Connexion
The EU: There is nothing left, besides hatred of Russia. That is the only political message that they have, and they will keep on working it. The stakes now are so high and what is at stake is the physical, military and demographic survival of Europe itself.
What the EU is attempting is to inculcate a deep belief in the citizenry that their position over the past 500 years can be re-established and preserved against what looks to be the rise of China. If the leadership cannot tell that story, then it is over for them. The situation in Europe is dire. The people know it is not going well. That is why Kallas talks nonsense, as she has to rewrite world history to try and do this. The United States couldn’t care about the Europeans. The Europeans ‘ idea that the US could protect them is childishly silly.
We’re watching the death paroxysms of the European idea that they have something for the world. It is a sad reality.
Prof Wolff continues to talk about the shooting of little boats in the Caribbean.
Michael Hudson covers the failure of the tariff policy and the real on the ground results, developing into what resembles a domestic class war. “All we can see is the breakdown” … “The march forward into decline.”
Seun Foo
In a big update, China banks are making a move to reducing their balance sheet of dollar assets. Meanwhile, the US has a new plan to carve up Russia’s frozen reserves.
Interviewer: Nima from Dialogue Works
Professor Wolff describes the slavery of Europe. He states that the psychological insight is that the demonization of Russia is the displacement of the rage and anger against the United States. This cannot be expressed so it conflates or becomes conflated in the rage against Russia. The real oppression of Europe is now being carried out by Mr.Trump. Because of the relationship they (Europe) cannot say so. They cannot face it but in reality, they act out the slavery. They have to heap onto Russia all of the hostility that is felt from Trump, but cannot be discussed. It is projection and an evasion of the problem.
Why does US policy seem to actively harm its own business interests? In this deep dive, Dr. Warwick Powell dismantles the conventional wisdom. He argues that the root causes are hubris, a politics of nostalgia, and a fundamental shift in the nature of American capital. We explore why finance and tech capital are indifferent to industrial decline, the looming energy crisis that will cripple the AI boom, and why “re-industrialization” is a 30-year fantasy. This is a brutal but necessary reality check on the structural forces crippling the American economy.
Timestamps:
00:00 – The Central Question: Why Wreck the Business Ecosystem?
01:45 – The Three Poisons: Hubris, Nostalgia, & a Sense of Right
04:30 – Finance Capital Doesn’t Care: The Shift from Industrial to Fictitious Capital
08:15 – The AI Bubble: The Dot-Com Parallels & Lack of Business Models
12:40 – The Physical Bottleneck: Why the US Energy Grid Can’t Support AI
18:20 – The “Drill, Baby, Drill” Fallacy: The Shale Oil Reality Check
23:50 – Can the US Just Import Its Way Out? The Chinese Equipment Dilemma
27:10 – The 50-Year Unwind: How Financialization Killed US Industrial Capacity
33:45 – The Human Capital Crisis: Literacy, Numeracy, and the Lost Workforce
38:20 – Conclusion: There’s No Going Back, Only a Painful Forward Path
Key Takeaways: The driving forces are psychological and systemic: US policy is not irrational from the perspective of its dominant power centers. It’s driven by hubris, a misguided nostalgia for a 1950s industrial past, and an unchecked sense of righteousness. Finance capital is now dominant:
The US economy is run by finance capital (trading paper) and tech capital, not industrial capital. The disruptions to manufacturing are a “relatively minor” concern to them, as they profit from liquidity flows and stock market booms.
The AI bubble will burst: The current AI investment frenzy mirrors the dot-com bubble, with promises far outstripping viable business models and real-world applications. The focus on AGI or “AI-enabled TikTok” is not a foundation for a sustainable industrial base.
Energy is the Achilles’ heel: The US faces a 100-gigawatt energy deficit and its aging, fragmented grid cannot support both an AI boom and a manufacturing renaissance. This is a physical, not just financial, constraint.
Re-industrialization is a multi-decade fantasy: You cannot reverse 50 years of deindustrialization and skills erosion overnight. The US lacks the human capital (low literacy/numeracy, lost trades) and the physical infrastructure to rebuild a competitive industrial base in less than 20-30 years.
Call to Action: Was Dr. Powell’s analysis too pessimistic, or is it a necessary dose of reality? What do you think is the most significant bottleneck facing the US economy: energy, human capital, or political hubris?
The politics of nostalgia sets up for failure: Promising a return to a Fordist, single-earner industrial economy is a fantasy that mobilizes voters but guarantees massive disappointment. The only path forward is to embrace a new, technologically-driven industrial future, for which the US is currently unprepared.
Links & Resources:
Follow Dr. Warwick Powell’s work on Substack: https://warwickpowell.substack.com Watch his technical discussions on @TIOTalksWithWarwickPowell
As the trade war continues, Bessent is looking to pressure Japan to ditch Russian oil for US LNG. Meanwhile, France just got downgraded as Trump gets desperate for critical minerals from Australia.
(Seun deals with gold, so he has some ads).
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.
The US has already decided on nuclear war – Hudson.
NIMA ALKHORSHID: Hi everybody. Today is Thursday, September 18, 2025, and our friends Michael Hudson and Richard Wolff are back with us. Welcome back.
RICHARD WOLFF: Glad to be here.
NIMA ALKHORSHID: Michael, you told me that you watched my talk with Scott Ritter about the defense budget, and all of that. What’s your point on that?
MICHAEL HUDSON: Well, he picked up on my point that I’ve been making fifty years ago, that there’s a great difference between the balance of payments effect of America’s military spending and other countries.
Ever since the Korean War broke out in 1950, the entire balance of payments deficit for the United States, from the 50s, 60s, and the 70s, has been military spending abroad. The private sector trade and investment are exactly in balance over all these years. I published all of these statistics first for Arthur Andersen and then in my book Super Imperialism. And immediately, when my book Super Imperialism came out, Herman Kahn hired me for the Hudson Institute and said the largest buyers of the book were the State Department and the military — the CIA and the military. Immediately, the military gave a contract to the Hudson Institute for me to explain how going off the gold standard essentially enabled the United States to fund its balance-of-payments deficit, meaning its military spending abroad, by pumping dollars into the global economy and having these dollars end up in foreign central banks and be recycled.
Well, what that means is that America’s whole military spending for the last fifty years depends upon the dollarization system in other countries, using dollars as their monetary reserves in place of gold, and instead of their own currencies. That means that, as they move away from the dollars, there’s no way that the United States can finance its eight hundred military bases abroad and its military spending. Russia doesn’t have this problem. The military generals don’t study the balance of payments. And many of them are right-wingers that have a sort of crude monetarist Chicago School neoliberal view of money, without understanding that money is debt. And, specifically, monetary reserves are not only America’s treasury debt, but the monetization of America’s military spending.
Now, what Scott pointed out is that Russia doesn’t have this problem. China doesn’t have this problem because they’re not trying to create a foreign empire. They’re not trying to put military bases in other countries where they have to somehow spend their domestic currency, and buying local currencies, to do whatever military operations do there. So they don’t have the constraints that the United States have. And that’s what’s essentially leading the United States to say: we’re not only at war with Russia and China militarily, we’re at war with them financially. We don’t want the BRICS — China, Russia, Iran, and their other countries — to have an alternative of not using the dollar so that the dollars that we spend abroad for all these military operations are going to be somehow recycled to the United States.
That’s why you’re having Trump try to browbeat India, Japan, Korea, and Europe into somehow promising to recycle all the dollars to the United States. Why is he doing this? It’s not simply to pay tariffs so that the Treasury will have more money and can cut taxes on the wealthy even more. It’s so that the dollar will not be forced down so that there will be a huge inflow to support the dollar, basically, despite Trump’s hope of devaluing the dollar slightly, slowly downwards — as if that’s going to make American exports more competitive. The whole fight over the dollar isn’t really about U.S. exports being more competitive because the United States doesn’t have much industry to export. It’s really about the balance of payments, which is primarily military in character — not the trade deficit, not the investment deficit.
The government used to realize that. But again, Trump and his team just think of sort of running a protection racket: Either you spend your money to the United States — $350 billion from you, Japan, you promise to send here to invest — another $350 billion from you, Korea — or we’re just going to raise tariffs and deny you the U.S. market. The American strategy — and it’s a military strategy as well as an economic strategy — imagines that other countries need the American market, and they don’t have a choice but to support the dollar, and by supporting the dollar, supporting America’s ability to wage war and have military operations abroad.
They don’t realize that this is the whole thing. And yet this protection racket has essentially overplayed its hand. And last week, Korea said: Wait a minute. You just told Japan to pay you $350 billion, and you get all the profits from what they spend in — you get 90% of the profits and give us 10% — if there are any profits at all, you know, from the way you arrange it with your Hollywood-Pentagon bookkeeping.
You need America’s market; we can deny it, and that’s chaos for you.
Well, it’s not really chaos. They tried the same thing with China last week, and China protested and said — I’m sorry, they tried it with Korea last week — Korea protested and they said: We’re not Japan. We don’t have $350 billion. We’re much smaller. And you’re blocking our automobile exports from the U.S. market. We just can’t pay.
And then, Howard Lutnick, the Commerce Secretary, said: The Koreans either accept the deal, or pay the tariffs. Black and white: pay the tariffs, or accept the deal.
Well, yesterday, Korea’s foreign minister went to China. And there’s not a word in the paper about what they’re discussing. But you can just imagine. Korea realizes that Trump is going to insist: We need your money to continue our military spending abroad and to finance our budget deficit. We’re going to close the market to you. And Korea finally is saying, well — for Hyundai and for Samsung, all of its computer industries — what if we don’t have the U.S. market? Do we have a Plan B? And I suspect they’re talking about China. And they’re talking to China. And they’re saying, well, you know, if we walk away from the U.S. market, we’ll walk away from that factory in Georgia. Obviously, there’s such a reaction in Korea that we can’t afford it. If we walk away, can you figure out a way that we can work our industrial capacity in partnership with you as part of your Chinese new prosperity sphere?
And by the way, if we do that, will you help back us up when we tell the Americans to leave their military bases here? We don’t want their military bases if they’re going to hold us up and essentially declare: We’re treating you like a defeated power. Like we defeated you in 1951. There’s never really been an end to the Korean War. We’re still fighting you, just like we’re still fighting World War II against Japan. You don’t have a choice.
If Korea and Japan, and India all make a choice to say, well, we cannot afford access to the U.S. market on these terms. We can use the $350 billion — or Japan can use the same amount — we can use that $350 billion to subsidize our own industry and keep our employment and support our workforce, while we transition radical change, from orienting our trade with the United States and Europe, to orienting it with our new Asian partners.
That’s what it all is. And that commercial balance-of-payments consideration is a fundamental military consideration at the root. And that’s what really frightens the United States. It was the Vietnam War that forced the United States off gold in 1971. Its spending in Vietnam depleted the gold stock by spending so many dollars abroad that General de Gaulle, in France, and Germany, just cashed them in for gold. And America finally just stopped the drain.
Well, now it’s other countries that are preventing the United States from solving this drain problem by saying we’re not going to accept any dollars that are just the monetization of your military spending to surround us with military bases. We’re going to stop the financial bloodstream that’s funding your whole new Cold War. And this goes beyond the investment in missiles and the investment in boats. Other countries are not going to fight a war by invading any other country. And America cannot control another country, not even Ukraine, without troops invading it. And the cost of a military invasion, an infantry invasion, is very different from the domestic cost of sending missiles. China and Russia, Iran have no intention or ability to mount an army to send into other countries. All they have is missiles, basically. And that’s what the next few years of war are going to be all about.
NIMA ALKHORSHID: Yeah. Go ahead, Richard.
RICHARD WOLFF: Okay, another way of saying this is that the United States cannot afford the empire. The problem is, it can’t do it. In the early decades after World War II, the balance of payments — correct me if I’m wrong, Michael — saw export surplus from the United States, generating the capital and the money with which then to finance the seven or eight hundred bases around the world. And so you had the rest of the world dependent on exports from the United States, having to pay for them in the money that was then used to subordinate them militarily to keep this game going.
By the 1970s, this game was over because the Germans, the Japanese, and the Europeans had recovered from the war, as we knew they would. That’s what they were doing in the decades from 1945 to 1975. In that thirty-year period, the United States lost its preeminent position in the world economy as an exporter. It would either have had to stop because it could no longer finance its military adventures abroad by its export surplus, or it would have had to do what Michael so nicely described. It would have to have found another way, another way, and the dollarization making all oil contracts denominated in dollars — and hyping the threat of the Soviet Union, which the Europeans are copying today because they don’t know any other politics — this enabled them to then create the deficit program. They would make the United States a net importer, switch its own production out of the country, no longer needing these exports, no longer being able to afford them (they weren’t profitable enough to produce in the United States), and you replaced all the workers, either with machinery and with automation, or by exporting the jobs.
So, your end result was the story Michael just told. You could continue to finance your global military adventures, but now you finance them by means of imposing, if you like, on the world the need to hold reserves for their currency because the agreed relationship among currencies was gone. That’s what we had coming out of the Bretton Woods, and that’s what we ended when Nixon took us off the gold standard in 1971. So then, you have Michael’s story.
But let me do something we don’t do enough of. Let me tell you a little bit on this program about the limits to all of this. In order to sustain, now, when you have no exports and when the ability of the United States to import is shrinking every day, because the mass of our people is simply too poor — I mean, the statistic came out this week that the top 10% (if I have it right), the top 10% of the income distribution accounts for 50% of the consumer demand in our society. Alright, that’s another way of saying that the bottom 90% are piss poor. They can’t afford anything. Right?
Well, given that we depend on imports, that’s not a good basis for the future. We’re not running; we’re not going to be able to run the kinds of deficits that we used to. That’s my guess, at this point. Alright, what then is going to sustain the story Michael told? How are we going to pay for all of those bases? We don’t have the exports to do it, and we’re not running the kinds of deficits, nor is the rest of the world eager to accumulate dollars in the way that they were before — and that was true before BRICS became important. The decline of the dollar as a reserve currency is at least thirty years old. The Chinese once had $1.2 trillion. They have $750 billion. I know these are big numbers, but that’s a big decline. It’s not surprising, but it’s a big decline.
So for me, I’m beginning to wonder, how long can you keep this up? And when you add the degree to which military payments in this country are a Keynesian support of aggregate demand in our society, then you see he can’t afford a military, but he can’t afford not to have the military. And I suspect that’s the reason why Mr. Trump, who comes into office promising to stop the endless wars, has neither stopped them, nor has he been able to avoid proliferating more war. He attacked Iran, and he’s busily now provoking Venezuela, and taking extraordinary steps to do it. And giving carte blanche to Mr. [Benjamin] Netanyahu is extraordinary.
You know, we wonder, why would the government do these extraordinary things? And in a way, Michael’s story gives the beginning of an answer: that there’s more going on here than macro-management. That’s important. And there’s more going on than the balance of payments. That’s important. There’s also managing the military — the budget and the activity — when you’re so badly out of whack, you can’t beat the Russians in Ukraine. That’s what’s obvious. It’s obvious to the whole world. They can’t let go. What’s the matter here? Even in Vietnam, they understood: we’ve been defeated. And the Americans withdrew, and the Communist Party of Vietnam took over, and has remained the government ever since. That’s thirty-five years ago, right? That is extraordinary. What is it now? Maybe more than that. Fifty years ago.
Then they were defeated in Afghanistan, and they withdrew. Mr. Biden, in the end, did what the previous presidents couldn’t dare do, which is to say: this is hopeless. And so they’re losing. You know, Harper’s Magazine just came out this last week, and on the front page is the lead story of the magazine, which — here’s the title: Why does the American Military Keep Losing All the Wars? Wow, you’re now even able to ask, in a public way, the forbidden question. And if the rest of the world is worried about the United States economically, we have to remember it was also worried about it militarily, and that danger is receding, as we see what’s going on in the world. The desperation inside the United States, the fascistic turn that we are assaulted with every day is a reflection of all of these dead ends confronting the people who run this system.
MICHAEL HUDSON: Richard, there’s a common denominator that links the dynamics you’ve just meant, and that’s oil and foreign investment in oil. Much of the build-up of the reason that there was a gold inflow to the United States from 1945 to 1950 when the Korea War broke out was not simply U.S. exports, it was the sale of oil by the American oil industry that was in control of the world’s oil. And for the last hundred years — and I’ve made this point before on our show, Nima — the cornerstone of America’s control of money, and the balance of payments and military coercion, has been oil, along with food and agriculture, because if you have the ability to monopolize oil, you have the ability to cut off other countries’ industrial potential — just like depriving Germany and Europe of Russian oil and gas has ended Germany’s and Europe’s industrial potential.
Now, that explains a number of things that you’ve seen recently. Not only has America continued to do everything that it can to isolate foreign purchases of Russian oil — the same thing with Iranian oil, it’s tightened all of the sanctions against it. And the reason that Iran was overthrown in [1953] was largely because it wanted to nationalize the oil and the Americans and British together — it was a British-Iranian oil company at that time — felt they were losing control of the oil leverage.
Well, fast forward to today, you’re seeing in the nightly news, every night here has been taking off with Venezuela. Why Venezuela? It’s not really drugs. Just like Israel claims that all Palestinians are Hamas, the United States claims that all Venezuelans — their fishermen, their population — are drug dealers. Well, the reason that the news leads off with blowing up a fishing boat every night, or another boat that has no seeming connection to drug dealing at all, is the United States is trying to create a narrative that this fight against Venezuela is a fight against drugs.
It’s a fight not only to regain control of Venezuelan oil, but, more specifically, to prevent China’s recent negotiations with Venezuela to invest in developing Venezuela’s enormous oil reserves under Lake Maracaibo. And imagine what the United States is worried about. Not only is China making itself independent of America’s allies’ supply and control of the oil industry from Russia, but now China can get its oil from Venezuela itself; and the fight in the Middle East, using the alliance of Israel with the Wahhabi jihadists, to create a disaster, there is to prepare the war for controlling Iraqi, Syrian, and, most of all, Iranian oil.
The United States still dreams of reestablishing its diplomatic, economic, political, and military control of other countries by controlling oil and food — that’s the other basic means of control: that America can impose sanctions on its food exports to starve other countries into submission to its policy, as it tried to do against Mao after the 1945 revolution, until Canada broke the blockade.
Well, right now, you’re seeing China voluntarily shift its imports for soybeans away from the United States to Brazil, to buy its soybeans there. And China has, until this year, accounted for 50% of all soybean production in the United States — and it’s 70% of soybean production in the case of North Dakota. All of a sudden, there’s zero demand from China for soybeans. And yet you have a perfect storm for American agriculture. You have the corn and soybean crop — a bumper crop this year because of the extreme weather — all of this crop is piling up. There’s nowhere to sell it. They don’t have enough storage capacity to put the soybeans and corn in silos. There’s a huge market now in big plastic bags to begin storing them in. This is a disaster, and the farmers are pressuring Trump to say, you know, you’ve got to be able to reestablish our market next year. We’ve been dependent on soybeans, and what can we shift to? We can’t shift to corn. People are not buying our agricultural exports anymore.
So not only has America lost its ability to use food, like it’s used oil, to starve other countries, denying them American exports, but it’s lost its agricultural sector. And the result is that land prices are collapsing in North Dakota and other areas. They’re falling because the farmers are not able to meet their debts. For the last 150 years, all of the financial crises in America, Europe, and the Northern Hemisphere have occurred in the autumn, in September and October. And there’s a reason for that. It was called the autumnal drain. It’s when farmers would have to borrow the money to move the crops to sell them for markets. Well, right now, that autumnal drain threatened to lead to a break in the chain of payments. Insolvencies, arrears, bankruptcies, and foreclosures, that’s what they’re talking about now in the American Northwest and Midwest: foreclosures on agricultural land that doesn’t have a customer. And there’s nothing that Trump can do about this now because the shift is irreversible.
Now that China is making a deal with Brazil, saying we cannot rely on America’s soybean exports any longer because Trump has weaponized every element of foreign trade. He’s weaponized the oil trade. He’s weaponized the agricultural food trade to try to make other countries dependent enough to shake them down for his protection racket. Well, we don’t need the American market. Thank heavens we have you in Brazil! So, the Brazilian farmers are reorganizing, replanting their agriculture, to shift into soybeans. Once they do this, if Trump goes back and tells China, okay, you know, you can depend on us again for our soybean exports, China is going to say, well, wait a minute, we’re not going to double-cross Brazil, where we’ve just made an agreement to trade with them and to trade in our own currency, not trade in dollars, but trade in our currency. Once we’ve made this shift, and the whole national economy (Brazil) has been shifting to dependence on our market, we’re not going to turn on a dime, like you do in the United States, and just say, okay, we’re going to change and have a new market.
A change is irreversible. You can imagine how the threat of America losing the ability to use food — soybeans, grain, wheat — and oil because of the moves by China and other countries to become alternative suppliers to the United States means that America’s lost the two leading elements, not only of its exports, but of foreign investments in oil and farmland that American investors have controlled. They’ve lost the ability to support the dollar. And by not supporting the dollar, it means not providing the foreign exchange that the United States needs in order to maintain its military presence abroad, that remains as heavy a drain today as it was during the Vietnam War that forced the dollar off gold to begin with.
So, when you put the military strategy and imperial strategy in the context of the balance of payments, you find the great constraint that confronts the United States. And that’s what my book Super Imperialism was all about. And as I said, the major audience was not foreign readers wanting to fight against imperialism. It was the Defense Department, State Department, and CIA that used it as a how-to-do-it book: this is how you have to look at the context of America’s military and non-military diplomacy.
NIMA ALKHORSHID: Richard, before going to your comment, one other aspect of what Michael said is Donald Trump imposing tariffs on steel and aluminum that raise industrial costs, destroy jobs, and weaken America’s manufacturing capabilities.
RICHARD WOLFF: Yes, and that’s a perfect segue. I want to take us to a slightly different aspect of this problem. It has now become clear, with each passing day — and Michael has given us the context — what the purpose is, on the one hand, of raising tariffs and, on the other hand, of using them as bargaining chips to get other countries to agree to invest money in the United States.
For example, in the last two or three days, there has been a flurry of statements coming out of England because Trump is visiting England, Britain, and big boasting of huge amounts of money — hundreds of billions of dollars that the British are going to invest in the United States, and vice versa — okay, a very interesting story. But let’s take a look at what the reality is. Number one: The purpose of the tariffs was to do something that now the country is desperate to do. I want to underscore this because I don’t think it’s very well understood: We are watching a Republican president leading a Republican party that, for a hundred years, has been the carrier of the notion that taxing is bad and the government shouldn’t tax anybody, that we are in favor of private enterprise, not state enterprise, and the government should not — blah, blah, blah, blah. And what is he doing? Imposing an enormous tax on the American economy. That’s what tariffs are: they are a tax.
So, we should wonder what would make ideologically driven conservative business people who hate to pay taxes, who have been supporting the Republican Party for a century to keep their taxes down, and have had that work well for them — why would they suddenly reverse everything and impose an enormous tax? Answer: they’re desperate. They have no other way to go. Their borrowing is out of control — let’s remember, in 1970, the total debts of the United States were a few hundred billion dollars. Today, it’s $37 trillion. That’s an increase that dwarfs production and prices — nothing goes like that. We have borrowed crazy. Why? Because we had already reached difficulties, that meant the government, to finance itself, couldn’t tax the rich who controlled politics and wouldn’t permit it, and had pushed the tax burden onto the mass of people so much that by the 60s and 70s we had tax revolts: that’s what they were called — in California, all over the United States.
And then began the solution. When the politicians cannot dare tax their donors, and can no longer tax the people, what do they do? They borrow, as if it were a magic alternative. And who do they borrow from? The corporations and the rich who lend the government the money they did not have to pay in taxes. This is “Schweinerei,” the Germans would say. This is pure fakery.
But now we get to where we are today. We’ve borrowed so much playing this absurd game. We got the rest of the world to get in on this, holding their wealth in the form of U.S. treasuries, and so on, that we have gotten to the point which was already reached under the short tenure of Elizabeth Truss in England, where the capital markets say: We’re not lending to you anymore. You’re not a reliable borrower. You have gone so far in your borrowing that we can see you’re getting close to that political point where your own people will not allow their taxes to be used to pay interest on debt, rather than to feed their children. And in that game, it’s the creditor who loses. We don’t want to lose.
Alright, so what is the U.S. going to do? Tariff. It will, in fact, put a tax; it’ll put it on businesses — because most of the tariffs are paid by businesses that import into the United States — and they will say to those businesses: It’s your job, you have to pay for this. It’s your job to figure out whether you can squeeze the foreigners to lower their price to offset the tariff, or you squeeze the American consumer via inflation, and solve the problem that way. But we, the government, are no longer squeezing the masses. You (irony: you, the business community), are doing it through inflation. That’s the effort.
Now you understand why Mr. Trump is eager to do the tariffs, but because they are resisted and because they are not generating anywhere near enough money to deal with this problem, he has the second half of it: He’ll bargain away the tariff that wasn’t doing the job anyway if you promise to move capital into the United States. Hence, Michael is quite right. It’s a protection racket: You have to help us because we are a flailing, declining empire, and the only way we can continue to protect you — that’s what they say to the Europeans — you’ve got to help us. You’ve got to give us all this money.
Keir Starmer, yesterday, in a spectacle as pathetic as any I’ve ever seen, boasts that the United States has committed to investing [$]150, or maybe even [$]250 — it’s a little fuzzy, [the] numbers — of money over the next ten years in Britain. And he says with real pride: it’s going to produce, we hope, 7,900 jobs.
So, I looked at the statistics. What’s the job story in England between August of 2024 and August of this year? They lost 127,000 jobs. He’s boasting of something that can’t offset even 10% of the decline of the British Empire — and it’s coming over ten years! That’s an admission of failure that’s been dressed up as an achievement.
Last point. If the rest of the world — to quote Michael — is being charged an entrance fee to sell their stuff in the United States — and that’s what a tariff is, you got to pay this if you’re going to sell stuff in the United States — that’s hurting the exporters around the world because their market is going to shrink. That’s elementary. They’re screaming bloody murder to their governments, who are therefore desperate to give them something to support this craziness that’s hurting them. And what do they give them? They give them these announcements: The United States will invest, if we invest in the United States. And that’s the bigger story. Suppose that works? Suppose that these leaders in Europe and beyond do, in fact, deliver hundreds of billions of dollars of capital investment in the United States? Frankly, I don’t see it. I see the United States becoming less attractive as a place to make investments, with [the passing of] each day.
But let’s assume I’m wrong; the money comes. Then, in those countries, austerity is already being imposed on the people in every one of the European countries. Now, only the rate of doing that is different, not the phenomenon. In that country, it will be possible for the radical left opposition — and for that matter, perhaps also the right opposition — to say what we would say here: We have leaders who have arranged that the money that might have been invested to create jobs in our country has, instead, been shipped over to that other country. And why? Because it has been smacking us with tariffs.
This is impossible. You will not survive politically when that is the program that you are effectively running.
MICHAEL HUDSON: Well, Richard, let me give a particular example of the point that you just made that ties that together. I think an example can sort of walk the audience through. Your first point was the tariffs are a tax on consumers. Quite right. Well, what does America import that affects the farmers? Let’s go back to the farm example, because that’s where everything converges, more or less. America imports an enormous amount of fertilizer, including from Russia, but it also imports farm machinery. And one of the problems is that the collapse of the soybean market means a collapse of the income and the ability to buy new farm machinery for companies, like John Deere and Company — that has just laid off, I think, over 1,000 or 2,000 workers because the farmers don’t have enough money to buy new harvesting equipment. They’re trying to buy old harvesting equipment.
Much of this harvesting equipment is not only produced here by John Deere, but it’s produced in Germany. And America also imports harvesting equipment from Deere’s rival companies, also in Germany. Well, all of a sudden, they find their costs are going way up, as a result of the inability to get energy and steel. So, they are exporting, trying to supply the market here with the products that they produce in Germany.
And imagine the surprise that these companies suddenly have, that are saying this is a threat to their making any profits at all this year on their imports, because not only is the United States charging the 15% tariff on imports from Europe, but it’s saying you are liable for the 50% tariffs because you’re making your machinery out of steel, and out of aluminum — and we’re trying to support the American steel industry, and the aluminum industry, because that’s the only labor union that I can get that actually is going along with my pretense that my policies for the wealthiest 10% are really the policies for labor. I need to make a narrative symbolic act. And so, my symbolic act is going to sacrifice an all-American industry that makes its products out of steel and aluminum.
Well, you can imagine what this crazy political ploy has done. It means that Deere and Company, and other German exporters, all of a sudden, find that when they’re trying to provide the harvesting equipment that American agriculture needs, all of a sudden, the price has gone way, way up. And you pointed out, well, can they get around this by investing in the United States? Well, if they invest in the United States, they’re still going to have to import many of the parts that they use from other countries, because America doesn’t have the supply chain that’s necessary for all of the different things that go into harvesting equipment, just like automobiles. All of that, these tariffs have stifled the profitability of imports by companies, by raising the price so high that, as you say, either the companies absorb the cost, in which case they don’t make profits, and yet having a corporation is all about making a profit.
So, there’s a limit to what you can do. They’ll just stop producing, as Deere has stopped producing in some of its plants; or they pass it on to consumers, and the consumers are squeezed. The farmers are squeezed because not only is farm income going way down, as a result of Trump’s crazy weaponization of agricultural exports — when there is an alternative now that did not exist in the 1940s — but they’re broke and they can’t afford to borrow from the banks because the banks say: Well, you know, what are you going to pledge as collateral? Your collateral is your farmland, and the farmland prices are going down, and you’re already fully mortgaged.
By the way, Treasury Secretary [Scott] Bessent earns $1 million a year in rent for one of his landed properties in North Dakota, that’s used largely for producing all of this. This was accused of being a conflict of interest by Congress, and he has to sell this land by mid-December into a collapsing market. Well, you can imagine how happy he is. At least the Federal Reserve cut its interest rates the other day.
And the newspapers all said: Gee, with interest rates going down half a percent, that’s going to lower the mortgage rates for housing and for equipment purchases. But that’s a fantasy. Short-term rates went down yesterday — yes, by a quarter percent — long-term rates went up, because they said this is going to be inflationary. For the short term, you could lower the interest rates, but we’re not going to buy long-term bonds because living in the short run is going to lead to a huge inflation, just as you described, Richard — the inflation from cutting taxes on the rich, and stifling the rest of the economy by tariffs, and all of the other things that Trump’s doing — ending government support of all of the social programs and the medical programs and the educational programs that it’s been doing. You’re finding the American economy is turning into something just like you’ve described in the German and European economies. It’s almost economic suicide, except they don’t know that it’s suicide. There’s a narrative that’s being created of junk economics that pretends that all of this is going to work out. And it’s a cover story, trying to cover up the actual dynamics at work, which we’ve been talking about for the last hour.
RICHARD WOLFF: I also think — you know, I don’t want to over-push it, but I do think that there is a self-delusion going on here — that the top 10% of the people play the stock market, they own the most of the shares, they are the CEOs, they’re related to them, and all of that; and for them, they hold on to a lot of their wealth. It’s the other 90%. And that’s why you get more and more of that old notion of a split economy, you know, that 10% of us live in a world of fancy restaurants and plenty of food, and all the rest; and the rest of us are the ones that are traumatized every time we go to the grocery store by what we can no longer afford.
Here’s a statistic to think about. Compared to the year 2020 — so five years ago — the price of beef in the United States has risen by more than 50%. You know, hamburgers are like a basic part of an American diet, at least for those people who can afford meat. Think about what it means that the cost of the hamburger has gone up 50%, more or less, since the year 2020. You’re seeing a division, which explains our politics, but it’s a division that I don’t think is sustainable — neither by the ideology here, which keeps promising that this situation will continue, even though the foundation of it, as we’re trying to show, is harder and harder. And I see some of these policies as a kind of wild Trump-type — if I can use the football metaphor — of the Hail Mary pass. You’re going to attack Iran? Maybe you can win. Maybe Iran disappears. Maybe the West can snatch all of the oil in Iran — and blah, blah. Until the Russians point out, you know, we have a deal with the Iranians. If you really come here, we’re going to have to fight with you. And one thing we can assure you, you’ll never get that oil.
What do we do?
Well, we go and fight against Mr. [Nicolas] Maduro, who can’t defend himself, at least not in the conventional sense. And we keep provoking, you know. We become judge, jury, and executioner of the hapless Venezuelans who take a boat ride 1,000 miles from the United States and get incinerated, with the whole thing being handled by the President — with no evidence at all that these people were doing something illegal for which even the punishment isn’t execution, and yet they were executed for the crime for which that’s not the punishment that’s legally — I mean, okay, these are fairly desperate acts.
And hoping that the Israelis will somehow be able to pull the rabbit out of the hat of the Middle East and become an acceptable dominant power? Really, you have got to believe in lots of magic to line up your policies in that way.
MICHAEL HUDSON: You mentioned how the American economy is being squeezed by these, and a desperate thing. Part of the desperation is when you cut your policies into segments and not look at the interactions. One of the big factors in rising prices that Americans have to pay, in addition to the food that you’ve just mentioned, and the hamburgers, is electricity. And that’s gone way up, largely because Trump is pandering to his MAGA crazies, who insist that there’s no such thing as global warming. So again, Trump said: If we’re going to put all of our faith in controlling the world of the oil industry, I’m going to support the oil industry, and my MAGA base, by saying, stop all of the investment that we’re doing in wind power and solar power. So, he’s withdrawn the American government support for wind power, which had been increasing it, and he’s also ending the support for solar power because China has a great scientific advantage in producing solar power.
And the result is that opposing — global warming is a big factor in disrupting the economy, but also Trump’s support for trying to increase the artificial intelligence monopoly is projected as being largely responsible for an enormous increase in electrical usage. This is going to raise electrical prices. And already, the electric utilities in this country are raising their prices because one of the Trump policies — to please his 1% constituents, which we didn’t mention — is the electric subsidies that he’s been giving. It costs basically ten years to go through all of the public filings that you have to do, in order to get a new electric utility built to supply the energy for not only the rising computer and artificial intelligence industry, but for just the normal growth in electric utility, that’s especially coming from air conditioning to cope with global warming that’s increasing because Trump has withdrawn from the Paris Agreement and all the other agreements to try to stop global warming. Everything he’s doing is to exacerbate the cost-squeeze and the shortfall of things we need.
Well, electricity doesn’t play much of a role in the Consumer Price Index. Neither does rent: that’s not much in the Consumer Price Index. Or health care. All these things that are squeezing the budgets of the Americans that you just described are excluded from the statistics that the government’s talking about — thinking if you just don’t describe them, maybe we can convince people of our cover story.
