem is: the Federal Reserve has taken over from Congress the management of the whole economy.

And as you and I have discussed, and I think you will today, trying to manage the economy just by affecting interest rates by buying and selling securities by open market operations is only one sliver of the economy and it misses the whole big picture, which is all about industrialization. how you organize what corporations are going to do with the revenue they get, are they going to buy the stock back their stock and push up stock prices and pay out dividends, or are they going to invest long term.

That’s really what it’s all about, and the Federal Reserve is not concerned with that at all. It’s just concerned about providing money to the banks and banks don’t lend money into the real economy, they lend money for stocks and bonds for financial speculation and you could look at the Federal Reserve as the implementer of the Ponzi scheme into which the United States economy has degenerated.

⁣RADHIKA DESAI: Well, you’ve made so many different points so let’s just take them by turn. First of all, let’s take the whole issue of the so-called independence of the Federal Reserve. Now you know, at one level, in the post-Second World War period for the first several decades, it was actually assumed that monetary policy was just one of the instruments in the hands of governments, elected governments, to keep the economy going, etc., so it was not assumed that that central banks would have to be independent.

The independence of the central banks has become a mantra and has become this rule of thumb, this principle that cannot be violated, only in the age of financialization. So when you said, Michael, a couple of things that already suggested this, which is that what the Federal Reserve has done over the last several decades is essentially inflate asset bubbles.

It has essentially lent money primarily to financial institutions, not so that the financial institutions will invest in the real economy. That possibility has already been thrown out of the window by the Federal Reserve in its role as the regulator of the financial sector, essentially because for decades, going back to certainly the early 80s, if not earlier, every time there has been any kind of a regulatory problem, the default position has always been to deregulate, not to re-regulate.

We can discuss that further, but there has been deregulation. The Federal Reserve essentially lends money to banks, which then use it for asset price inflation and so on. The easy money policy, particularly since the early part of this century, has been instrumental; first in blowing the housing and credit bubbles, which burst in 2008, and now in blowing up this everything bubble we are in.

So essentially the independence of the Federal Reserve, what it actually amounts to, the so-called independence of the Federal Reserve effectively means regulatory capture. That is to say, the regulator becomes captured by those it is supposed to regulate. It’s like essentially asking the fox to defend the chicken coop. It’s not going to happen. So, essentially, that’s why financial interests have been in the lead.

You said something else that’s really interesting, and that is that in recent decades there has not been any serious fiscal policy. What there has been is only monetary policy posing as the only form of management of the government. And in my own writing, in my geopolitical economy, where I track the financial policies and the monetary policies of the Federal Reserve, particularly in relation to the dollar system but also in relation to the management of the U.S. economy, what I discovered is that, certainly by the Clinton administration, if not earlier, there was basically no serious fiscal policy. The only fiscal policy was that Republican administrations would always reduce taxes on big corporations.

Then Democratic administrations would come in; they would not touch it but they would engage in fiscal consolidation, essentially by cutting social services and so on, which Republican administrations also did. And then the next Republican administration comes in and reduces taxes further. So, essentially, what this has also done, of course, is vastly increase the debt mountain of the United States. Because while you are cutting social services to some extent, it’s not nearly enough to account for the revenue you are foregoing by giving corporations big tax cuts.

So for the last many decades, what we have had in terms of economic management was simply monetary policy. And this really began with Alan Greenspan, and that’s why Alan Greenspan was himself called the maestro, as though he was, as a kind of superstar conductor, conducting the orchestra that was the U.S. economy with the slightest movements of his little baton.

But of course, in reality, what you had was essentially a situation in which they gave up trying to manage the U.S. economy. They gave up trying to preserve the productive character of the U.S. economy. They, in fact, encouraged things like outsourcing, financialization, etc. So they have essentially destroyed the U.S. economy, made it an economy based on consumption, etc. So, in all of these ways, what you’ve seen is that monetary policy has displaced any fiscal policy and thereby hangs many other threads.

⁣MICHAEL HUDSON: They’ve not only deregulated monetary policy, they’ve deregulated crime. President Obama appointed Eric Holder as Attorney General, and Holder said, it’s true that there was an enormous crime wave that’s led to the financial crisis; junk mortgage lending, the banks have falsified mortgage statements, the appraisers have falsified them, the brokers have falsified them, there have been billions of dollars, and we have a choice.

As a result of this financial fraud, the mortgages of about 8 million American families are way overpriced beyond the ability to pay. What are we going to do? Well, we have a choice: either we can write down the debts, as President Obama had promised, to the reasonable, realistic value of their houses and enable these families to be saved from the exploitation of the banks, or we can prosecute the bankers and throw them in jail.

But there’s a problem with that. These bankers, most of them, are married with children, and their children and wives are innocent. And it would be wrong to hurt their innocence because if you look at the value of the life and the family happiness of a multi-billionaire, 10 billionaires are worth the 8 million Hispanic and black and other families that we’re expropriating.

So we’re not going to punish anybody. In fact, what we’re going to do is turn to the Federal Reserve and say, make sure that, although the banks are insolvent because they’ve lent much more money than the debtors can pay, we’re going to create the largest financial boom in history, the largest bond market boom in history, by slashing interest rates from the current highs all the way down to less than 1%, which is going to enormously increase the capitalization of bonds and stocks.

And so Obama appointed Federal Reserve Chairman Ben Bernanke as Fed chairman, and then Janet Yellen. And their job was to prevent the banks from writing down the debt to what could be paid and, say, our job is to not to stabilize consumer prices, but to make sure that we stabilize and prevent asset prices for stocks and bonds and real estate from going down. Because if the economy is so highly leveraged and banks have lent out so much money relative to their capital reserves, if prices go down even a little bit, one or two percent, you’ve wiped out the equity of the largest bank customers, the largest speculators, and the banks themselves will go under.

And so the head of the Federal Reserve Deposit Insurance Corporation said, you know there’s one really crooked, incompetent bank; that’s Citibank. It’s so reckless that we’ve got to foreclose on it. And Obama’s Treasury Secretary, Tim Geithner, said, no, no, my job is to save Citibank. You know, they’re the people who put me in power. And hey, Mr. Obama, they have put you in power through Clinton’s Treasury Secretary. So you have the banks running the justice system and the prosecution system, as well as the financial system.

And the common aim of all of them is to make sure that the banks will not lose money by writing down the debt that you’ve just described as growing. If you don’t write down the debt and it accrues interest and is growing and growing and growing, then you have to create more and more and more money at lower and lower interest rates to carry this higher debt. That’s what a Ponzi scheme is.

You need new entrants into the scheme to provide the money to bail out the early investors, or the whole scheme fails. That’s what the United States economy has turned into, and that’s what the independence of the Federal Reserve means. Don’t let anyone, or the prosecution system, or laws against fraud, or even common sense, interfere with creating an economy that makes money by financial speculation, not by industrial investment. We’re not an industrial economy anymore.

⁣RADHIKA DESAI: Well, exactly. And you know what, Michael, Look at this. We’ve shown this chart before, but this is the chart of the Federal Reserve’s balance sheet. As you know, it went from under a trillion dollars to about $2 trillion in the aftermath of the 2008 financial crisis. And then, with a series of rounds of quantitative easing, it went up to above $4 trillion.

And then, with the pandemic, it went up to $9 trillion. So, what is all this? This is essentially the Federal Reserve itself entering the market of various speculative assets. The Federal Reserve itself has become essentially an agent to preserve the value of the speculative assets of the various bankers and what have you. And there’s another thing, what’s really interesting insofar as the stock market is supposed to be democratic and so on – allow everybody to make money.

Well, another thing that’s happening, in addition to what you were just saying, is that actually the number of publicly listed companies is shrinking. More and more companies are owned by private equity, which is essentially elite clubs of investors who have inside knowledge about what can turn a profit and what can’t turn a profit. Knowledge which they refuse to make public and so that they can privately, as members of this club, benefit from these lucrative investments and not allow the ordinary investor, the retail investor, to come in.

That’s another really fascinating thing that has been happening. And now, of course, the Trump administration is allowing even greater kinds of forms of club-like behavior. So, the few companies that remain publicly listed, Trump has recently suggested that their reporting responsibilities – they should no longer be held to quarterly reports. They can go down to semi-annual reports once in six months.

So this again restricts the amount of information that is available for the retail investor. In so many ways, the Ponzi character of this system, in which essentially there’s a pecking order in which the rich continue to get rich, while ordinary people have no purchase on the system. And as far as things like pension funds are concerned, they are typically the bodies whose enormous amounts of money that they have forms essential “throw weight” in the financial system. It is used as “throw weight.” But, of course, whenever there is any gain, they gain the least, and whenever there is any loss, they lose the most.

⁣MICHAEL HUDSON: Could you put that chart up again? I want to show it actually shows a radical unprecedented development of the Federal Reserve. You see at the very beginning of the chart that flat line. Yes, that flat line goes back a century, just as flat as it is then. And that flat line is how central banks all over the world have acted for a century. They intervene to buy and sell government bonds overnight in the short term, simply to affect interest rates up and down.

There is no long-term accumulation. What happened when you had the jump in 2008 that you show, and the jump that continued all the way through that period, is for the first time, the Federal Reserve began to be a huge investor itself. It bought enough stocks and bonds, not only government bonds, but corporate bonds, not only corporate bonds, but junk bonds, to push up their prices.

And so you have an enormous inflow of money not to be spent on goods and services, as you’re taught in school, but to buy stocks and bonds. The Fed creates money to inflate asset prices. It creates money for stocks and bonds and real estate purchases, not for consumer spending at all. This whole idea of Fed money creation that affects consumer prices is just a fiction. When you look at that chart, you realize what they really create money for. And that was revolutionary.

⁣RADHIKA DESAI: Absolutely. Michael, one of the things we want to discuss, is exactly what the Trump administration wants out of the Federal Reserve. Trump himself has said such contradictory things. On the one hand, he says that he wants the dollar to be strong and the dollar system to work, etc. And of course, it was expected early on when Trump started announcing his tariffs, that tariffs were going to increase the value of the dollar.

But what you’ve seen here, from the time Trump has taken office, the value of the dollar has gone down consistently. Some say that it has lost some 10% of its value, and this is one chart which shows the ups and downs. And here’s another one, which just shows essentially the broad dollar index, which again reaches a peak in January 2025 and since then has been in decline.

So the dollar has just continued to decline. And of course, everybody who doesn’t like Trump says that it is Trump’s fault. But I think that the situation is much more complicated. Part of the reason the dollar is declining is because of inflation. Now, mind you, tariffs have contributed to inflation, but inflation was going up even before Trump took office. And at the same time, the Federal Reserve finds it very difficult to deal with this inflation because the only way in which the Federal Reserve will permit itself to deal with inflation is by raising interest rates. But if it raises interest rates much more than it has already done, then it is in serious danger of pricking all the asset bubbles, the so-called everything bubble. Again, here is the chart of the federal funds rate going back to 1955. This is the Volcker peak.

But the Federal Reserve can’t do a Volcker anymore because, back then, when Volcker increased interest rates, he didn’t have to worry about asset bubbles, which would burst. Whereas what we see here, for example, is a series of interest rate increases, which were essentially forced on the Federal Reserve because the dollar was going down. So it had to restore the value of the dollar.

So they started increasing interest rates and the moment they went slightly beyond 5%, that triggered all those processes that led to the crash of the North Atlantic financial bubble, so to speak. So it led to the North Atlantic financial crisis. And similarly, we see again here today that we are already at that point of just a little over 5%, which is why, although inflation remains high, the Federal Reserve daren’t raise interest rates more.

Indeed, now what they are doing, in fact, is they are bringing it down. Now, Trump says that the Federal Reserve doesn’t want to decrease interest rates, and that Trump is advocating for decreasing interest rates. But you know what? The Federal Reserve, Jerome Powell, and most of the Federal Market Committee would like nothing more than to decrease interest rates because they want asset inflation to continue.

But they have been forced to at least keep interest rates as high as they are, at which they have come over the last two or three years, because inflation is not going away. The Federal Reserve is caught in a bind; that’s why they are keeping up this higher for longer. In a certain sense, I suppose what I’m trying to say is that Trump just wants to look like the person who caused interest rates to decrease and as though they care about the real economy. But, of course, what Jerome Powell, as well as Trump, what they all care about merely, is the continuing inflation of asset bubbles.

⁣MICHAEL HUDSON: That’s right.

⁣RADHIKA DESAI: And then the other thing that I would add to that is that; the independence of the Federal Reserve, which is allegedly in question – Scott Besant, the Treasury Secretary, recently published this article, in which he criticizes the easy money policies of the past. Now he may want to criticize it, but the fact of the matter is Trump wants the continuation of these easy-money policies.

I think that the real effect, whether it’s intended or otherwise, of interventions like Scott Besant’s – this article is being much talked about – will be essentially to establish that the Federal Reserve has never been truly independent. And if today the Trump administration appears as though it is infringing on the independence of the Federal Reserve, this is no different from what happened in the past. In one sense, that’s true, because all monetary policy is political, and the independence of the Federal Reserve, as we’ve already said, is only to leave the regulation of the financial sector in the hands of the financial sector. So, and that’s a silver political action [Please clarify]. The point is that he is basically establishing a new norm where Federal Reserve policy is political. And I think the only purpose of making it political is to give Trump the credit for keeping interest rates low.

⁣MICHAEL HUDSON: The article that Besson wrote is really – I’m very happy with it. It’s made wonderful, wonderful points, such as we’ve made for many years. And he called the title of the article: The Fed’s New Gain of Function Monetary Policy. Gain of function is the term that was used for the coronavirus that’s come out and a pandemic. And he’s treating Federal Reserve policy as a pandemic.

And the gain in function has been a mutation of Federal Reserve policy, which we’ve just discussed, in saving the financial debt overhead of the economy, not the economy itself. And he goes to a long discussion of how the effect of making money financially, as you pointed out earlier, the leading financial sector investors are multi-tens of billionaires, and their way of making money is to deindustrialize the economy, not to industrialize it. And I think we’ve shown before the growth of wealth in the economy.

Here’s the wealth of the bottom 50%. The bottom 20% has actually gone down. All of the growth in the wealth of the American economy, all this growth has been in the form of stock, bond, and real estate held by the 10%. It’s the 10% that hold the vast majority, over 75%, of the stock market and the bond market. The 90% people, except maybe via their retirement funds, don’t have bonds and stocks. Only a very minimum compared to the super wealthy. And the beneficiaries of this asset price inflation thus have been the very top of the economic pyramid. And they’ve used this increasing financial wealth to increase their control of the election process by contributing to campaigns.