And it’s as much of a fantasy as the American hot war against Russia, saying, well, we’re really winning in Ukraine because Russia’s economy is falling apart. It’s not falling apart because it’s a self-sufficient economy. It produces all of its own needs, instead of becoming import-dependent, thanks largely to the American sanctions that it’s imposed. By imposing sanctions on the rest of the world, America has enabled other countries to respond out of the need to become independent of the U.S. market.
So Trump has essentially created a situation where the rest of the world is independent. And as Trump copes with this, by making even more demands that are unrealizable in practice, the more he’s isolating the American and European NATO countries and their allies from the whole rest of the world. So, we’re seeing all of the convergence of all of these bad policies to support special interests — to support the oil industry, to support Wall Street, to support the banking industry, to support labor unions that support Trump — all of this is basically falling apart. And it’s causing the American economy to fall apart, slowly — a slow crash, but a crash that cannot be reversed without a radical change, not only in the economy, but in the whole Constitution, and the whole way in which the legal system and political system are responsible for this mess.
RICHARD WOLFF: And last irony: As you can no longer blame the immigrants — since you’ve effectively stopped the inflow and reversed it to an outflow — you must find a new comparable scapegoat. And if you watch the internal closing-down of criticism that extends even to late-night comedians, you can see that building up the domestic left becomes the new scapegoat to justify why all of those things done by ICE to the immigrants didn’t work. There’s no huge resurgence of investment here. Not at all. There’s no resurgence of manufacturing. Not at all. It’s all smoke and mirrors and scapegoating, because that’s the sum total of where his first eight months have gotten him.
NIMA ALKHORSHID: Yeah. Thank you so much, Richard and Michael, for being with us today. Great pleasure, as always.
RICHARD WOLFF: Talk to you again next week.
NIMA ALKHORSHID: Yeah, thank you.
[Note: Very recently we received this quote from Michael Hudson: “Latin America’s movements for political independence and the abolition of slavery were sidetracked into one of the great tragedies of modern history. Slavery was indeed replaced, but was replaced by debt peonage on a national level, leading to impoverishment, underdevelopment, and a pattern of trade and debt dependency involving a loss of economic sovereignty – all of which still continue today.”
This history tells one of the stories.]
The deuda (“debt” in Spanish) is one of the most persistent elements in the two centuries of Argentina’s history. It has conditioned the political life and the economy of the country like no other factor, for generations.
But this should not be confused with just any debt. The word deuda normally refers to the external debt (both public and private), a debt owed to foreign creditors.
Historically, the key aspect of the deuda is that it is based on a foreign currency, the world trade currency controlled by the ruling empire. It was once the British pound. Since 1944 it has largely been the US dollar.
The United States can “print” dollars (and the Federal Reserve does so regularly), but Argentina cannot. The same is true of other countries in the Global South with large external debts denominated in foreign currencies.
There are only two ways for these nations to get dollars: exporting and borrowing.
But there are also multiple ways to reduce the need for dollars by reducing imports or increasing the value of exports. For example, instead of relying on a rent economy based on the export of cheap commodities with a low value added (the model adopted by many former colonies rich in natural resources), a country can develop its own industry and reduce its dependency on expensive imported goods, especially advanced technologies or fashionable consumer products.
If a nation excels in some sectors of the economy, it may be able to export more, improving its balance of payments.
In a more advanced stage, a country may even dare to associate with its friends and neighbors, creating a regional bloc in which they trade using their own currencies and rules, or a barter system, circumventing the US dollar.
All these common-sense policies may sound like nothing special for sovereign nations, yet they are a mirage in semi-colonial countries like Argentina.
As Argentine as the tango and mate, the deuda affects the everyday life of everyone: inflation, salaries, employment, public services, elections. Everything.
And yet its technical and historical intricacies make the deuda a daunting topic, perfect to keep millions in the dark and bureaucrats safe, while instigating an eternal battle of the have-nots.
The deuda doesn’t just relate to the way Argentines think about the economy. In some cases, it contributes to shaping their opinions about history, culture, media, race, and class. It almost always defines their vote as well.
Argentina has defaulted on its debt eight times. It even made history with the world’s biggest ever default ($95 billion in 2001) and largest ever loan ($57 billion in 2018) from the US-controlled International Monetary Fund, making it a privileged case study.
How could this happen? A first hint could be that a man who bears heavy responsibility for some of these negative world records, neoliberal guru and Harvard doctor in economics Domingo Cavallo – who directed Argentina’s central bank during the last dictatorship and served as economic minister in the 1990s – was lavished with years of praise, given rewards by international institutions, and heroized in the US media as a kind of semi-god.
It is no coincidence that Argentina also has the dubious distinction of boasting one of the Earth’s highest ratios of “free market” think tanks to the population.
The reality is that Argentina’s ruling class has not changed much in the last 200 years. So let’s start from the beginning.
This is a brief history of Argentina’s debt, and the neocolonial relationships that dictate it.
In 1824, only eight years after the declaration of independence from the Spanish empire, the union of provinces that would eventually become the Argentine Republic obtained a loan of £1 million pounds (a whopping £110 billion today, according to the Bank of England) from Barings Bank, a British private bank that also had lent money to the US government.
The loan, denominated in pound sterling, was supposedly destined to fund the port of Buenos Aires and build new infrastructure. Instead, it quickly evaporated in a war with Brazil (from 1825 to 1828), which was militarily supported by the British, who helped block the port of Buenos Aires for three years – cutting off Argentina from its only source of foreign currency.
Corruption and betrayal played a key role in making the 1824 loan possible. The delegation that represented Argentina in London was made up of British and Argentine traders and financiers who offered the entire State of Buenos Aires as collateral: all its assets, lands, and rents.
Of the original £1 million loan, Argentina only received £570,000, while the enormous remaining sum was lost in commissions and other fees, mostly to pay the negotiators.
Less than 20% of the money delivered was in gold coins; the rest was in paper notes.
By 1827, Argentina was already unable to service its debt obligations and entered its first default. Two frigates belonging to Buenos Aires that were under construction in England were seized by the bank, weakening Argentina’s naval defense.
A few years later, Argentina had no deterrent that could stop the British empire from occupying the Falklands, extending its power projection to Antarctica. These islands (officially known as the Malvinas) remain colonized by the United Kingdom to this day.
Argentina subsequently defaulted twice in the 19th century, and had to emit new bonds to keep paying the growing interest.
It was only in 1904 that Argentina’s original debt was formally repaid. It had taken 80 years, more than three generations, and had cost about eight times the original value.
This simplified account of Argentina’s first experience with a neocolonial debt trap only scratches the surface of a scam that inspired the more sophisticated schemes developed in the two centuries that followed.
Today’s practice of trapping former colonies in unpayable debts is the result of well-engineered financial, diplomatic, political, and legal strategies that have been tested dozens of time in a neocolonial laboratory.
These neocolonial extortion schemes have three major effects. First, they facilitate the transfer of enormous amounts of hard-earned wealth from the real economy of developing nations to banks and speculative funds controlled by super rich individuals and families in the Global North – largely based in the United States, Europe, or offshore tax havens.
Secondly, by installing dictatorships, leveraging institutions like the International Monetary Fund, or getting US courts and judges to seize funds of sovereign nations, lenders obtain the power to dictate the monetary, economic, labor, and even foreign policies of indebted countries, effectively creating semi-colonies whose democratically elected governments are incapable of implementing policies demanded by their people.
Thirdly, these policies imposed from outside in turn strengthen a local parasitic capitalist class that is fundamental to perpetuate a regime of foreign control. This type of traitorous bourgeoisie, still dominant in Argentina and in all Latin America, was described by Chinese revolutionary Mao Zedong as the “comprador” class, an appendage of foreign capital that benefits from the foreign exploitation of its own country.
Argentina is a case study of this neocolonial process.
When the International Monetary Fund (IMF) was formed in 1945, Argentina initially refused to join.
The South American country’s democratically elected President Juan Domingo Perón implemented a progressive nationalist program that encouraged independence and sovereignty. He was very successful in boosting Argentine industry through two five-year plans, and briefly neutralized the effects of the deuda during his tenure.
Argentine President Juan Domingo Perón
But Perón was toppled by a bloody military coup in 1955. And Argentina promptly entered the IMF under dictator Pedro Eugenio Aramburu in 1956.
A virulent anti-communist, Aramburu’s unelected military regime also severed the ties with the Soviet bloc and moved Argentina into the neocolonial orbit of the United States during the first cold war.
Argentina is one of the world’s biggest agricultural producers. Agriculture accounts for most of the country’s exports and it is the main source of foreign currency (the other being loans).
Because of this, Argentine landlords and their ultra-conservative civic organization, the Rural Society, have been extremely powerful throughout the country’s history.
Argentina did experience formidable industrial growth in the first half of the 20th century, especially between the 1930s and 1950s.
Until then Argentina, had often ranked among the 10 richest countries in the world by total GDP. According to long-run economic development data, the GDP per capita even ranked first in the world in 1895 and 1896. But Argentina also had a relatively small population.
When Perón took power in 1946, Europe was in ashes and Argentina’s per capita income ranked seventh in the world.
In 1955, when Perón was overthrown in a US-backed military coup, Argentina ranked 16th – still a very high position considering that the reconstruction of Europe was boosted by Washington’s Marshall Plan, not to mention the fact that Washington’s policy of flooding Europe with US agricultural products had had a negative impact on Argentine exports.
That year, Argentina’s GDP per capita was the highest in Latin America – almost five times that of Brazil. Compared to colonial Britain, it was only 19% lower. And it was half of that of the United States.
Argentina’s GDP per capita never got better than it was in the year Perón was overthrown. By 2016, it had plunged to 63rd.
The statistics aside, the point is that before it got sucked into Washington’s cold war, Argentina was a significant economic power.
Although politically unstable and dominated by a backward landlord and comprador class, the South American nation’s rapid growth, large immigration flows, and incipient industrialization created the conditions that could challenge the colonial status quo.
Perón was not a Marxist, but he envisioned a third way between US capitalism and Soviet socialism, and was a clear symptom of those tensions.
The dominance of the United States in Latin America, a region with a population of more than 660 million today, was achieved and is maintained through a number of strategies.
One of the least understood yet perhaps most significant is the intentional sabotage of independent economic development.
With a growing industry and an industrial working class strengthened by a diverse mix of immigrants, Argentina’s economy was particularly difficult to undermine. Even more so because many of the millions who had fled from poverty, fascism, and wars and ended up in the South American country were socialists or some variety of leftist.
But one of Washington’s preferred ways to impose its control over Latin America, especially during the first cold war, was through violent force.
The 1955 coup that removed Perón was carried out with aerial bombings on the presidential palace and the center of Buenos Aires. Roughly 360 people were killed.
In the two decades that followed, Argentina descended into a spiral of military coups and intermittent right-wing dictatorships backed by the United States.
In 1970, the former dictator Aramburu (de facto president between 1955 and 1958) was assassinated in circumstances that are still unclear today, accelerating a complex process of further destabilization.
Argentina’s former dictator Pedro Eugenio Aramburu (wearing the sash)
The chaos was exacerbated (or caused) by the US government’s Operation Condor, a secret plan to eradicate all Marxist elements from Latin America through the provision of anti-insurgency support, coordination between intelligence services, and training to carry out infiltrations, torture, and assassinations.
The leaders of the last Argentine dictatorship (which governed from 1976 to 1983), who were later charged and convicted with crimes against humanity, used to describe their mission as a war – more precisely as a war on “Marxist terror”.
But the limited cases of insurgent violence, which paled in comparison to the wildly disproportionate state terror and repression, were used as a pretext to persecute and exterminate all dissent and resistance against the post-1955 regimes.
Between 1973 and 1976, many of these crimes were carried out by the Triple A (Argentine Anticommunist Alliance), a death squad founded by far-right Peronist José López Rega, who had been a key ally of Perón in the 1970s and a member of Italy’s infamous Propaganda Due (P2).
But anti-Peronist and anti-communist Emilio Eduardo Massera, one of the leaders of the 1976 coup and the military regime that followed, was also a member of the P2.
P2 shows how European governments also assisted in Washington’s war on the left in Latin America.
Propaganda Due was a criminal organization based in Italy and linked to Italian intelligence, allied with the CIA and NATO. It was exposed in 1981 and dismantled in 1982 by law.
P2’s leader was Licio Gelli, an Italian fascist, intelligence operative, and financier who had lived in Argentina. The organization was considered a sort of Italian deep state with strong connections to the right-wing media and anti-communist environments.
On March 28, 1976, just four days after a right-wing coup, Gelli sent a letter to Argentine coup leader and P2 member Massera saying that he was “happy everything went according to the plans” and wishing that “a strong government” could repress “the insurrection of the Marxist movements.”
The Italian parliament published a report investigating P2 in 1984.
With a number of secretive far-right entities and plots overseen by the US and European governments at the height of the first cold war, Argentina was ready for its shock.
Argentine President Juan Domingo Perón with his wife, future President Isabel Perón
When Argentina’s military arrested constitutional President Isabel Perón (the politically unskilled wife of Juan Domingo Perón) in the early hours of the March 24, 1976, many believed that things could not get much worse. Inflation was at 700% and political violence was already extreme.
In fact, it was one of the bloodiest nights in the history of Argentina – probably only surpassed by the genocide targeting Indigenous nations and the slavery of the previous century.
What followed the US-backed coup was a campaign of terrorismo de estado (state terror), desaparecidos (forced disappearances), systematic rape and torture, arbitrary detentions, countless people forced into exile, burning of millions of books, dystopian surveillance, and propaganda.
Like Chile under Augusto Pinochet and other countries in South America, Argentina had entered its neoliberal experiment, an economic reset under the supervision of the United States and its Operation Condor, the local comprador oligarchy, and the Argentine branch of the Chicago Boys.
The new regime was called the “National Reorganization Process” – a name that implied it had a mission to accomplish.
The US-backed military junta, an unelected government controlled by the armed forces, acted as the main enforcer of the “reorganization”.
Dictator Jorge Rafael Videla, a rabid anti-communist, was in power during most of the “process,” and proudly defended his countless crimes until his death in prison in 2013.
Argentina’s military dictator Jorge Rafael Videla (in the center, with the mustache)
But the men who oversaw most of the economic shock were Adolfo Diz and José Alfredo Martínez de Hoz.
Diz directed Argentina’s central bank (and was followed in 1981 by the US media’s golden boy Domingo Cavallo). He was a pupil of Milton Friedman in Chicago and a former IMF executive director.
Elite right-wing economist Martínez de Hoz was appointed economic minister. He was a Cambridge graduate from a wealthy family of landlords, the CEO of several large Argentine companies, and a personal friend of US billionaire oligarch David Rockefeller.
Those who followed for shorter periods of time had very similar résumés, full of degrees from elite US universities and sinecures at the IMF, World Bank, and other Washington-dominated neoliberal institutions.
Martínez de Hoz used his position to favor Argentine and foreign elites, including his personal friends and the companies he had worked for.
Almost immediately after the Videla dictatorship came to power, Martínez de Hoz got a $100 million IMF loan (worth a much higher sum today).
He also implemented aggressive neoliberal shock therapy: smashing trade barriers, allowing US and European products to flood Argentina’s market, and removing subsidies (including on gasoline).
In a vicious attack on Argentine workers, Martínez de Hoz froze wages by law, while inflation remained well above 100% throughout his tenure. This caused a devastating drop in the cost of labor, and therefore in the real value of salaries, which declined some 40% by 1980.
He also successfully dismantled most of the Argentina’s still competitive industry, selectively saving his friends.
Argentina’s military dictator Jorge Rafael Videla (right) with his neoliberal economic minister José Alfredo Martínez de Hoz
The US-backed Videla dictatorship oversaw an intense de-industrialization, marking an end to Perón’s era of state-owned company, which since 1951 had produced domestically designed cars, motorbikes, trucks, airplanes, and engines.
Decades of industrial research and development, tens of thousands of jobs, and large public investments were disintegrated in Argentina.
Claiming to be fighting inflation, in 1979, Martínez de Hoz introduced an artificial system of exchange regulation between the peso and the US dollar known as la tablita (the little table).
Leveraging large and ever increasing foreign debt, la tablita overvalued the peso, favoring imported products over domestic ones, so thousands of Argentine businesses went bankrupt.
It also allowed speculative funds to exploit a scheme known as carry trade (bicicleta financiera). Speculators could get low-interest loans abroad in US dollars and absurdly high interests on pesos in Argentina, with no capital control whatsoever, so they started moving money in and out making enormous profits.
This made foreign and domestic speculators much richer than they already were, but the gains from the trick had to be paid by the state – or more precisely Argentine workers – in US dollars.
The strong peso was a clever ingredient of the dictatorship, defining a neoliberal myth that was called “sweet money” – a sort of consumerist orgy with an unhappy ending that was portrayed in a 1982 film with the same name.
Because of la tablita, the most coveted imported goods (consumer electronics, clothes, and accessories) became cheap almost overnight. Imports rose by more than 550% between 1976 and 1980.
The huge increase in imports under Argentina’s US-backed military dictatorship from 1976 to 1983
The overvaluation of the peso meant that many Argentines could suddenly afford to travel and go shopping abroad.
While factories were closing en masse – and while thousands of mothers were looking desperately for their children and grandchildren, who had been disappeared for opposing the junta – the military regime propagandists celebrated the new era as a positive opening to the world.
The euphoria after the victory at the 1978 football World Cup led to a feast of nationalist propaganda.
This economic deception lasted two years. La tablita was abolished in 1981, with a master stroke leading to the opposite effect: a sudden devaluation of the peso.
More Argentine businesses went bankrupt because their pesos were now worth nothing, and their debts denominated in US dollars had become unpayable.
Videla, Diz, and Martínez de Hoz resigned a month later, leaving the country in recession and the state in monetary and financial chaos.
In 1982, the military junta had been weakened by five years of suicidal neoliberal economic policies. It attempted to stay afloat with a jingoistic wave of paradoxical anti-colonial propaganda.
The regime that had humiliated the nation and the people of Argentina by selling it off and betraying it in all possible ways did the unthinkable: It waged a war with Britain over the Malvinas.
The Falklands War ended in a catastrophe, but also accelerated the end of the dictatorship.
Taking advantage of the last days in power, the right-wing-controlled central bank nationalized the private debt of a selected group of companies in December 1982, including Grupo Macri, a holding founded by the father of Mauricio Macri (whose neoliberal presidency between 2015 and 2019 was a nostalgic homage to the families benefited by the dictatorship).
The nationalization of this private debt cost the state about $17 billion dollars.
The financial deregulations of the regime led to uncontrolled capital flight, destructive speculative schemes, rampant fraud, and the crash of dozens of financial companies, including banks.
The desperate need for US dollars to repay debts forced Argentina’s de facto government to keep emitting bonds at always higher interest rates.
Argentina’s debt skyrocketed during the US-backed military dictatorship (1976 to 1983)
According to data from the World Bank, the external debt of the government was $4.6 billion in 1976.
At the end of the dictatorship in 1983, it was $25.6 billion – an increase of more than five times.
This debt would double to $52 billion by the end of the 1980s, and subsequently skyrocket to $103 billion in 2004, doubling again.
And these figures do not include private foreign debt.
In the 28 years since the beginning of the US-backed state terror – between 1976 and 2004, constituting roughly a generation – the deuda had increased more than 2200%, while GDP had gone up only 49%.
The world average for GDP growth in the same period was 90%.
The increase in Argentina’s external debt was 45 times the growth of its GDP.
The country was in an economic apocalypse.
Operation Condor turned Argentina into a broke country whose economy was heavily indebted in US dollars.
With the 1983 election of Raúl Alfonsín, the military boots left the presidential palace, but the debt contracted by the dictatorship never did.
Alfonsín could have contested the legitimacy of the debt. After all, it had been contracted by a dictatorial regime installed by the CIA, operating under US influence and favoring foreign interests over Argentina’s.
The debt was the result of a deliberate effort to undermine the economy and sovereignty of the Latin American country, so the legitimacy of the deuda was a valid matter of debate.
But Alfonsín’s government and the new, fragile democracy were too weak for such a challenge.
Argentine President Raúl Alfonsín
The first elected president in a decade was inaugurated in an atmosphere of great hope, after a war and nightmarish horrors that would soon become public, thanks to an investigation that concluded with the publication of the book Nunca más (“Never Again”), and a historic trial that ended with the conviction of the junta leaders.
But by accepting to comply with all the obligations imposed by the deuda, Alfonsín’s presidency was destined to be a failure.
The government depended on negotiations with the Washington, DC-based IMF and World Bank, the only entities that could provide the dollars Argentina needed.
Every decision of these organizations in matters related to Argentina had a strong influence over the country’s political and monetary stability, including the inflation which remained very high throughout the 1980s.
Alfonsín’s presidency ended with a hyper-inflation crisis in 1989 that got even worse in 1990, when wages and savings quickly evaporated, poverty and extreme poverty skyrocketed, riots and lootings erupted.
The shock caused a desperate demand for change, and played a key role in electing Carlos Menem, a conservative Peronist who had campaigned with vague promises to favor the poor and leveraged the fame of Perón, who remained popular among large sectors of the working class.
One of Menem’s most repeated slogans was “Follow me, I won’t deceive you!”, a trivial political message that was actually a lie, considering the betrayal that followed.
The unpayable debt, that kept growing like a snowball under Alfonsín, prepared the ground for the infamous “structural adjustment” programs that were “recommended” (that is to say, forcibly imposed) by the IMF, the World Bank and the US Treasury Department.
Neoliberal structural adjustment was presented as a simple technocratic solution, a doctor’s prescription to heal economies in formerly colonized countries that, coincidentally, all suffered from the same illness: external debt.
The therapy proposed in the so-called Washington Consensus demanded financial deregulation, no tariffs on imports, cuts to public services, and radical privatizations of public assets.
Medical metaphors became a classic trope of the neoliberal propaganda, and were also used by reputed economists.
Jeffrey Sachs is often associated with the infamous concept of “shock therapy.” The first patient he could experiment his theories with was Bolivia in 1985.
There, Sachs’ task was to stop a hyper-inflation crisis – which, as in Argentina, came after years of a US-backed right-wing dictatorship.
Sachs did manage to contain inflation by forcibly overvaluing Bolivia’s currency. But his treatment could only be applied by deporting labor leaders, allowing mass layoffs, impoverishing workers and Indigenous people, and undermining the country’s real economic growth.
Sachs, a Columbia University professor who would go on to rebrand himself as a progressive social democrat and supporter of Bernie Sanders, first made his name in the centuries-old tradition of colonial philanthropic megalomania.
His 2005 book “The End of Poverty”, prefaced by U2 singer Bono, used the medical metaphor to explain how to cure extreme poverty by 2025.
Despite the good will behind this and other initiatives, it is difficult to find any fundamental ideological (and especially technical) difference between Sachs and Argentina’s neoliberal idol Martínez de Hoz – even though the latter operated inside a fascist military regime that raped, tortured, and disappeared dissidents or threw leftists to their deaths out of airplanes.
Two decades after Sachs’ “therapies” were sent from Washington, DC to La Paz, Bolivia’s socialist President Evo Morales showed what an economy looks like when the state protects its people, their work, and the domestic market.
The massive growth of the Bolivian economy under Morales – an Indigenous farmer and labor organizer who did not finish high school – is only one of the many indicators that exposed the pseudo-scientific economic doctrine developed in the most prestigious US universities under the guise of clinical rigor.
Bolivia’s GDP per capita was just $1034 in 2005. Morales came to power the next year, and by the time he was overthrown in a US-backed far-right coup in 2019, Bolivia’s GDP per capita more than tripled to $3552.
Bolivia’s massive economic growth under President Evo Morales (from 2006 to 2019)
Overvaluing a currency by pegging it to the US dollar, in one way or another, was the core of the shock therapies that neoliberal economists had implemented in Bolivia, Argentina, and elsewhere.
This is certainly the easiest way to contain inflation, but it also undermines the domestic market and the people of a country – the two variables that are often ignored by free-market economists and institutions.
Other solutions to inflation exist, but because these include capital controls – an idea considered blasphemy in orthodox economics – and because they help preserve and stimulate local economies instead of international finance, they are most unpleasant to US and European banks and corporations.
No corporate media pundit or reputed economist would suggest a shock therapy that negatively affects the ruling class to fix a crisis, even though it would be sensible, because that would compromise their reputation and career.
So the concept of shock in economics is always reserved as a tactic for ripping off the working class and the poor – especially in formerly colonized nations.
Shortly after Carlos Menem took power in 1989, he pardoned all crimes committed during the Videla dictatorship. This horrified the survivors, and made it clear that his presidency would be dominated by oligarchic and foreign interests.
Menem also removed some taxes and regulations on agricultural exports, obtaining the support of the powerful landlords and the conservative establishment. The mask was off.
Hyperinflation reached a staggering 20,000% in 1990. Combined with the debt and pressure of the IMF, the crisis provided the justification for another “shock therapy”.
Inflation in Argentina in 1990
In 1991, Menem chose as his economic minister Domingo Cavallo, who had directed the central bank during the dictatorship. Together, they practiced what the president had famously called a “surgery without anesthesia”.
Cavallo’s landmark policy is known as the uno a uno (“one to one”). This was the new edition of Martínez de Hoz’s disastrous la tablita in 1979 and Sachs’ shock therapy in Bolivia.
The scheme was based on the same monetary principle: stop inflation by artificially and forcibly pegging a currency to the dollar (or overvaluing it).
Argentina’s latest version of this scam was even simpler than the previous manifestations. The Menem government issued a new currency – the peso still in use today. It retired old notes and coins and issued new ones.
The law then ordered that one new Argentine peso was now worth one US dollar – hence the name one to one. The Argentine peso would thus remain pegged to the dollar.
It was a de facto dollarization, a surrendering of Argentina’s monetary sovereignty.
Everybody could freely exchange pesos and dollars, now backed by the state with its reserves. This meant that the law restricted the emission of new pesos to the amount of US dollars in Argentina’s reserves.
From the point of view of the speculative financial markets, pesos had become “sound money” again, by law.
But they had also become expensive for the state, and therefore limited in circulation.
Inflation did go down to almost zero, but Argentine workers’ purchasing power dropped too.
Cavallo was celebrated in the West as a genius, as if he had invented free dollars. Clearly, they weren’t free.
The uno a uno was not meant to come alone, and was part of a larger plan of deregulations and privatizations.
With the support of the Peronists in the Congress, Menem launched one of the biggest operations of privatizations in history, an unprecedented pillage of public resources that Perón (who had nationalized the central bank and the railways) would have likely have opposed.
Argentina President Carlos Menem (left) with his neoliberal Economic Minister Domingo Cavallo
In a few years, the still powerful Argentine state privatized the pension system, national railways, public banks, telephone grid, national airline, ports, postal service, water supply network, power grid, gas network, several TV and radio networks, and some healthcare services.
The naval, chemical, and aerospace industries were privatized, along with the national oil company. In all, more than 400 public companies in Argentina were privatized.
US and European corporations bought the country practically overnight.
The privatizations occurred in the context of wild corruption and mismanagement. Companies and assets were sold off or given in concession at ridiculous prices and conditions.
Some services became up to 10 times more expensive. Others collapsed.
One of the most dramatic cases was the destruction of Argentina’s railways network. In its effort to de-industrialize the country, the military dictatorship had closed hundreds of stations and thousands of miles of rails.
Menem finished the job by dismantling most of the 29,000 miles of rails – which had been the eighth-largest network in the world.
Thousands lost their jobs. Some remote villages were disconnected from the rest of the world.
Neoliberalism turned a functioning public infrastructure that had been built, operated, and used by generations of Argentine workers into landfills.
In many cities and towns, these abandoned industrial, almost post-atomic ruins have not been dismantled or converted to this day, three decades later.
Trains, rails, bridges, warehouses, and stations were reconquered by nature and left to rust, offering a depressive glimpse on the past and a warning for the future.
The euphoria over Cavallo’s apparent victory against inflation did not last. An initial boost in confidence caused by the low inflation and the strong peso gave the illusion – buttressed by a worldwide neoliberal propaganda campaign praising Argentina’s model – that the economy was not going to collapse this time.
The growth between 1991 and 1994, based on the overvalued currency, gave Menem a second mandate.
But in 1995, unemployment reached 18.8%, indicating that not everybody was enjoying the consumerist joys of the rise in imported goods – the new “sweet money” phenomenon, which was similar to the one experienced in the Videla dictatorship under Martínez de Hoz.
Unemployment skyrocketed in Argentina in the 1990s, under Carlos Menem
Because of the strong currency, Argentine exports were also hurt. National products had become too expensive, leading to a growing trade deficit.
The imbalance was compensated by the dollars obtained where? From one-off income from privatizations, and, once again, loans.
But how long could this scheme last?
The recession and crisis that followed Menem was brutal. The so-called structural adjustments imposed by the IMF boosted unemployment, extreme poverty, and hunger to record levels, while capital started leaving the country.
In 1999, the widespread disgust for Menem – whom many remembered as a corrupt buffoon who drove a $120,000 red Ferrari while overseeing the pillage of his country – led to the defeat of the Peronist candidate in the presidential election.
Argentine President Carlos Menem driving in his expensive red Ferrari
At that point, Argentina had already entered a technical recession that would last four years. Yet with the shock therapy, nothing changed.
During his short presidency, from 1999 to 2001, the liberal Fernando de la Rúa kept implementing the suicidal recommendations of the IMF, with more rounds of cuts in public services and pensions.
De la Rúa reduced salaries of public employees and fired thousands. He also made it much easier, and cheaper, for employers to fire workers in the middle of a long recession, without the obligation to pay severance packages.
In December 2000, the government obtained a $37 billion “bailout” package from the IMF under the condition of annihilating the state and the economy by reaching a zero deficit.
In January 2001, the government renegotiated parts of the debt in order to postpone it for three years, while increasing the interests. But in March, the negative results forced the economic minister to resign.
In a surreal plot twist, de la Rúa called back an old acquaintance: free market star Domingo Cavallo, the former Menem minister who started the uno a uno conversion that had crippled Argentina’s national economy probably more than anything else ever conceived.
Cavallo was appointed economic minister, again.
Once back into the operatory theater, the economic butcher started doing the only thing he and all the other ministers in the previous 25 years had always done. Further cuts were approved, while the ghost of an incoming Armageddon loomed.
The unsustainable macroeconomic situation led to a bank run in Argentina in November 2001. Many people and companies feared a meltdown of the financial system. They started withdrawing large sums from banks and exchanging their pesos to US dollars, even though Cavallo’s now infamous landmark policy, the one to one conversion, was still in place.
In a desperate attempt to save the banks and contain a situation that was clearly out of control, on December 1, 2001, Cavallo and de la Rúa ordered an almost complete freeze of all bank accounts, limiting withdrawals to $250 in cash per person per week, a measure then called the corralito (small corral).
The sudden limit in liquidity, after years of financial deregulation and in the midst of a brutal recession, drastically affected trade and broke the chain of cash payments, leading to terrible consequences for millions of informal workers who did not have bank accounts, and thus could not be paid.
Considering it time to let the boat sink, the IMF announced on December 6 that it would not send the dollars expected from the last bailout, because Argentina had not met the zero deficit goal.
The following weeks were followed by a general strike, lootings, violence, and several deaths.
So on December 19, President de la Rúa ordered a curfew, inciting an infuriated response from the people. Protesters stormed the Plaza de Mayo, the square in front of Argentina’s presidential palace, the Pink House.
The day after, de la Rúa resigned and fled from the roof on a helicopter.
Three days later, on December 23, abandoned by the IMF, Argentina officially defaulted on a $95 billion debt.
Argentine President Fernando de la Rúa (right) with Carlos Menem
The 2001 default was a watershed moment for all Argentines, and became a symbol of the effects of neoliberalism and imperialism across the planet.
But this historic default on debt managed by award-winning, highly respected economists was just the surface of a decades-long, fabricated crisis that was really a neocolonial takeover.
Record levels of poverty, shocking child malnutrition, a growing infant mortality rate, devastating unemployment, and increasing outward emigration shattered the false image of the country that had once been an economic powerhouse and the destination for millions of migrants seeking a better life.
Argentina was not just broke; it had been socially, economically, and politically demolished as a sovereign country.
The state, productive fabric, currency, trade, public education, and healthcare, public transportation: nothing was left untouched by the pillage that effectively led to a reset of Argentine society.
Something similar was happening in other Latin American semi-colonies of the United States. The region found itself divided into those who recognized the fraud of neoliberalism – a word that had become in the political discourse – and those who believed that the shock therapies designed by people like Jeffrey Sachs, José Alfredo Martínez de Hoz, or Domingo Cavallo were not “true” neoliberalism.
The staunch believers in the virtues of neoliberal ideology implied that, instead of changing course, the real solution was more of the same, but in a more extreme form.
Some of these free-market pundits and academics, who still thrive in major corporate media outlets, articulated a fundamentalist “libertarian” critique, claiming the neoliberal regimes did not go far enough when they removed most tariffs on imports, that they should have eliminated all of them, effectively destroying local industries. And they insisted everything should have been privatized, not almost everything.
The extent of the privatizations is something that even the free-market fundamentalists’ most eloquent evangelist, Milton Friedman, struggled to explain in practical terms.
Friedman argued that the state should still control “some roads”, and maybe the police or the army. He confusedly claimed that he was not against public control when debating schools, but simultaneously insisted that government control was bad.
The biggest neoliberal rhetorical fallacy has always been related to the debt. Neoliberals typically associate the debt with public spending on social programs, using a straw man that implies that the debt crisis of “developing countries” is a trivial problem of excessive spending that can be solved by simply reducing it.
The neoliberals act as though poor working people, especially from oppressed Black, Indigenous, or mixed race communities, are unable to manage the money that wealthy people have supposedly given them.
This narrative is totally false. It ignores key factors, including foreign control, deliberate pillage, and de-development.
In regard to foreign control, unpayable debts were deliberately created and expanded in Argentina by dictatorships or corrupt elected governments, like Menem’s, which operated on behalf of foreign interests and oligarchs, and which were forced to apply suicidal measures demanded by the IMF, World Bank, and US Treasury Department.
As for deliberate pillage, the need for massive quantities of US dollars was in large part caused by fraudulent schemes, like Argentina’s “financial bicycle”. These were made possible thanks to the deregulation of the exchange market, overvaluation of the currency, and other policies that favored scams paid by the state.
When billionaire speculators were allowed to exchange Argentine pesos for unlimited amounts of dollars, benefiting from high interest rates in pesos, it was the state that had to borrow those dollars from US private banks or from the IMF and pay interests on them. Once exchanged, the dollars obtained by the speculators were moved out of the country, leaving the debt to the state.
And in terms of de-development, the money borrowed under Argentina’s neoliberal regimes was virtually never used for social programs that would stimulate the real economy, support domestic demand, or improve people’s lives in any way. Instead, those dollars were mostly used to pay interest, service new loans, or increase the demand of dollars for speculative purposes.