Now that you’ve deregulated the political campaign contributions in America, as well as the banks, and they’ve essentially bought control. And so the Federal Reserve celebrates this as success. They said, we’ve created wealth, but almost all the wealth they’ve created, 90%, has been to the wealthiest 10%, not for the economy as a whole. And if most wealth takes the form of financial claims on debtors; mortgages, bank loans, corporate bonds, and government bonds, then the creation of wealth on the asset side of the balance sheet means the creation of debt on the liability side of the balance sheet.

And the wealthiest 10% have the assets; the 90% have the debt. And the effect has been to polarize the economy. And I think Besant deserves credit for pointing out that this has been the whole effect of the Federal Reserve asset price inflation. It’s been inequality and unemployment and deindustrialization, the exact opposite of what textbooks imagine; that the financial sector is only an intermediary, it doesn’t have any effect on the economy. It just reflects that it’s the driving shaper of the economy. And it’s been misshaping it all throughout the United States and Europe and the Western economies in general.

⁣RADHIKA DESAI: Let me say that all the truths that Scott Besant has spoken in his article are no different from the truths that Trump had to speak in order to get elected. Remember, it’s been my argument for a long time that Trump discovered one thing, which is that you can no longer win elections by telling people that their economy is doing very well.

He told them the truth; it’s not doing well. We agree with that, but, of course, Trump told them the truth only in order to get elected and, of course, he thenmixed that with lies, for example the fact that he said to them that the economy is not doing well because of trade and because of immigrants and so on. All of those things were, of course, lies, so Trump has just a different package of truth and lies.

In Scott Bessent’s new package of truth and lies, I think the key point you have to understand is that he is only telling the truth about the inequality generated by the Federal Reserve not so that this will put a stop to it, because of course he himself would favor, as his president would favor, lower interest rates. What is going to be the effect of lower interest rates? The effect of lower interest rates will be to further inflate asset bubbles and to postpone the moment of reckoning. Let me just share a really interesting chart that I found. This is a chart of the major asset markets in the United States. You can see here there are equities, residential real estate, treasury securities, commercial real estate, farmland, and so on.

Now, what you see here on this chart is the average annual growth from 1997 to 2004. They are not small but they are not huge. But then you look at the growth just between 2023 Q4 to 2024 Q4. Within just one year, these asset markets, some of them like the equity market and so on, have been growing massively. Whereas all the other asset markets have grown less. And the commercial real estate market has actually shrunk to some extent.

So what is really interesting here is that now, in a sense, a crash will be coming because all these markets are already slowing their growth. The equity market is going up without any support. It’s going up and up, but what is it climbing on? It’s getting high on something else because, as we know, the entire stock market is being taken up by the Magnificent 7 and a few other such stocks. And most of the Magnificent Seven inflation in the prices of the equities has been because of the hype around AI. And it is increasingly dawning on people that the astronomical investments being made in the name of AI are not going to be lucrative. They are already not yielding stuff.

So a crash will be coming. But the point is that, in the meantime, they want to continue to have low interest rates. So Besant might complain about the easy money policy. Maybe they will not engage in quantitative easing and so on. But they will keep interest rates low. The point is that he wants to say that Federal Reserve policy has always been political, and he wants to say, therefore, that we are going to politicize it. And once that happens, then Trump will do what has been done in the past, which is to justify low interest rates in the name of economic growth, when, in fact, he wants low interest rates in order to keep asset prices up.

⁣MICHAEL HUDSON: I agree. That’s exactly what’s been happening. People act as if the growth of wealth and the growth of the 10% are what the economy is all about. And for the Federal Reserve, that’s what the economy is all about, because that’s its constituency, because the wealthiest 10% are the customers for the bank loans. And the Federal Reserve is created to be managed and run by its member banks. So you have a closed circle.

And as long as Congress remains inactive and is unwilling to do anything except to cut taxes even more, to run an even larger budget deficit that adds to the effect, you can have Trump make the argument that if we don’t lower the interest rate, imagine how much of the government debt’s interest rate – the budget is going to have to be spent on interest to the bondholders.

And this is already almost as large as our military spending. This is going to create a crisis. We’re going to have to cut social security and cut Medicare, but there’s a solution to that because we can privatize social security and put it all into the stock and bond market to keep the Ponzi scheme going.

⁣RADHIKA DESAI: I’m just showing exactly what you’re talking about Michael, which is that the yield on treasuries both one year and 30 years, so very short term and very long term, has been going up and they are now at fairly high rates. This is really, also quite interesting and they are adding to the debt, the deficit, etc., which will continue to grow because the Trump administration is committed to cutting taxes for rich people, etc.

Another point that I just wanted to make, but essentially what is happening now is that the idea that the Federal Reserve should be independent is being buried and now we will have a new type of rhetoric, which will continue the same policies of inflating asset bubbles. They were not going to revive the American economy, just as the tariffs are not going to revive it, nor will low interest rates revive the American economy, as I’ve already said at the beginning.

The insertion of cryptocurrency has simply added a new asset whose value can be inflated, on the basis of which a small number of rich people can make money while the rest of the economy suffers. And this is going to continue.

⁣MICHAEL HUDSON: Well, the real point you’re making: it’s the government that needs to be made independent from the financial sector. That’s the real independence we’re talking about. And that’s the problem. Under America’s two-party system, you can only have two parties. There’s such a tangle of laws that there’s no way of having an alternative to the Republican-Democratic duopoly. And so Congress itself is no more independent than the Federal Reserve is from Wall Street.

And the result has been to shift economic policy, meaning economic planning, to the financial sector. Out of Washington into the financial sectors, Wall Street, and also the Chicago Mercantile Exchange. And so the result of all that is the financialization of the economy and a loss of what used to be the whole dynamic of industrial capitalism and the whole idea of industrial democracy.

If Wall Street’s in control, this means not a market free of government planning and centralization. Financial planning is more centralized than government planning. That’s why Trump’s been firing all of the government regulatory agencies. With no regulatory agencies, there’s nothing to prevent the financial sector from becoming the economy’s central planner. And that’s what’s happened in a nutshell to the US economy

⁣RADHIKA DESAI: So what you’re saying is that we will have a centrally planned economy, except that it will not be planned in the interests of ordinary people, it will be planned in the interests of a small number of very rich people, the Elon Musks of this world. And this is so true. I suppose what we’ve really said is that the rhetoric about the independence of the Federal Reserve has always been a way of keeping Federal Reserve policy away from democratic influence.

The idea being that, of course, as long as you have some kind of democracy then at least you can elect a government which can politically try to control the Federal Reserve, to bend its policy in the direction that will help ordinary people, that will create a productive economy, etc. But, of course, what you’re adding to this is that, of course, the existing democratically elected governments of the last many decades, and still today, are simply themselves in the pockets of the financial sector.

So there’s no way the elected government is going to control the Federal Reserve in a way that will benefit ordinary people. The point is not that the Federal Reserve is not independent, it’s not factually independent anyway. The problem is that it is under the control of the wrong interests. And if ordinary people in the United States want to take control over the destiny of their country, they are going to have to elect a government that is not part of this duopoly, that will actually represent the interests of ordinary people.

And then, yes, there will be no need for an independent Federal Reserve. The government will essentially bend monetary policy. A popularly elected government acting in the popular interest will bend monetary policy in the direction that it needs to go in order to create a productive, equal, socially just economy. And, of course, an ecologically sustainable economy.

⁣MICHAEL HUDSON: I think you’re quite right. A democracy, unlike an oligarchy, would centralize financial management in the hands of the Treasury, which is a public, elected political agency, not a central bank. The United States didn’t have a central bank until 1913. The problem is that the Treasury itself is mismanaging the economy because it was run by basically bullionists, by gold bugs. And whenever the Treasury would raise a surplus, like for tariffs, the tariffs had to be paid in bullion, gold and silver bullion, not by bank credit.

And there was such an antagonism towards banks in the United States from colonial times, from the beginning of the Republic to the 1880s, with the whole silver, gold crisis, crucified on a cross of gold, that Americans didn’t want the banks to create money. And there was such a shortage of actual credit that an economy needs that, in an act of desperation, the Republicans and Democrats got together and said, we need bank credit. We can’t have these libertarian nuts, bullionists, at the Treasury tie our hands. That was the story of how the Federal Reserve was created in the first place.

⁣RADHIKA DESAI: There was that, but I think there were also some other things. The fact of the matter is that the United States dollar was not acceptable around the world because it didn’t have a central bank, whose function it would be to stabilize the value of the dollar. And of course, in the recent years, in the post-Second World War period, partly because the United States government has been committed to keeping the dollar as the world’s money, what you’ve actually seen is a systematic overvaluation of the U.S. dollar, which has then been a disaster for American industry.

It has been central to the deindustrialization of the United States. But nevertheless, my point is that the Federal Reserve was also necessary because otherwise your currency would never be acceptable. Before the Federal Reserve was created, the international transactions of the American government and other corporations were being handled via JP Morgan and handled in pounds sterling, which was kind of interesting.

There was another thing, which is that when you had banking crises, and there was a big banking crisis in 1907, there was no lender of last resort. So they had to create one. So there were many reasons. But yes, the fact is that you had to create a Federal Reserve in order to perform these functions.

⁣MICHAEL HUDSON: Yes, but at least at that time, the lender of resort, when it did lend money to banks to avoid insolvency, it charged a penalty rate. That was the essence of management. And now the Federal Reserve gives a subsidized rate, just the opposite of what happened over a century ago.

⁣RADHIKA DESAI: Exactly. Well, Michael, it’s been a wonderful conversation. Unless you have any further things to add, maybe we should wind it up for now. Okay, great. Thanks. Bye.

Michael Hudson & Radhika Desai: The MAGA Mirage

That’s his great talent: to promise to do one thing, get people paying attention to what he promises, and then doing the opposite. That’s how he got rich, as a real estate crook, basically.

[Intro]

RADHIKA DESAI: Trump always essentially cherry-picks the evidence. He picks all the statistics that make him look good. And what’s worse, even when there is some disaster, he acts as though he’s kind of one.

MICHAEL HUDSON: The stock market is not a mirror of the economy, but it’s something that is being independently manipulated and that’s what Trump is into, manipulating the perception of reality so that people will focus on the fact that the stock markets look as if they’re making money instead of the 10% of the population that own about 75% of the stocks and bonds.

[Start of program]

RADHIKA DESAI: Hello and welcome to the 49th Geopolitical Economy Hour, the show that explores the fast-changing political and geopolitical economy of our time. I’m Radhika Desai and today I’m joined by one of our favorites and regulars, Professor Michael Hudson. Michael, welcome.

MICHAEL HUDSON: Well, I’m glad you’re back from Asia. While you were gone, the U.S. economy’s been torn apart by the combination of Trump’s tariffs, his policies, and Musk’s chainsaw that cuts government spending. Including the Treasury’s IRS which has been cut back. So, there’s no one to check the tax returns of the wealthiest 1% who had all their tax cuts. So, we have a lot to talk about, but I’m not sure how much the papers in Asia have been covering all of this.

RADHIKA DESAI: Oh, well, I was certainly following much of this while I was there. But, more to the point, I’ve been catching up since I’m back. And so, today, Michael, what we want to discuss is the Trump presidency at six months. The papers have been full of it with different kinds of commentary.

Indeed, if we go to the White House website itself, if you believe their briefings, what we are told by them is that Trump has been working unrelentingly since day one to make America great again. And his six-month record has already made him, according to them, the greatest president of the United States. If he were to finish being president today, according to them, he’d still be the greatest president ever. Now, of course, if you believe that, I’ve got a bridge to sell you.

Naturally, in this deeply divided society, there is plenty of the opposite type of commentary. Mother Jones headlines that six months in, Trump has made American life immeasurably worse. Meanwhile, Newsweek ran an op-ed by a clearly Democratic political science professor, which headlined that six months in, Trump has too many failures to count.

Many people would say simply that the truth lies somewhere in between, but in fact, it lies somewhere else on an entirely different plane. Indeed, perhaps the most interesting thing about the last six months is how Trump has come unglued from his MAGA base. The relationship is showing cracks and contradictions. And if you follow the logic of where this is leading, it could very well lead to the sinking of the Trump enterprise. And to understand how it might get there, we need to grasp what the Trump enterprise is all about.

Let’s remember that Trump cut through the bipartisan consensus that kept saying decade after decade that the economy was doing great when in fact it was not. They claimed that all it needed was a little bit of Republican tweaking here or a little bit of Democratic twisting there. Twice, however, Trump won elections by rejecting this discourse and by telling US voters what they already knew and felt deeply from their direct experience, that the US economy was doing very badly. It was certainly not serving them. So he assured them that if they voted for him, he would make America great again and make their lives in particular better.

The problem was that once this electoral strategy worked, Trump had little use for this kind of discourse and belief. He had needed it to get elected so that he could serve more or less the same ruling class as the previous Democratic and Republican establishments had done for decades. A ruling class of which Trump himself is a sort of C-class member.

I say Trump serves “more or less” the same ruling class because there’s an interesting little wrinkle here. During the campaign, pundits talked about a split in the U.S. corporate ruling elite. On the one side, there was the established house-trained capitalist class. On the opposite side, there was a maverick, cowboy, robber-baron capitalist class.

The latter demanded vastly more neoliberal policies, policies that give capital even more freedoms than they’ve been given over the last four and a half decades – more freedoms and more privileges than working people. And these were the guys who supported Trump all along. Indeed, if they had their way, they would get rid of government altogether and replace it with the direct rule of big corporations. They’re not kidding. They’ve been nursing these fantasies for decades. The former, the establishment corporate ruling elite, however, was more or less happy with just a little bit more neoliberalism and they supported Biden and then Harris.

By the time of the inauguration, however, this little wrinkle had been ironed out, for Trump at least. The U.S. ruling class seemed to close ranks behind Trump, possibly sensing that the Democrats were in complete meltdown after the election. A veritable who’s who of the corporate elite reverentially witnessed Trump taking the oath of office. They include not just the old, once lonely maverick supporters of Trump like Peter Thiel and Larry Ellison, but also newer, hitherto solidly democratic tech bros like Elon Musk and very late and repentant converts like Mark Zuckerberg. Clearly the US ruling class had closed ranks behind Trump.

But perhaps by doing exactly that, they had rendered him less able to save them. Six months into his second term, what’s more clear than ever is that Trump is splitting the very megabase on which he got elected.

Now, of course, at a pinch, a capitalist society can dispense with democracy and elections altogether. It’s happened before. Remember Hitler, remember Mussolini, remember Franco. And given how little Western and U.S. democracies reflect what people want and need, many would argue it’s already happening again. But such a move would have a political cost and can be messy to say the least. So if it can all be managed in such a way that at least the appearance of democracy can be maintained, the capitalist ruling class would prefer that.