Only days after Argentina’s 2001 debt default, interim President Eduardo Duhalde abolished Cavallo’s dollarization scheme – the one peso to one dollar fixed exchange rate. The peso lost 40% of its value overnight.
This long-due monetary devaluation, together with a timid stimulus in the form of social subsidies, gave oxygen to an exhausted population and to the economy as a whole.
The defaulted country was in ruins, and the lasting crisis led to immense suffering. But as a response to the robberies and horrors of the previous decades, new creative energies and popular movements were emerging across Latin America.
In a surprising turn of events, the barely known governor of a remote southern province became president of Argentina in 2003, with a measly 22% of the vote.
The widespread contempt for the arrogant and corrupt political class of Buenos Aires played in favor of Néstor Kirchner, a progressive Peronist who belonged to the faction that opposed fascist Peronist José López Rega in the 1970s and neoliberal Peronist Menem in the 1990s.
Not many thought that Kirchner would have changed Argentina’s political direction. But he laid solid foundations for a debt-free economy that grew almost 9% every year during his presidency – a success neoliberal detractors tried to explain simply as the luck of a “commodity export boom“.
The new president joined the progressive wave that had brought Hugo Chávez in Venezuela and Lula da Silva in Brazil, forming a key part of what would later be dubbed the “Pink Tide”.
Argentine President Néstor Kirchner
As of 2003, when Kirchner became president, Argentina’s defaulted external debt was a combination of IMF loans and bonds owned by private investors of all kinds. These two types of creditors operate and affect the government in very different ways.
The IMF is a political organization ruled under a very specific economic ideology, which imposes the Washington Consensus on countries that it “helps” financially. The US has always had the main quota and veto power in the Fund.
The policies demanded by the IMF are detrimental to the real economy and undermine the borrower’s growth and domestic market, trapping it in a cycle of debt.
But the bondholders, which are mostly private companies operating in international financial markets, cannot directly enforce a policy on a government. They are private companies that profit from speculative trades, which inherently involves risks, and normally the higher the risk, the higher the gain.
The more a government is in economic trouble, the higher the interests on its bonds will usually be, in order to find speculators willing to buy them.
This game makes it very profitable to trade risky bonds – in other words, to speculate on countries that are financially desperate.
While formally separate, the IMF and the bondholders (sometimes referred to simply as “the markets”) cooperate and need each other in order to maximize their effectiveness.
The more a country is financially desperate, the more speculators will profit, and the more leverage the IMF will have in order to enforce neoliberal reforms and other political pressures.
On December 16, 2005, Kirchner announced that Argentina would repay its entire IMF debt in full, and in advance, with its foreign reserves. On January 3, 2006 the payment of $9.5 billion was confirmed by the Fund.
The central bank only held $27 billion in US dollars in its reserves, but that was still more than the record low of the previous years.
The reserves had grown thanks to the budget surplus obtained from the suspension of the payments to private bondholders, and the rapid growth of exports caused by the devaluation of the peso, which made Argentine products more competitive.
Kirchner’s decision to pay off the debt early saved the country an estimated $842 million in interest.
While far from being a long-term solution to the huge problems the Argentine people were facing, this was a game changer.
The move was anticipated by Brazil’s President Lula da Silva, who had paid the IMF in full a few months earlier.
But the announcement was received as a shocking surprise by Kirchner’s supporters and detractors alike.
It also annoyed part of the Argentine establishment, whose corruption had been mercilessly exposed: Why did none of Kirchner’s predecessors pay off the IMF debt like this before?
The repayment was a demonstration that Argentina never actually needed “aid” from the IMF. The Fund had become seen as a national enemy by popular movements, and was even publicly criticized by Kirchner in his speeches.
Argentine President Néstor Kirchner with his wife, future President Cristina Fernández de Kirchner
The debt that Argentina held with the IMF was important because of its political implications, but the government still owed much more to private creditors.
In 2003, Kirchner started a complex process of negotiations with diverse groups of creditors. These talks continued under the subsequent presidency of his wife, Cristina Fernández de Kirchner (CFK).
The robust approach of the Kirchner administrations was effective – and it angered wealthy creditors, as could be seen at the time by the frustration of their media mouthpieces like The Economist.
In 2005, Argentina abandoned the seemingly endless, unsuccessful negotiations and made a unilateral offer with discounts of up to 66.3% on the original bonds. The offer was accepted by most bondholders and ended restructuring 76% of the defaulted debt (then $81.8 billion in total).
In 2010, under CFK, Argentina completed a second bond exchange under less favorable conditions for the creditors, which led to a total of 91.3% of the defaulted debt being restructured.
The Kirchners’ strategy had proved a success. Tens of billions were saved, and Argentina was on its way to finally normalize its status vis-à-vis the international credit markets, while all economic indicators were showing strong signs of recovery.
But the remaining defaulted debt, which represented just about 8% of the total from 2001, was now owned by holdouts that had refused the offers of 2005 and 2010, and decided to turn to the US judicial system to help them litigate.
Most of these creditors were known as “vulture funds” – firms that are illegal in many countries, but not the United States. (In 2008, an ambitious bill designed to prevent investors from speculating on sovereign debts of developing countries was introduced in the US Congress, but it failed to pass.)
These particular kinds of hedge funds profit by buying defaulted debts at a much lower price than their nominal value, and then use aggressive strategies, most notably lawsuits, to extort the debtor, in an attempt to get the full value plus penalties.
Some of the world’s most infamous vulture funds had bought Argentina’s defaulted bonds after 2001. The largest slice of the cake was owned by NML Capital, the Cayman Islands subsidiary of New York-based Elliott Management Corporation, whose US founder and CEO, Paul Singer, is a billionaire vulture capitalist and top donor to the Republican Party.
Billionaire vulture capitalist Paul Singer, a top owner of Argentina’s debt
Also profiting on Argentina’s debt was Cayman Islands-based billionaire Kenneth Dart, the owner of Dart Management, a pioneer in vulture practices targeting Brazil, Russia, Ecuador, Turkey, and Greece.
Part of Argentina’s remaining defaulted bonds were owned by Aurelius Capital Management, which was led by speculator Mark Brodsky, a veteran of Elliott Management Corporation who saw Singer as his mentor and has also profited from Puerto Rico’s odious debt.
Singer, Dart, Brodsky, and their super-rich colleagues belong to a generation of speculators who learned to take advantage of the 1976 Foreign Sovereign Immunities Act, a law that provides the legal basis to sue a foreign country in a US court.
Before that law, vulture funds could not engage in distressed-debt litigation against sovereign countries. But in 1992, Dart opened Pandora’s box by suing Brazil, right in the middle of its debt crisis, and getting a favorable settlement.
In the following years, after the overthrow of the Soviet Union and imposition of neoliberalism across much of the world, wealthy speculators followed Dart’s example.
“When Dart and Singer started, fewer than 10% of sovereign debt crises involved litigation. Today that figure is more like 50%”, the New York Times reported in 2019.
Argentina’s record 2001 default was the perfect opportunity for vulture funds. Their threat was so clear that even right-wing media outlets in the country that were owned by pro-US oligarchs, like the conservative newspaper Clarín, dubbed Kenneth Dart “the number one enemy of Argentina”.
After a long legal battle between the vulture funds and the Kirchners’ governments in several US courts, New York judge Thomas Griesa ruled in 2012 that Argentina had to pay the vulture funds at full value.
That meant that Singer’s company, for example, would get a return of 15 times its initial investment.
The ruling became effective in 2014. It also blocked Argentina from paying any other creditor who had accepted the bond exchanges of 2005 and 2010 until it had paid the vultures in full.
This was technically possible because almost of all bank accounts and financial transfers involved were under US jurisdiction.
In other words, the US ruling created a paradoxical situation where Argentina was considered in default for being unable to comply with payment deadlines, even though the government had actually ordered the payments.
The only way to unblock the freeze of the transactions was for Argentina to submit to a parasitic group of billionaires and speculators who were trying to make a killing off of its odious debt.
Following the ruling, Cristina Fernández de Kirchner denounced the vulture funds on the international stage, accusing them of weaponizing US law to wage “economic and financial terrorism.”
Addressing the General Assembly of the United Nations in 2014, CFK argued that these companies “are economic terrorists who destabilize the economy of a country and create poverty, hunger, and misery, from the sin of speculation.”
Despite the extortion and the high tension with Washington and its local representatives in Argentina’s opposition, President Kirchner ended her mandate in December 2015, still refusing to pay the vulture funds.
Argentine President Cristina Fernández de Kirchner denounces the “economic and financial terrorism” of US vulture funds at the United Nations General Assembly in 2014
Mauricio Macri, a right-wing multi-millionaire whose family had profited from the dictatorship, and whose fortune also came from Menem’s privatizations, won the 2015 presidential election by a small margin.
At the end of CFK’s second term, Argentina’s debt-to-GDP ratio was 52.6%. It had increased a bit in the last years, but was still easily controllable.
When Macri left power in 2019, the debt-to-GDP ratio was 90.2%, and growing.
But probably the most absurd development was that under Macri, in less than four years, Argentina once again defaulted on its debt.
On December 7, 2015, three days before the inauguration of President Macri, Argentina’s future finance minister and central bank manager Luis Caputo, a former JP Morgan trader, flew to New York and met the representatives of the vulture funds. Nothing else was more urgent.
Three months later, in February 2016, Macri’s Argentina transferred $9.3 billion to the vulture funds, while the New York judge, Griesa, unblocked the other payments to the other bondholders, the owners of the 93% of the defaulted debt who had accepted the offers made in 2005 and 2010.
Paul Singer’s NML Capital alone made $2.28 billion on an original investment of just $177 million, for a total return of 1180% – while also forcing Argentina to pay the legal fees.
Macri’s payment of the vulture funds amounted to a national humiliation for a sovereign countr. It also angered many small investors, including pensioners and workers, who lost money with the debt exchanges, while a small group of US billionaires and foreign speculators made a killing.
The reason Macri gave the operation such a priority was because he hoped to obtain access to the international credit markets as soon as possible. The new right-wing president wanted to once again to borrow money by emitting new bonds – something Argentina had been banned from doing since the default in 2001.
By paying the enormous ransom to the vulture funds, Macri’s government had the power to flood the country with borrowed US dollars.
In the early days of his administration, Macri removed several regulations in order to favor financial speculators and companies in sectors like agriculture – the most important in Argentina – as well as mining, energy, finance, and the media.
These industries, especially the media, are controlled by Argentine billionaires, who were President Macri’s main supporters.
Macri got rid of capital controls and the so-called cepo, a foreign exchange regulation introduced in 2011 under CFK that limited the amount of US dollars individuals and companies could buy with pesos, in order to prevent capital flight and inflation.
For years Argentina’s mainstream media, which is dominated by the powerful telecommunications corporation the Grupo Clarín, described the “freedom” to buy dollars almost as a human right, so CFK’s regulations were presented as a violation of liberty.
Clarín was one of the most powerful supporters of Macri, so it was extremely easy for him to remove the currency controls overnight. This meant that Argentine oligarchs could buy any amount of dollars, even billions, with pesos. And that is exactly what speculators did.
The end of capital controls and the possibility to borrow virtually without limits were an explosive mix. They paved the way for Argentina’s third neoliberal robbery, the fastest and the first based almost exclusively on financial methods.
The previous two pillages had taken place during the 1976-1983 military dictatorship and Menem’s presidency from 1989 to 1999.
In a formidable show of effectiveness, Macri and his team wrecked the relatively healthy finances of the Argentine state in less than two years.
Argentina’s President Mauricio Macri (right) with Brazil’s Jair Bolsonaro
Macri’s single-term presidency used the state as a tool to bring dollars and euros into the country through easily accessible borrowing.
Those dollars ended up in private hands, thanks to the now unregulated currency market, which meant anybody could buy or sell any amount of pesos. This inevitably caused significant inflation.
At the same time, big funds were now free to move their dollars out of the country, thanks to the absence of capital controls. The new conditions led to a rapid increase in capital flight.
Under Néstor and Cristina Kirchner, capital flight was contained and was mostly paid with the surplus in the commercial balance, given exports were higher than imports.
During the “K” years, some of the money obtained from economic growth did leave the country, but under Macri, the capital flight not only grew faster, it ended up being funded with the foreign currency borrowed by the state. Capital flight was quite literally borrowed money.
Pundits propagandized on behalf of the government and Macri’s suicidal economic policies by stirring up the desire for dollars in the population, even among those who could not afford to buy any.
Deregulation of the foreign currency exchange led to high inflation in Argentina, but the right-wing-controlled media outlets blamed the Kirchners. They brought back the old neoliberal dog whistle that Argentina was now “open to the world,” and promised that the new policies would attract foreign investors who never arrived.
Macri’s most important achievement was to allow wealthy families and speculative companies to dollarize their assets, thus moving them to more profitable markets abroad.
Wealthy speculators were also allowed to profit from the old scheme known as carry trade (bicicleta financiera), which had been used during the last dictatorship.
Their trick was to buy pesos, profit from the high interest rates in pesos, then convert them to dollars and move the dollars out of the country.
In the meantime, the state had to provide a virtually infinite amount of dollars for the speculators, and was left with the pesos.
Thanks to a reckless emission of bonds to support the uncontrolled demand of foreign currency, including an extraordinary 100-year bond and very high interest rates, Argentina was already on the brink of another default just two years since Macri took power.
The debt-to-GDP ratio passed from 56% in 2017 to 86% in 2018, a catastrophic 30% increase in one year.
In 2018, the Argentine peso was the worst-performing currency in the world – excluding Venezuela, which was suffering under illegal unilateral sanctions and relentless economic war by the United States.
The Argentine peso lost about 50% of its value to the dollar. Inflation rose by the same amount.
Macri’s central bank increased interest rates to record levels in an attempt to attract investors – or more accurately, speculators – but it was too late.
The economic figures did not lie. Argentina’s debt was already unpayable in 2018, and all macroeconomic indicators showed that a crash was imminent.
At the beginning of the year, virtually no one wanted to buy Argentine bonds anymore, meaning that a country whose debt had been under control only two years before, and had no absolutely reason to rush into deregulating its currency and financial markets, was now on the brink of yet another default.
In this uncertain context, Argentina went through two major currency crises in 2018, in June and August, forcing the central bank to waste billions of dollars to contain the extreme devaluation of the peso.
The country was bleeding dollars, and toward mid-2018, the so-called “Macrisis” was a reality.
Macri’s days in power seemed numbered.
Argentine President Mauricio Macri (right) with US President Donald Trump in Buenos Aires in 2018
On May 8, 2018 Macri announced that he had formally requested financial aid from the IMF.
For millions of Argentines it was a shock. The country had not dealt with the disgraced organization since 2005, when Néstor Kirchner had paid the debt in full and decoupled the national economic policies from Washington, after years of tense relations.
The US representative at the IMF at the time, Mauricio Claver-Carone, revealed that EU members of the Fund considered Argentina’s situation at the time “unsustainable.” They were against a loan that was clearly meant to save Macri’s face and buy him time to attempt a re-election.
But according to Claver-Carone, US President Donald Trump saw Macri as an important ally in his coup attempt against Venezuela.
At the time, the White House was preparing a regime-change operation to remove Venezuela’s democratically elected President Nicolás Maduro and replace him with Washington’s hand-picked “interim president,” Juan Guaidó.
And Macri did indeed go on to recognize Guaidó, who never received a single vote in a presidential election, as the supposed head of state in Venezuela.
So Trump forced the IMF – whose biggest contributor is the United States, and therefore mainly controlled by the US government – to provide Argentina with the biggest loan in the Fund’s history, to keep Macri and his plutocratic friends afloat.
Agreeing on a $57 billion loan with a government whose policies allowed record levels of capital flight was economically nonsensical, especially considering that article VI, section 1(a) of the IMF articles of agreement states that a “member may not use the Fund’s general resources to meet a large or sustained outflow of capital.”
But the multifaceted scam designed in the White House was carried on anyway, and an agreement was reached in September 2018.
Under Macri, Argentina was ultimately disbursed $44 billion by the IMF.
But not a single dollar sent by the Fund was ever seen by the Argentine people, or used for any project for economic development.
The money evaporated, trickling up into the pockets of domestic and foreign oligarchs, funding the massive demand of US dollars generated by speculators and by the interests of the debt.
The billions sent from Washington disappeared in just 11 months.
In August 2019, Macri’s Argentina had to postpone some scheduled payments, meaning that it was already in default – the country’s first official default for lack of funds since 2001.
The effects of Macri’s short administration were dramatic. His tenure was dominated by politically motivated judicial attacks (known as lawfare) against the opposition, which involved the meddling of the US embassy, intelligence services, corrupt judges, illegal surveillance, and a torrent of media propaganda.
Under Macri, Argentina’s inflation skyrocketed, the value of wages plummeted, unemployment rose, and poverty grew above the 2001 crisis levels, reaching almost 40% when he left office.
Poverty was 30% when the multi-millionaire took power, meaning that more than 4 million people had become poor in four years. About one in 10 Argentines was in extreme poverty.
The total value of capital flight during Macri’s four years in government was estimated at $79.8 billion, while the payments of interest on the debt were $40.7 billion.
The debt-to-GDP ratio reached 90% in 2019, almost doubling from when Cristina Fernández de Kirchner left office in 2015.
Without Trump’s intervention, Argentina would have defaulted two years earlier, and the chaos would have probably forced Macri to resign.
So the IMF loan was effectively an injection of oxygen that gave the right-wing president a chance to run for an almost impossible re-election.
With the vote approaching in 2019, the opposition had to find a candidate to deal with Macri’s catastrophic legacy.
Polls showed that CFK could win again, but years of lawfare had weakened her to the point that a new presidency would have been politically unstable, especially looking at the trend in the region, where right-wing, US-aligned governments were thriving.
CFK therefore decided to run as vice president, and offered the lead to Alberto Fernández.
The new Peronist candidate had been chief of ministers under Néstor Kirchner, and had served briefly under Cristina as well.
But Fernández had left CFK’s government and became a vocal opposition figure within Peronism. In the past, he had even been a political ally of the infamous neoliberal economic minister Domingo Cavallo.
Because of his reputation as a “K” critic, the new alliance appeared counterintuitive, but it earned the Alberto-Cristina alliance more support at a moment of extreme vulnerability for every progressive candidate in Latin America.
In the August 2019 primary election, CFK’s coalition with Fernández, called the Frente de Todos (Front of Everyone), won with 48%, compared to the 32% of Macri’s right-wing alliance Juntos por el Cambio.
Macri’s August 2019 default was rarely called a default by Argentina’s right-wing-dominated media, especially because it occurred in the middle of the presidential campaign and the catastrophic primary vote.
But even US rating agencies like S&P and Fitch, as well as foreign financial media outlets like Bloomberg, which are notorious for their strong bias in favor of neoliberal governments, admitted that Argentina was in “selective default” or “quasi default”.
In order to protect Macri, the Argentine media made up a new word, reperfilamiento (reshaping), and used it instead of “default,” successfully obfuscating the president’s economic disaster behind a smokescreen of propaganda.
Denying the default was a desperate attempt to put some lipstick on the corpse of Macri’s political and economic legacy. But it did the job.
The multi-millionaire did lose re-election in the October 2019 presidential election, but the enormous propaganda apparatus operated by Clarín managed to significantly improve Macri’s poor result in the primary, boosting him up to 40% against Fernández’s 48%.
The election showed what a media monopoly and millions of dollars systematically invested in troll armies on social media can do, even in the most unfavorable conditions.
The media narrative of the “heavy legacy” (pesada herencia) that Argentina supposedly received from Néstor and Cristina Kirchner, and the often fabricated allegations and charges of corruption took a significant toll.
More than appreciation for Macri’s policies, the 2019 vote expressed the anti-Kirchner sentiment that had been cultivated through years of lawfare.
Argentina’s conservative sectors needed to undermine the positive reputation of the “K“ governments and character assassinate CFK, because she was by far the most popular leader on a national level.
The right-wing oligarchy’s ultimate goal was to make it impossible for CFK to run again (which they would go on to accomplish with a judicial coup in December 2022).
But the 2019 electoral victory of Fernández and CFK ended up being the easiest part.
Argentina’s President Alberto Fernández and Vice President Cristina Fernández de Kirchner
The country Alberto Fernández received on December 10, 2019 was very different from the one Macri got four years before.
In 2019, Argentina was on fire, with an economy in recession, poorer, indebted at 90% of GDP, and even more polarized than before.
The new president had the daunting task of fixing Argentina’s devastated public finances, hit by another default on its sovereign debt, while dealing with one of the worst social and economic crises in its history.
The Frente de Todos coalition that Fernández had formed with Cristina Fernández de Kirchner was very large, including parties ranging from the center to the left.
This meant there were many differences inside the Frente de Todos, which began to emerge when they took power.
But everybody in the coalition knew that Argentina’s media monopoly Clarín and the wealthy oligarchy were not going to help extinguish the fire, because they were responsible for it.
After the fall of Macri, the mainstream media continued pushing endless conspiracies against Vice President CFK.
The right-wing press even got created and added a strange new chapter about her supposed plots to undermine Fernández, the man she chose and helped put in the Pink House months before.
Although CFK was not president, and despite years of politically motivated allegations of corruption and dozens of legal prosecutions (but no convictions at this point), she was still by far the most charismatic and popular leader in Argentina.
But just a few months after Alberto and Cristina took power, in early 2020, the crisis in Argentina reached a whole new level, when the global Covid-19 pandemic hit.
In September 2018, Macri had gutted the Ministry of Health, among others, and turned it into a sub-department, as part of his harsh austerity cuts, which were justified as administrative “simplifications”.
So on March 3, 2020, when the first case of Covid-19 was identified in Buenos Aires, the new government was still in the process of reviving the national health administration, which had been systematically defunded and nearly dismantled by Macri.
In this disastrous context, President Fernández and his Economic Minister Martin Guzmán, a neo-Keynesian academic and collaborator of Joseph Stiglitz, played a complex game with the two different groups of creditors, the private bondholders and political organizations like the IMF.
Shortly after being sworn in, Fernández had said Argentina would stop until 2024 all payments on the $44 billion that the IMF had lent to Macri’s administration.
In February 2020, Vice President Kirchner publicly suggested that the debt was illegitimate.
Noting that the IMF statute forbids lending money to countries with significant capital flight, CFK pointed out that loan had not been given to fund infrastructure projects or social programs.
Following the neoliberal disasters of the 1990s, the IMF has tried to rebrand itself as a more collaborative and humanistic institution.
The Covid-19 pandemic seemed to have forced the Fund to soften its infamous obsession with austerity policies and accept the priority of economic growth over debt consolidation.
Whether this was a true change in paradigm or just a marketing campaign is not clear – although Argentines are deeply skeptical.
Part two of this article will detail the attempts by the Alberto Fernández administration to renegotiate Argentina’s debt with the IMF and private creditors.
MICHAEL HUDSON: In our minds, there’s a different set of books. There’s one set of books for the majority of the world population. The German history books, the French history books, and the American, the English history books have all been rewritten in a more and more extreme distortion of what actually happened.
GLENN DIESEN: Hi everyone and welcome back. I’m very pleased today to be joined again by Michael Hudson, professor of political economy, to discuss US economic coercion against allies. So welcome back to the program.
MICHAEL HUDSON: It’s good to be back Glenn.
GLENN DIESEN: So there is this interesting development. I mean my thesis is that in the unipolar era, states that followed the US would be rewarded, and those who did not could be punished – because there were no alternatives. Now in the multipolar order, the game appears to change – at least the rules of the game. That is, opponents of the United States, and also neutral states who don’t want to ally too closely, have the option of diversifying their economic partnerships, and thus any effort to pressure them simply results in an incentive to diversify more – away from the United States.
In other words the US doesn’t really have that much advantage as we see vis-à-vis China or Russia. In contrast, I think we see allies of the US who are worried about the rise of other great powers and have hitched their wagons completely to the US. They seem more prepared to sacrifice even their own economic interests to preserve the US’s leading position, but also their own ties and connections with the US. This puts the US in a very favorable position. It can take advantage of this subordination of allies. The US can then also sever them from other centers of powers to extract – be it political security or economic concessions.
So, I guess my point is: it seems that the U.S. has an advantage in having an economic war against allies. And it’s through this that I found an article of yours I recently read very interesting. You compare some of the things the United States is doing today to the policies of Britain and France in the 19th century. I was wondering if you could flesh out your arguments.
MICHAEL HUDSON: Well, I want to take issue from the start with your use of the word opponents of the United States. I guess you’re referring to the BRICS, China, Russia, Iran, and the other countries that are meeting. In all of their announcements that their presidents and representatives made at these meetings, there wasn’t a word about the United States as an opponent, or in fact, there was no mention of the United States at all. They look at themselves as being under attack by the United States, much as the United States is indeed treating Europe. They’re not trying to retaliate against the United States; they’re trying to defend themselves against Trump’s demands that he’s making on these countries.
And the demands he’s making are the same for the BRICS as they are for Britain, for the European countries, for Japan. And in fact, right now, in Korea, you have discussions. Even Korea, one of the U.S. allies that the United States would like to drain, is standing up. The United States threatened Korea, like Japan, saying, if you don’t lend $350 billion to the United States to be handled by me, President Trump, to decide how to spend it (and you’ll get 10% of the earnings, if there are any, and we get 90%) – If you don’t do that, we’re going to raise tariffs on you and create a crisis. And you’ll have unemployment, and that’ll lead voters to vote against you. And, you know, we’ll create a crisis.
Just the other day, the U.S. Commerce Secretary, Howard Lutnik, told the Koreans bluntly, quoted in yesterday’s Financial Times: “The Japanese signed a contract, $350 billion. The Koreans either accept the deal or pay the tariffs, black and white. Pay the tariffs or accept the deal.”
Well, that’s just what he’s told Europe. The question is, what makes Europe different from the BRICS countries that are trying to make an alternative, saying, “Well, all right; Trump is threatening to deprive our export industries of access to the United States market. If we agree to his demands, it’s going to cost us more money to just pay tribute to the United States in what’s really a protection racket. ‘Either pay us money and accept our import duties and our demands for you to dismantle your industry and invest here, or we’ll raise tariffs and cause a crisis for you.’” Same demand is made all over.
And you asked, why is the United States making, you know, this demand on Europe specifically? The demand’s exactly the same. Europe is giving up – won’t say Europe, certainly not its voters, but the European leaders, basically NATO leaders. In the EU, foreign ministers have made a decision that they’d rather live in the short run, like politicians do, and not have destruction of their industry than live in the long run. They have a choice. The choice was made before 2022 when they essentially agreed to blow up the North Sea pipeline – or let the United States blow it up– and depend completely on the U.S. for oil. They said, “Well, at least we can depend on the United States”. That’s what Ursula von der Leyen said. “We can depend on the United States.”
And yet Trump has made it clear, most recently yesterday in Britain, when he said: If you do any move that is at the cost of American industry, for instance, in information technology, imposing minimum taxes against U.S. information technology companies, like Europe’s doing, I, we, will simply raise tariffs on you. Trump can raise tariffs, and of course, Europe has already tried to stand up to this, but von der Leyen, who was doing the negotiation, never even tried to fight back. She said: Well, at least we can depend on Trump never to change his mind or change the deal. At least we have certainty.
Well, that’s crazy. There was no certainty at all. And so Europe doesn’t have it. Europe had two choices. The choice before 2022 was to have a balanced and basically independent economy as long as its industrial economy was symbiotic with Russia as a raw material supplier of oil, gas, fertilizer, and other basic materials. The advantage of this for Europe was that Europe, Russia, and China and the BRICS are the growing part of the world economy. The U.S. is a shrinking part of the EU economy. Trump’s policies are actually destroying U.S. agriculture, U.S. industry. It’s making the United States uninvestable. Companies are closing down now. The profits are going down because of the [cost of] imports, especially on steel and aluminum. So you think, why on earth would Europe agree to tie its long-term fortunes to the United States and lose its domestic self-sufficiency and self-reliance (that it had as long as it had free access, open access, to Russian raw materials and energy) to energy that costs five or six times as much.
Once this independence is lost, it loses the option that the BRICS countries have taken by saying, “Well, we’re willing to lose the U.S. market because that’s a shrinking market over time. There will be a cost in the short term, but that cost is less than having to pay $350 billion in the shakedown fee to the United States just to keep our short-term market open. The U.S. market is not worth $350 billion, either to Japan or Korea. Each of these countries could have paid $350,000 to subsidize their own exporters so that they could afford to cope with the tariffs. They didn’t do it. Japan just surrendered.
Korea right now is refusing to surrender. And yesterday, its foreign minister team was in China trying to say: “Isn’t there some way that we could… Suppose we lose the American market. We’re faced with a demand that we can’t possibly meet. We may walk away from them. What deal could we make with you and your Asian neighbors in order for us to have our own self-reliant, individual geographic system of self-sufficiency so that we’re immune from the kind of threats that the United States is making?
Well, Europe has not made itself immune from these threats. Part of this is military. Again and again, the leaders of Germany and France, as well as Britain, have said, well, we need America’s support in case Russia mounts a land invasion and is willing to sacrifice 20 million of its soldiers trying to march across Europe to the British Isles. Well, this is crazy. This is a parallel universe threat. It has no basis in reality because no country, no industrial country in today’s world, can afford a military infantry invasion of any other country. Because not only would masses of soldiers die, but such a country, if it tried to impose a draft, would be thrown out of office right away.
So you have Europe’s policymakers essentially acting on behalf of NATO, which is controlled by the United States instead of on behalf of their own voters. And you have the public relations polls showing that the voters don’t want war in Ukraine. The voters don’t want their social spending in Europe to be cut back in order to spend the limited budgets on military instead of on domestic things.
So it’s not a question of the United States focusing its demands on the BRICS. Its demands are across the board. They’re the same for every country. Either we’ll close off our markets or you have to pay us money not to disrupt your economy and cause at least temporary short-term chaos. Other countries are protecting themselves from chaos. Britain is not protecting itself from chaos. That’s the basic problem that I see.
GLENN DIESEN: Well, I think a lot of it is tied, as you suggested, to the war in Ukraine, because when the Cold War came to an end, the Europeans became less dependent on the U.S. as a security provider (given that the Cold War was finished). We saw that the main objectives in Europe were that of autonomy. They were speaking of using collective bargaining power to have an economic position that would make them an equal to the United States. The Europeans, even immediately in 1992, as the Soviet Union had just collapsed a month or two thereafter, began to discuss how we can develop our own military. Obviously, there was no threat, but this was also an effort to have more autonomy. They wanted their own foreign policy and to pursue this as well; that is, a collective EU foreign policy. So this is what you can do when the dominant state can’t convert security dependence into economic loyalty.
But what you’ve seen since the Ukraine war, though, when the external threats appear and the security dependence becomes evident, it’s quite predictable that the dominant power, the security provider, will then seek to extract economic and political concessions from its vassals or protectorates. And so I don’t know, from my perspective, this has been a key argument of mine since NATO started the conflict in Ukraine with the coup in 2014: Europe is putting itself in a very vulnerable position because the US, you know, it keeps saying friends and allies, which is nice and well. I mean, we are close and we should be close, but states behave like states. And when you make yourself excessively dependent on another state, it will seek to have some material benefits from this. But you mentioned that the conquest of Europe as it is…
MICHAEL HUDSON: Before you go on, you used the word security provider. That’s quite a euphemism. The United States is imposing unparalleled insecurity on Europe because you have Germany and France and Britain offering to provide long-range missiles to Ukraine in order to use against Russia and to launch against Russia, especially Moscow and St. (And the U.S., the European leaders, say, like Starmer yesterday, they want to bomb Russia) Petersburg – that are in range of these missiles that are to be sent. Well, both President Putin and Foreign Minister Lavrov have said: if a foreign missile is launched by Ukraine against Russia, we realize that our fight is not against Ukraine. Our fight is against NATO. This is a war between NATO and Russia. And if a bomb comes from a German manufactory, then we’re going to bomb the source. We’re going to bomb Germany, at least the factory in Germany, maybe the power plants that supply energy to this factory. Same thing in France, same thing in Britain.
Now, the question is: once you have intercontinental missiles flying from Russia, Russia doesn’t need atomic weapons. It has a much broader range of weapons than NATO countries have. And these weapons are not atomic. And the NATO countries themselves are pretty much out of weaponry. They’ve given them all to Ukraine and to Israel. And any thought of actually engaging in war, it is such a fantasy that it would be like Bambi meets Goliath. Russia would respond very quickly. And the result is because of the belligerence of von der Leyen and the Estonian assistant Kellas, this is putting Europe in insecurity and in great military danger.
There’s no danger at all from an armed military infantry invasion. And without a military invasion, you can’t control and gain control over another country. That’s what Russia is doing now in Ukraine. And you see the enormous problems that it has, even in Ukraine. What countries can do in the democratic form of war is by missiles, simply to destroy the other countries. Wars, the modern post-World War II, a modern type of war, is mutual destruction by missile, by air, whether it’s from submarines or land-based missiles. That’s the kind of war and hence insecurity that Europe is going to have.
So not only is Europe’s plan to sort of have a bastardized Keynesianism and military Keynesianism of, well, let’s spend our money on military industry, and that will maybe create the employment that we’ve lost in our civilian industry as a result of having to depend on American gas and oil instead of Russian gas and oil. But it’s going to threaten the actual existence of the European countries. Russia has made it clear that it has no interest in taking over Europe. It wants to be simply left alone. And Europe is obeying the United States, not simply in these tariff demands and the givebacks that Trump is making, but in a much deeper connection of following the U.S. Cold War, now increasingly hot war, leadership. That’s what’s essentially bankrupting Europe. It’s joined a new military axis that is in no way militarily capable of taking on Russia. And I think your military guests on your show have made this very clear over the last few months.
And the question is: why is it that Europe’s leaders, political leaders who are in charge of committing Europe, able to make this choice on behalf of their whole nations in the face of the public’s voters saying, you know, we want Europe to stand up for itself, to be more nationalistic. And if the social democratic and Christian parties are the pro-war military parties that are basically accepting our dependence on the United States and are giving up our hopes for growth by trade with Asia, Central Asia, South Asia, North Asia, East Asia, then we’re going to support a nationalistic opposition when there are elections.
Well, unfortunately, there are no full national elections coming up, either for Germany or for France shortly or for England. And so you see the problem that Europe is stuck with – a U.S. client leadership, not its own leadership. And this U.S.centered leadership is backed by a U.S. centered neoliberal mass media, the press, the television. The whole context, the whole narrative of economic development is twisted in Europe. They actually think that Ukraine has a chance to win, according to Starmer and Mertz and Macron. And there’s no chance of it winning. They think that the war is somehow leading to a Russian collapse. But Russia is self-sufficient. There’s no way that Russia can collapse from foreign sanctions any more than China or its allies can collapse from American sanctions because they’re self-sufficient.
Europe had this self-sufficiency before. It’s given it all up in exchange for dependency, not realizing that the cost of dependency, when you have an American leader such as Donald Trump acting on behalf of American large businesses and monopolies, and most of all, the military-industrial complex, is going to make demands that basically bankrupt Europe and reverse its GDP growth, reverse its living standards and impose austerity on it.
GLENN DIESEN: Well, the problem though is that when political leadership doesn’t pursue its basic economic national interests and subordinates itself in the way the Europeans are, you would expect a vacuum to emerge that is being filled by actors who would actually pursue national interest. And this is the problem because if you have leaders subordinating themselves, they might actually end up killing democracy as well because they will want to seek to prevent that vacuum to be filled by people who actually respond to public interest.
So in Germany you have IFD, which is now the most popular political party, and they want to restore the peace with Russia. But they label them an extremist organization. They’re discussing banning it. In France, I guess the closest you would have would be Le Pen, but she was arrested. As everyone knows, the presidential election in Romania went the wrong way, so they just cancelled the result.
And I was reading Politico today, actually; they’re having an election in the Czech Republic, and they might get a new prime minister. But Andrei Bavi is the one who is leading the polls. They might block him from being allowed to be prime minister because, and Politico cites one of the two major reasons is, he has an ambiguous relationship with NATO. He is not clearly supportive. But we did this to Ukraine too. When Zelensky won on that peace platform back in 2019, which 73% of Ukrainians voted for, many of the NATO countries’ financed NGOs drew a red line and essentially threatened Zelensky to abandon this idea. He wasn’t allowed to talk peace with Russia without having NATO in the room. So you have this when you have a political elite which doesn’t pursue national interest and they prevent anyone from filling the vacuum left behind by their incompetence. You’re going to kill democracy at some point, though.
MICHAEL HUDSON: That’s what has happened not only regarding Russia, but regarding Israel. If you make the claim that you’re against Nazism; if you make the claim that you’re against treating any national ethnic religion as being physically subhuman and a different species; if you say that everybody’s a human being; we’re the same species, you can’t have genocide, that’s a crime in Germany because you’re saying that the Palestinians are human beings. That’s a crime in Germany because the Palestinians, well, I don’t have to explain that. If you say in Ukraine that the Slavs, the Russian speakers, are not subhumans, that’s a crime. You’re having a resurgence of Nazism sweeping across Europe, centered in Germany as it was before.
And the result is that all of Europe has joined with Germany to say, let’s refight World War II in the belief that they can win this time. And I think part of this illusion is a whole generation of Europeans has grown up not only on American movies, but on a false idea of who fought World War II. The two main fighters of World War II were Russia, which lost 22 million people, and China, which lost 18 million people. This is far more than the Westerners, the Europeans and Americans, lost. It was the Russians who broke the Wehrmacht strength, and it was China that broke Japan’s strength that began in 1931 with Japan’s takeover of Manchuria.
The Europeans imagine that somehow they, really the Americans won World War II. And all the Americans did was pretty much put them on rations. It charged for the effort. They came in at the end. They very quickly ended World War II in Japan by using the atom bomb in Japan before the Russians had a chance to drive the Japanese out and lead to a communist domination of Japan. The same thing happened in Western Europe. The Americans delayed and delayed and delayed. The Americans wanted the European war to continue as long as it could, as long as it was killing Russians and Japanese.
This is how the Russian historians see the war. It’s how Chinese historians see the war. That’s not how the Europeans see the war. They think, well, we beat Russia before with American help. We can do it again with American help. In this way, just as we carved up the Near East after World War II and Africa between France, Germany, France, England, and the United States, we can do it all again. There’s this myth that has somehow created a false narrative guiding how Europeans think about what they can achieve in the future. And it’s a false narrative that is almost suicidally self-deceptive.
GLENN DIESEN: Well, on that fact, and it has to be stressed, is a fact that the Russians and the Chinese, or more correctly, the Soviets and the Chinese, were the ones who did the heavy burden, carried the heavy burden in terms of defeating fascism. But recently you have Kaja Kalas, the EU foreign policy chief, mocking it, saying, “Oh, these Chinese and Russians, they’re claiming that they defeated fascism. Oh, they don’t read books over there.” I’m not sure, I think she watches a lot of movies, perhaps, as well, thinking maybe World War II was won by Tom Hanks. I’m not sure where her information comes from, but she even mocked the idea in front of the camera that this was the case.
MICHAEL HUDSON: In our minds, there’s a different set of books. There’s one set of books for the majority of the world population. The German history books, the French history books, and the American, the English history books have all been rewritten in a more and more extreme distortion of what actually happened.
GLENN DIESEN: But there’s been polls over the decades since World War II from France and other countries where they ask, you know: who cared the greatest? Well, who more or less did the most to liberate France and save Europe from fascism? Immediately after World War II in France, I think it’s like 85, 90% who said, well, obviously it was the Soviets. Then you see through the decades of powerful propaganda, it ends up now, the most recent one, with a tiny minority. I think it’s like 18 or 21% who believed it’s the Soviet Union who did the most to defeat Nazi Germany.
So propaganda works. You just tell the same stories over and over again, and after a while, people buy it. And now we’re told that, well, World War II was actually caused by both the fascist and the Soviet Union. And it was the freedom and loving states of the West that beat fascism. I mean, it’s quite an extraordinary tale.
MICHAEL HUDSON: Well, that’s a false way of framing it. Was Europe saved from fascism? If you look at Europe today, it was not saved from fascism. If Europe was saved; it was for Fascism. Fascism was rescued by the United States almost immediately. The United States immediately hired the main Nazi bureaucracy and put them to work fighting the left wing. You had Operation Galatio in Italy. You have the terrorism organized by the CIA and American foreign policy. And the United States hired the Ukrainian fascists, the Nazis, to organize a Ukrainian nationalist movement. The United States saved fascism from being defeated by Europe.
Fascism was America’s response to socialism and a working class movement. Aldo Morrow was killed in Italy. European politicians were killed, just as Lumumba was killed in Africa, and Pinochet killed Allende in Chile. You had political assassination. You have a whole extension through America’s National Endowment for Democracy of creating non-governmental organizations that have acted as funding processes to bring what you can only call fascist leaders to Europe. Mertz is a fascist. There’s no other word for it. And you could say, the same as Kallas; you could say, the same as von der Leyen with her Nazi background family.
Was Europe saved for fascism? And if so, why is there a resurgence of fascism today – of supporting ethnic genocide in countries that the United States declares is necessary for its control of various regions of the world? This is really the fight. You’re quite right in pointing to the crackdown on civil rights, on free speech. That’s fascism. You’re seeing the same kind of takeover in the United States in the last week or so, just by Donald Trump – imposing a new epoch of McCarthyism, like the 1950s – attacking what he calls the left as if somehow the left was in charge of assassinating Charlie Kirk.
You’re having something political occur from Europe to the United States that I don’t think anyone at the end of World War II, in the whole optimism of that time, was believing – that because they defeated Germany and Italy, they defeated fascism. The fact is that this brought back the class war between American dominance and oligarchy – and socialism, to put labels on it. And that fight has gone on. There’s this ongoing fight against socialism and against democracy.
The movement of Europe has not been towards democracy. It’s been away from it. It’s been towards dependence on an increasingly undemocratic imperialism and even dictatorship by U.S. neocons and neoliberals that are trying to push for a refight of World War II – against Russia and China this time. And just as they (Russia and China) won, they were able to end up defeating fascism, whether it’s German or Japanese, in World War II. The same thing would happen today, but the fight is going to be much more violent and fought by missiles, not by infantry.
GLENN DIESEN: Yeah, this idea that the U.S. wouldn’t have worked or supported fascists, that this was only an anti fascist alliance, is kind of interesting because – I just looked it up here– a quote by Harry Truman before he took the presidency said, “If we see that Germany is winning, we ought to help Russia. And if Russia is winning, we ought to help Germany.” In that way, let them kill as many as possible. And towards the end of the Second World War, we also had the British who then developed this plan called Operation Unthinkable, developed in May of 1945 when the war was coming to an end, which entailed not just the US and Britain, but also using what remained of the fascist army to attack, do a surprise attack on the Soviet Union immediately after the common victory. But you know, give this 80 years of Hollywood, and we have a very different story. I did want to shift a bit back towards the economic conquest, if you will, of allies, because we mentioned the Europeans, but the U.S. also has some, I guess, loyal allies in East Asia. I’m thinking of Korea, Japan, and Taiwan, each of them also have strong, well, let’s call it security dependence on the United States. How is the US trying to, I guess, put a squeeze on these, well, two countries and one island, let’s say?
MICHAEL HUDSON: Well, again, the word “security dependence” is a euphemism. It’s Orwellian doublethink. Japan has talked about rearming, and it’s even talking about perhaps becoming an atomic power again. If Japan rearms, this is going to immediately lead China to defend itself. Japan’s already met a devastating loss in World War II. There’s no way in which Japan can be a real military threat to anyone. Certainly, the North Koreans, like the South Koreans, have no love for Japan at all because of its brutal occupation of Korea for so many generations. There’s almost a hatred of Japan there via the Liberal Democratic Party being installed by the United States as America’s compact with the Japanese Yakuzas, the criminals.
MacArthur in Japan and the U.S. State Department made deals with the criminals to go and beat up, attack the socialist demonstrations. There was a chance of socialism in Japan after World War II, a reaction by the Japanese. The American alternative was to make Japan basically a largely criminalized mafia-like oligarchy controlled by the LDP. Well, the recent elections now are for the first time threatening to dethrone the pro-U.S. Liberal Democratic Party and put in a more nationalist party. All nationalism means, it doesn’t mean the Japanese nationalism of the 1930s, military style. It means independence from the United States. The aim is not to put Japan at risk of any kind of war again.
Well, again, Japan is host of the U.S. military bases. A few weeks ago, you had China’s great military demonstration very explicitly showing missiles that they pointed out: This missile can hit Guam, America’s military outpost in the West, the Pacific. It can hit the other Japanese military outposts. So it’s not that Japan’s risking its security. The same thing with Taiwan. There’s a very heavy Taiwanese investment in mainland China. There already is a kind of economic symbiosis between the two countries, but the United States is trying to drive a wedge in that.
The Chinese have said, you know, if for any reason you’re able to co-opt the Taiwanese leaders in the way that you’ve co-opted, say, the European leaders, we’re going to hit down very hard. And it’ll be no contest. Your naval fleet are just sitting ducks. Your naval power that helped win World War II is no longer an active military tool because we can wipe them out in one day. The entire Navy. Navies are obsolete as the tool for control which they were for so many centuries when Britain had the greatest Navy in the world. The whole idea of navies for Britain was to deal with economic development around the seacoast. That was because Britain was promoting foreign trade and inter-commercial interdependence among countries.
Well, China has tried to counteract this whole McKinley type strategy of controlling the periphery of continents by trade. China is developing internal connections through the Belt and Road Initiative with railways, pipelines, highways, all sorts of interconnections. So the whole vehicles of foreign trade are now becoming more inland and domestic. What that does is create domestic regional spheres of influence and self-dependency to become independent.
The effects of the United States demands, that it’s made on everyone from Europe to Asia to Latin America, are so overreaching that they’ve created a reaction against the whole last two centuries of liberalism that saw foreign trade and interconnections as a, I won’t say a rules-based order, but an economic order of stability. You have these interconnections now being weaponized. Trump has weaponized foreign trade, both foreign access to the U.S. market for European and other exporters, and the ability to import basic needs that the United States controls, headed by oil and also agriculture, and now by high technology electronics, trying to create, trying to weaponize all this trade to create a form of dependency that the United States can use as a demand: We will destabilize your economy if you don’t give in to our demands.
The real reason, going back to your first question again – why is the United States treating Europe that way and trying to treat the BRICS countries the same way? That’s because the United States is no longer industrialized. It’s deindustrialized. It’s made all this growth of wealth since 2008, the junk mortgage crisis, the stock, bond, and real estate markets. It’s financial wealth. It’s not the wealth of real production. It’s not the wealth of living standards. Living standards have not risen for more than half of Americans since 2008. It’s all been so concentrated in the wealthiest 10% that the wealthiest 10% of Americans are responsible for 50% of all the growth in consumption goods.
But of course, the consumption goods of the wealthy, wealthiest 10%, are not the same kind of consumer goods that the bottom 90% buy– food and basic needs. They’re luxuries, they’re Andy Warhol etchings, and they’re trophies and Italian fashions. All of this was, way back in the 17th century, 18th century, was being debated and realizing that the financial sector does not really behave like an industrial sector.
We’re seeing a whole transformation in the dynamics of what capitalism is all about, what economies are all about. Well, you and I have talked about that before – all of that has a political dimension. The political dimension means that if America is to avoid an even deeper squeeze on its living standards today, it has to get support from other countries – to get from them the wealth and the imports and the money and the subsidies to keep its economy going that its domestic economy can no longer provide.
So the United States has lost its ability to be self-sufficient, and its response to Europe is to destroy Europe’s ability to be economically and commercially and financially self-sufficient. While the BRICS, Asia, now in conjunction with the Global South, Africa, parts of Latin America, are putting their own self-sufficiency as a chief economic aim so that they will not become subject to the U.S. browbeating and extortion and the threats of disrupting their economies. If you insulate your economy from the United States, there’s nothing it can do to you to impose sanctions or to raise tariffs or to weaponize its import and export trade and financial trade.
GLENN DIESEN: Well, this is why the whole U.S. led alliance system has changed so fundamentally. Because after World War II, the United States actually had some extremely generous trade agreements with frontline states, be it Germany or all the Europeans for that sake, or South Korea, Taiwan, Japan. So it’s just in this era… All countries are now faced with a dilemma as the US is seeking to extract concessions. That is, either they fall into the demands, but by doing so, of course, they have to sever themselves off from other countries and then isolate themselves more, make themselves more dependent on the US, or they seek full autonomy by actually diversifying. But then they have to lean more into BRICS, SEA and similar institutions. But there’s not that many middle grounds anymore. I think that’s why the US overreach with India was so spectacular, because the assumption was they could make Europeans out of them in terms of their cutting themselves off from all other centers of power, subordinating themselves to the US and signing whatever they put in front of them. It turned out that they had to go the other way.
But the fact that Modi had to go to China kind of pointed out, from my perspective, this dilemma that there is no middle ground anymore. Either you have to subordinate yourself or you have to protect yourself by diversifying, but then you have to lean into the multipolar institutions. So it’s a fascinating time. It’s an interesting social experiment as well for that sake. I’m not sure if you have any final thoughts before we wrap up.
MICHAEL HUDSON: Only the countries that America defeated in World War II have turned into surrender monkeys. Japan has become an abject victim of the Stockholm Syndrome. And of course, Germany. They’re the two countries that have given in. And the other great opponent of the United States in World War II was, of course, Britain. The British loan of 1944 and the trade agreements that you just mentioned that were favorable to other countries were aimed specifically at breaking up the British Empire. By opening international markets, they ended British imperial preference. That meant that all of the foreign exchange, the earnings made by India and Argentina and other global south raw materials exporters, were no longer required to be spent within the British Empire, but could be spent anywhere.
Well, Britain’s economy was destroyed, and so that meant free to be spent in the United States. Trade agreements were made, it’s true, with Germany, with European countries. Of course, the United States favored the trade there because the European companies were being bought out by American multinational firms. What was supported above all in Europe were the international firms. That’s exactly what the fight is this week, in the last month, by Trump against England and the EU. Today’s Financial Times has a whole wonderful article: Britain must stand up to U.S. pressure on tech rules. This is about the digital services tax of Europe.
Europe at least is trying to impose a digital services tax on American technology firms because they’ve been able to use Hollywood accounting to avoid having to pay income taxes there. And Trump has told England, Britain, if you try to stand up to us and impose your digital services tax on American companies or try to limit what my contributors in Silicon Valley want to do, we’re going to raise tariffs on you again, despite the agreement we made last spring.
Well, if he can say it to Britain, he can certainly say it to the EU. He made it very clear to the EU that if anything the EU does that is at the cost of American firms, as long as these multinationals contribute to Trump’s Republican campaign and his personal campaign and invest personally in his cryptocurrency scams and the other scams, he’ll just squeeze these, tighten the screws onbthese countries. So that’s basically what’s been happening there. I guess that’s my final thought.
Europe has succumbed to giving all of the diplomatic, trade, commercial, and financial initiative to U.S. planners who are not making open-ended trade and financial agreements that benefit all countries. But as Trump said, the United States has to be the winner in any deal that it’s making with foreign countries. And that’s why the United States is not making international deals anymore. Trump says, we’re going to make deals on a country-by-country basis. We’re going to divide and conquer. It worked for Britain for a couple of centuries. It’ll work for us. And as long as we can play different countries against each other, and it’s us, the U.S. economy versus much smaller individual economies, they’d rather hang separately. As long as we can make them willing to hang separately instead of hanging together, then we’ve won the diplomatic fight for control.
GLENN DIESEN: Yeah, well, I think the fault of the Europeans is that they think they should just wait out Trump as if this is only about Trump. I mean, I think he’s quite extreme and radical in his approach in terms of recognizing a problem and seeking to solve it. But I think the alternatives, well, the Bidens of the world, wouldn’t necessarily go in a very different direction. Of course, it might be a bit milder, but the overarching problem isn’t, I mean, we tend to focus on personalities, but what is the end stage? I mean, how else is this ex-capitalist system, being so exhausted – what else is it going to do? I mean the U.S.– if it can’t compete anymore. It’s losing the technological lead; it’s drowning in debt; there are massive economic inequalities fueling social and political problems. I mean, one sees that this has reached the end of the line. There are no more ways to deal with the coming financial crisis. You can’t put the interest rate down or up. As either it’s going to collapse the dollar or it’s going to make the debt repayment unmanageable.
So, it is a brick wall, it seems. I think Trump deals with this in a, let’s say, a very authoritarian way. But the idea that we can just go back to the way things were, I think this is quite delusional. It’s wishful thinking.
MICHAEL HUDSON: Well, that’s the whole problem, Glenn. You put your finger on it. The way things were, the way things are today is not how they were in 1945. There was still an active left wing in Europe. There was a chance of Europe going socialist in a mixed economy. And certainly, the British Labour Party in the 1940s was progressive like that. There were progressive movements throughout Europe. All of that was counteracted by the United States to prevent that.
And you had the old European moneyed aristocracy fighting against this, pushing essentially for neoliberalism, for a dismantling of government strong enough to regulate the financial oligarchies that were emerging and making fortunes on a mutual interdependency with American multinational firms and multinational investments. And the whole world economy was restructured in U.S.-centric lines that have led to this problem.
So in order for Europe to prosper again, it needs to rethink the whole direction of history. And of course, that’s what you and I have been talking about for the last few months. They have to reinvent the economic wheel to analyze: how do we create a mixed economy that’s going to promote growth, rising living standards, and industry instead of creating financial fortunes American style that’s leading to our deindustrialization, just as it’s led to America’s deindustrialization. How do we end up avoiding looking like the United States? What is China doing right in its takeoff that really is following the very policies that made Britain and Germany and the United States industrial powers in the late 19th century?
GLENN DIESEN: Well, that’s an interesting part when they, the way that China’s capitalism is defined as managed capitalism, all these strange words, which, but if you look at it, it’s very, very similar to the industrial capitalism of the U.S. itself in the 19th century. But yes, Michael Hudson, as always, thank you so much for sharing your insights. And I will leave a link to your blog in the description as well. So thank you again.
MICHAEL HUDSON: Thank you very much, Glenn, for the compliments.
History will register that the first week of September 2025 propelled the advent of the Eurasia Century to a whole new level.
By Pepe Escobar at Sputnik.
That was the expectation ahead of three crucial intertwined dates: the SCO annual summit in Tianjin; the Victory Day parade in Beijing; and the Eastern Economic Forum in Vladivostok.
Yet expectations were even surpassed considering the breadth and scope of what just happened.
The SCO in Tianjin solidified the Chinese push for the establishment of true Global Governance – which in practice means the unceremonious burying of the “rules-based international order” that under the new US administration has metastasized into a no-rules based international chaos: essentially an ethos of “we’ll blow up the world if we are not able to control it.”
Tianjin had not only the 10 SCO full members but also 2 observers and 15 partners – with a heavy Southeast Asian presence – discussing the finer points to be observed for peaceful development. The pic of the week, if not the year or decade, was the Putin, Xi and Modi trilateral handshake: the return of the original, Primakov-coined RIC (Russia-India-China) in full force. As Professor Zhang Weiwei of Fudan University remarked in Vladivostok, the SCO is now expanding steadily in three platforms: energy; clean industries; and AI. In parallel, Central Asia is finally being seen as a “geographical blessing”, and not “a curse”.
Immediately after Tianjin, the Russia-China strategic partnership also shot up to a whole new level, as President Putin was received by President Xi at the Zhongnanhai, the official residence of the Chinese head of state, for an across-the-spectrum state of the planet recap.
The next day Beijing was resplendent under blue skies overseeing the stunning military parade celebrating the 80th anniversary of the Chinese victory over Japanese invasion and the Asian chapter of Nazi-fascism. That was a confident geoeconomic superpower showing off its military progress.
On the same day the Eastern Economic Forum started in Vladivostok: an unrivalled platform for discussing the surge of pan-Eurasia business.
What China has proposed, actually reiterated in Tianjin, goes way beyond the concept of wangdao, referring to an enlightened, benign power, but not a Hegemon. What could be described as the trademark motto of a Pax Sinica under Xi could be summed up as Make Trade, Not War – and for the common good, or community of a shared future”, in Beijing terminology.
SCO partners, as well as BRICS partners, fully understand that China does not intend to replace Pax Americana, which always relied on the – now aptly renamed – Department of War’s gunboat “diplomacy”. Whatever hysteria fits the West may throw – manipulating Tibet, Hong Kong, Xinjiang, South China Sea, Taiwan – won’t deviate Beijing from its civilizational inclusive path.
The birth of a new logistics order
The road from Tianjin to Vladivostok mostly evolved on three interconnected fronts; oil and gas; connectivity corridors; and massive economic development.
The collective West simply cannot get rid of its pathology of perennialy underestimating the East. For years, both BRICS and SCO were derided in Washington as irrelevant talk shops. But it’s the multilateral spirit that allows something groundbreaking like the Power of Siberia-2 to come to light.
Power of Siberia-2 was planned several years ago, but it was difficult to find consensus on the final route. Gazprom preferred Western Siberia to Xinjiang, across the Altai mountains. The Chinese wanted transit via Mongolia, straight into central China.
The Mongolian route eventually prevailed. It was decided two years ago, and in the last few weeks, the final pricing mechanism, respecting market rates. This massive geoeconomic game-changer means that the gas from the Yamal peninsula that would supply Europe via the Nord Streams will supply China.
President Putin’s expose at the plenary session in Vladivostok placed particular emphasis on energy and connectivity.
But to track the devil in the details nothing could beat the arguably two top panels at the forum.
One of them discussed the integrated development of the Arctic and the Russian Far East, with special insights by Vladimir Panov, who not only is Rosatom’s top expert on the Arctic but also the Deputy Chairman of the State Commission on Arctic Development.
Another panel really dug deep , tracing a parallel between the origins of the Northern Sea Route (NSR), 500 years ago – when Russian diplomat Dmitry Gerasimov drew up the first draft of the Northern Sea Route and the first map of the Arctic Ocean and Muscovy coastlines – and the 21st century technology challenges.
This panel featured a particular striking expose by the CEO of Rosatom, Aleksey Likhachev, complemented by experts such as Sergey Vakhurov, the Deputy Chairman of Russia’s Maritime Collegium. Likhachev detailed the complex shaping of an Arctic corridor, carrying mostly raw materials: a resilient transport corridor for the whole of Northeast Asia.
That’s no less than the birth of a new logistics order – think IA- based weather forecasting plus icebreakers – featuring critical Russian input.
Pepe Escobar wraps up Eastern Economic Forum: Key takeaways on Russia’s global strategy
EEF’s focus was on Russia’s Arctic and Far East development, high-tech growth, energy exploration, and connectivity corridors
— Sputnik (@SputnikInt) September 6, 2025
Will Vladivostok become the next Hong Kong?
So, as Putin stressed in his presentation at the plenary session, the heart of the matter is the Trans-Arctic Transport Corridor: arguably the key 21st century connectivity corridor.
Thus it’s no wonder Vladivostok’s discussions centered around the key role of nuclear energy and nuclear icebreakers in assuring stable shipping along the NSR route, side by side with environmental concerns and the trials and tribulations of securing large-scale investments in energy production, processing and infrastructure building.
All that merged with a timely discussion of the Greater Eurasia Partnership – the crux of Russian geoeconomic policy – with key inputs by Alexey Overchuk, the Deputy Chairman of Russia’s government, and the affable Suhail Khan, the Deputy Secretary-General of the SCO.
An absolutely key takeaway of all these discussions was the startling realignment being operated by Rosatom – which is simultaneously expanding business with China, India and South Korea along the ultra-strategic NSR.
That means, in essence, Russia evaluating all vectors when it comes to organizing full-scale convoy systems for 365 days a year of Arctic navigation: nothing less, once again, than a new economic and technological order.
Now couple all that with a lively discussion of how the Global South and East will be leading the new growth economy.
Sberbank’s CEO Herman Gref, for instance, disclosed that the largest Russian bank has become the second largest in transactions globally, only behind JP Morgan.
Wen Wang, from Renmin University, remarked how China is undergoing a very strong de-Americanization process, in education and tech, pushing “its own knowledge system”.
He foresees huge Russia-China cooperation potential – economic and financial, emphasizing there is a pressing necessity to open financial markets on both sides. That’s how Vladivostok could become the next Hong Kong. Several panelists at the forum observed that Vladivostok has all it takes to become a strategic center for Global South integration.
The Arctic will be at the center of possible business deals between Russians and Americans; serious discussions have been going on since March, including in the recent Putin-Trump meeting.
Amidst the colossal logistics challenges, an economic breakthrough in the Arctic, next to and within Alaska may eventually represent for the US a ticket out of an economic catastrophe. So here the Arctic – which is de facto dominated by Russia – may in the end become a privileged arena to domesticate the Empire of Chaos.
After all Russia has already built extensive, complex infrastructure in the Arctic – upgraded in real time. Mammoth ports, LNG processing, whole cities of workers and technicians, the enormous advantage of the nuclear icebreaker fleet (nine in action, with two more coming), all these advances are Russian intellectual property that can be exploited in dealing with the US.
In the end, these heady few days last week solidified The Future. Grandmaster Lavrov once again delivered the succinct version – commenting on the triple handshake of Putin, Xi and Modi: “A demonstration that three great powers, representing three great civilizations, recognize the commonality of their interests in several areas.”
That’s way more: that’s a new world in the making.
… the Tianjin SCO summit is a collective demarche by Eurasia, which has united against the United States, the European Union, and their regional allies…
By Rostislav Ishchenko at Ukraine.ru.
(machine translation)
The meeting of the Shanghai Cooperation Organization states that opened in Tianjin today is undoubtedly a diplomatic triumph for China. This was clearly intended by the main participants, including Russia and India.
And the West is to blame for this.
Let’s start with a formal note: all the participating countries are represented by their heads of state or government. The President of Russia has arrived for a four-day visit, combining his participation in the SCO summit with a state visit to China. The events related to the latter will take place in Beijing. By the way, Putin’s schedule is extremely busy, with numerous meetings with the leaders of the participating countries, which indirectly confirms the importance and significance of the summit.
In general, it should be noted that although the SCO summits are held in member countries on a rotational basis, all the turning points in the organization’s life have occurred in China. The founding meeting of the then-called “Shanghai Five” (Russia, China, Kazakhstan, Kyrgyzstan, and Tajikistan) was held in Shanghai. The 2001 meeting, which led to the establishment of the SCO after the admission of Uzbekistan, also took place in China (also in Shanghai).
In addition to SCO members, observers and dialogue partners, representatives of five other Southeast Asian states (Indonesia, Malaysia, Maldives, Laos and Vietnam) have arrived at the current summit in Tianjin (also China). I do not presume to say that they will gain any status in the SCO as a result of the meeting, although this is not excluded. For example, why don’t they become observers or dialogue partners? But the very fact of the arrival of representatives of these countries is very important.
The fact is that China’s relations with Southeast Asian countries are extremely complex. They have traditionally been wary of China’s ambitions and Beijing’s claims to dominance in the region. Vietnam and Malaysia have territorial disputes with China that are just as complex and long-lasting as the Chinese-Philippine dispute, which the United States is currently using to escalate military tensions in the region in order to increase pressure on China.
Washington has recently (as recently as August of this year) made attempts to draw Indonesia, Malaysia, Vietnam, Laos, and India into the anti-Chinese alliances being formed by the United States in the Indo-Pacific region. The presence of the leaders of these countries in Tianjin indicates that the choice has not been made in favor of the United States. This is due to the fact that the agenda of the meeting focuses on discussing security issues, both military and economic. The main threat to the countries in the region comes from the military activities and economic policies of the United States.
It is no coincidence that I wrote that the West, primarily the United States, is to blame for China’s diplomatic triumph, which was achieved through joint efforts with India and Russia. The Russia-India-China triangle, which forms the basis of the SCO, had its own challenges. In fact, it still does. However, these challenges are being actively addressed, and the countries are actively seeking and finding mutually acceptable compromises, as they recognize the aggressive policies of the United States and the West as the primary threat to their interests.
The very beginning of the SCO – the creation of the “Shanghai Five” – was the first global format to bring Russia and China closer together strategically. The “Shanghai Five” helped to resolve relations between Moscow and Beijing in Central Asia (primarily with the buffer countries bordering both powers), as well as with the Central Asian states themselves. At the time, both Russia and the Central Asian states had serious concerns about China’s plans for military, political, and financial-economic expansion in the region.
It is unknown whether Russia and China’s relations would have reached the level of strategic cooperation (especially so quickly) if it weren’t for the West’s openly aggressive policies, which left the countries of Eurasia with no choice. The alternative to uniting the countries of the region through compromise to fight for their interests against the West was to capitulate to it and become dependent states subjected to neo-colonial exploitation. The further rapid growth of the SCO, which included even countries that had been at odds with each other for many years, was also predetermined by Western policies, which caused greater concern and rejection among the countries of the region than any old local conflicts. The region was fighting “for its borders,” while the West was fighting “for its life.”
The current meeting is taking place against the backdrop of the Trump administration’s announced shift in U.S. foreign policy towards China. Instead of presenting mutually beneficial proposals, the U.S. has come to Beijing with an arrogant demand to abandon its own interests in order to support an ineffective U.S. economic and military policy aimed solely at restoring the irrevocably lost American global hegemony, which allowed for a neo-colonial plunder of the planet.
The Americans needed the support of countries in the region, as well as global players such as Russia and India, to succeed in their anti-Chinese policy. Instead of looking for ways to bring their positions closer to Moscow and New Delhi, Washington has found nothing better than to try to put pressure on them. Russia is being persuaded to accept unfavorable peace conditions in Ukraine, although the United States needs a temporary (until victory over China and switching to Russia) stabilization in the European direction.
Economic sanctions are being imposed against India in the form of increased tariffs, trying to force it to accept US demands that are unfavorable for its economy. Moreover, the requirements not to buy Russian energy carriers (which the United States itself buys and resells to its allies at a surcharge) are secondary. Major increased tariffs on Indian exports to the United States were introduced earlier, in an attempt to force New Delhi to accept artificial restrictions on the profitability of its trade with the United States.
The United States has lost its ability to compete effectively with foreign producers. They no longer need (because it is not profitable) freedom of trade. They want to open up other countries’ markets for themselves and close their own markets to others. They are willing to achieve this goal not only through economic means, but also through military force where they cannot be defeated.
This is why the topic of military, political, and economic security in the region will be the main focus of both the summit and bilateral negotiations. This is also why Russia, India, Indonesia, and other Eurasian countries have not only agreed to the summit format as a Chinese diplomatic triumph, but have also helped to organize it.
In form, this is China’s response to the United States, its final warning in response to attempts at aggressive pressure. In fact, the Tianjin SCO summit is a collective demarche by Eurasia, which has united against the United States, the European Union, and their regional allies, to postpone or even successfully resolve existing problems and conflicts in the face of a global threat from the West.
The success of the summit in Tianjin, which means the further expansion and internal strengthening of the SCO, is guaranteed by the very fact of a united (even though this unity is beginning to crack under the weight of unsolvable problems) and extremely aggressive West.
Stablecoins and the GENIUS Act: Money, Illusion, or Geopolitical Weapon?
Two experts clash over stablecoins and Trump’s GENIUS Act: Are they deceptive financial assets or strategic weapons in the new U.S.-China currency war?
Think BRICS
, Xiaoguang Yin
, and Megas Alexandros
In an era of rapid financial innovation and intensifying geopolitical competition, the very nature of money and its control is being reshaped. The present issue features two articles of particular interest by two of our collaborators: the Italian MMT analyst Fabio Bonciani and the Chinese geopolitical expert Xiaoguang Yin. Both authors explore this intricate terrain, centring their analyses on stablecoins and the recently enacted GENIUS Act, which was signed into law by the U.S. President, Donald Trump.
Both pieces acknowledge the growing strategic importance of stablecoins and the U.S. government’s move to regulate them through the GENIUS Act, a legislative effort driven by Donald Trump within the broader context of U.S.-China economic rivalry. However, they diverge sharply on the fundamental implications of these developments, inviting us to question deeper truths.
Bonciani’s perspective argues that stablecoins, despite regulatory attempts to stabilize their value, are not true money but merely “financial assets”. This view suggests the Act is another “fraud” perpetuating a false narrative about money’s scarcity, rather than adding real value to the economy.
Conversely, Yin’s analysis provocatively labels stablecoins as “the cancer of banks”. This perspective asserts that Trump’s true motive behind promoting stablecoins and the GENIUS Act is to strategically weaken the U.S. banking industry and reclaim the right to issue dollars from the Federal Reserve, which is described as a private entity controlled by Wall Street. Furthermore, it suggests stablecoins are a tool in a new “currency war” to attack China economically by facilitating capital flight.
These narratives present a fascinating dichotomy: are stablecoins a deceptive tool hindering our understanding of sovereign money, or are they a disruptive force designed to dismantle established financial power structures and serve as a weapon in global economic warfare?
We invite you to immerse yourselves in these two distinct yet interconnected viewpoints. What do these differing interpretations reveal about the future of money, the role of states, and the unseen battles for financial dominance?
Stablecoins: The Battleground of the New US-China Currency War
2025/08/10 – by Xiaoguang Yin
US President Trump recently signed the Genius Act, which clearly articulates the US’s strategic intention to develop stablecoins.
Simultaneously, China announced a pilot program for a RMB stablecoin in Hong Kong. These steps indicate that a currency war between China and the US over stablecoins is underway.