The question before us, Michael, is this. Has Trump already started undermining the base without which he cannot get elected to serve the ruling class in a democratic fashion? Has he already started making himself useless to that ruling class, ironically by his very zeal to serve them? Perhaps the most prominent sign of this split is Elon Musk’s break with Trump over the big beautiful bill and his New America Party, which I read in the papers, is already polling high among Republican voters, particularly among men. So, Michael, what do you think are some of the main fronts along which the Trump-MAGA relationship is cracking?

MICHAEL HUDSON: Trump was elected making two promises: to reverse the democratic policy of the Cold War against Russia in Ukraine, and to stop the soaring U.S. price inflation that was squeezing consumer income.

He’s defaulted on both of those and gone directly in the opposite direction. That’s his great talent: to promise to do one thing, get people paying attention to what he promises, and then doing the opposite. That’s how he got rich, as a real estate crook, basically.

First, he promised to stop America’s foreign wars, at least in Ukraine – in just one day, if you remember. And also in the Middle East, if only to prepare Ukraine for the really big looming war with China. Well, translated into English, what it really means is that he promised to lead President Putin down the garden path and pretend to be an honest broker between Russia and Ukraine. But actually, he took Ukraine’s side as the U.S. head of NATO. So he was the person behind the U.S. that was sponsoring the whole attack, never-ending in the first place, the eternal war meant to drain Russia.

Secondly, Trump promised to stop the rise in consumer prices. Everything he’s done has been to accelerate inflation. His policy has drastically raised tariffs, and in addition to now having to pay much higher prices for anything that’s imported or the price umbrella that the import tariffs cause, he’s let companies know that they can raise monopoly prices at will without any government attempt to stop all of this. I guess you have a chart showing that.

RADHIKA DESAI: Yes, what we have here is a chart just showing the 12-month percentage change in the consumer price index going back to 2005. While, of course, inflation has fluctuated around the Federal Reserve’s 2% mark, although it has often exceeded it quite substantially, what you see here is the pandemic spike, or I should say the recent spike, in the inflation rate, which has come down but it’s still remains at historically high levels, higher levels than before. This is basically what’s called core inflation: inflation minus food and energy. This is really quite important.

So inflation remains high. And of course, we are going to talk about the Federal Reserve later which will feel at least some pressure to deal with this by keeping interest rates high.

MICHAEL HUDSON: Instead of making America great again, these tariffs and tax cuts for the rich, the domestic budget deficit, and Musk’s slash-and-burn mass firings of the government agencies are creating havoc, as you just pointed out. Above all, for the recipients of Medicaid who have now been cut off, especially in the Republican states themselves, and also for the U.S. health care system.

Weather forecasting has been cut back. Medical research has been abolished. Cutbacks in scientific research and development forecasting, everything having to do with the environment/global warming has been cut back. Everything except military spending has been cut back, especially social spending, all in order to cut taxes on the very rich. So this has been the most regressive tax policy that we’ve seen of any president, I think, in the last hundred years. And I think the most immediate and destructive signs are in the financial sector.

RADHIKA DESAI: The Doge cuts have gutted the federal government, massively reducing the capacity of the government to do anything. And of course, this is part of the fantasy of these maverick cowboy capitalists who have been supporting Trump, people like Peter Thiel and Elon Musk, and so on.

This just shows you the month-by-month increases in unemployment insurance claims. And you can see, of course, that they are the highest at the time when Elon Musk was hyperactive at the so-called Department of Government Efficiency. But they have remained fairly high all the time. And as we were discussing earlier, the Treasury, agriculture, but also state and defense… all these different departments have been very badly affected. So you can see that they are gutting government capacity.

MICHAEL HUDSON: Here’s the problem. The consumer prices are up, but pressure from Trump is on the Federal Reserve to lower interest rates. And he’s essentially tried to fire the head of the Federal Reserve on the grounds that the Fed is not lowering interest rates.

The number one motivation, for anything Trump or Biden or the Democrats or the Republicans do, is to serve their donor class, the 1%, by pushing up bond prices and stock prices. As these prices rise, you’re going to have consumer prices essentially offsetting whatever the interest rate is. There will be a capital gain for holders of stocks and bonds, and the stock market has been soaring, but the adjusted interest rate is negative.

Suppose you’re making 4.5% on a 10-year government bond. That sounds pretty good. But the dollar has gone down by 10%. And so you’re actually losing 5% of the value of whatever you’re holding in U.S. Treasury securities if you’re a foreign central bank or a foreign investor. Essentially, the increase in the inflation plus the low interest rates by the Fed are driving capital out of the United States. The dollar is going down.

And that means that to the extent that foreign countries and investors remain tied to the U.S., they’re going to be losing money unless the stock market can be pushed up with enormous gains.

But the stock market turns out really to be seven big companies, Nvidia and Google, and the other main information technology companies. The rest of the stock market doesn’t look very promising because the policies that Trump is doing, the combination of price inflation and the shift of taxes off the 1% onto the 99%, are shrinking the economy. And if the economy shrinks, how are companies going to make enough profits to justify this increase in prices?

RADHIKA DESAI: Here you see a chart of the stocks and the dollars. The first chart here on the left is the stock market, the SP 500, which nose-dived on so-called Liberation Day, the day on which Trump announced these extremely drastic tariffs. So the stock nose-dived, and of course, more or less immediately, and as a consequence, Trump paused the tariffs.

Since then he has been announcing tariffs and postponing them and so on, giving rise to the very funny acronym TACO, which is that Trump always chickens out, because, of course, these tariffs are not just bad for the American economy, but they are bad for exactly the donor class that Michael was talking about. But since then, what you see is that the stock markets have gone up and essentially recovered all the value there was before.

But there is also a problem here, which is that this has nothing to do with anything that’s going on in the real economy. It has nothing to do with the confidence that investors feel in the real economy. Look now at this chart here. Let’s look at the chart on the right.

On the chart on the right, the dark red line shows the S&P 500 excluding the top 10. And then [the other line] the top 10, 7 to 10 shares are really rising. You can see that most of the stocks are not going up at all. And only a small number of the so-called magnificent 7 plus a few others, maybe the magnificent 10, are doing very well.

And remember also that they are doing well based on a lot of hype around AI. Around AI, you will remember that in January, we already had a big disaster hit the US AI investment model: the Chinese company DeepSeek released its R1 model, which turned out to be capable of doing as well as, if not better than, all the multi-billion dollar models that various American companies had put out at a fraction of the cost, which means that all the investment that’s going into all these magnificent seven industries may not be very, how can you say, very justified at all. So that’s the first thing.

The second here is that the gap between stock prices and the real US economy (the productive economy) is widening.

What the Financial Times has done here is that the dark blue line is the S&P 500, which as you can see is way above all the other lines. Now, what do the other lines represent?

This light blue line, which you can barely see, is nominal GDP, basically the lowest of all the lines. Nominal GDP, despite the fact that inflation is high, which means nominal GDP will also be high, is not doing very well at all.

Then, you have corporate profits before tax, they are just a little bit above a nominal GDP.

Then, you have S&P earnings per share. They are not doing well either. Having recovered from the pandemic, they certainly do not justify the rise of the S&P 500.

And the average, the green line, is the average of economic indicators. They are also not doing very well.

This is what Michael was just saying. All of this stock market increase is really completely unjustified.