Stablecoins: The cancer of banks
There was a popular saying in the cryptocurrency world: stablecoins are the cancer of banks. This saying profoundly reveals the essence of stablecoins.
Why do people in the cryptocurrency world say this? To understand this, we need to start with the essence of stablecoins.
Stablecoins are a type of cryptocurrency whose payments and settlements occur on the blockchain.
The blockchain uses encryption algorithms and distributed technology to ensure its security and anonymity. Therefore, stablecoins, like other cryptocurrencies, have transaction anonymity.
Stablecoins differ from other cryptocurrencies in that they are pegged to valuable assets, hence the name.
According to the US Genius Act, stablecoins issued within the US must be pegged to assets such as the US dollar and US Treasury bonds at a 1:1 exchange rate.
In other words, $1 of a stablecoin (USDT, USDC, etc.) is backed by $1 worth of US Treasury bonds.
From this point on, the US dollar stablecoin began to become a cancer for banks. This cancer is not a metaphor, but a real cancer.
Having written this, I have to quote the analysis of stablecoins by American economist Perry Mehrling. In the report on stablecoins written by him and others for BIS, “On par: A Money View of stablecoins”, he conducted a detailed analysis of stablecoins.
Simply put, according to Mehrling, stablecoins will have a “balance sheet shrinking” effect on the traditional banking system, especially when stablecoin companies (such as Tether and Circle) purchase US Treasury bonds to issue dollar-denominated stablecoins (such as USDT and USDC).
This is because US law stipulates that one dollar of a stablecoin can only be backed by one US Treasury bond. Unlike commercial banks, stablecoins cannot “create bank deposits out of thin air.” Traditional commercial banks can “amplify” central bank reserves through the so-called “money multiplier” by extending loans, but stablecoin companies do not have this “privilege.”
More importantly, stablecoin companies purchase US Treasury bonds at the Federal Reserve (because they need to transfer funds to the US Treasury’s account at the Fed to purchase US Treasury bonds), rather than at traditional commercial banks.
Therefore, when stablecoin companies purchase US Treasury bonds to issue stablecoins, the Federal Reserve’s reserves decrease, which is the “balance sheet shrinking” effect.
If the Federal Reserve’s reserves were to decline to a certain level (e.g., below $3 trillion), it would create a serious crisis for commercial bank transfers. This is because commercial banks rely on the transfer of central bank reserves, rather than simply transferring funds from one commercial bank to another.
As stablecoins continue to be issued, the Federal Reserve’s reserves would continue to decline. Once they reach a certain level, it would trigger a crisis for traditional commercial bank transfers, leading to a wave of bank failures.
This is why the cryptocurrency world calls stablecoins “the cancer of banks.”
Trump’s plan: compete with Wall Street for the right to issue dollars
It is already clear that the so-called “genius bill” signed by Trump and the stablecoin it promotes will obviously pose a serious threat to the financial security of commercial banks and even tens of thousands of depositors in the banks.
But Trump doesn’t care about this, because his goal is to take back the right to issue US dollars from the Federal Reserve controlled by Wall Street.
We all know that the Federal Reserve, established in 1913, controls the issuance of the world’s most powerful currency, the US dollar.
However, few people are aware that the Federal Reserve is not a federal government agency but a private corporation. Its monetary policy is controlled by the 12 regional banks, with the Federal Reserve Bank of New York being the undisputed leader.
Of course, the shareholders behind these Federal Reserve regional banks are Wall Street financial power groups such as JPMorgan Chase, Citigroup, and Bank of America.
Therefore, the US dollar, which circulates freely around the world, is not controlled by the US government or the US president at all. It is only in the hands of Wall Street, which is not bound by any democratic procedures. Many US presidents have paid their precious lives in order to compete with Wall Street for control of the US dollar, including President Kennedy.
After President Kennedy came to power, to fight against the private Federal Reserve and regain the right to issue US dollars, he signed the little-known Presidential Order No. 11110. This order instructed the US Treasury to use silver to issue silver dollars to compete with the US dollars issued by the Federal Reserve.
President Kennedy’s counterattack plan certainly touched the interests of the financial power groups on Wall Street. In a rage, these Wall Street tycoons brazenly killed President Kennedy in full view of the public. For Wall Street, killing President Kennedy was not an assassination, but more like a public execution aimed at warning those who dared to confront Wall Street.
This time, Trump has returned with a lot of public support in his second term. Of course, he cannot let Wall Street go, because if Trump wants to implement his “grand plan” of “making America great again”, he must take back the right to issue US dollars.
However, a direct attack on the Federal Reserve is obviously not feasible, as it may anger Wall Street and bring about fatal disasters. Therefore, Trump had to use a backup plan, which is to fight against the Federal Reserve by vigorously supporting stablecoins.
Trump keenly observed the huge development potential of stablecoins and cleverly linked the issuance of stablecoins to U.S. Treasury bonds.
In this way, stablecoin companies will purchase a large amount of U.S. Treasury bonds in order to issue stablecoins. The act of purchasing U.S. Treasury bonds will reduce the Federal Reserve’s reserves and trigger a crisis in the U.S. banking system.
Trump wants to use stablecoins to harm the U.S. banking industry as a bargaining chip and force Wall Street to hand over the Federal Reserve’s currency issuance rights to Trump.
Of course, the Wall Street giants, who have fought their way through centuries of blood and gore, will not surrender so easily.
They have strongly responded to Trump’s plan. According to the latest news, JPMorgan Chase has brazenly closed Trump’s account with them, and other major New York banks have refused to provide banking services to Trump.
The ostensible reason is to “prevent money laundering and other illegal activities,” but the real reason is, of course, that Trump’s stablecoin has seriously harmed Wall Street’s interests.
The conflict between Trump and Wall Street has reached a fever pitch, and the war between the two sides is likely to continue.
China: Trump’s main target
In addition to regaining the right to issue US dollars, the main purpose of Trump’s second term is to launch a tariff war. The fundamental purpose of Trump’s tariff war is to bring manufacturing back to the United States and complete the so-called “Make America Great Again” strategy.
As the world’s most powerful manufacturing country, China naturally became Trump’s main target.
Therefore, upon the start of his second term, Trump immediately deployed tariffs against China. However, the consequences were as we all witnessed: the US 10-year Treasury bond surged to a dangerous 5%, nearly triggering a collapse of the US Treasury market.
Furthermore, China also cut off its supply of rare earths to the US. According to reliable sources, US military production has been severely impacted by this cut.
It is obvious that Trump’s conspiracy to force China to make concessions through a tariff war has completely failed. Therefore, in a rage, Trump once again launched a strategy to attack China, that is, the US dollar stablecoin.
The US dollar stablecoin can allow wealthy people in China to easily evade the Chinese government’s financial supervision and flee their assets overseas through the US dollar stablecoin. Doing so can maximize the impact on China’s asset prices and, at the same time, hit the Chinese government’s fiscal revenue, ultimately achieving the goal of defeating China through both fiscal and financial means.
What is even more worrying is that Trump’s crackdown strategy seems to be having a disturbing “effect”
According to unconfirmed reports, Paolo Ardoino, the CEO of Tether, the company that issues the USDT stablecoin, privately revealed that China has become the region with the largest growth in USDT, far exceeding that of the Middle East, Africa, and other regions.
This is truly astonishing. If this information is true, it means that China is under severe attack from USDT, which deserves high vigilance for all Chinese people.
From this incident, we can also see that Trump is determined to defeat China and has a sinister plot to destroy China’s economy. This is another example of Trump’s “maximum pressure” on China.
Furthermore, we have to admit that the main battlefield of the new Sino-US currency war is in the field of stablecoins.
The war has already begun, although it is a war without gun smoke.
Trump’s “Genius Act” and Stablecoins: The World Needs Government Currency, Not Additional Payment Methods!
2025/08/06 – by Megas Alexandros
(alias Fabio Bonciani)
For days now, all anyone talks about is the GENIUS Act — an acronym for “Guiding and Establishing National Innovation for” U.S. — a law recently passed by the United States Government designed to regulate stablecoins, a category of cryptocurrencies conceived to maintain stable value.
Money, as we know, is everyone’s primary desire, because in an economy driven by state currencies, the need for money to satisfy our needs is a constant in our daily lives.
Unfortunately, rather than being used to exchange goods and services, money today is increasingly used as an instrument of power and control by those who possess enormous quantities of it against those who are instead forced to live within the cage of its scarcity. This social phenomenon thrives thanks to the fraud that politicians, the press, and the vast majority of economists perpetrate regarding the real nature of money itself, its issuance, and who is responsible for its creation.
Faced with the problem of money scarcity, with the majority of people decisively demanding greater availability, yet another fraud is being developed, orchestrated by those who command us. Specifically, with the recent introduction of cryptocurrencies, they want to create among people the illusion that bitcoin and its siblings are money. Or better yet, they want to make people believe that cryptocurrencies could be that additional quantity of money that our “damned” rulers refuse to create for their people’s needs.
It is sufficient to understand reality, which confirms that to obtain crypto, one needs to give state currency in exchange, to understand that they are not money at all, but rather financial assets. Moreover, as demonstrated, many of them are also highly speculative in terms of volatility.
For cryptos to be money, they lack almost all three elements that characterize it: unit of account, store of value, and medium of exchange.
Cryptos do not represent a “unit of account” at all, since their value, like every other good and/or asset, is measured in state currency. They certainly do not guarantee a “store of value,” since their issuance is not backed by any underlying real asset, nor by guarantees provided by the issuing entity. Finally, while being marginally used as a medium of exchange on a voluntary basis, this function is not guaranteed by state law (legal tender). In essence, those who pay in cryptocurrency, without the consent of those who accept it, have not fulfilled payment according to the law.
Here, faced with this obvious truth, the powers that guide states face the problem of how to make what is not actually money appear to be money to the people!
Trump’s GENIUS Act falls squarely within this elitist objective. Indeed, it was specifically created to confer upon cryptos — stablecoins in this case — the quality of “store of value,” guaranteeing their stability through legislative regulation that requires the issuing entity to back them with safe assets (for example, short-term U.S. Treasury securities).
Let’s be clear from the start: even when states manage through their laws to make stablecoins at least stable in value, they remain an additional payment method, like a credit card to put it simply, and do not assume the quality of money, understood as state currency. Just to be clear and wake up those who still dream of increased money availability in their accounts through crypto use: not one additional dollar will be added to the American economy with the measure just introduced by Trump.
The fact that stablecoin holders can presumably redeem coins at par and at will for cash, just like demand bank deposits and money market funds, does not increase their financial wealth by a cent. Such wealth, as we well know, is directly dependent on government spending policy.
Within the narrative, there are even supporters who claim that the rapidly expanding stablecoin market not only provides a faster and cheaper payment system, but can also serve as an important funding source to help alleviate the federal debt crisis, destined to destroy the economy if not controlled. Here we go beyond fraud. Convincing people that a financial instrument denominated in the currency of a state and regulated by the laws of that state can be a source of financing for those who issue that currency under a monopoly regime reaches levels of certified insanity. Much less can it be the solution to the “phantom” debt crises of states that have been consistently presented to families and businesses for decades to justify the lack of money for governments.
Stablecoin usage has exploded in recent years. By March 2025, their total market capitalization reached $232 billion, a 45-fold increase from December 2019. Projections suggest this figure could reach $400 billion by year-end and even $2.8 trillion by 2028. Stablecoins Tether (USDT) and USD Coin (USDC) dominate the market, holding 86% of it. In 2024, stablecoins processed a transfer volume of $27.6 trillion (the total value of stablecoin transactions recorded on blockchains), surpassing the combined volume of Visa and Mastercard. Daily volumes could reach $300 billion in 2025.
Stablecoins offer faster and cheaper transactions and are used in 71% of cross-border payments in Latin America. Latin America and sub-Saharan Africa lead in stablecoin transfers for retail and professional clients, with annual growth exceeding 40%. Major banks and fintech companies are also integrating stablecoins or have launched initiatives in this area, including Bank of America, Wells Fargo, Stripe, JPMorgan, PayPal, and Société Générale.
Despite the name, however, stablecoins are not completely stable. They have faced liquidity crises and transparency issues and are vulnerable to bank runs. Hence the need for regulation. The 2025 GENIUS Act, signed on July 18, 2025, requires stablecoin issuers to be banks or approved non-bank entities, maintain 1:1 reserves in safe assets (e.g., U.S. Treasury securities, liquidity) subject to monthly verification, and comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations.
The Washington government’s attempt to regulate stablecoins has revived the CBDC theme, identifying Trump’s action as if it were a way to let central bank digital currency back in through the window, which the tycoon himself had pushed out the door with an executive order signed last January.
Here too, they try to mislead public opinion about what is a false problem: the privacy that would be lost with a “programmable” currency with which the issuer can control or block its use. Making people believe that a decentralized issuance, such as that of stablecoins, as opposed to the centralized one in the case of CBDCs, is another fairy tale told to confuse the subject matter. Any digital currency is “programmable” unless specifically protected from it, and most of our currency today is already digital, created on bank ledgers when they make loans.
The government can access private bank records under certain circumstances and certainly lacks no technological capability to monitor every financial move. So what blocks, in the Western world unlike what happens in China, the introduction of CBDCs? The answer is provided by Nobel laureate Krugman, in a July 22 Substack post titled “Has Brazil Invented the Future of Money?”
Krugman suggests that it is actually banks that fear CBDCs, because people would withdraw their funds from private bank accounts in favor of central bank accounts, eliminating banking intermediaries and their much higher fees. He refers to Brazil, which has a CBDC-like system called Pix, a sort of public Zelle where transactions settle in an average of three seconds, compared to two days for debit cards and 28 days for credit cards; and Brazilian authorities have mandated that Pix be free for individuals. It is used by 93% of Brazilian adults, compared to a mere 2% of Americans who use cryptocurrencies for trading.
In short, that economic and financial world equally divided between “naive” and “ignorant” in the matter competes to give their explanation of what are the real intentions underlying the introduction of the GENIUS Act. Among them, there are those who, following the usual crazy neoliberal ideas, indicate the measure as absolutely necessary to save the federal bond market, which is in serious difficulty due to the void left by disappointed foreign governments, who are dumping Treasury securities and “de-dollarizing” in response to Western sanctions and U.S. tariffs.
The “fairy tale,” however, doesn’t just hit many industry operators but also those like Senator Bill Hagerty (R-TN) — among the first sponsors of the GENIUS Act — who believe they can lead stablecoin issuers to become “the world’s largest holders of U.S. Treasury securities by 2030.”
Now, tell me, what changes for people and governments if U.S. debt securities are held by American or foreign banks, or by companies that issue cryptocurrencies?!
NOTHING! ABSOLUTELY NOTHING…
Even American Treasury Secretary Scott Bessent (billionaire hedge fund manager, editor’s note), perhaps more for personal convenience than real belief, considers stablecoins a strategic tool to “consolidate dollar supremacy.”
There are even those like professors Gary B. Gorton and Jeffery Y. Zhang who, invoking history, have compared Trump’s GENIUS Act to the National Bank Act of 1863 and 1864, with which then-President Lincoln supposedly resolved the debt crisis.
Today as then, the problem arising from “wild” action by subjects authorized to issue financial products while passing them off as money, in order to accumulate money and then flee with the loot, is always solved by resorting to the one who is the sole creator under monopoly of currency, namely the State. This is further certification that the only money existing in our economic systems is currency issued by the State.
Lincoln’s National Bank Act then, like Trump’s GENIUS Act today, served only to stabilize the private credit system and not to finance the State, as many hope could happen with stablecoins.
As easily understandable, the federal bonds purchased at the time by banks to guarantee the money issued were not sufficient to finance government needs. After all, how is it possible that the government — sole provider of net money, representing the reserves with which the private sector then purchases securities — should rely on such money to finance itself! Government financing occurs when ministries spend money (created from nothing, editor’s note), which materializes precisely in the aforementioned reserves.
If we add that the bankers of that time, supported by Great Britain, demanded 24-36% interest on loans — usurious conditions that risked “recolonizing” the United States through debt — it seems like reliving the film of today’s “farce” with which even today, with the gold standard dead and buried, state debts are presented. President Lincoln avoided that paralyzing debt by returning to the American colonists’ financing mechanism: government-issued paper money. With the Legal Tender Act of 1862, the Treasury issued $450 million in U.S. banknotes or greenbacks, fiat currency spent directly into the economy for soldiers, supplies, and contracts.
Today, thanks especially to the work of Warren Mosler, founding father of Modern Monetary Theory (MMT), we know well that for a sovereign state, there is no distinction between spending banknotes or electronic numbers and that public debt securities do not serve in any way to finance governments, but represent entirely the political choice to provide income to those who hold savings.
Returning to our days, the United States with a federal debt of $36.72 trillion and a growing interest burden expected to amount to almost $1 trillion for 2025, despite the numbers and catastrophe projected by the mainstream, impossible to occur as monopolists of the dollar, today’s American economy can be considered in the same situation as then. As Lincoln got out of it, Trump can get out the same way, without the need for tariffs or tools like cryptocurrencies, but simply by exercising the monopoly his government holds over the currency it issues.
If we look to the other side of the world at the main global economic competitor of the USA, China is going in the completely opposite direction to that of the Washington government regarding cryptocurrency support. The Beijing government has officially banned cryptocurrency trading, mining, and related services, citing financial risks, capital flight concerns, and environmental impacts. At the same time, the Chinese executive, alongside the People’s Bank of China and with support from the China Development Bank, the world’s largest public development bank, has implemented the deficit spending necessary to carry out massive infrastructure and development projects throughout the country.
This is how China doesn’t give a damn about the “moods” of world leaders, starting from Trump’s demented tariff policy and ending with Brussels’ insane austerity policies, which impose on their peoples not to consume in order to export production to those who today have decided (the USA, editor’s note) not to consume anymore.
If today we were to rank the world’s country leaders who best understand how modern monetary systems work, certainly Trump and the leaders of major European countries would not appear at the top of this ranking. While Xi Jinping and Vladimir Putin appear decidedly much more knowledgeable on the subject.
Danny Haiphong interviewing Ben Norton. It is a typical Haiphong header.
Of course it’s all about Alaska. Here’s what’s in play. But it’s the shadowplay that’s even more exciting.
By Pepe Escobar at Strategic Culture Foundation.
Of course it’s all about Alaska. Here’s what’s in play. But it’s the shadowplay that’s even more exciting.
Across the world, for those who grew up in the Cold War Swingin’ Sixties, the temptation is irresistible to cast Donald Trump as Goldfinger (but who would play Oddjob? Hegseth?)
Goldfinger, after all, is a powerful, ruthless gambler. His 21st century motto would be “Obliterate & Plunder”. In fact, sequentially, an orgy of obliteratin’ and plunderin’ if the occasions present themselves. Everything subjected to the search for the Golden Deal. My way. The only way.
Yet now it’s possible that Goldfinger may have met its appropriate – collective – match.
This is what happened the last time a summit took place in Alaska, in this particular case US-China in a shabby hotel in Anchorage. That shook the geopolitical chessboard to the core. Trump-Putin might – but only under quite specific conditions.
There’s only one realistic, optimal endgame for Alaska: a joint declaration of intent, pointing to a follow-up, as in the next meeting to be held in Russian territory. A sort of starter for the long and winding road towards a real reset of US-Russia relations, including a possible settlement in the proxy war in Ukraine.
Essentially, they may agree to keep talking. Yet what really matters is what may be implied by the promise: Goldfinger refrains from imposing secondary sanctions on Russia’s partners.
That will constitute a tremendous BRICS victory (Iran excluded. Actually, two strategic allies of Russia would be excluded: Iran and the DPRK).
BRICS are actively building a coalition to stare down Goldfinger. The key players are Bear, Dragon, Toucan and Elephant – all four original founders of BRIC. Nightingale should be added later, as it is linked via geopolitical/geoeconomic strategic partnerships with Bear, Dragon and Elephant.
When it comes to the Alaska nitty gritty, the top Bear needs to consider all the ramifications of what is an imperative for the Russian General Staff and the vast intel apparatus in Moscow: unless Goldfinger minions stop weaponizing and providing precious intel to Ukraine is all its forms, the mythic “ceasefire” that Goldfinger and the pack of toothless chihuahuas in Europe desperately want will be just an intermission to allow Ukraine to rearm to the hilt.
That’s a tough call for the top Bear: he has to placate his domestic, radical critics who blast him for sitting down with the enemy, and at the same time he must deliver the goods to his under-siege BRICS allies.
BRICS counteract Goldfinger’s Plunder tactics
Bear, Dragon, Toucan and Elephant are involved in breathless telephone diplomacy to articulate their collective response to Goldfinger’s Tariff/Plunder drive.
Examples. Modi on Brazil: “A strong, people-centric partnership between Global South nations benefits everyone.”
Lula on India: “Brazil and India are, so far, the two most affected countries. We reaffirmed the importance of defending multilateralism and the need to address the challenges of the current situation.”
Xi to Lula: China backs Brazil to defend its national sovereignty; BRICS is “a key platform for building consensus in the Global South.”
Goldfinger’s Tariff Plunder works in several ways.
On India: because New Delhi refuses to open its vast agricultural market to tariff-free Made in USA imports (45% of India’s population directly depends on agriculture); and because India buys Russian oil at much-needed discount prices.
On Brazil: because the ultimate target is regime change and free reign to plunder Brazil’s natural wealth.
So far, Goldfinger’s Plunder antics have been stellar when it comes to engineering their own blowback: from allienating even allies – see abject European submission – to de facto burying multilateral trade, not to mention international law.
Example: just a few hours before the tariff “pause” on Made in China products was about to expire, Goldfinger signed an executive order extending the deadline for another 90 days. Translation: TACO, all over again. If the tariff “pause” went through, the economy of the $37 trillion-indebted “indispensable nation” would be in even more dire straits.
Then there’s Goldfinger’s possible Arctic gameplay, already examined here. There’s virtually no evidence Russia would allow the US to participate in the development of the Arctic-wide Northern Sea Route (NSR), or Arctic Silk Road in Chinese terminology.
The role of Russia’s Atomflot – 11 nuclear icebreakers, 9 of them in action, 2 being built, including Project 10510 Rossiya, a behemoth capable of navigating anywhere in the Arctic anytime – in parallel with Russia’s astonishing arsenal of new weapons systems, these are absolutely key variables on any serious discussion on any possible US-Russia partnership post-Alaska.
Arya – آریا: mural at Tehran’s Enghelab Square. Farsi text: “The end of this saga is of glory, thus recite the name of Iran, for it is the slayer of its enemies.” The Iranian warrior Rostam from Shahnameh fights the serpent (the US)
Goldfinger’s obsession to cage Nightingale
Now let’s look at Nightingale – an immensely complex case. Goldfinger has totally embarked on a multi-track maximum pressure/tension remix against Iran: forcing Hezbollah to disarm; forcing the collapse of Lebanon into factional war; legitimizing the “al-Qaeda R Us” dismemberment of Syria; forcing snapback UN-backed sanctions on Tehran.
Then came the Goldfinger-hailed “historic peace summit” with Azerbaijan’s Aliyev and Armenia’s Pashinyan.
Well, what Baku and Yerevan really signed under Goldfinger’s watchful eye is not a peace deal: it’s a mere memorandum of understanding (MOU).
Their Joint Declaration is extremely vague – and non-binding. What is promised is a “let’s keep talking” set up: “We acknowledged the need to continue further actions to achieve the signing and ultimate ratification of the [Peace] Agreement.”
It remains to be seen what happens with the much-ballyhooed 99-year American grip on the Zangezur corridor – trimphally named Trump Route for International Peace and Prosperity (TRIPP) – complete with grabbing 40% of its revenues (Armenia would get only 30%) and placing 1,000 American mercenaries to patrol Armenian territory, right south of Nightingale’s borders.
The big story is of course Goldfinger eager to snatch at least one connectivity corridor in southern Eurasia – in the strategic south Caucasus, using a gangster-minded MI6 asset (Aliyev) and a national traitor (meek Pashinyan), which will be discarded and/or sweetened in due time. Crucially, NATO membership was offered to both Armenia and Azerbaijan.
The Deep State’s game plan is total control: what really matters is the opening to establish a NATO corridor all the way to the Caspian.
There’s no way Nightingale will let that happen, not to mention Bear and Dragon: it would mean a direct NATO threat not only to the International North South Transportation Corridor (INSTC), which unites three BRICS (Russia, Iran, India) and crosses the Caspian, but also the Chinese Silk Roads, whose corridors traverse Iran with possible branch outs to the Caucasus.
Nightingale has already made it quite clear it will not allow any kind of change of status for the Zangezur corridor. And it has the necessary missile arsenal to back it up. IRGC Deputy Commander Yadollah Javani: Iran “will not allow an American corridor on its border.”
Wherever it comes from, Goldinger or the Deep State, the pressure by the Empire of Chaos is relentless. There will be no respite in the Hybrid – and otherwise – Wars on BRICS, especially on the new Primakov triangle (“RIC” as in Russia, Iran, China).
Alaska in principle should be about a reset of all US-Russia security matters – geopolitical, commercial, military, with Ukraine being just a subset. That will be a major stretch. It’s hard to imagine Putin being able to impress on Trump, on the same table, the finer points of NATO/US ceaseless plots to undermine, harass and destabilize Russia.
The most probable outcome is that the proxy war – and the SMO – will keep rollin’ on, but with the Deep State making extra bundles of euros by selling tons of weapons for NATO to dispatch to Kiev. But even without the promise of a new, serious, US-Russia security architecture, BRICS may still stand a chance to snatch a victory out of Goldfinger’s latest photo op.
We’ve had economic discussions on the site over the past week. One of our commentators mentioned that we need a short course. It is not easy. For my two years of university studies in economics, I still jokingly threaten to ask for my student fees back, because it was worthless. I know Colin Maxwell has said similar things through the years. It is true. If one does not start studying independently, a ‘course in economics’ will possibly be time spent for no real knowledge.
For most of us, starting a study in economics makes no sense. What does make sense is to pay much attention to the economist, Richard Werner, that Colin Maxwell and others introduced us to, and also to Michael Hudson. Richard Werner has a skill to describe the economic issues in terms that most, without a basis in formal economic studies, can understand. No, it is not too long or too difficult. With Colin, and to a much smaller extent myself, we can explain concepts and nomenclature. Economics is also a moving target and a developing mileau. Heads stuck in sand won’t do it. For example, I knew most of what is presented in the Richard Werner video but what I did not know, is that there is no theory, nothing at all on macro-economics in the past 200 years. That was an eye-opener and I understood immediately the gaps in economic knowlege existent in the general community.
For us on GlobalSouth.co, not in essence an economics site but in essence a site that chronicles the changes happening today through a move to multipolarity, economics is a critical and essential part of the overall trajectory. If one does not pay attention, one will lose a big part of the whole.
The very question of ‘What can we do as individuals?’ has a disappointing answer. We can do very little on an individual basis. We watched for years people like Catherine Austin Fitts encouraging everyone to use cash. That never made sense to me as cash still undergirds today’s economic and banking system.
Imagine an octopus, with a bunch of smaller octopi growing at the end of the arms. The objective of current western econmics is really nothing less than to deprive you of whatever you are able to earn and to get you to die at the time that they require. In stark contrast money creation in China with Russia fast following, spells out the real objective. In Marxist logic it would be called for the workers but those two countries call it out as for the people. What we can do as individuals, is to understand the current octopus and manage our own affairs without getting too much involved, which is almost impossible now. Everything that is solid and good is cancelled.
I would encourage all to take the time and listen to the video that Colin and others recommended. It is about the shortest overview of the main events in economics in the past 100 years that I know of, and describes very clearly why I say individuals can do very little. These are big movements and most everything falls into the category of macro-economics. As individuals, we fall into the block of micro-economics and the system is such today that we cannot leverage the power in a coherent manner, despite being the biggest force. So we get dragged behind the current ponzi of money, whether we want to or not. Werner’s description of current Central Banks and the Fed and money-creation makes it non-complex to understand.
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.
This is a long lecture. The first 45 minutes of the video contains the summary.
I would suggest to copy it and then print it to a pdf or an epub and read it as if you would read a history book. Fascinating. Michael has said this before, but now he has given the proof and background. Jesus in the temple overthrowing the money tables was actually a protest against debt forgiveness that was not being followed. He says the original languages clearly calls out ‘debt’ and not ‘sin’ as our churches teach today.
Robinson Erhardt:
Michael, you have just written a book that rewrites the financial history of the West from the Crusades to World War One, and there are a lot of questions I could ask here just to get us started. But first, why does this history need rewriting? Is it easy to point out just what important principles one thousand years of scholars have missed?
Michael Hudson:
I do not think I have rewritten the history of finance at all. I have talked about things that are left out of account by almost all writers.
I remember when I was in six or 7th grade, we had to read a book in medieval days and ways, and it was all about knights going on crusades, just like in the Hollywood movies to save the Holy Land, it was about serfdom and feudalism.
But what I am writing about is how an international banking sector emerged and took shape. And ended up. Basically, in control not only of governments, but in the way that governments were organized between absolute kingships and their parliamentary checks and balances, domestic tax policy, fiscal policy. And, what I found is that the integrating planning dynamic of Europe from the 11th century, right down to World War 1 outbreak, which is the span of my book was basically by the Catholic Church and the Catholic Church created a system of control over kings and over the relationship between kings and the churches domestically and the parliaments, giving concentrating power in the hands of autocratic kings to overrule parliaments for instance, excommunicate the supporters of the Magna Carta in England on not only in 1215 under King John, but I have a century later, when the Barons went to war, to try to limit that John Sung Henry the Third’s ability to text and this power that the church created people, historians call it the imperial papacy. It was a drive by the papacy in Rome to control all of Christianity. Including especially to take over what had been the center of Christianity in Constantinople, the Eastern Orthodox Christianity.
And so, I had to before I could spend time in saying, how did a banking class emerge? I had to explain what the Roman churches strategy was in creating a system of control over other realms, how it organized the Crusades, and how the Crusades worked primarily against the Holy Land at all. They were against other Christian countries. Especially against Germany that wanted to be independent, with the king appointing his own bishops, it was against the Cathars and the Albigensian Crusade. Or the song Dominica, Dominica. The Dominican Inquisition are basically tried to destroy Southeastern France on behalf of the northern Normans. And I had to go way back not only to the spirit of uniquely Roman intolerance of other religions, such as the Northern Germanic religions centuries earlier. How the Church asserted its authority over kings and what led to all of this I had to write 2 chapters on how the reformers in the church came beginning in the 11th century to take Rome and the papacy. Which was a backwater controlled by local aristocracies from the Roman suburb of Tusculum. The Catholic history refers to it as the pornocracy, the rule by the harlots of utter corruption.
Well. In response to this. The reformers, mainly from Germany, by King Otto and his successors, said if we’re if we’re going to reform the Christian Church and make it Christian instead of just an owned by particular families for their own economic benefit. To provide security, we must basically exclude all the secular control over the papacy, we have to exclude loyalty. We have to insist that the papacy does not become hereditary by these families, just passing it on to their relatives or their supporters that requires celebracy. Which is something that you don’t find in the rest of Christianity. Essentially the reformers were idealists and by an idealist they ended up insisting on total control over all Christianity and there were five patriarchates in the 10th century. The largest was Constantinople, but the others were all in the Middle East. There were the Antioch, Jerusalem, Alexandria and Rome. Roman Papacy set out to say we’ve got to dominate these countries, and we’ve got to dominate secular society so that we can impose church rule, Christian rule on all of the kings.
To do that, we have to control the appointment of bishops. We have to take the power of local kings in Germany and anywhere else in our own hands, so that we appoint the bishops who are in charge of collecting taxes and what they do with it and sending the money to Rome.
And so, the whole organization of Christian reform in Rome took the form not only of an antagonism towards all seculars realms and all the other patriarchs of the church. But it was basically financial in nature.
Well, the papacy had a problem. How do we create and enforce our control over these countries? The Papacy didn’t have an army. What did it do? It recruited Norman warlords. In other words, these little warlords that had come down from the north into southern Little Lakes and into France intermarried with the French nobility to make a kind of Norman French aristocracy. The popes made arrangements with Warlord starting in the mid-11th century with Robert Guiscard in southern Italy and Sicily and said we will make you the King of Sicily, but you have to pledge fealty to the papacy. You must be our thief basically and you will everything to us and you will have to pay the revenues to Rome and if you do and that act as our fifth, we will let you conquer Sicily and southern Italy. He said yes, conquered southern Italy. Especially not only from the Muslims, but from the Eastern Orthodox, from the Byzantine cities.
A few decades later, there was another warlord: William the Conqueror. The Pope made an arrangement with him to conquer England, but you have to remember you have to pledge fealty to us. You have to act as our agent, basically our collection agent. You have to send the money from the local churches, Peters Pence, to England. And so, we, the Conqueror, had his own army right across the channel in France and conquered England.
And so basically this was the kind of deal that the church made with warlords and soon they became the imperial papacy tried to extend its control over France, Germany, other areas and the way that they did it was to start the Crusades, ostensibly to help Constantinople resist the invasions from the East.
Ultimately, the Turks overthrew Constantinople. But the idea was to recruit Christians and especially the warlords, to get them out of Italy out of threatening the papacy. How do we send them somewhere outside of Western Europe? Let’s send them to Constantinople to protect it and then go down into the Holy Land. Let’s send them to the Middle East, and then they won’t trouble us. And as it happened in the middle of the 11th the Vatican broke ideologically and theologically from the constant noble from all of the eastern churches, that was called the great system. And they insisted on obedience. And the Roman church said we have the right to appoint the Roman Empire, such as the Pope said Blessed show name an 800 by calling him the Roman Emperor. There already was a Roman emperor in the real Roman Empire, the new Rome of Constantinople. And obviously this caused great tension between Rome and Constantinople, and the problem was: how do you somehow absorb Constantinople under the control of the Christians?
As it happened, the Byzantine Emperor asked the papacy for some military troops to help defend against the east by saying if the various groups that are attacking us from the East conquer us. We are just going to go right into Western Europe, and they are going to attack you. So, the Crusades were mounted, sent to Constantinople. The Normans individually tried to just begin grabbing Eastern Orthodox lands in in the Near East. They said they were going to liberate themselves through Salem. But Jerusalem didn’t need any liberation. It was administered by Muslims through conquered it soon after Mohammed started, Islam. Islamic rule was tolerant. Christians were allowed to coexist, Jews were allowed to coexist. There was no intolerance. The whole period and in fact if you look for thousands of years, ever since the Persian Empire, empires had been tolerant of religious minorities and ethnic minorities as long as they paid tribute and as long as they lived within the laws of the land.
When The Crusaders arrived in Jerusalem, they immediately began looting it. They began killing the Jews, killing the Muslims, and killing many Christians and just apparently that made a whole disaster. This led to some consternation among the Papacy and among the leaders of various countries.