Meanwhile, as you know, the dollar has been declining. Indeed, this decline of the dollar that you can see from January to July, this is apparently the worst first half of the year the dollar has had since 1973. And remember what happened in 1973 with the quadrupling of oil prices. The dollar had really sunk very low, and throughout the 1970s, it would continue sinking until it got to the point where it was, you know, gold was worth $800 an ounce. Today, we are being told that this accounting for inflation, the dollar’s value vis-à-vis gold, has sunk again to a similar level.

So, we are looking at a really, really difficult situation for the U.S. economy and for the U.S. dollar.

MICHAEL HUDSON: That’s exactly right. What’s real and what’s unreal?

The media keep talking about the stock market going up as if the stock market’s the economy. But what’s real is all of this money going out of the economy. Not only are foreign investors moving out of the dollar, American investors are moving out of the dollar. And central banks are not adding to the dollar. To the extent that central banks are building up their reserves, it’s largely in gold, it’s in each other’s currencies.

They’re doing everything they can to dissociate because the stock market is not a mirror of the economy, but it’s something that is being independently manipulated. And that’s what Trump is into: manipulating the perception of reality so that people will focus on the fact that the stock market’s up as if they’re making money instead of the 10% of the population that own about 75% of the stocks and bonds.

He’s representing the exact opposite end of the economic spectrum from what his MAGA supporters and the working class are supposed to be. And almost every policy that Trump has announced is turning out to be self-defeating or on the surface is actually what I think he wanted all along, but it is the opposite of what he’s promised. And his whole theory.

RADHIKA DESAI: Exactly. If you’re going to talk about the real economy, one of the key things you have to look at there is, of course, the entire tariff situation.

One thing I should say before we go on to discuss the tariff situation. You said something very, very good. Trump always essentially cherry-picks the evidence. He picks all the statistics that make him look good. And what’s worse, even when there is some disaster, he acts as though he’s kind of won.

For example, he’ll say, I’ve come up with this great deal with this country or that country. And when you look more closely at the deals, it turns out that it’s very doubtful that it’s going to look, it’s going to be very good for the United States.

And certainly, in the case of tariffs, Trump has made… I mean, it’s a show.

The reason why Trump promises to unleash such destructive tariffs is because, as we’ve said in a couple of shows before…

Trump has essentially won the election. Yes, he told one truth, which is that the economy was not doing well. But he then told an accompanying lie, which he had to tell if he was to serve his big corporate masters well.

Which is that instead of telling them that Americans were suffering from four and a half decades of neoliberal policies, he told them that they were suffering because of China, because of trade, because of immigrants. And so this tariff stuff is really entirely about making it look as though he’s addressing the problems of the U.S. economy.

But in fact, he’s not addressing them at all. Let’s take a look at a few charts here. And Michael, you know, please come in and comment on every one of them as you like.

I’ll just first talk briefly about this one. What you have here is a simple chart which goes back to 1900, which shows that the average tariff rate in the United States has returned to levels not seen since the Second World War. So, we are here in May 2025 at this level here at 8.9%. And the only time it’s been higher was basically in the 1940s during the war. And, of course, much higher was during the 1930s when, of course, the entire world trading system had broken down and there were tariffs and retaliatory tariffs and so on. So, that whole Great Depression madness was going on. Now what you see is that the average American tariff rate is very high.

MICHAEL HUDSON: Well, here’s what’s so schizophrenic. You’d think that the effect of tariffs would be to cut exports and shift production to the United States, but the United States is deindustrialized. So, since it’s deindustrialized, the tariffs are going to have to be paid by the Americans, which is why the prices are going up.

But there’s a nutty theory that’s almost schizophrenic behind Trump’s policies. He thinks that a lower exchange rate is going to make exports more competitive and that that will lead to new investment and new hiring in the United States. At least that’s his claim.

But the U.S. is no longer an industrial exporter or investor. So, the effect of the lower dollar is simply going to raise the price for imports even over and above the tariff rate. And the combination of high tariffs and a lower exchange rate is going to create an umbrella for U.S. companies to increase their own price levels as they’re doing now.

Well, Trump has threatened them with jawboning pressure. He went to Amazon and said, promise not to raise your prices. Amazon at first said, oh, of course we’re not going to. But then the fact that what they sell are very largely made of imports, they did raise their price. They’re not going to go bankrupt and lose their profits in order to make Trump look good. What Trump has said to the investment community and to the billionaires is, we want you to lose money and take it on the chin and lose your profits in order for me to be re-elected and go down in the history books.

RADHIKA DESAI: It’s actually worse than that. At one level, if they were to pay for the tariffs, then they would lose money. But ultimately, what he’s doing is he is asking the very voters who voted him in to pay for the tariffs.

Here is a chart which is also really interesting because a lot of people have been saying that, oh, tariffs are not leading to great increases in prices. And in fact, some commentators have even been saying that the rise in tariffs in the United States will actually result in increases in prices elsewhere as companies will try to reduce the impact on the American consumer while raising prices elsewhere. This is completely nonsensical.

Here’s a chart that shows that retail prices of tariff goods have risen more than other prices. So here you have the rise in prices of all imported goods, which is fairly high. Then you have the pink line, which is the goods in tariff-affected categories, which have risen the most. And yes, goods in categories not affected by tariffs have kind of risen but then also gone down. So they are not affected.

This clearly shows that the imposition of tariffs has actually led to an increase in prices for ordinary Americans simply because the big corporations are not going to swallow the tariffs. The big corporations are not going to increase their costs at all. They will only try to increase their profits. As you rightly pointed out earlier, the big corporations are able to pass on price increases to their consumers, and that’s essentially what they’re doing.

MICHAEL HUDSON: Well, we’re in a competition to keep saying it’s even worse than the other person says. I think it’s even worse than you think.

Because what do these price indexes that you’ve shown mean? They’re increasing discussion among economists. There was just a poll. How much faith do you have in the consumer price indexes that the Bureau of Labor Statistics puts together, especially since their employment was cut back by Musk-DOGE? And over half the economists that are polled say we don’t have faith in it.

As any shopper knows – and I’m here while you’re not here – the prices are going up much, much more than is indicated. The price increase is actually led by the price of housing. And you can imagine that rents are going up. Well, that’s not considered much in the price, that’s not one of the prices that’s counted in the price index. But there’s a feeling by most of the voters, the public, who know that there’s inflation if they do their own shopping.

As a result, their distrust of the economy, the distrust of the deep state, the distrust of politicians is now spreading over to, gee, we’ve been fooled. I mistrust Trump. I know there’s inflation. He says he ran to cure the price inflation. We’re seeing the inflation. He’s not doing it. He’s pretending that he’s doing it when we know that the inflation and the charts that you show is understating how serious the actual problems are. So that’s part of the political problem.

You can imagine not only the consumers are feeling this, but the business sector must be feeling it now that they’re being squeezed by the price increases that Trump has imposed. If you’re using copper, that increases the cost of copper wiring and electricity.

Trump said there’s going to be a huge increase in public utility power production for all of these computers that we need for AI and Bitcoin for the economy. And we need this increased energy because it uses a lot of water, and the water that it uses to cool the computers is already creating a drought and changing the water level throughout the Midwest, causing crop shortages.

In addition to the global warming that I’ve just said, Trump’s policy is: how can we accelerate global warming even more to increase the drought and the climate change? We’re going to do it by pushing oil and coal as the fuels of the future and pulling out of every international climate agreement.

So you’re having all over the United States droughts and crop failures, not only in the United States, but in other countries, Asia and Europe, the drought is causing decreasing crop yields. This is going to push up food prices all the more, and it’s a self-feeding problem as the United States adds to global warming, supported by the Greens in Europe. The Greens say one of our policies towards global warming is to support the war with Russia and to support the war in the Near East. And that is the largest single increase contributor to global warming. All of these weapons, all of this bombing, all of the wars, and all of the aircraft and the missiles are accelerating it.

RADHIKA DESAI: Yeah. Yeah, so let me resume our competition of saying exactly how much worse things are.

Here’s another really interesting chart that shows just how opposed how the Trump administration is opposed to the interests of ordinary people. So here is a chart which shows that U.S. tariff revenues have surged since the start of the year. Look at the word surge, right?

Tariff revenues were relatively low and then they have gone up from about two and a half. During the first Trump administration, it went up a fair bit. Under Biden also it went up. Now we are at $26.6 billion. But this is really 0.5% of a $5 trillion U.S. federal government revenue. And this is going to be used.

You remember the big beautiful bill?

Here is a chart which shows that the big beautiful bill has increased defense spending by a little bit, and then decreased spending on student loans and Medicaid and so on. But the biggest thing they’ve done is they have given huge tax cuts. The idea that somehow the tariff revenues are going to finance these tax cuts is complete rubbish. This is not what’s going to happen at all. So the whole tariff story is seriously problematic from a revenue point of view.

MICHAEL HUDSON: Trump’s love of tariffs, as we’ve discussed before, is the thought that if we can only be like the world was back in the 1890s. Before there was an income tax in 1913, government revenues were tariffs. If we can only raise tariffs enough, we can cut taxes on the rich even more. And that won’t add to the budget deficit.

Well, as you point out, despite the fact that the tariff revenue has gone up, it’s nowhere near enough to compensate for the vast tax cuts on the wealthiest people. So the budget deficit is increasing. That means that somebody’s got to buy all these bonds. Well, it turns out that the Federal Reserve has been creating the money to buy all of these bonds. In other words, foreigners aren’t buying them. Americans aren’t buying them. The Federal Reserve is simply monetizing the credit. It’s as if it’s modern monetary theory, except that the Fed is buying these bonds from the private banking sector.

RADHIKA DESAI: It’s buying them for the secondary market.

MICHAEL HUDSON: It’s not simply letting the government print the money so it doesn’t have to tax. I think that’s what we’re moving for.

RADHIKA DESAI: Just to clarify, because this is a very important point which may be lost: the Federal Reserve could easily buy the bonds at source, i.e. at their face value, when the government issues them directly from the government. But the Federal Reserve does not do that. It buys them on the secondary market, which means it props up the prices of these bonds. That means that if it wasn’t for the Federal Reserve’s intervention, bond prices would be very low. The bond market may even crash. So, this is what the Federal Reserve is trying to do.

Now, having made that clarification, let me just say a couple of other things about just how anti-voter, anti-working people Trump’s policies are.

The trade war that Trump is launching: we are still in the on-again, off-again phase. [In this chart] the blue bars are a sort of base scenario and then [the red bars are] if there is a major escalation, which is how badly the economies will do. Even if you just have the base level scenarios, what’s very clear is that the three economies that will suffer the most out of this are, yes, Mexico and Canada, but also the United States, which will suffer just as much as Canada. This is the prediction. Whereas, most of the rest of the world’s economies will not suffer as much. So, the United States and Trump, or rather, the Trump administration’s policies on tariffs are only inflicting harm on the ordinary US worker, the ordinary U.S. voter who has voted for him.

There is another thing that is very interesting to look at. This graph [relates to the fact that] the Trump administration’s tariff policy is premised on the idea that somehow the whole world is going to be really afraid because the U.S. is such an important consumer.

(We’ll ignore the exports chart because the U.S. is not such a big exporter anyway. The U.S. exports account for some 10.4% of the world’s exports, whereas the EU accounts for 14.3% and China for 17.5%.)

But look at the imports chart, which is what the tariffs are about. If the United States is a really big market for the rest of the world, then the rest of the world has much to fear. But what do we see here? This estimate puts it at some 15.9%… 16% of the total imports of the world are imports of the United States. This is not a small number, but it is not a very big number either. And it seems as though the Trump administration assumes that its hand is stronger than in fact it is. So what we are going to see is every time there is a tariff deal with any country, it always turns out that the United States ends up making a lot of concessions.

Here’s another really interesting chart which is worth looking at because even this statistic is actually going to get a lot worse (the statistic of the US importing nearly 16% of the world’s imports). Because all of this assumes that there is this US consumer, this legendary US consumer, that is going to consume what the whole world produces.

But what we see here is that after the pandemic, personal consumption expenditures have risen, but they have since, under the Trump administration, evened out. They are not rising as much anymore. You can’t see that.

And a very big chunk of that is non-discretionary spending, spending you have to do. And in the United States, a very big chunk of non-discretionary spending is spending on health. This is regarded as spending on services, but actually it’s spending that you’d rather not have to do, but you have to do anyway. And so this is going to eat up more and more of ordinary Americans’ incomes, which means they’re going to have less and less money to buy that TV, to buy that car, to buy that frock or to buy that shirt, etc. This is going to be a very important chart going forward.

The rest of the world is going to see that actually the American consumer is no longer as attractive a market as they used to be.

(Of course, another big chunk of this is rent. You know, you’ve got to pay your taxes, you’ve got to pay your rent, you’ve got to pay your healthcare expenses and so on.)

On the right-hand side, you also see that the bulk of the consumers, the middle 40% and bottom 40%, are not spending much more at all. So the big spending is done by the top 20% and even their spending is leveling off. So this idea that somehow the whole world loves the American consumer and is going to essentially concede everything to Trump’s threats… it’s not going to work because barring Canada and Mexico, the world is not so reliant on selling to the U.S. And quite frankly, selling to the U.S. is no longer as attractive, as powerful as it once was.

MICHAEL HUDSON: What your chart just showed is that because of the fact that discretionary spending can’t really increase without wages increasing as prices go up, the answer is the economy is being pushed further and further into debt as we’ve talked before. So the credit card arrears are rising, defaults on home mortgages are rising, arrears and defaults on automobile loans are rising. The whole population is becoming more and more indebted because as the prices go up and the wages don’t go up, something has to give.

And already the economy, for I’d say half the population at least, doesn’t have any savings at all, according to the Fed. They have no net worth. Their debts exceed the savings, and it’s actually negative net worth. They’re being squeezed, and they cannot increase their purchasing power.

But just to try to break even, they have to finance it by running it all up on a credit card. Well, despite all of this, the government’s flooding the economy by sort of monetizing the financial sector debt. The result of some of this, along with the tariffs, is to inflate and to make investors think, rightly or wrongly, that there’s going to be such a heavy price inflation and defaults in the United States that buying a Treasury security for 10 years or even 30 years, they’re not going to be very much worth anywhere near as much in 10 or 30 years.

Nouriel Roubini just came out, I think, last week, expecting interest rates to go up to 8% in the next year or two, by 2030. And at 8%, that’s going to cut bond prices and stock prices down to, well, they’ll lose it out two-thirds.

RADHIKA DESAI: In fact, it will lead to a stock market crash.

MICHAEL HUDSON: Yes. The crash won’t just be something that then you recover from and go on like last crashes. The fact is that this whole stock market run-up has been an artificially generated financial bubble to benefit the 1%. This is what the economy’s paid for ever since the Obama bailouts of 2008.