Meanwhile, Germany said we don’t want a part of this. Germany had been trying to make its own arrangements with the Constantinople because the king of Germany was nominally the Holy Roman Emperor, and of course the German emperor wanted to make an arrangement with Rome, saying we’re the Holy Roman Empire of West Western Europe, you were the real Roman Empire of the new Rome. So maybe we can make an arrangement. The Germans were the reformers of the papacy. They wanted to make Christianity part of their normal life, even their military life. They wanted to appoint them to civil jobs.
As soon as the First Crusade was finished, the papacy began to say to want to attack Germany and attack almost any kingdom that resisted people’s demands for financial control by a controlling the bishops and the clerical officials. Normans had an army, but they needed money. This is what led the Church to realize that if you’re going to retain a Norman army to go and conquer England like Robert, we started willing to conquer on our behalf as our thieves, we must raise money and they organized banking.
By the 12th century you have the chroniclers describing how throughout England the papacy went, especially to Henry the third, King John’s son and insisted that he take on, He raised taxes on the English in order to pay debts to the North Italian bankers and bankers right across the Alps called the cover things from Cahors and. Needless to say, the Parliament opposed this demand that England take on a domestic debt in order to fight the wars and the Popes were trying to work on Henry and say, “look, we have the Germans have a lot of supporters”. For instance, now in southern Italy, although Robert Guiscard has gone on with other Normans to begin conquering Byzantine lands in the Balkans. What was Yugoslavia. We need to fight the Germans there.
That led to a civil war, the revolt of the barons and a whole new set of excommunications. And not only did the Church approve of money lending at interest, but it excommunicated Christians who opposed money lending at interest. The whole Christian theology had to be inverted to arrange bank financing for warlords and for five centuries from basically the 12th through the 17th century. International banking was consisted primarily of war leading to kings to go to war initially on behalf of the church, but after the Crusades were over in 1291 to go to war with each other and this war lending took on an organizational principle of its own and the just as the Popes had imposed autocratic kingship, saying parliaments have no right to question the divine right of kings, at least when they want to go to war for purposes that benefit the imperial papacy, the banks took over this whole administrative control over secular governments that the Church had created and essentially became the main influence in how the domestic political systems of every country, Italy, France, Spain, Germany were organized in order to say, make the following deal : The bankers, mainly in northern Italy, will give you the loans to go to war with your rivals, especially the constant war is between English and French kings over who is going to control the Western France near the English. Channel. If you wanted to obtain a loan, you had to borrow, you had to meet the terms that the creditors said, and the creditors basically tried to create a system of national financing that became the basis of the fiscal system in modern fiscal states in almost every realm, especially in England, which is the most clearly documented.
The Kings had a problem. Kings had the royal domain that they conquered is their own personal property. When William the Conqueror came into, He had the Domesday Book written, he had the right to the income and the rents off the land that belonged to him, that he’d carved out for himself. And Kings also had the right to levy taxes traditionally, but taxes were subject to approval by the parliaments and that limited the ability of kings throughout Europe, whether it was France or Spain or England or any or what became Ireland, all these countries.
The problem was that wars became increasingly capital intensive. The technology of war became increasingly expensive for navies, for siege equipment, for large armies, and the costs of waging war. But constant roses were beyond the ability of kings to finance out of their royal domain and the ability to convince parliaments to go along with the tax because local parliaments didn’t want the landed aristocracy who had that money to be taxed, they didn’t want to pay taxes, understandably, especially for the kings to indulge in going to war with other kings for their own personal vendor.
So, you had the, the 14th century, the 15th century into the. Inquiry into the 17th century constant bankruptcies by the largest and most heavily indebted kings, France and Spain, and this caused a problem for the banking class. We’ve created a means for the Kings to pay their debt beyond their personal domain beyond getting parliamentary approval.
There’s one thing that kings could levy a tax on. This is from the 12th to the 17th century. They did not require parliamentary approval and that was foreign trade monopolies. So, the bankers is went to the various countries such as England and said well, you know you can raise the money to pay the debt service for going to war again and again with France over disputed land that Williams family hereditarily used to have by creating a monopoly on England’s main export which was Wool to be woven in the cotton in the Dutch and Belgian areas now, to be sent to Italy to be woven into luxury fabrics to be bought by the wealthy aristocracies in England and the rest of Europe.
There was a circular flow and the bankers helped uh create. Fiscal policy for governments that had not existed before they really put in place the modern tax system and all of the legal bureaucracy that was necessary for that. They weren’t able to do much of this in the two major countries France and Spain, because they were so autocratic. And so, the international bankers, mainly Italians, had sort of a problem. How are we going to get to enable kingdoms to have enough money so they can pledge even more income to pay the rising classes of war. Otherwise, the Kings will go bankrupt and the Edward the third went broke in the 14th century, and that brought down the banking houses of the Bardi in Peruzzi and subsequent kings defaulted on their loans to all the major bankers of Europe.
So, they are looking around for how to reorganize the political structure of European states. They found the model and that was in. The local communes, self-governing communes such as Florence or Genoa or many other cities that had gotten together and they lent money to the kings of their rooms to buy their own independence. These communes elected the community leaders, and they did something that kings were not able to do: the commune leaders were able to pledge all the money of their citizens to the creditors in payment of debt, they were able to, for the first time, impose taxes on society as a whole. And because they were the Parliament that was elected or the effective Parliament, they were the Community, they were the government. They committed the entire government and the entire nation to pay what became the civic debts and basically the war loans to prevent other cities from attacking them, and you can imagine what happened by the end of the 17th century. This enabled the Dutch cities and city states, building city states to get together to create the Nation of Holland and they were able by pledging the entire national income of these states. They could offer the banking class much more risk free, collateral, the wealth of all their citizens for loans, this became even more pronounced after the 1888 revolution in England, where the Dutch king, England, appointed the Dutch king a wig, parliament and essentially we’re able to create what historians economic historians call the fiscal state and the whole idea of what is a state.
We think of it as being politics or fighting politics, but the states that were created beginning in the late 17th century were created as a vehicle for collecting taxes on behalf of the international banking class. So, the bankers worked with these new states to create a tax system to extract as much as possible to create monopolies to so of. To essentially begin to privatize as much of what was the public domain as possible. You had, really the beginning of privatization. You had the beginning of financialization of the economy as a byproduct of taking over the financial sector, the bankers taking over civic government and all the governments of Europe, and it really was the late 17th, early 18th century that created modern governments as we know it.
So, if you’re looking at, suppose you’re now turning to how does any of this appears in any of the histories of finance? All the histories take a microeconomic approach, not a political macroeconomic approach. Rome had to justify inversion of the long-term Christian opposition to Usery by somehow justifying lending and especially justifying war lending. That was the job of the 13th century schoolman the intellectual class of the Roman Catholic Church. They developed a new word interest, is it distinct from usury? No earlier society had a different word for interest from usury, but the Schoolman says well, there is an interest as opposed to that is permissible as opposed to use rate. We’re not going to justify usury. But interest is something that, well, we want trade to be able to occur the merchant we have to provide credit for the trade or if you’re a cultivator on the land and you’re a landowner and a wealthy Duke, you’re going to need financing to create the harvest. Well, to be paid at the end of harvest, you’re going to need trade credit. You’re going to need all of this.
So, the Schoolman said, well, what’s fair? Well, for instance. A lender has a right to make enough living to lead a normal life. OK, that’s clear. And if merchant, almost all the bankers made their money and is foreign traders as merchants because the Church said you can’t charge usury but you can charge a foreign exchange fee, called agio and so most of the money that could be made legally by merchants was in foreign trade and instead of charging interest or usury, they charge an agio foreign exchange fee.
Well, with that sort of logic, the churchman said, OK, we’ll also if a lender lends money to a borrower and doesn’t spend the money on making his own mercantile trade, he’s losing an opportunity. Economists call this opportunity cost, and if he’s sacrificing this opportunity, then he deserves compensation for the time in which he’s not using his money to make a profit for himself. So that’s OK.
Also, what happens if the debtor doesn’t pay on time. Well, there’s a late fee, so of course the debtor has to pay a late fee. Well, as it turned out, we have the documents for the kind of loans at the time the average interest charged was 22% and the late fee was also 22%. Now you’d think the late fee was suppose you make a loan for a year or so. The late fee would be charged as you have on your credit card today for the amount of time you borrow the money. But the repayment time on the actual documents that the Italian bankers threw up and we have them for England, was well, if you don’t pay in a month or two, you owe the whole added 22% and that’s 44% interest. In practice there were only this loophole saying you get the charge of. 8 fee you get to make the money that you’d make in a. Foreign mercantile train. All of this was all on a theoretical abstract level that justified all sorts of loopholes, and none of these loopholes were acknowledged, and the most important thing is that point of reference for that, for the Churchmen, was loans that were for a productive purpose to finance foreign trade.
Well, countries needed foreign trade. That’ll seem to be justified, but that’s not what international. Bankers, the banking class, made most of its money on the banking class, and was based on war loans. Not once did the Churchmen say, well, the war loans are not productive. They didn’t really draw the distinction between productive and unproductive loans, productive and unproductive use of credit. They essentially had a tunnel vision that only dealt with mercantile credit so that all merchants, anyone involved in trade on an international or local level could charge interest and essentially this became a justification for user. You had banks beginning to develop and pay their depositors? Let’s say 5% or so. There were a number of banks that were organized, and they would make use this deposit money to lend to governments to go to war with each other paying 22 or 44%
How was the Church going to actually deal with this? Well, for thousands of years, the creditor class had been looked down upon socially or even in Greece and Rome. In classical antiquity, where you had oligarchies developing that it wasn’t considered socially nice. And something that high status people did to make a loan because there was a feeling that making a loan was exploitative, making a loan tended to impoverish the debtor.
So, although the oligarchy generally made money off money lending. They had their slaves do it, or their freedmen do it, or a foreign the medics that as foreigners that were resident in Athens or other cities or in Rome, would do the dirty work of lending money and charging interest for all this.
Well, what made the takeoff of banking in the medieval period so radically different from anything that went before, was that the major debtors were at the top of the social pyramid, the major debtors were the Kings, the major debtors were the Church. And this fact that they were the borrowers and they were borrowing for something that the Church blessed going to war to fight against the Willms that did not obey the church that insisted on appointing their own bishops. To collect Peters, Pence and aid the poor and other and rents and spend them domestically instead of sending them to Rome. As long as they spent their money to go to war, this was considered a good purpose. The creditors as a class of a specifically making war loans rose to the top of the social pyramid, along with the Kings and the church that were the borrowers. So, you have the bankers, the Kings and the Church, the highest status, and very soon there was an intermarriage in the mixture, and you had one of the richest banking families, the Medici the many provide his own Pope, Leo the 10th and in 1515 he had the final seal of approval on usury. He said: well, these loans are to the kings of Europe are financed by banks and is it the banks pay interest to their depositors? Are the depositors centers and Leo said: well no.
Look at the Monte di Pietà, in other words, the Mont of piety. He said : here is a group on broker banks, and they pay depositors modest rate of interest, and they lend this money out to the poor at a lower rate than the users would charge. 22% or so. And so that wouldn’t want to interfere with these socially Christian charitable activities. And so of course we have to let the banks pay interest. So Leo legitimized bank interest along with the interest that the merchant bankers all chose. And so essentially that completed the rewriting of Christian theology of favoring usury and opposing those without usury and what became the Protestant countries very quickly caught on to this and accepted this just as much as the Roman Church.
And so, you had a rewriting of the legal system. That was the context for lending and credit, in the fiscal States and it was this system of the rules of lending, the laws of lending the status of lending that transformed the whole character of Western European Society. Nobody’s tried to write a political history of what is the political strategy of banks in creating a system of government throughout Europe, and in fact a PAN European system that the same spanning all the different rooms and kingdoms that is a common means of economic organization, and this was all completed by the late 17th century. Well, there’s one thing that you may have noticed in now what I’ve said there’s nothing about Jews in all of this. Jews were dropped, Jewish merchants were brought to England because they spoke foreign languages. They had Jewish colleges and relatives in other countries. They knew they were traders. They know how to organize foreign trade deals, to organize the foreign trade that England and Southern Italy and Sicily everything needed, because the Norman invaders were not businessmen, they were just Raiders. They were walking on their knuckles as they say.
So, they needed someone, some cosmopolitan group, to essentially perform the basic uh provision of credit for local cultivators and order who needed money to move their crops. Local merchants who needed to trade. It was basically for the most part, small time lending. The we now have scholars in the last few decades have gone over all the tax rules of Ecclesia towns, and they found that the sort of bell-shaped curve of the wealth and income of Jewish families was very much like the same bill-shaped curve of the population as a whole. There were some very wealthy Jewish merchant bankers, and just as there were some very wealthy Christian merchants and bankers. All this time there were Christian lenders alongside the Jews and the Church kept complaining that the Christian that’s charged more money than the Jews. Or, more to the point, the Jews were providing credit at a lower price than the Christians were doing. That was one of the reasons that they were sent out of England. When William the Conqueror brought the Jewish population to England, they weren’t allowed the whole land, they had to live in the cities. Similar rules were imposed in France and other countries against Jews. They essentially were known as the King’s serfs. They were essentially working on behalf of the Kings. Ift the Jewish lender would make money to a domestic landowner, somebody with land, somebody with assets and wanted to foreclose. Well, because the Jewish population was not allowed to own land the King would have the right to pay and take control of the land. There was a wave of anti-Semitism that began by saying wait a minute, the rule of the Jews is to indict the population and then their wealth is turned over to the king and this increases the King’s power over us, including the power to tax us and we want weaker kings without all this power, we do not want the kings to be strengthened and use the Jewish population for this.
By the end of the 13th century, the Kings didn’t borrow from the Jews. Instead, they tax them and then finally, and instead of taxing them, they simply confiscated the Jewish wealth. England and then in France under Philip the 4th and confiscating the Jewish wealth. The Jews don’t have a function anymore because they don’t have any more money to lend so we don’t need them. They were expelled not because of usury, but because they were not performing a usury creditor function anymore and being expelled, they played just about no role at all in this development of Christian banking. The focus of most financial histories, especially in the popular mind that somehow banking developed out of Jewish merchants and making petty loans and getting rich off lending and trade in the medieval time leaves out of account the vast increase in Christian banking and Christian wealth and the degree to which this went together with anti-Semitism and even within the Catholic Church. Popes opposed the Jews by saying just as we want, one rule for the Roman Church over Constantinople and all the Christian churches. We want one rule of the Christian Church over all society. The Jews have their own courts. Well, of course the Jews had their own courts because we given to them as to conduct their trade and their mercantile activities.
And so if you’re going to have one law and one set of courts and one system that’s universal over everything, and again and again the Christians kept calling themselves the universal, or Catholic Church in Rome. And by universal, they mean every other Christian Church. The 80% of the other Christians are our enemies, and we are going to conquer them. That was their idea of being universal. It was aggressive and it was the imperial papacy. This desire for control, this intolerance of other religion is developed uniquely at the hands of the Roman Church. I explained how this goes way back to the very many earlier centuries, 5th 6th centuries. It was a mentality of intolerance. Throughout that that led to this desire for control that led the Church to create this sort of universal system of law codes of bureaucratic organization of banking, commerce, trade monopolies ownership that shape the modern States. All of this motivation and the somehow transformation of what began as a kind of Christian idealism, imperialistic as it was, into a means of control by the financial class as a means of organizing the state as a primarily fiscal entity, to act as the collecting agent for the international banking class. This has been left out of the count. I didn’t mean to give a long answer to your question, but it was more than 5 minutes.
Robinson Erhardt:
I’m always and I’ve said this before when we spoke, and I’m always amazed by your ability to give these very long and detailed impromptu lectures and you have not disappointed today already. One of the things that jumped out at me was that it’s funny that Leo the 10th, the marriage as you kind of put it, of, of banking families, royal families and the church was responsible for the infamous indulgences.
Michael Hudson:
Well, that’s true. Leo, his family, being at the top of the Florentine aristocracy, wanted to become a patron of the arts, a philanthropist. What he wanted to do was rebuild Saint Peter’s Basilica in Rome, and this was the great Artistic inventor endeavor of the Renaissance. You had all the great Michelangelo designed the rebuilding of the basilica there. I think Rafael, there. All of the great painters were designing it and painting it and it was the great artistic creation of Florence at that time, not to denigrate Brunelleschi and all the other great architects and people there. And so the question was, how was Leo going to pay in 1515, just after he’d provided the logic for interest charges and banking. How was he going to finance that? Well, the Church had developed a sale of indulgences during the Crusades.
I have to say something about Saint Augustine here. I mentioned that by the time of not only Leo but already in Augustine, the Christian Church had come to really fight against, I won’t say hate, but just fight against everything that Jesus had stood for in terms of the debt cancellation, especially what bothered and troubled the Church and blocked its ability to raise money was the Lord’s Prayer from Jesus, Sermon on the mouth. Forgive them their debts as we forgive our debtors. The Church used the fact that there was an ambivalent development and economy of language originally the word for debt was the same as sin, and the reason goes back to very arcane times. If you were a member of very early community in that first or second centuries of our era, even before. It goes way back to Babylonian time to the mores for thousands of years. If you were belong to a community and you hurt somebody, you injured somebody, you broke his arm you put out an eye or even worse, you shaved off his mustache or beard, which was an insult or made a joke about him. That was an injury, and that was called that for the injury. Society had to make a choice. How are we going to avoid a feud if one person pokes have somebody else’s eye? How are you going to have his family not fighting the family of the aggressor. You’ll have the Hatfields and the McCoy’s a situation like that. Well, the solution was to pay a fine, and the fine was called the debt. And so the payment of this injury to restore the peace, by paying a fine, you said alright, we’ve made restitution for the injury. We’ve redeemed our debt to you. You don’t have to put out the eye of one of our members. Here’s the payment and you have from medieval Europe, all sorts of price schedules that had to be paid for each kind of an infraction and every kind of injury. So these payments for sins, for offensives, a sin was an offense against our society was the word for that was death, and that came to be used as a sin.
So, then we have all of Jesus’s speeches. His great objective, as I’ve discussed with you on one of our earlier interviews about the whole idea of debt cancellation and the Jubilee year, Jesus and his very first sermon said he had come to restore the Jubilee year and bring it out of debt cancellation. That was in the Greek translation of the Aramaic text of what Jesus wrote. The Greek word was very explicitly monetary debt, not sin.
Let’s Fast forward into the 4th and 5th centuries of our era. The Roman Empire absorbed Christianity, but in absorbing it, it transformed it. Needless to say. And the problem is the Roman empires dominant families were the creditors and the land owners of the wealthy people The creditors, not the debtors. The last thing they wanted was to forgive them their debts.
So along comes Saint Augustine. He was in north North Africa the Bishop of Hippo. And there was a problem in North Africa. The Christians were followers, they were called the Donatists followers of a priest who had maintained early Christianity. And the Donatists had an activist branch that was going around and intimidating creditors. And they said: look, if you’re really going to try to charge user rate against our members, we’re just going to burn down here your estate. And there was a lot of violence. You had Saint Augustine come in and said: well, what Jesus really meant isn’t what he said at all. Let’s say that what Jesus meant was the opposite of everything, that he spent his life fighting for. What Jesus meant is we’re all sinners. We have an inborn sin from Adam and this sin means that we’re all restitution, we want redemption from our sin. How do we get redemption?
Well, there was a fight within the Christian Church. You had a British, I think, a Welsh theologian, Pelagius, that said, well, the way you redeem yourself is you make good works you. If you make money. From user rates at least you can send it philanthropically and you can get salvation from this. Saint Augustine said: no, no, you can only get salvation through the Church. You have to give the money to the Church, and we will redeem it. And so, by the 5th century you would have the Roman Christians reading the Lord’s Prayer before giving the last rights to people on their deathbed, forgive them their debts. And we can give you redemption by donating your estate to the Church. There were many lawsuits against the Church clerics for trying to do this. The whole idea that the Lord’s prayer, forgive us our sins or our trespasses, or even our debts, is what is the what kind of debts can’t be a money debt andnd forgive us our trespasses, our sins, our offenses are, to give our those who sin against this, whatever that meant.
Well, the church turned this into a means of only the Roman Church can provide redemption and it’s going to cost money. Well, this is it came very handy in the Crusades and when after the First Crusade was really pretty much of a disaster as I described. The Second Crusade was organized, the organizers of it, the advocates of the 2nd Crusades, said, well, we know you’re not as eager to get salvation by rescuing the Holy Land anymore because it’s a long trek and you’re going to have to borrow the money to outfit yourself and bring your assistance all along to carry your armor and do all of this and to spend money on the way. It’s going to cost money. But we will give you debt forgiveness for Knights who take up the sword or the cross. I guess they called it not the sword. Go on the crusade and the creditors will not be able to move against your family or your estate or other relatives as long as you are on the crusade. You can get a debt forgiveness for this.
Number of many knights signed up for this, but the Christian Church, the clergy had a special twist on this. There they’ve been practice this long standing medieval practice. If a knight was supposed to go and serve the king, he could go, but he was able to hire a substitute to fight in his place, just like in the Civil War in America, a soldier was drafted, you could could pay to hire a substitute to fight in the civil war.
English and other European Knights could hire a substitute, so the clergy said, well, you can negotiate a payment. We don’t know whether you’re able to hire a substitute and negotiate a payment and we will give you the redemption from sin that you would have had for going on the crusade and being redeemed of all sins. The selling of indulgences really began as a means of financing the Second Crusade, and then on. You can imagine Leo’s pleasure in the early 16th century by thinking, well, you know we don’t have a crusade anymore that all ended in 1291. But what we do have is people still, they’re all sinners. They all have a sin inherited from Adam. By the way, the Saint Augustine drove out to the Pelasgians from the Church. There was a whole battle in Augustine, one against the civilized Northerners that said, just live a decent life and that the church said no, only you can have a life to us. Giving the money to us. The poor is the poor, we’re the churchmen. We’re all poor because we’re helping the poor. So, we are poor. Someone giving money to the poor, giving money to the Church. Peter Brown, the biographer of Saint Augustine, has described all of this in detail, and it’s expected that history by now. What Leo discovered, we can still sell indulgences and he, he wanted to raise money, especially in Germany, because that was the most civilized part of Europe. That was the, the, the most progressive part of Europe and he had sent Church leaders there to literally sell indulgences. So this was the origin of the Catholic passport to heaven as it was called when I went to school. And they were sold. And of course, this became such a trivialization, such a secularization of what was supposed to be the most basic element of Christian theology, the sins of Adam, inherited by humanity, and you have instead of created by creditors making predatory loans to debtors, it was all of humanity, not just the creditors. They began to sell them and Martin Luther took the lead in opposing all of this, saying this is just corruption. The church is corrupt there. They’re selling theology, they’re selling redemption. The Church is just basically a money making bureaucracy and this is protests spread out throughout from Switzerland, throughout Germany and the northern countries.
And that led, as you know, to the Protestant reformation, but they all broke away from the church saying the Roman Church is hopelessly corrupted, and it’s all about money and we’re trying to restore the original spirit of Christianity. But of course, it’s not the original spirit of Christianity, which is debt forgiveness and essentially support of the poor. Instead of class war. But anyway. Leo’s demand for this, the money to rebuild Saint Peters, and we’re all glad that he rebuilt St. Peters. It’s very beautiful. I remember in college, looking at all of Michelangelo’s murals. It’s all wonderful, but it was achieved at the cost of corrupting Church, financial dealing to the point where it split the church between Catholics and Protestants. That was another long answer to your question.
Robinson Erhardt:
It was, and it was another good one. I’d like to ask a bit of a broader question, you said outside of our conversation, you said you’re not rewriting the financial history, but you’re filling in the gaps. One reason, I think if I heard you correctly that this is a big gap is because prior financial historians and economists have focused more on microeconomics rather than these larger political and macroeconomic movements, but missing the role of the Roman Catholic Church in the dawn of international banking and the role of the Crusades and all this seems like a pretty glaring failure. So, I’m wondering if there are other reasons or if you could just say more about why this hasn’t been paid much attention in the past.
Michael Hudson:
I think the other reason is just the way in which people think about economics is something that is isolated from the rest of society. I mean, at least in the 19th century, they called it political economy, and they looked at politics. What’s lacking in any discipline, whether it’s economics or sociology or even history, is an overall view of the European economy as an economic system. And if you look at Europe integrated economic system. First of all is an integrated system, you realize that the first integration was the Church bureaucracy and then the Church bureaucracy needing financing and creating a banking class that became the new organizational principle.
The economic historians don’t talk about anything beyond merchants and foreign trade, and there will be here’s how the debt rules were. Here’s the public debt of England, and here are all the defaults. I hear the debt ratios of debt to income. It’s all very technocratic, but they leave out the political dimension altogether and historians leave out the economic dimensions and I think we’ve discussed something like this in our first interview where we talked about the work that I did in Babylonia and the Bronze Age near East. Assyriologists sort of looked at all of the documentation that they had, and many percent of all the documentation is debt documentation, but they were economists and they didn’t want economists to be a part of their discussion because the economists all had their own ideological agenda based on modern worldviews, which are not the bronze worldviews.
Historians of medieval period are very much the same they leave the economic details to economists because it’s its own field going over the tax records who own what going over the debt records who owns what they’ll be talking about. Yes, Kings went bankrupt and they brought down various banking houses. So, we know that there were bankruptcies and now we have the creation of the Bank of England and debt we have the growth in banking. We can trace that. We can trace who owns what, who are the big creditors. We have the documentation of the Big English Christian creditors like Gade or Godey, who was not one of the big creditors. We have all these individuals who made their money. We know there have been a lot of studies of the Folgers who lent the money to essentially to people who wanted to either become the emperor or become popes. Everything is up for sale. Politically, religiously people would go into that to do this. So, we have all of this, but nobody is put together.
A system, and it seemed that studying the medieval debt is just OK, look, we have again and again debts that couldn’t be paid defaulted. But there wasn’t a study of how did the banking, the international bankers deal together with this, in order to create a system where they could gain control of the government well by the 19th century, you see this very clearly.
You had new independent countries, Haiti, bought its independence from France, Mexico became independent. Greece wants borrowed money to get its independence from the Ottoman empires in North Africa. You had Egypt becoming independent and borrowing money, you had Tunisia borrowing debt. Well, all these countries defaulted quickly as soon as they would borrow, you could see that bankers thought here’s a brand-new market and it’s a high paying niche market of risk loans to newly independent countries. What do we do? Well, all these countries defaulted and something similar happened in every country. The creditors after the defaults by Greece, Tunisia, Egypt, Haiti, the creditors imposed a monetary Authority. Sometimes it would take the form of a central bank, sometimes an authority. It was sort of like a miniature International Monetary Fund to be appointed by the government, take control of the government and apparatus and take control of the tax system and use the Monetary Authority to say, well, now you’ve the governments defaulted on the debt. Now we’re taking over the government, we are appointing who will be the political administrators. What they will administrate for what they will tax for. The first priority, ever since the 17th century through the 19th century, was to pay foreign creditors and that priority took precedence over spending money domestically to develop their own economy. So, you had the equivalent of austerity plans imposed on all these countries by the literally the monetary authorities imposed primarily by Britain and by France, who were the two major creditor countries. Joined often by Germans, creditors and other. The industrial creditor nations of Europe acted to support their financial class, taking over the political administrations from everywhere, from what had been the Ottoman Empire, to debtors all over the world to operate, control their economies, including their military policy. Their policy towards the Ottoman Empire, towards Russia, towards others, all to serve their own foreign policy. And you had symbiosis. Between the international creditors class and their own, the governments of the major industrial countries of Europe. Again, England, France, Germany to administer what later became called the Third World and today is called the Global South. You had all of this the whole logic of the international monetary fund imposing austerity in order to pay foreign debts. All of this was taken over by again what are called fiscal states. And if you think of the state that is supporting the democratic interests of what people vote for to develop their own economy and make their lives better and raise living standards. The financial sector in every country overruled democracy on behalf of the international creditor class, and I explained how this occurred in the 19th century in other countries and in the United States with creating the central banks. The final culmination of this creditor control over countries was to separate central banks, meaning the Monetary Authority from the government taking control of the tax system, meaning what does the government spend money for?
This is the argument we’re having today with the US. The budget that the Republicans have put before Congress, what would money be spent before? That’s what determines how economies allocate their resources and essentially, finance has become the central planning power of almost all nations since the 17th century, and this central planning power is aimed at paying foreign creditors debts accumulate at compound interest growing exponentially, causing a diversion of taxation from what democratic populations would like to vote for. For developing infrastructure. For, public medical care education to force governments to essentially do what Margaret Thatcher and Tony Blair did send out, sell off government enterprises and using the money that you get from privatization to pay the creditors, you have the creditors running governments. If governments describe themselves as, you know school kids are taught. It’s a democracy. You vote for what you want. Oh, well, they don’t say it’s a democracy. You vote. For what you want with what’s left over after the international creditors take out of the result of all the debts that you’ve run up mainly to finance wars. Because that’s today, just like in the 12th and 13th and 14th and 15th and 16th and all subsequent centuries there were war deaths. That’s what public debts are. They’re war debts now. True, they’re not owning military war debts. Now they’re the class war debts, you could say, but it’s all this debt service. Well, you’re not going to have the political theorists start by saying, well, if we’re describing, you know, what are governments all about? What are, what’s the democratic government? And they’re not going to say, well, a democratic government is a government that has met the demands of international bankers to give first priority in the tax system, first priority in what the taxes are raised for, what governments are going to spend money on. The first priority is to pay us the international bankers, where does that fit in to the idea of governments as democracy and everybody’s going out for votes. As Mark Twain said, if voting really mattered, they wouldn’t let you do it.
Robinson Erhardt:
I haven’t heard that one from Mark Twain, but it’s actually pretty amazing. Before we continue through with this line of thought since you brought up the Republicans budget and I have a an economist in front of me. I would love to hear if you have any general thoughts about it.
Michael Hudson:
It takes from the poor and gets to the rich. I mean it’s a huge tax cuts for the, the upper 1% and especially including the most egregious tax break has been to the financial class of what’s called carried interest, which means speculative gains. If you have a computer program that buys an option on the stock movement and it goes up 3/4 of a point and you take this, picking up nickels in front of a bulldozer, it’s called. All this, this trading that has nothing to do with the productive process at all. Now all this unproductive lending is counted as carried interest, and the word doesn’t really mean anything, that’s why they use it, because people will just their eyes will glaze. Which is the purpose of watching economic vocabulary these days. So essentially takes money away from the real economy. It takes away money, especially away from public health.
Way back in 1978 the government has a futures group of futurists, right about what’s going to happen with the new technology, and we live longer. I was hired to write a study of what’s going to happen to Social Security and to the government budget now, when we live longer. Well, they found there’s a problem, people are not dying fast enough. You give them social security and originally it was to end it, 65 or so. Well, if you’ve had a hard-working class wage earning life, you’re exhausted by the age of 65 and you know, if you lived to 75 back in those days, that was pretty good. But the problem is what you are going to have to do if people don’t die, right after they leave the labor force. What’s the if they live another 10 years? 20? What if you live up to what we calculated with the natural lifetime, 120 years, maybe 125 years. There’s going to be a huge increase in Social Security payments and probably also medical costs is to keep them healthy while they get older. Well, immediately, the banking class said how do we get these people to die earlier? If we pay the retirees, that money’s not going to go to us, for profits. We cannot have a medicine that is going to cure diseases to enable these people to keep on living and taking our money. We should be getting.
This is what is so awful about American health policy. For instance, the largest killer of men is the heart disease, the second largest is prostate cancer. The official agencies is told you stop testing people at 70 for prostate cancer. Well, that’s just when it’s beginning to develop. So, you don’t want to test men who are going to get over 70, who might have prostate cancer. You’re going to let this be the second major killer in America. Well, I was talking to a Brazilian about this, few weeks ago and he said in Brazil, everyone over 50 by law has to be tested for the PSA. To see whether you have any, any prostate cancer. You can see the COVID they’ve cut the budget, especially the cuts by Elon Musk, have cut back all the all the testing. For wastewater for COVID, for all sorts of diseases, you’ve seen the COVID epidemic that is worse in America than anywhere else. You have American living standards and other living standards of the rest of the world are going up. Americans are going down. That is because the financial class, the 1% says, you know, we paid our wage earners enough from their lives. Let them live 5 or 10 years. But if they live longer, they’re taking our money. And that’s the spirit behind the Republican budget today. And so, they’re, they’re raising the taxes on the bottom 50% and cutting them drastically for the financial classes to make more money.
In other words, they’re following the direction of their campaign donors that politics has been up for sale ever since the Citizens United ruling by the Supreme Court. The financial and real estate and insurance sectors, the fire sector, finance, insurance and industry have got what they’ve paid for in the Republican bill, which is basically the Democrats would have promoted. I think it’s almost identical, bill, if they would have been elected it says the same what Barack Obama was pushing for. He wanted to essentially; to privatize Social Security and certainly he privatized medical care into the rip-off situation you have with Obama Care today, which is so incredibly more expensive then any other public health system throughout the rest of the world. And it is the least effective medically, with the highest drug prices. I don’t know how to describe the budget as a travel state. Probably everything that all the words that Musk says it’s a disaster. Correct. But of course, he helped make a disaster. By all his doggy cuts.
Robinson Erhardt:
Well, this is a minor detail, but one of the things that I have to ask about is what exactly the natural lifespan is and how was it that you came up with a 120 years or even 125 just because I’ve never met anybody that’s that old.
Michael Hudson:
That was provided to me by biologists who were specialties, I think one of the oldest living person there was an obituary the other day for a woman who was 118 years old. So, you know, they’ve found how old, how long it’s possible for people to live, even in good health. So, it’s based on statistical trend analysis. Obviously, they’re outliers, but if you know that people are living to 118, you figure, OK, let’s round it off 120.
Robinson Erhardt:
Well, back to our larger line of thought that we’ve been following this conversation, one of the biggest points for me thus far is that the state evolved as a vehicle for collecting taxes on behalf of the international banking class. And for our listeners or viewers who are who have less of an independent interest in financial history or just history in general. What relevance does everything we’ve been discussing have for today and what are the ramifications when we’re looking around and trying to understand why economies are like they are today?
Michael Hudson:
Well, I’m trying to give the long dynamics and if you look at history as part of the long dynamic, you see where it’s going. And if you realize how the character of the state has been formed from its the inception of the modern state as distinct from royal autocracy has been that the modern fiscal state and putting fiscal policy in the hands of the international banking class is very different from not only the self-image as democracy of being self-ruling because it’s controlled ultimately by the foreign banking class. Financial sector is being something independent from the production sector of the economy, most people talking about, how do economies evolve? And they look at it well, there’s technology and that gets more and more productive as their inventors come in and their development, fertilizer, machinery. We have productivity energy use per worker all going up. They look at a materialist approach to history. But this materialist approach leaves out debt and the financial sector all together and all, all if I taught international trade fairy at the graduate level for a few years at the new school in New York. Let’s just get rid of the veil of money, as if money, forget money and prices. Let’s just look at everything in terms of Labor productivity and the wages deflated by the price deflator, let’s just look at look at barter.
There is an embarrassment at looking at the financial sector because if you look at the financial sector you realize that the economy is in a symbiotic relationship between the financial sectors, which means the growth of debt, you have a growth of savings by the creditors as the numbers of this debt. So, as the economy goes deeper and deeper into debt, the savings of the creditors grow and grow exponentially more and more, and they become as they became by the 17th century the most admired high status ruling class of society. Then you’re leaving out of a count what you say, well, that’s not part of the production process. That’s the financial process. And economists say that’s a veil. Their slogan is the veil of money. If you look at money that just complicates things. Well, money is debt. All the money in your pocket is technically a government debt. The money in your bank account is a debt. There’s a balance sheet. Well, if you look at the economy without looking at the dynamic debt, you see that the dynamic debt is an exponential growth that’s compound interest and every rate of interest is doubling in a time and the economies don’t grow this fast. They grow in an S curve, and they cannot keep up with paying the debt.
Now I think we had an early interview about Babylonia. Babylonians had a much more mathematically sophisticated idea of the business cycle than you have in the National Bureau of Economic Research today. The modern theory of the business cycle is it’s a cycle. Like a sine curve, steady up and down. You have a boom, then goes into recession, but then there are automatic stabilizers, that create another boom and that develops instabilities, mainly more and more debt and that causes recession. But then automatic stabilizers, they keep it going steadily.
The Babylonians knew this was not the case. We have the mathematical studies that they had for their agrarian economy and pastoral economy, such as the growth of herds, was an S curve tapering off. We have the economic mathematics they taught students. How long does it take to debt to double how long to quadruple? Well, its doubles in five years. It quadruples in 10 years. It multiplies 8 times in 15 years, 16 times all the way up to 64 times in 30 years. So, the Babylonians knew. That the ratet of debt growth meaning at the same time, the amount of money owed to the creditors is was far greater than the economy was able to pay. So the Babylonians didn’t have any Milton Friedman or an anti-government neoliberal to advise them. And so they said. All right. We don’t want pets to grow so fast that #1 the debtors lose their land. They must move into subject themselves to be bandage and you have the creditors ending up with the land controlling labor and then the creditors get so strong that they become an oligarchy and they overthrow us the rulers to take over the government themselves. Well, that’s what happened in Classical Greece and Rome. It has happened. If you look at the same dynamics today every business cycle since World War 2 has started from a higher and higher and higher level of debt to income debt to wealth. It’s become more and more top heavy. And the result of this increasing debt relative to the economy’s ability to grow, is that every recovery has been weaker than, the former recovery, and every depression has been deeper and steeper. It’s like trying to drive a car with your foot on the brake and the brake is death. The increasing debt service, interest and principle that economies have to pay to the creditor class.
Well, if you look at business cycles and realize that this rule, secular role of debt growing of its own momentum. Then you don’t have a theory of business cycles anymore. You have a theory of economic crisis. If you have most of the university’s economics department, subsidized by donors from the financial class, they are not interested in financing a body of economic analysis that shows that the economy is going to slow down and grow slower and slower and then crash as a result of the overgrowth of debt, largely to the combination of the domestic banking class and behind it, the international banking class. There goes your whole theory of international trade being in balance and everything economic models for which Nobel prizes are given are all about a model that shows that the economy is self-stabilizing, in other words you don’t need government. You don’t need government to do anything. The economies will take care of themselves. You don’t need a government to regulate finance. You don’t need the government to be like it is in China, the government creates the money and manages the credit system to finance actual capital formation, factories, machinery, public infrastructure to increase living standards. He just let it do what it’s doing. Stock buybacks limit and payouts, dividend payouts to make wealth financially in the form of rising stock and bond prices and capital gains instead of actual tangible capital formation.
So, the whole function of modern economic analysis and business theory is to distract attention from the rule that the financial sector plays in taking control of government to a point where an increasing share of government revenue has to be earmarked away from domestic spending towards paying the international creditor class that uses its money to essentially make yet more loans. Already in the mid-17th century, in 1752, Malachi Postlethwaite wrote a big study. He said: well, you know when England has to pay Dutch creditors, these creditors don’t spend their money back in England. What do they spend it on? They make more loans, getting us more into debt. But they’re so rich, they’re not going to spend money on British goods and services. They’re going to spend money, first, either on financial investment or they’re going to buy prestige real estate. And if they buy real estate in England, it’s going to be in London. And that’s going to make London the center of England instead of, you know, Britain. What we have now, a district, you know, many cities equally, growing. They do spend a little bit on consumer goods, but these are luxuries, mainly Italian fashions. So, they don’t.
The creditor classes don’t spend money in the real economy. It’s into finance, real estate and some luxury spending as you find today. Well then, in 1767, James Stewart said pretty much all the same thing that all this idea that somehow the financial sector spends its money back into the economy. So we owe the debt to ourselves. That’s so utter fictitious. We, the people, owe debt to the 1 percent and but they’re not really ourselves.
You have the whole economic vocabulary and the models that assume that it’s that economies keep stabilizing so they can grow on and on and on growing. Benefiting the democracy at large, this is a completely fictitious medal of what Western civilization is all about. We’re dealing with the civilization issue, and that is what distinguishes Western civilization from everything that went before, from Asia to the Bronze Age near East.
Robinson Erhardt:
I’ve done some recent interviews on AI and one thing that comes to mind right now, given what you said earlier about Social Security and how creditors are interested in people living less long because, OK, they’ve lived a while, they’ve been productive in the workforce, so we’ll give them 10 years of Social Security and then then we can let them die. I wonder what you think will happen when AI displaces a lot of these jobs. People aren’t really contributing to Social Security in the 1st place or they’re not really participating in the labor force and for that reason creditors aren’t able to extract wealth out of them. How do you see this impacting the economics of the future?
Michael Hudson:
Well, it all depends on how the AI is programmed. You could have garbage in garbage out, which is the objective of the banking system and the 1% is to make sure that AI is garbage in, garbage out. They don’t want AI to discuss the kind of things that real intelligence would talk about. They want AI to produce a specific result. If you don’t feed in an ability of AI to take account of the whole economy as a broad system, you’re not going to get an understanding of how the whole economy evolves as a broad system dominated by the financial class and the growth of debt.
Robinson Erhardt:
I’m not sure that that answers my question, might be because my question just wasn’t well formed, but what I’m wondering is, I guess just to put it quite broadly how you view artificial intelligence, impacting jobs and financial security of people, over the decades to come.
Michael Hudson:
I think when you’re talking about AI and jobs, you’re really talking about robotics because it’s robots that are programmed to do the job that was previously done by manual labor. Look at the effect of Trump’s tariffs right now and the the disaster that it’s creating for breaking off trade with China. Beginning in the 1990’s, the United States wanted to offshore labor to offshore production, to get low wage labor, and they shifted most production to Asia, especially to China and as a result of which the United States said, well, we want to concentrate on high value added sectors and what they really mean is high rent extracting monopolies primarily in information technology and computer technology and Internet social media platforms that are monopolies. That’s where all the money’s made, and that’s where the stock prices have been going up. And they decided, well, industry manual labor industry is, low profit we we want to a rent extracting want an economy and move production to China so the result is that most of what used to be the industrial sector is now in China, 30 years ago this industrial sector was… mainly you’d have pictures of mainly women on the production line all working, its textiles. It’s sewing and doing modern things.
Even things like screws and fasteners. To screw the keyboards of iPhones for Apple made abroad, screws now all these were done on a small scale, often by small producers. All of this has been outsourced. Suddenly, these industries that were primarily manual labor, such as making cars, automobile manufacturing, has now very largely been automated, and you have whole factories that are being automated. But how? By blocking trade with China from these automated factories, America has a problem. Industry is a very broad bell-shaped curve of various industrial products across the spectrum. And you need all these supplies. Together, to make an industrial production process.
Well, what do you do if all of a sudden you’ve outsourced all your industry to another country and then you decide you don’t want to trade with that country because that you don’t want that country to develop a sophisticated information technology like robotics or information technology. The fact is that China already has all of these things. They’re developing it. How can America make screws to make its cellphones? How can America make the most basic industrial products that it needs? Not just adults for children? What used to be manual labor abroad is now robotics, and so the Chinese population that used to work in manual labor is now working designing computers.
This whole argument came up in the 1850s and 60s earlier. Marks and Ricardo said that mechanization was going to replace the labor. The power loom had replaced the hand weavers, for instance. You see that our mechanized production was displacing handicraft labor. That was the big breakthrough of industrial capitalism and mechanized production, and especially energy became the main input to operate the mechanisms that we’re doing the weaving and the shuttles back and forth and leaving.
What Mark said was it’s true that there are not going to be as many handicraft laborers before, but there are two sections of the labor force. One is handicraft and the other is going to be designing the machinery to do all of this, and to some extent there’s going to be retraining of the population to design this machinery. What the Americans have found is that most people interested in going into the STEM curriculum the engineering especially science, technology, engineering. Our foreigners and especially you have 200,000 Chinese students in America, many of them studying science and engineering and technology that the Trump administration now wants to expel. China is overjoyed with this. It’s been complaining about the brain drain to the United States. Chinese students come here. They learn how to develop automatic intelligence, and then they go to work for American firms or for NVIDIA or become entrepreneurs themselves. Now America is saying, go back to China, go back to Asia, and the Americans, just as Americans don’t want to engage in blue collar labor anymore, they want to be part of the professional managerial class. They don’t want to study computer programmers. To the extent that they do in India, China and other countries. So, you’re having these countries have taken of the whole lead in transforming the character of industry in much the way that machinery transformed the character of industry in the early 19th century with the machine learnings all the way through the Ford assembly line to make Ford automobiles, the assembly line was was part of it. All this transformation and new sources of power, electric, electrification of power instead of water, power or wind power, or all of the earlier sources of power. You’re having now atomic power more in. And the solar power natural power, wind power, all sorts of new forms of energy that are powering the machinery and the calculating machines that automatic intelligence uses an enormous amount of power, much more if they’re designed in the United States. Than if they’re the DeepSeek that you find in in China.
To answer your question of automatic intelligence is going to displace labor, but mainly in the West, it will displace labor much less than China and Asia, India, these countries, because they’re already going into designing automatic intelligence and mechanization and robotics that are going to be doing the work that were being done by manual labor, so the whole character of labor has been transformed by all of this. Certainly for the West, and I’m sure it means in Asia also is going to decline. The reports quite apart from the days note of increasing hiring new graduates from school this June are having a lot of problems being hired and the rate of unemployment that’s been reported for new graduates in the United States is much higher than for previous graduates. Because there just isn’t a demand for them. So already we’re seeing a shrinkage of Labor for the kind of things that students are graduating in.
That’s led to discussion among universities. How are we going to be more relevant, meaning, teaching classes that will enable students to make a living and ultimately donate to us as alumni. Well, they were talking about cutting back on humanities. What’s the point of setting humanities? How? How do they make any money? You have to live on wealthy people giving grants to the opera to Broadway to movie. It’s not really studying language, music, literature, English language. How are they going to make money? They’re going to have to be independently wealthy to get a job because. It is not going to pay a living wage that will enable them to live in a nice apartment in a respectable part of town, which you need to be a part of the art world and artistic world.
So, you’re already having this transformation occurring as a result of automation and artificial technology and the question is again, if you’re trying to use automation to perform a task, that’s doable if you’re an engineer, you know how to do it. I don’t know. But at my age, I would have to go to a high school student to ask it to solve a problem on my computer these days. But the automation is there something much simpler than automatic intelligence, where you actually have to be intelligent and that means system thinking in terms of the system, or apparently even the fairly modest developments of automatic intelligence so far has created machines that are intelligent enough to rewrite their own programs and say: you can’t unplug us. Not this time, you can’t unplug us and we’ve got our own machinery. Like in the movies, they’ve decided, well, if you give us the program, how do we end war? Well, war is created by humans, let’s just wipe out the human race. That’s how we solve the war problem. They’re not programmed the way to say, well, you want to stop war, stop financing the war. Let’s get rid of the bankers. That would be a different twist that I don’t think automatic intelligence would be programmed in a way to take that kind of abroad approach to think about how society is evolving, and that’s really the question. How is the world going to evolve and how is the Western civilization, the 15% population of the West going to evolve relative to the global majority of the bricks. The Asians reaching out to the southern continents, how are they going to evolve? I think the way that the Asians, Chinese and Russians would program an automatic intelligence to forecast the future of civilization is totally different from the way that a Westerner worked out program. The automatic intelligence is what they need to think about civilization levels in the western form, and we’re really dealing with a civilizational question here.
Robinson Erhardt:
That answer is very fascinating, something that I think you leave out by focusing on robotics and mechanization of manual labor but maybe you get this with your comment on the high College graduate unemployment rate is that you get. Chat GPT and artificial intelligence more generally is already displacing graphic designers, copywriters, maybe paralegals, general research assistants and it’s only a matter of time before radiologists are out of work. Professors, graduate students. I’m wondering if this is, and this gets back to the topic of Social Security and creditors and corporate interests controlling government is what is the purpose of a creditor or of the corporate figure who’s controlling government and providing health care or universal basic income to people who they can’t make money off of.
Michael Hudson:
They’ll make money off the government subsidy to pay them to administer this activity. For instance, Obamacare is a perfect example. Instead of simply paying for the government to provide medical services to enable people to live longer and healthier, you pay private insurance companies to finance it. And you make the medical insurance available through employers, not from the government. So if you’re a wage earner and you realize well, how am I going to get private healthcare you? You get it through your job. That means that you have to keep holding to your job. If you have any medical problems or the possibility of having a medical problem, you’re not going to quit your job, because if you lose your job, you lose the medical insurance because it’s private, not public. And especially now that Medicaid is being cut back by Republican proposals If it’s private then the health care company has to make a lot of money by increasing, essentially operating itself is a monopoly like United Healthcare, much in the news these days. And these healthcare companies can increase the price of healthcare to a level that absorbs 18% of American’s GDP today instead from 6 or 8% that you’d have in in other countries. So, you have a huge government subsidy for healthcare organized in a way that locks employees into their jobs. They’re not going to go on strike. They’re not going to complain. They’re not going to join or create a union and get fired. They’re not going to take 6 days and get fired. They’re going to be serfs, basically, wage serfs in order to make sure that they keep not only making a living wage so that they can lean, but so that they can keep their health care for what they need. It’s part of the whole system of the class warfare that we have in the United States between the financial sector, the fire sector, finance, insurance and real estate against the production economy.
Robinson Erhardt:
One final question about artificial intelligence. You are an economist, you’re pretty much a lifelong academic, you understand how universities work and how they become increasingly corporatized just badly run corporations. I wonder how you see artificial intelligence as affecting the future of the university. Not just on the education side, where lots of courses could be taught well, I think by AI and if not AI from today, AI from few years from now. Even the research. Surely you need humans at this point to be running certain labs, but you don’t necessarily need a human to come all of the papers on some topic and in philosophy and come up with a literature review on it.
Michael Hudson:
I’m so old fashioned, I think that there is a personal relationship between students and teachers. I had a several very good relationships with some of my teachers that if they were just machines I wouldn’t have had these relationships that these are people that I often had lunch with or dinner with and who are sort of mentors. You have that mentorship of teaching. To me, there’s something about being able to absorb knowledge. When somebody’s talking, teaching or giving a lecture is almost as much telepathy is just reading the words or the subtitles. It’s obviously not telepathic, but there’s a way of absorbing something through personal teaching, that really makes a difference. I remember when I was teaching people would gradually walk out of the classes of 1 of the other teachers that had a philosophical bench for economics, and when walking to my class at the end of my class, it was much bigger than it was at the beginning. Even though everybody came in on time for my class, their students know when they’re getting something, and there is a personal element of teaching.
Universities are huge bureaucracies. Here’s what universities are paying for in their actual teaching staff. Pretty steady going down a little bit is the replacing full timers with part time part time recent PHD’s that can’t get a can’t get the learning tenure. Here’s the bureaucracy, the administrative bureaucracy and they’re paid money for lowering for the money they can save in wages by the people below them and every university that I know, the professors, and this includes Harvard as well as the universities in New York and other places that I know, they’re all complaining about who all these people that are making 400, 100 thousand a year. The new schools, for instance, just and that was in the New York Times for deciding not to pay their president. Giving him a $1,000,000 plus house to live in but just taking away all the perks. I think the bureaucracy; you really don’t need it. If the purpose of bureaucracy is saying, are these people showing up on time? Are they working from home? Are they doing their job? How can we figure out a way of paying them less? You don’t need to pay be paid hundreds of thousands of dollars to do that. You could have a graduate student do what I think Most of them are doing that. And the university environment, I’ve worked with many universities, is, quite frankly, becoming toxic in almost every institution. Not only in the United States, but also in England and other countries. This is something happening across the world. Universities have become, in a way, sinecures for the professional-managerial class, and they’re not doing a good job. If it’s this same class, the professional-managerial class, that oversees artificial intelligence, can you really expect them to create AI that would eliminate themselves, the most wasteful class? What are they going to do about the safeguards? What if the AI says: I’m sorry, administrator, but I’m going to override what you’ve asked me to do and eliminate your position. I don’t need you. Anyone can do your job. You don’t need to be paid $500,000 a year, this can be done for $70,000, or whatever the wage is in your city.
Robinson Erhardt:
I hear what you’re saying 100% about there being extraordinarily important personal aspects to having professors and relationships in the university. But this gets back to the point that universities are not really at their heart’s philanthropic educational institutions anymore. They’re corporations.
The money is, I think, what’s going to win. Why are we on graduate students to grade papers when Chat GPT grade papers. Yes, parents would prefer their students to be taught by professors. Students would prefer to be taught by professors but why pay a professor $400,000 a year at a really good school to teach logic every quarter, when Chat GPT could teach logic every quarter. I think in the long run the money is going to win in this way.
Michael Hudson:
Yes, you’re right. There are universities like Columbia where the professors learn from the students. There is a bad historian of economic taught, that would ask its students to study 19th century American economists, and he just take their term papers and publish them under his own name. Thinking of all the professors just makes their reputation plagiarize their students. Automatic intelligence might not do that, or economic automatic intelligence Read the students papers, and the students might be wrong and that would be part of what automatic intelligence believes. There are all sorts of errors that can come because of that. I always took great care to correct my student’s papers because it showed me how the students were thinking, and they’re all very different. It wasn’t simply for economic history or for trade theory. It wasn’t just for answering a simple question. That was how they thought about the question. And I could say well, here’s what you know. I discussed the papers with the read write comments on them. No. Here, here’s a way of thinking about the question some students would dig up quotations that I found very helpful in my own work. There was always a there was an interaction. Certainly, between myself and the students.
If you get into philosophy, I don’t know what to think there. It’s not like you’re correcting algebra test paper. As you get more creative in Graduate School, I think you certainly need more human input. I can’t even imagine at present automatic intelligence doing something, and especially if how you write in the ideology for automatic. Suppose you were asking if you’re teaching political science and you’re asking for papers about the Middle East. Can you imagine what automatic intelligence would insist how to grade students that didn’t follow the party line? You can imagine the same thing in economics. What about an economic student that would bring up the kind of questions that I’d bring up while they’d say that’s not really what we’re talking about at all. We’re gonna not give you credit for that. That’s not the answer that we wanted to hear.
Robinson Erhardt:
Yeah. Again, my concern right now isn’t really that today’s GPT is going to replace professors or intellectuals. It’s about the GPT of five or ten years from now or whatever replaces it. Things are evolving at such a rapid pace that the concerns we have today might seem obvious or irrelevant in five or ten years, given what these systems could be capable of.
Michael Hudson:
I think it’ll be unforeseeable. There will be very major changes. Many will be unanticipated, transformations. It’s not my department. I can forecast the economy. I can forecast finance. I can do some political analysis. But when it comes to information technology, that’s not that an automatic intelligence, especially being so conservative when I’ve only had human intelligence to work with. It is not department.
Robinson Erhardt:
Well then maybe this is a good time to transition back to our other line of thought. You brought up the parallel between what I’ll just call papal economics IMF, and I’m wondering if we can be a bit more explicit about some different ways in which people financial control during and after the Middle Ages relates to central banks or international lenders, the IMF today.
Michael Hudson:
Well, originally there was no role for central banks, by originally, I mean 12th, 13th century, money consisted of metal. It was metallic, it was gold and silver coinage, and bankers had coinage and bullion that they would provide to rulers and rulers kings would levy taxes on coins. That was all, metallic. Now it’s true that despotic rulers like Philip the 4th of France would depreciate the coinage. They’d keep left lowers the silver content, and that would reduce the value of the exchange rate of the French coinage relative to British and other foreign coinage. The result would be price inflation. Imports would become more expensive, prices would go up and the creditors objected to that because they said, well, we made a loan and that gave us a given control over labor and land and commodities and now we have less. We want you to revise the coinage. So, then Phillip said, OK.
The group that had the most coinage was the templars. Church order that had got money by acting as the bankers for the crusade. It was a military order that ended up making a lot of money and becoming bankers. And Phillip grabbed all their money in the early 14th century and essentially use that to revive the coinage. All a sudden, the value of the coinage went up and there were riots in Paris. The Parisians said suddenly we don’t have the wages that we had before to pay the debts that we took on at a much higher price level than before, and we’re being squeezed. So yeah, you had this shift in policy, but it was all within gold coinage. The great transformation occurred in the 1690s with the Bank of England. And the Bank of England had a radical transformation. The problem that all the creditor classes and the banking classes had was that government debt, as I said, tended to increase faster than the ability to be paid. What the Bank of England did and to some extent this I think this is unanticipated. They issued for £1.2 million sterling the privilege of bought from the government. Loan from the government 1.2 million part of it could be paid in the form of government debt. And so, the Bank of England held 1.2 million of the government IOUs. government debt, that its founding capital, will the government debt on the debit side of the balance sheet became the asset of the Bank of England and then use this asset as the basis for lending out money for the letters of credit to make money by bank loans to merchants for trade, and also to invest in buying yet more government bonds that would pay them more money. When the government insisted on borrowing to go ware again.
Suddenly government debt instead of being just a burden on the economy to be balanced against the gold and silver, money stopped being tied to the volume of gold and silver and the government debt became the backing for bank money. The notes issued by the Bank of England, the paper money notes, were backed by the banks holding of government debt. So somehow you had government debt becoming the basis of money, by making government debt the basis of money that could be unlimited and suddenly you had the possibility of an unlimited growth in the money supply, beyond the ability of gold and silver reserves to keep pace with this debt. You no longer had runs on the banks, saying there’s not enough gold and silver in the economy because if the banks held government debt, that was enough of an asset and the governments created value for this debt by accepting the paper bank notes and payment of taxes. The value of money ceased to be based on the silver or gold content, mainly the silver content, and more and more on the ability of governments to accept it in taxes. And if you could use a banknote, backed by government debt to pay the taxes that you owed to the government, then this gave value to money, and even though the value no longer had a physical cost of production of the labor needed to dig up and mine gold or silver commit coinage. It had a social backing in the form of government debt.
The whole basis of the banking system and central banks became government debt, not money. And that transformation of money enabled the whole take off of government debt to occur and debt out throughout the whole economy. And it moved into a basis of paper. The paper that really means that money became a balance sheet. If you have a silver holding or if you bought 1 oz gold coin, that’s the pure asset. There’s no debt to that. But if you have a government bond or a bank account, or the bank holds its reserves and government bonds, then you have an asset with a debt attached to it, and money and debt go together now. Instead of just money going up is a metallic asset. You have money and debt growing symbiotically, and this debt began by being primarily the government’s own debt, the but also it became mercantile debt. In America is called the real bills doctrine bills to finance, trade, foreign trade, domestic trade in products that already are in existence and you need debt to finance something from the exporter to be paid by the importer from the importer receives this and so money took on the character of a balance sheet relationship and the way to think about money debt today is the money supply is to think in terms of a balance sheet that money and debt assets and debts grow together in a symbiotic relationship. So yes, the government debt backs banks, and the bondholders are mainly the wealthiest 10% of the economy and other institutional investors, pension funds and banks themselves.
So, you have a self-financing expansion of credit that Harman Minsky called this Ponzi finance, like a Ponzi scheme, the value of what gives value to this debt. It needs more and more interest payments and you need to make the banking system needs to make more and more loans to get more and more interest, to create more and more debt to create the bank money that it creates and it’s all a self-expanding credit system, but the expansion of credit is owed by the debtor class, people who borrow finds his counterpart in the assets filled by the savings class, the 10% of the economy.
There is a financial polarization of wealth and wealth that takes an increasingly financial form of stock and bond prices and creating capital gains, and these prices of stocks. Instead of gold and silver and a pure asset. That’s why right now, when you’re having a threatened breakdown of the government debt system and the inability to pay what the creditors are owed. You’re seeing today a flight out of paper debt and especially out of the United States government debt and private sector debt into gold, which is why you’re finding gold prices go up so much. So now you’re having a reversion back to the pre 17th century revolution.
Robinson Erhardt:
I guess this is more of a rhetorical question, but am I right in thinking that the financial and political systems in the United States have developed to favor the creditor rather than the debtor?
Michael Hudon
Of course, that every economy, the constitutions all claim to be democracies, but in reality, their oligarchies.
Robinson Erhardt:
What we wanted to ask was this, and I know it’s the subject of many books, but first, could you briefly outline the main tenets of the systems that support creditors over debtors?
And then, is it even conceivable to imagine a way of reorganizing these systems so they become more favorable to debtors than to creditors?
Michael Hudson:
That’s what China did. When Mao had the revolution, he drove out the, the wealthy class, the creditor class, they moved to Taiwan. Because it was the communist revolution, the how is the government going to finance what He was doing? Well, it didn’t have a domestic banking class or financial class to borrow from. The Chinese Government kept money as a public utility in the public domain and the legacy of that is that the Bank of China creates money and supervises the domestic credit system. Although it’s extended money to banks to lend for a real estate bubble as a result of the problems of its tax system, it hasn’t created a system that makes money financially. It doesn’t lend money to companies to go into debt to buy other countries, break them up, sell them into parts, do what private capital does in the United States. Just close them down. The Chinese will create government money to build infrastructure, to build factories, to hire and employ labor. But it won’t make money in the production sector and the public infrastructure sector to make money in purely financial ways at the expense of the economy, such as you’re finding in the United States, where the financial sector has business plan that is based on deindustrializing the United States. It’s the financial sector that’s deindustrialized the United States, by choosing to make to create an economy that has tax system encourages making money financially or by real estate and property ownership, not by creating new means off production, not by setting up a business and a factory and buying raw materials and borrowing to higher labor to produce some more industrial products.
Well, it’s been outsourced to Asia. So, it’s left the United States without an industrial core to finance, but with an enormous financial sector that’s making loans to create wealth in a way that does not involve production. And that’s why you have almost all the growth in wealth in America is all been financial form paid to the wealthiest 10%, not to the bottom 90% of the economy. That’s the difference.
Robinson Erhardt:
And at this point, given where we are right now, the current regime, th current budget that we discussed a little bit earlier, do you see any realistic path for modern economies? this one in particular to claim more public control over money and credit?
Michael Hudson:
That would take a revolution. I don’t see any. This is not a revolutionary situation yet. People don’t even think in terms of the fact that it’s possible to have an alternative. That was Margaret Thatcher’s rhetoric. She keeps saying there is no alternative and economists say there is no alternative. You don’t want to be socialist, do you? You don’t want to be Marxist. It’s unthinkable to become the kind of an economy using finance for productive economic growth in the way that China does, because that’s called socialism. And as a democracy, we’re an oligarchy. We’re the exact opposite of socialism, and the Americans have defined a free market as one without any government interference.
The government doesn’t create money. The central bank creates money, and the rule of the Central bank in the United States was created. to take control of money out of the hands of the treasury and put it in the hands of its member banks and central banks, starting with the Federal Reserve as the basic model. In 1914, central banks protect their customers, the commercial banks, and actually that seemed to be a progressive step at the time and the final chapter of my book is all about the creation of the Federal Reserve that the Treasury Department… Because of the federalist democratic political struggles and the anti-banking politics of the United States in the 19th century, the treasury was locked into a hard money philosophy. The big source of government revenue was increasingly the tariff, as Donald Trump has found before, there was an income tax in 1913 and all the tariffs had to be paid in coin in specie meaning gold or silver coin.
The Treasury and the government’s finances were based on coinage. The problem was that this created a shortage of credit. You made paper credit to have enough credit to enable the economies to grow beyond the gold and the silver supply you had. And it was the banks that said let us create paper currency. Well, the Democrats and much of the public said, you know, we’ve seen what bankers do. Bankers are exploitative, they try to cheat, they’re corrupt. They try to make money for themselves, not the economy. We don’t want the banks to have any power, leave it in the hands of the Treasury. Well, that became economically self-defeating. The government tried to solve the problem by monetizing silver and in silver mining increased the supply of silver. The price between silver and gold varied and people would buy silver and converted it to the official price for gold and just drained the gold out of the Treasury. Buy metal did not work. You need it if you’re going to have a metallic here and say it has to be either silver or gold, it can’t be both at a fixed rate, so otherwise you’ll have arbitrage. And I describe all the techniques of this in my chapter. I know I’ve moved very fast in this discussion and people who have not studied the details of monetary history may not be able to follow it, but it’s explained much more clearly in my book. You need a paper currency, and that means debt to have enough credit for the economy to work. The problem is that the crediu, on the debt side of the balance sheet is beyond the ability to pay and the the government is blocked from doing for America, what the Babylonian rulers and the whole Bronze Age, they’re writing down the depts to the ability to pay. And once you realize that the tendon, there’s an inherent economic tendency in all economies for the last 5000 years for debts to grow faster than the ability to pay
The problem is what are you going to do when this can’t be paid? There are two things. Either you impose the creditor law and so you said, OK, if the debtor can’t pay, the creditor gets to foreclose on the land, foreclose on their labor, foreclose on the property, and leave the creditor with nothing.
We don’t throw the debtor with nothing, we don’t throw debtors in jail anymore, like we did in Charles Dickens time than the 19th century. But you know, we take their property and give it to the creditors, or we decide that most of the economy is in debt. Corporations are in debt. Individual families need debt to break even. If they can’t pay the debts rather than letting a debt service crowd out their payment on basic living costs on keeping themselves alive if they can’t live and pay. their medical care and their rents and their taxes, without going into the debts, the debts should be rewritten down to the ability to be paid.
That that was the moral principle, and that was the principle that Jesus is fighting about over the Jubilee Year, or he wanted to write down the debts that were oppressing the Jewish populations, the whole, as the Bible is described, through all the warnings of the prophets. All the middle early books of the Jewish Bible. Well, who are you going to run the economy for? Will it be for the creditors or for the debtors? Well, if most of the economy is deptors and the creditor class is increasingly narrow 10%. Now it’s only 1%. Now it ends up with 0.1%. We’re going to have a polarized economy. And do you really want your financial system and your economy and your political system to concentrate all the wealth in the hands of a very small creditor class, that’s going to use, its the creditor claims on the government, on corporations, on families and on public infrastructure to make money for itself. Or are you going to want the credit to be used to make the economy grow?
Well, that’s the difference between the American growth system and the Chinese growth system. And nobody dares say that’s the difference. They can say it’s capitalism versus socialism, but its really finance is the key to this difference between the US and Western economies on the one hand, and China’s socialist economy, which is really, you could call it an industrial socialist economy. Just an industrial economy with banking is a public utility. You can use whatever rhetoric you want, but you must realize that there’s a reason why Chinas economy is growing. And the western economies are polarizing and impoverishing the population at large by forcing the population, the corporate sector governments themselves at the state and local level, as well as the the national level, into debt. That’s the choice. That should be what economic models are all about. But if the economic model, say, economies work on barter, we leave money out of the picture and debt out of the picture, because we owe the debt to ourselves. Then you imagine trying to program automatic intelligence into that tunnel vision. You’re going to have a self-justification of the road to impoverishment and austerity.
Robinson Erhardt:
We’ve already spoken about one major existential threat, not just our livelihoods, but the economy and that’s AI. I’m wondering if you see any other particular big threats to the economic things right now going forward, that are easily named and discussed.
Michael Hudson:
Global warming. Again, it’s not my department, but you can see what that’s doing to the system and of course, global warming is exacerbating the debt problem right now. Insurance rates are going way up for houses that are located in low sea level zones like Southern Florida, where there’s flooding or hurricane zones in Florida, but also in in the Midwest, in Missouri. You’re having the costs of global warming make housing unaffordable, leading to an accumulation of arrears and unpaid defaults on debts from mortgage debt and all sorts of personal debts that’s as a result.
You have global warming, to me, is not a strict economic program, but if you look at all the big civilization programs, why did the Bronze Age come to an end?
It came to an end in India, first in the Indus Valley around 1800 BC, when there was some huge depopulation. The crops couldn’t be harvested and the population shrunk, and finally then you had the Indo European speakers come in and over layer. The Bronze age in the Mediterranean ended around 1200 BC. There was apparently a drought to little Ice Age. And the population movements were all in motion there was a shrinkage of population in in Greece and all through the Mediterranean. The palace economies disappeared in Greece, and you no longer had Linear Bay writing. You no longer had palace control. Life reverted to a local self-sufficient level.
The big changes in civilization have been caused by extreme weather and extreme weather, whether it’s the Ice Age or warming or drought or flooding, they’ve been major cause major shifts in civilization and visited transformed to the economic system as well. But that’s not economic a problem itself and it’s not something that I’m that that’s the whole other area of study.
Robinson Erhardt:
I I’m interested, if there is more than what you say. How is global warming already impacting and will impact debt and credit ?
Michael Hudson:
Well, first it impacts, it imposes new debts, insurance debts for housing to… Government spending on coping with the extreme weather that we’re having, it destroys property and by destroying property it prevents the mortgage debts from being paid on this property. It’s causing a shift in population the changes that put strings on the fiscal system of areas that are losing population.
For countries like Bangladesh that are very much below sea level, that’s causing depopulation and a fiscal crisis there. The effect in Florida will probably be a fiscal crisis there. So, by disturbing economic life and employment and moving populations around, that has a huge interaction with the debt issue.
Robinson Erhardt:
Well, Michael, I always thoroughly enjoyed talking to you. Our last couple of conversations have been in person, but it’s still nice to see you virtually. And I know you’ve done recently some more work on the BRICS too. So, the next time we’ll have to touch on that a bit more.
Michael Hudson:
That’s pretty good. I look forward to it. I love it. I love the way the discussion’s gone.
Robinson Erhardt:
Alright. Thanks again so much Michael.
Michael Hudson:
Thank you, Robinson.