RADHIKA DESAI: If I may just add a small clarificatory point, which will help the listeners, artificially increased by easy monetary policy. And now that monetary policy is tightening, it’s going to go all into reverse.

MICHAEL HUDSON: That’s right. And the reverse is actually going to be a return to normal. It’s not going to be a reverse that you can then unreverse and go up again. This is it. The reverse is going to be wiping out so much wealth.

All this is taken into account with the artificial intelligence that’s already cut off employment. The reports in the last month are that new graduates from universities in the United States are facing heavy unemployment rates, especially for male graduates more than women graduates. And they can’t get jobs.

Roubini says that he expects a 70 to 80% unemployment rate in a few decades. Well, that seems to be a little bit crazy, but it means that the economy is facing not only a technological restructuring in what kind of jobs are people hired for and educated for to get the job, but the combination of the financial restructuring and disinflation, the disinflation of asset prices as opposed to consumer prices. Asset prices are up, consumer prices not so much. There’s no way that corporate profits can increase.

Where is our theory that we understood that the business interests are supposed to be running the government? Well, it turns out that under Trump, the business interests are not Wall Street, not the corporate sector, but Silicon Valley, the high-tech and Bitcoin interests, the financial interests.

RADHIKA DESAI: Sure. I mean, I think that what you’re saying is that there will, of course, be disinflation of asset prices, and that will be triggered by the rise in consumer prices, which will require the Federal Reserve to increase interest rates and so on.

It’s a separate question, even if nominal interest rates go to 8%, whether real interest rates are high or low will depend on how much inflation there still is. And I suspect that the way in which all this is going, inflation may remain high as well, so that you know, real interest rates may not have improved, but nevertheless, nominally high interest rates may easily reach 8%, there will be a bursting of the bubble.

You were mentioning, is this government still a government of the corporate capitalist class? And I would say, yes, it is. The problem is not that Trump is not doing the bidding of the corporate capitalist class, it is that today the situation has come to such a pass that no one can do anything that will improve the situation for the corporate capitalist class.

This is the problem. It’s a crisis in which the election of Trump is just a new chapter. It is not a resolution of the crisis, but just another unfolding, another chapter in the unfolding of the crisis.

We’re coming to the end of our program. I just wanted to maybe say a few things.

We’ve discussed all the main things I would say economically, particularly, that are bound to unglue, bound to detach Trump from his MAGA constituency. All the people who voted for him thinking that he was going to solve their problems are going to realize, they are already beginning to realize that they’ve been had, that something has gone seriously wrong, that what they desired, what they wished is not happening. On top of that, Trump has reneged on his promises of peace – why that is the case, well, that will be a subject of another show. Nevertheless, he has not improved the economy. In fact, if anything, he’s going to destroy the economy.

And on top of all that, we have the Epstein situation in which Trump seems to have gone back on his promise of releasing the Epstein files. He got elected by encouraging all these rumors and debate and theories about how the Democratic establishment was part of this big pedophile ring and so on. And now that he has a chance to actually expose it, he’s suddenly fighting shy.

Naturally, people are going to ask why. What is his stake in it? Was he part of it too? We know that he was a good friend of Jeffrey Epstein. And of course, finally, we have Elon Musk launching his new party, which is apparently polling rather well. Maybe, Michael, you want to say a few things in closing.

MICHAEL HUDSON: Well, the point that you just made a few minutes ago is the important point: that the economy is going down.

Many investors with hundreds of billions of dollars agree with you and me. And we know that because they’re selling stocks short. They believe that the economy is going to crash. And the result is volatility in the market. This volatility by buying short sales, arbitrage, guessing which way/squiggle are the prices of bonds going to go.

This has made immense profits for the New York banks. They’ve just declared their earnings. Their earnings are way up. Other bank earnings that are not making loans for stock speculation and bond speculation are not.

But there’s an enormous constituency out there that agrees with what you and I said. This can’t continue.

And the result is that someone must be losing when all of this volatility is going up. Some firm is going to go under.

Suppose you and I say, okay, we know there’s going to be a crash. Let’s sell the market short. Well, Keynes quipped half a century ago: the market can stay irrational longer than short sellers can stay solvent. And so you can be a premature pessimist. Somehow the economy always goes on longer than you can expect because, you could say, the whole quantitative easing bubble since the Obama bubble since 2008 has been a way of somehow turning the economy from an industrial productive economy into a Ponzi scheme.

In this Ponzi scheme, as long as the Federal Reserve and the government can pump enough more money into the economy to keep pushing up the spending on stocks and bonds, somehow there will be an illusion that the stock market and the gains of the wealthiest 10% are the gains for the whole economy, which is being indebted, defaulting, and torn apart. That’s the big dynamic at work.

All the rest is Trump’s trying to distract attention onto this by blaming immigrants, by blaming all the people that you’ve spoken about, and by essentially saying, well, I promised to close down the deep state, but it turns out, imagine my surprise when I found they were my main campaign contributors, and I’m one of them. I’m part of the deep state after all. So he’s pulled (or has tried to pull) the same trick on the American voting public, that he’s tried to pull on Putin, saying, yeah, I’m an honest broker. I’m on your side… when he’s not on their side at all.

RADHIKA DESAI: Michael, I didn’t quite get the point you were making, but let me just say that while of course stock markets can be irrational for a lot longer than short sellers can stay solvent, this situation does not just date from Obama. It goes back decades. It’s been brewing for decades.

Greenspan first made his appearance back in 1987. The Federal Reserve was engaged in low interest rate policies since the bursting of the dot-com bubble in 2000, although this was then interrupted by the need to raise interest rates in the face of the downward pressure on the dollar in the mid-2000s. And the increases in interest rates eventually pricked the bubble, and you got the 2008 crisis and so on. But nevertheless, this game has been going on for a very long time.

It’s not so much an Obama thing, it’s actually a Federal Reserve thing. It’s basically giving the reins of monetary policy, which is the only policy in town. There’s no fiscal policy to speak of anymore other than cutting taxes for rich people. You give the reins of monetary policy to the one institution that the big financial interests control almost entirely.

I think that a crash is probably more imminent than it looks and the US economy is already doing much worse than the statistics are showing us because these statistics are increasingly doctored as well.

If we have been competing to make it look like things are much worse, I think perhaps there’s a reason for that because it’s actually never been this bad for such a large part of the people.

I just want to say in closing, one final thing. A week or two ago, I did an interview with Jackson Hinkle of the MAGA communism fame. And it was very interesting because I expected that given my level of criticism of Trump that he would resist what I had to say. But he simply asked.

If you look, he’s published it on X. If you simply listen to the interview, it basically consists of him asking four relatively short questions and me answering them. So he did not counter what I said.

It really told me that, although I don’t really know Jackson Hinkle at all (I just responded to an interview request from him), it may be that people like him who had vested some hopes in the Trump administration are beginning to feel that they were had, that he has pulled a fast one on them.

This is a very sad situation for ordinary Americans. And unfortunately, without a robust left alternative, this situation is not going to be resolved. So we are going to see this [unclear] bouncing for a considerable while. So hopefully people will take the initiative and organize some kind of a realistic left alternative soon.

Thank you very much for listening. We are going to take a break during August, but we hope to be back in September. So looking forward to seeing you. Thanks very much. Please hit the like button, subscribe button, and please share also with other people that you think should be listening to this. Thank you and goodbye.

 

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