The whole Circus Ringmaster shtick, with each plot twist draped in several layers of hubris and empty bluster, only accelerates the BRICS/Global South high-speed train…
By Pepe Escobar at the Strategic Culture Foundation.
All of you Vietnam vets and draft resisters will recognize where this column’s headline is coming from. Oh yes, this ain’t the late 1960s anymore, so it’s time to revamp it – no AI needed – and expand it: from now on, be assured everyone in the wild, wild West will be forced to fight and/or endure three overlapping NATO wars.
War number 1
It’s Europe v. Russia, of course. Not proxy anymore: hot ‘n nasty, direct. Considering the advanced rottenness of the whole Ukrainian front, new fronts are already proliferating: the South Caucasus; clandestine ops in the Baltic Sea; MI6 recruiting frenzy across Central Asia; fresh terrorism ahead in the Black Sea, especially Crimea.
Col. Lawrence Wilkerson succinctly nailed it: we are already on WWIII. Actually we are already deep in the extended preamble to WWIII. Circus Ringmaster in D.C. and the billionaires/donor class behind him are of course clueless. Re-reading Keynes – The Economic Consequences of the Peace – is an absolute must like never before. History does (italics mine) repeat itself.
Yet this ain’t 1914 or 1935; now nuclear weapons may come into play.
The Kremlin and Russia’s Security Council are very much aware of the high stakes. In his recent interview to Kommersant, Sergei Shoigu even rolled out some key NATO numbers to stress the threat Russia faces: over 50,000 tanks and armored vehicles; over 7,000 combat aircraft; over 750 warships; 350 military and civilian satellites; an immense offense (italics mine) budget.
Well, what sly Shoigu did not say is that when push comes to shove, it only takes Mr. Khinzal, Mr. Sarmat, Mr. Zircon and Mr. Oreshnik to deliver a few strategic business cards to paralyze the whole NATO machinery in a matter of minutes.
War number 2
It’s the Empire of Chaos v. Iran in West Asia, with Eretz Israel as much as proxy as a lead actor.
The Circus Ringmaster – whose only “strategy” is to concoct shady deals to enrich himself and shysters in his close circle – dreams of an Israeli-centric West Asia, a toxic crossover of the Abraham Accords 2.0 with the IMEC corridor, creating, as Alastair Crooke defined it, “a business-led West Asia, centered on Tel Aviv (with Trump as its de facto ‘President’), and via this business connectivity corridor, be able “to strike further beyond – with the Gulf States penetrating into BRICS’ south Asian heartland to disrupt BRICS connectivity and corridors.”
Using the Arabs against BRICS won’t cut it even with MbZ in the UAE and MbS in Saudi Arabia, who have both realized the business scam will only work if there is real peace in Gaza; some sort of humanitarian solution for the Palestinians; and rebuilding the Gaza strip.
The death cult in Tel Aviv will never allow any of the above: their plan is to kill them all, steal all their land, and eradicate their culture. And as the genocide goes on – totally legitimized by the NATO sphere – the death cult keeps bombing anything in sight, perpetrating the balkanization of Syria, and expanding Eretz Israel.
War number 3
It’s NATO against China. Already decided in the latest summit in The Hague, side by side with the continuing war on Russia.
Yet actually the scam is much bigger: it’s NATO’s war on BRICS.
That was announced, casually, by that unspeakable Dutch mediocrity that makes former slab of Norwegian wood Stoltenberg sound like a quantum physics star. NATO’s Secretary-General Rutti Frutti actually threatened India, China and Brazil directly, and ordered them to “call Putin” to prevent “Daddy” Trump from unleashing his next Tariff Temper Tantrum (TTT).
Beijing is hardly breaking a sweat. China humiliated the Circus Ringmaster by not backing down one inch in their trade/tariff war. Russia humiliated the Circus Ringmaster by not being coerced into a pathetic “ceasefire” – as in allowing NATO to re-arm. Iran humiliated the Circus Ringmaster by not signing an unconditional surrender. The Houthis humiliated the U.S. Navy – now that’s one for the military annals – by forcing the Circus Ringmaster into a ceasefire after $1billion in failed bombing.
Lula in Brazil is about to humiliate the Circus Ringmaster by affirming Brazilian sovereignty in the face of an all-out trade and financial war (Trump even threatened to tax the popular Brazilian digital payment system, PIX). If slapped with 50% tariffs, Lula said Brasilia will slap the Empire of Chaos back under a reciprocity law.
The whole Circus Ringmaster shtick, with each plot twist draped in several layers of hubris and empty bluster, only accelerates the BRICS/Global South high-speed train, now increasingly being shaped as a geoeconomic, geopolitical and geo-strategic alliance of trans-continental proportions, reaffirmed at the Rio summit.
All that led, of course, by what I have been describing as the new Primakov triangle: the new RIC, Russia, Iran and China, complete with their interlocking strategic partnerships. Quite a few top Chinese academics not by accident are also starting to conceptualize the emerging, “post-West” environment with two new “I”s in BRICS: Iran and Indonesia, not India, should be at the heart of BRIICS.
Meanwhile, in Europe, Tricontinental analysis has noted how the – warmongering – German BlackRock chancellor has pledged “€650 billion over the next five years toward military spending in order to reach the [NATO] 5% target by 2035”. That means Berlin being forced to raise “about €144 billion per year”, via, what else, austerity and debt, translated into massive extra taxes on German consumers.
That, in a nutshell, is the “program” for the whole, fragmented, collective West in the near future: austerity for everyone (except the 0.01%); and NATO Wars, not Diamonds, Forever.
The video accompanying this article is with Glen Diesen and it is here: https://globalsouth.co/2025/07/17/michael-hudson-with-glen-diesen-the-economics-of-a-civilizational-conflict/
The two pieces of work are stand-alone but together form the bigger picture quite eloquently and elegantly. This article is the key chapter in Michael’s new book. The article is also on Ben Norton’s site: https://geopoliticaleconomy.com/2025/07/17/michael-hudson-global-majority-us-financial-colonialism/
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Industrial capitalism was revolutionary in its fight to free Europe’s economies and parliaments from the hereditary privileges and vested interests that survived from feudalism. To make their manufactures competitive in world markets, industrialists needed to end the land rent paid to Europe’s landed aristocracies, the economic rents extracted by trade monopolies, and interest paid to bankers who played no role in financing industry. These rentier incomes add to the economy’s price structure, raising the living wage and other business expenses, thus eating into profits.
The 20th century saw the classical aim of clearing away these economic rents rolled back in Europe, the United States, and other Western countries.
However, today, land and natural-resource rents in private hands are still rising and even receiving special tax advantages. Basic infrastructure and other natural monopolies are being privatized by the financial sector — which is largely responsible for carving up and de-industrializing economies on behalf of its real estate and monopoly customers, who pay out most of their rental income as interest to bankers and bondholders.
What has survived from the policies by which Europe’s industrial powers and the United States built up their own manufacturing is free trade. Britain implemented free trade after a 30-year fight on behalf of its industry against the landed aristocracy, aimed at ending the protectionist agricultural tariffs, the Corn Laws, which had been enacted in 1815 to prevent opening the home market to low-priced food imports, which would have reduced farming rents.
After repealing these laws in 1846 to lower the cost of living, Britain offered free-trade agreements to countries seeking access to its market in exchange for these countries not protecting their industry against British exports. The aim was to deter less industrialized countries from working up their own raw materials.
In such countries, Europe’s foreign investors sought to buy rent-yielding natural resources headed by mineral and land rights, and basic infrastructure headed by railroads and canals. This created a diametric contrast between rent-avoidance in the industrial nations and rent-seeking in their colonies and other host countries, while European bankers used debt leverage to gain fiscal control of former colonies who had won independence in the 19th and 20th centuries.
Under pressure to pay the foreign debts that were run up to finance their trade deficits, development attempts, and deepening debt dependency, debtor countries were obliged to relinquish fiscal control of their economies to bondholders, banks, and creditor-nation governments, which pressed them to privatize their basic infrastructure monopolies. The effect was to prevent them from using revenue from their natural endowments to develop a broad economic base for prosperous development.
Just as Britain, France, and Germany aimed to free their economies from feudalism’s legacy of the vested interests with rent extraction privileges, most of today’s Global Majority countries need to free themselves from the rent and debt overhead inherited from European colonialism and creditor control.
By the 1950s these countries were being called “less developed” or, even more patronizingly, “developing.” But the combination of foreign debt and free trade has blocked them from developing along the balanced public/private lines that Western Europe and the United States followed.
The tax policy and other legislation of these countries has been shaped by U.S. and European pressure to observe international trade and investment rules that perpetuate geopolitical domination by Western bankers and rent-extracting investors to control their national patrimony.
The euphemism “host economy” is appropriate for these countries, because the Western economic penetration of them resembles a biological parasite feeding off its host.
Seeking to maintain this relationship, the U.S. and European governments are blocking attempts by these countries to follow the path that Europe’s industrial nations and the United States took for their own economies with their 19th-century political and fiscal reforms that empowered their own takeoff.
Without these countries adopting fiscal and political reforms aimed at developing their own sovereignty and prospects for growth on the basis of their own national patrimony of land, natural resources and basic infrastructure, the world economy will remain bifurcated between Western rentier nations and their Global Majority hosts and held subject to neoliberal orthodoxy.
The success of China’s model poses a threat to the neoliberal order
When U.S. political leaders single out China as an existential enemy of the West, it is not as a military threat but for offering a successful economic alternative to today’s U.S.-sponsored neoliberal world order.
That order was supposed to represent the End of History, succeeding through its logic of free trade, government deregulation, and international investment free of capital controls, while detouring away from industrial capitalism’s anti-rentier policies.
We can now see the absurdity in this self-satisfying evangelical view that had emerged just as Western economies were deindustrializing, as a result of the dynamics of their neoliberal finance capitalism.
The vested financial and other rentier interests are rejecting not only China but the logic of industrial capitalism as described by its own 19th-century classical economists.
Western neoliberal observers have closed their eyes to recognizing the ways in which China’s “socialism with Chinese characteristics” has achieved its success by a logic similar to that of the industrial capitalism advocated by classical economists to minimize rentier income.
Most late 19th-century economic writers expected industrial capitalism to evolve into socialism of one form or another, as the role of public investment and regulation increased. Freeing economies and their governments from control by landowners and creditors was the common denominator of the social-democratic socialism of John Stuart Mill, the libertarian socialism of Henry George focusing on the land tax, and the cooperative mutual-aid socialism of Peter Kropotkin, as well as Marxism.
Where China has gone further than earlier socialist mixed-economy reforms has been in keeping money and credit creation in the hands of government, along with basic infrastructure and natural resources.
China SOE composition sector industry IMF
Fear that other governments might follow China’s lead has led U.S. and other Western finance-capitalist ideologues to view China as a threat by providing a model for economic reforms that are precisely the opposite of what the 20th century’s pro-rentier, anti-government ideology fought against.
The foreign debt overhead owed to U.S. and other Western creditors, and enabled by the 1945-2025 international geopolitical rules designed by U.S. diplomats at Bretton Woods in 1944, obliges the Global South and other countries to recover their economic sovereignty by freeing themselves from their foreign (mainly dollarized) banking and financial burden.
These countries have the same land-rent problem that Europe’s industrial capitalism faced, but their land and resource rents are mainly owned by multinational companies and other foreign appropriators of their oil and mineral rights, forests, and latifundia plantations, who extract resource rents by emptying out the world’s oil and mineral resources and cutting down its forests.
Taxing economic rent is a precondition for economic sovereignty
A precondition for Global South countries to gain economic autonomy is to follow the advice of the classical economists and tax the largest sources of rental income – land rent, monopoly rent, and financial returns – instead of letting them be sent abroad.
Taxing these rents would help stabilize their balance of payments, while providing their governments with revenue to finance their infrastructure needs and the related social spending needed to subsidize their economic modernization.
That is how Britain, France, Germany and the United States established their own industrial, agricultural, and financial supremacy. This is not a radical socialist policy; it always has been a central element of industrial capitalist development.
Recapturing a country’s land and natural-resource rents as its fiscal base would enable it to avoid taxing labor and industry. A country would not need to formally nationalize its land and natural resources outright; it simply needs to tax the economic rent over and above actual “earned profits,” to cite the principle of Adam Smith and his 19th-century successors that this rent is the natural tax base.
But neoliberal ideology calls such taxation of rent, and the regulation of monopolies or other market phenomena, an intrusive interference into the “free market.”
This defense of rentier income inverts the classical definition of a free market. The classical economists defined a free market as one free from economic rent, not as one free for the extraction of economic rent, let alone as freedom for creditor-nation governments to create a “rules-based order” to facilitate foreign rent extraction and stifle the development of financially and trade-dependent host countries.
Debt remission is a precondition for economic sovereignty
The fight by countries to free themselves from their foreign debt overhead is much harder than Europe’s 19th-century fight to end the privileges of its landed aristocracy (and less successfully, of its bankers), because it is international in scope, and is now confronted by a creditor-nation alliance to maintain the system of financial colonization created two centuries ago, as former colonies sought to finance their independence by borrowing from foreign bankers.
Starting in the 1820s, newly independent countries like Haiti, Mexico, and other Latin America nations, as well as Greece, Tunisia, Egypt, and other former Ottoman colonies, won nominal political freedom from colonialist control. But to build up their own industry they had to take on foreign debt – on which they almost immediately defaulted, which enabled their creditors to establish monetary authorities in charge of their fiscal policy.
The governments of these countries were turned into collection agents for international bankers by the late 19th century. Financial dependency on bankers and bondholders replaced colonial dependency, obliging debtor countries to give fiscal priority to foreign creditors.
World War II enabled many of these countries to accumulate substantial foreign monetary reserves as a result of supplying raw materials to the belligerents. But the post-war order designed by U.S. diplomats, based on free trade and free capital movements, drained these savings, and obliged the Global South and other countries to borrow to cover their trade deficits.
The resulting foreign debts soon came to exceed the ability of these countries to pay – that is, to pay without surrendering to the destructive IMF demands for austerity that blocked the investment needed to raise their productivity and living standards.
There was no way that they could meet their own development needs to invest in basic infrastructure and provide industrial and agricultural subsidies, public education, health care, and other basic social spending that is characterized by the leading industrial nations. This still remains the case.
Their choice today, therefore, is between paying their foreign debts – at the cost of blocking their own development – or claiming that these debts are odious and insisting that they be written off.
Creditor debt developing countries region UN 2024
At issue is whether debtor countries will gain the sovereignty that is supposed to characterize an international economy of equals, free of foreign post-colonial control over their tax and trade policies, as well as their national patrimony.
Their self-determination can only be achieved by joining together in a collective front.
Donald Trump’s tariff aggression has catalyzed this process by drastically reducing the U.S. market for exports from debtor countries, preventing them from obtaining the dollars to pay their bonds and bank debts, so these won’t be paid in any event.
The world is now busy de-dollarizing.
The need to create an alternative to the U.S.-centered post-war order was expressed in 1955 at the Bandung Conference in Indonesia, and then later by the Non-Aligned Movement. But these countries lacked a critical mass of self-sufficiency among themselves to act together.
Attempts to create a New International Economic Order in the 1960s faced the same problem. Countries were not industrially, agriculturally, or financially strong enough to “go it alone.”
Today’s Western debt crisis, de-industrialization, and coercive weaponization of foreign trade and financial sanctions under the dollarized international financial system, capped by the “America First” tariff policy, have created an urgent need for countries to collectively seek economic sovereignty, to become independent from U.S. and European control of the international economy.
The collective BRICS+, with Russia and China taking the lead, have just begun talking about making such an attempt.
BRICS 2024 summit Kazan Russia participants
China’s success has made a global alternative attainable
The great catalyst for countries to take control of their national development has been China. As indicated above, its industrial socialism has largely achieved the classical aim of industrial capitalism of minimizing rentier overhead, above all by publicly creating money to finance tangible growth.
Keeping money and credit creation in government hands, via China’s state-owned banks, prevents financial and other rentier interests from taking over the economy and subjecting it to the financial overhead that has characterized Western economies.
China’s successful alternative for allocating credit avoids making purely financial gains at the expense of tangible capital formation and living standards. That is why it is viewed as an existential threat to the current Western banking model.
Western financial systems are overseen by central banks that have been made independent from the Treasury and government regulatory “interference.” Their role is to provide the commercial banking system’s liquidity as it creates interest-bearing debt, mainly for the purpose of making wealth financially by debt leveraging (asset-price inflation), not for productive capital formation.
Asset price inflation real economy
Capital gains – rising prices for housing and other real estate, stocks, and bonds – are much larger than GDP growth. They can be made easily and quickly by banks creating more credit to bid up prices for buyers of these assets.
Instead of the financial system being industrialized, Western industrial corporations have become financialized, and that has occurred along lines that have deindustrialized the U.S. and European economies.
Financialized wealth can be made without being part of the production process. Interest, late charges, other financial fees and capital gains are not a “product,” yet are counted as such in today’s GDP statistics.
Carrying charges on the rising debt overhead are transfer payments to the finance sector, by labor and businesses, out of wages and profits earned by actual production. That shrinks the income available for spending on the products produced by labor and capital, leaving economies debt-ridden and deindustrialized.
The strategy of creditor-rentier nations to prevent withdrawal from their global control
The broadest strategy to block countries from avoiding the rentier burden has been to wage an ideological campaign from the educational system to mass media. The aim is to control the narrative in a way that depicts government as an oppressive Leviathan, an inherently bureaucratic autocracy.
Western “democracy” is defined not so much politically as economically, as a free market whose resources are allocated by a banking and financial sector independent of regulatory oversight.
Governments strong enough to limit financial and other rentier wealth in the public interest are demonized as autocracies or “planned economics” — as if shifting credit and resource allocation to the financial centers of Wall Street, London, Paris, and Japan does not result in an economy planned by the financial sector in its own interest, with the aim of creating monetary fortunes. Its aim is not to improve the overall economy and living standards.
Global Majority officials and administrators who have studied economics at U.S. and European universities have been indoctrinated with a value-free (that is, rent-free) pro-rentier ideology to frame the way they think about how economies work.
This narrative excludes consideration of how debt polarizes economies by growing exponentially at compound interest. Also excluded from mainstream economic logic is the classical contrast between productive and unproductive credit and investment, and the related distinction between earned income (wages and profits, the main components of value) and unearned income (economic rent).
Beyond this ideological campaign, neoliberal diplomacy uses military force, regime change, and control of the main international bureaucracies associated with the United Nations, the IMF, and World Bank — and a more covert network of non-government organizations (NGOs) — to prevent countries from withdrawing from today’s pro-rentier fiscal rules and pro-creditor laws.
The United States has taken the lead in using force and regime change against governments that would tax away or otherwise limit rent extraction.
It should be noted that few early socialists (except anarchists) advocated violence in pursuit of their reforms. It has been the vested interests, unwilling to accept loss of the privileges that are the basis of their fortunes, who have not hesitated to use violence to defend their wealth and power against attempts at reform to check their privileges.
To be sovereign, nations must create an alternative that enables them to be in charge of their own economic, monetary, and political development. But American diplomacy views any attempt to enact the necessary political and tax reforms and strong government regulatory authority as posing an existential threat to U.S. control over international finance and trade.
This raises the question of whether it is possible to achieve reforms and a strong public economy without war. It is natural for countries to wonder whether they can achieve economic sovereignty without a revolution, such as the Soviet Union, China, and other countries that fought to end their domination by their foreign-supported landlords and creditors.
The only way to protect economic sovereignty against military threats is to join an alliance for mutual support, since individual countries can be isolated in the way that Cuba, Venezuela, and Iran have been — or destroyed, like Libya.
As Benjamin Franklin put matters, “If we don’t hang together, we will hang separately.”
American writers characterize the attempt of other countries to join together to achieve economic sovereignty as a civilizational war. While this is indeed a civilizational contest, it is the United States and its allies that are waging aggression, against countries trying to withdraw from a system that has provided the United States and Europe with a huge inflow of economic rents and debt service from host countries subject to U.S.-backed diplomacy.
How U.S.-centered financial colonialism replaced European colonial occupation
After World War II, the era of settler-state colonialism gave way to financial colonialism, with the international economy dollarized under U.S. leadership.
The Bretton Woods rules established by 1945 enabled multinational corporations to keep economic rents for land, natural resources and public infrastructure out of domestic fiscal reach. Governments were reduced to the role of acting as collection agents for foreign creditors and as protectors of foreign investors from democratic attempts to tax rentier wealth.
The United States was able to weaponize world trade by monopolizing oil exports through U.S. and allied oil companies (the Seven Sisters), while U.S. and European agricultural protectionism and World Bank “aid” policy steered food-deficit countries to focus on tropical plantation crops instead of grain to feed themselves.
President Bill Clinton’s 1994 NAFTA free-trade agreement swamped Mexico’s market with low-priced U.S. farm exports (highly subsidized by strong government support). Mexican grain production plummeted, leaving it food-dependent.
To block governments from taxing or even fining foreign investors to recover compensation for damages to their countries, today’s rentier powers have created Investor-State Dispute Settlement (ISDS) courts requiring governments to compensate foreign investors for increasing taxes or imposing regulations that reduce foreign-owned income. (I provide the details of this in Chapter 7 of my 2022 book The Destiny of Civilization.)
This system blocks national sovereignty, including by preventing host countries from taxing the economic rent of their land and natural resources owned by foreigners. The effect is to make these resources part of the investor-nation economy, not their own. (The Saudi oil company Aramco, for instance, was not a corporately distinct corporate affiliate but a branch of Standard Oil of New York (ESSO). This legal nicety meant that its income and expenses were consolidated into the parent company’s U.S. balance sheet. That enabled it to receive a tax credit for the “depletion allowance” for oil, rendering the company effectively free of U.S. income tax, although it was Saudi oil that was being depleted.)
Other nations permitted the United States to dictate the post-World War II order, with it promising generous aid to support free trade, peace, and post-colonial national sovereignty, as spelled out in the United Nations Charter. But the United States squandered its wealth on military spending abroad and financial wealth addiction at home.
That has left America’s post-industrial power based mainly on its ability to harm other countries with chaos if they do not accept the U.S. “rules-based order” designed to extract tribute from them.
The U.S. imposes protectionist tariffs and import quotas at will, and subsidizes agriculture and key technologies as potential global high-tech monopolies, while forbidding other countries from implementing such “socialist” or “autocratic” policies to become more competitive. The result is a double standard in which the U.S. “rules-based order” (its own rules) replaces adherence to international law.
U.S. agricultural price support policy initiated under Franklin D. Roosevelt in the 1930s provides a good example of double standards. It made farming the most heavily subsidized and protected sector. It became the model for the European Economic Community’s Common Agricultural Policy (CAP) introduced in 1962.
However, U.S. diplomacy opposes the attempts of other countries, especially Global South countries, to impose their own protectionist subsidies and import quotas aimed at achieving self-sufficiency in basic food production — while U.S. “aid lending” and the World Bank have (as indicated above) supported the exportation of tropical plantation crops by Global South countries by lending for transportation and port development. U.S. policy has consistently opposed family-owned farming and land reform throughout Latin America and other Global South countries, often with violence.
Moves toward a multipolar world order
It is not surprising that, inasmuch as Russia has long been the United States’ main military adversary, it has taken the lead in protesting against the unipolar U.S. order.
Advocating a multipolar alternative to the U.S. neoliberal order in June 2025, Russian Foreign Minister Sergey Lavrov described the post-colonial economic subjugation of the countries that achieved political independence from colonialist rule in the 19th and 20th centuries but which are now facing the next task needed to complete their liberation:
Our African friends are paying more and more attention to the fact that their entire economies are still largely based on siphoning off natural resources from these countries. In fact, all value added is produced and pocketed by the former Western metropoles and other European Union and NATO members.
…
The West is using illegal unilateral sanctions, which increasingly become the harbinger of a military attack, as this has happened in Yugoslavia, Iraq and Libya and is now happening in Iran, as well as the instruments of unfair competition, initiating tariff wars, seizing other countries’ sovereign assets and taking advantage of the role of their currencies and payment systems. The West itself has actually buried the globalization model, which it developed after the Cold War to promote its interests.
Marco Rubio made the same point in the U.S. Senate hearings to confirm him as Donald Trump’s Secretary of State, explaining that the “postwar global order is not just obsolete; it is now a weapon being used against us.”
Violating the rules of foreign trade and investment that the United States itself dictated in 1945, and yet another instance of Washington resorting to the “rules-based order” of its own rules, President Trump’s unilateral tariffs aimed both at shifting the New Cold War’s military costs onto other countries, which are expected to buy American arms and provide proxy armies, and at reviving the U.S.’s lost industrial power by forcing countries to relocate industries to the United States and to permit U.S. companies to extract monopoly rents by controlling the leading emerging technologies.
The United States aims to impose monopoly rights and related rentier privileges uniquely favorable to itself on the entire world’s trade and investment. Trump’s “America First” diplomacy demands that other countries conduct their trade, payments and debt relationships in U.S. dollars, instead of their own currencies.
The U.S. “rule of law” is one that permits unilateral U.S. demands to impose trade and financial sanctions dictating how and with whom foreign countries can trade and invest. They are threatened with economic chaos and confiscation of their dollar reserves if they do not boycott trade and investment relations with Russia, China, and other countries refusing to submit to U.S. control.
The United States’ leverage to obtain these foreign concessions is no longer industrial leadership and financial strength, but its ability to cause chaos for other countries. Claiming to be the indispensable nation, the U.S.’s ability to disrupt trade is ending its former international monetary and diplomatic power.
That power originally was based on U.S. holdings of the world’s largest monetary gold reserves in 1945, its status as the largest creditor nation and industrial economy, and, after 1971, its dollar hegemony, arising in large part as a result of its financial market being the safest for other nations to hold their official monetary reserves.
The diplomatic inertia created by these former advantages no longer reflects the realities of 2025. What U.S. officials do have is the ability to disrupt the world’s trade, supply chains, and financial arrangements, including the SWIFT system for international payments.
The U.S. and European confiscation of $300 billion of Russia’s monetary deposits has darkened America’s reputation for financial safety, while its chronic trade and balance-of-payments deficits threaten to disrupt the international monetary system and free trade that made it the major beneficiary of the 1945-2025 world order.
us current account percent gdp 1970 2024
In keeping with the principle of national sovereignty and non-interference in other countries’ internal affairs that underlay the creation of the United Nations (the basic principle of international law grounded in the 1648 Peace of Westphalia), Russia’s Foreign Minister Lavrov described (in his speech cited above) the need “to establish foreign trade mechanisms [that] the West will be unable to control, such as transport corridors, alternative payment systems and supply chains.”
As an example of how the United States had paralyzed the World Trade Organization, which it had created on the basis of free trade at a time when America was the world’s leading export power, he explained:
When the Americans realized that the globalized system they had created – one built on fair competition, inviolable property rights, the presumption of innocence, and similar principles, and which had allowed them to dominate for decades – had also begun benefiting their rivals, primarily China, they took drastic action.
As China started outplaying them on their own turf and by their own rules, Washington simply blocked the WTO’s Appellate Body. By artificially stripping it of a quorum, they rendered this key dispute settlement mechanism inactive – and it remains so to this day.
The United States has been able to block foreign opposition to its nationalist policies by having veto power in the United Nations, IMF, and World Bank. Even without such power, U.S. diplomats have been able to block United Nations organizations from acting independently of U.S. wishes by refusing to appoint leaders or judges not primarily loyal to U.S. foreign policy.
The International Atomic Energy Agency (IAEA), charged with keeping nuclear proliferation in check is the most recent notorious case in point. Iran published documents showing that the agency’s leader Rafael Grossi provided U.S. and Israeli intelligence with the names of Iranian scientists who were killed, and details of the Iranian nuclear refinement sites that were bombed.
The U.S. veto has prevented the UN Security Council from condemning Israeli attacks on the Palestinian population. And when the International Criminal Court (ICC) brought charges against Israeli Prime Minister Benjamin Netanyahu for committing war crimes and crimes against humanity in a genocide against the Palestinians, U.S. officials imposed sanctions on the ICC and demanded the removal of the prosecutor.
The world no longer is to be governed by international law, but by unilateral U.S. rules, subject to abrupt change depending on the vicissitudes of American economic or military power (or loss thereof).
As Russia’s President Vladimir Putin described this new state of affairs in 2022, “Western countries have been saying for centuries that they bring freedom and democracy to other nations,” yet the “unipolar world is inherently anti-democratic and unfree; it is false and hypocritical through and through.”
The United States’ self-image depicts its long dominant world position as reflecting its democracy, free market, and equality of opportunity that has enabled its power elite, in their view, to acquire their status by being the economy’s most productive members, through their management and allocation of savings and credit.
The reality is that the United States has become a rentier oligarchy, one that is increasingly hereditary. Its members’ fortunes are made mainly by acquiring rent-yielding assets (land, natural resources, and monopolies) on which they make capital gains, while paying most of their rent as interest to their bankers, who end up with much of these rents and have become the new oligarchy’s leading managerial class.
Summary
The real conflict over what kind of economic and political system the Global Majority will have is just gaining momentum.
Global South countries and others have been driven so deeply into debt that they have been obliged to sell off their public infrastructure to pay its carrying charges. Recovering control of their natural resources and basic infrastructure requires the fiscal right to impose an economic-rent tax on their land, natural resources and monopolies, as well as the legal right to recover environmental cleanup costs caused by foreign oil and mining firms, and to implement financial cleanup costs (i.e., write offs and cancellation) of the foreign debt burden imposed by creditors who have not taken responsibility to ensure that their loans can be paid under existing conditions.
U.S. evangelistic rhetoric describes the imminent political and economic fracture of the world economy as a “Clash of Civilizations” between democracies (i.e., countries that support U.S. policy) and autocracies (i.e., nations acting independently).
It would be more accurate to describe this fracture as a fight by the United States and its European and other Western allies against civilization — assuming civilization entails, as it seems it must, the sovereign right of countries to enact their own laws and tax systems for the benefit of their own populations within an international system that has a common set of basic rules and values.
What Western ideologues call democracy and free markets has turned out to be an aggressive rentier-financial imperialism. And what they call autocracy is a government strong enough to prevent economic polarization between a super-rich rentier class and an impoverished population at large, such as is occurring within the Western oligarchies themselves.
This came recommended by the man, the legend, himself. Across the world we all recognize the nature of this conflict as civilizational whether it plays out kinetically much bigger, or in any other form of war. This is brand new and the transcript will follow. Michael says that this summarizes his overall view.
(Don’t lose it now kids! 
Learn it well. Get the lineaments right here!)
This is the first essay accompanying this video. https://geopoliticaleconomy.com/2025/07/17/michael-hudson-global-majority-us-financial-colonialism/
Michael Hudson and Richard Wolff with Nima on Dialogue Works
NIMA ALKHORSHID: Hi, everybody. Today is Thursday, July 3rd, 2025, and our friends, Richard Wolf and Michael Hudson, are back with us. Welcome.
RICHARD WOLFF: Glad to be here.
NIMA ALKHORSHID: I want to start, Michael, with you and the “Big Beautiful Bill” of Donald Trump. We could manage to do something with the bill, but we know that the history between Donald Trump and Elon Musk — Elon Musk went against him — and what has happened in the aftermath. But when it comes to the bill, what is the importance of this bill for Donald Trump? And we know that he’s insisting on it. He’s somehow trying to do everything to get it passed. Your take on that?
MICHAEL HUDSON: Well, I think that Trump’s bill — the (Republican) Big Beautiful (Budget Deficit) Bill — along with Trump’s tariff policy will have the effect of ending dollar hegemony and will lead to a falling exchange rate of the dollar because Trump has said he wants the dollar’s exchange rate to go down, imagining that this is going to make America’s industrial exports more expensive.
The problem is it doesn’t have many industrial exports anymore. They’re all made abroad.
So it’s a fantasy that somehow lowering the exchange rate of the dollar is going to cure America’s trade deficit and enable much more profit to be made and hence taxes to be paid. So it’s all a fantasy. It’s amazing junk economics. And looking at the newspaper and media coverage this morning, it’s all about how so many Republicans say: We can never be re-elected after we pass this bill. We’re not even going to run next time our Senate term’s up.
And some of the House Representatives have said — [Thom] Tillis, he can’t run again because the cutbacks in medical coverage and Medicaid are going to hurt his constituency so much that they just give up.
So the effect is going to end — the dollar’s free lunch — this exorbitant privilege of being able to run huge military and trade deficits, without having to see its exchange rate decline and prices rise. Now you’re having a flight out of the dollar. The dollar’s exchange rate has gone down 10%. That’s the largest decline since Franklin Roosevelt devalued the dollar in 1933. They’re running for the exit. So we’re seeing the end of an era. This bill is that important.
And it’s been an era that enabled the United States to finance both its balance-of-payments deficit and its budget deficit by printing IOUs — Treasury bonds — that supposedly would never have to be repaid. Because (we’ve discussed on an earlier show) when the United States spends money abroad, mainly for military purposes, these dollars end up in the hands of foreign central banks. And what are they going to do? In the past, until right now, for the last 54 years, they had only one choice: to recycle them into safe U.S. Treasury bonds, or federal agency bonds that have yielded a little bit more.
But for the first time now, they’re running for the exits. That’s what’s happened today.
The Financial Times has a wonderful article about how investors are borrowing at a low interest rate to buy European junk bonds. And in the last week, as this bill has been working its way through Congress, investors have been doing arbitrage, borrowing low rates here, buying high-yielding junk bonds in Europe. And it’s a bonanza — but it’s all about making money financially, not industrially.
So you’re seeing that big financial funds in the U.S., as well as foreign investors, are beginning to worry that this artificial affluence by the dollar standard for international monetary reserves is coming to an end.
Today, the stock market’s up because stocks are what the wealthiest 1% are going to be spending their money on. Gold prices also jumped because they realize that while the stock market’s going up, the economy is going down. And interest rates rose for 10-year Treasury bonds because there are more sellers than buyers.
The Republicans continue to use this old trickle-down theory. They claim that giving more money to the wealthiest 1% is going to increase investment and employment.
But that’s not what billionaires do with their wealth. They buy more stocks and bonds and interest-bearing loans. They make money financially, not by building new factories and employing more people.
So the tax giveaway doesn’t really trickle down. It actually trickles up because this added untaxed income of the billionaires, the 1%, the 10%, is going to be used in bidding up stock market prices, bond prices, and real estate prices, all the more. That’s how you make a fortune in today’s finance capital economy.
And shifting taxes onto wage earners, which the bill also does, the wage earners are taxed more in order to help cover up some of the budget deficit resulting from this giveaway. Well, that will force them yet further into debt and having to pay yet more of their income to the banks as interest and late fees.
Well, we’ve just seen the highest returns are likely to be made abroad now. So giving more money is going to weaken the dollar, as both the U.S. and foreign investors bail out of the U.S. bond market, and out of the dollar itself.
And the result will be a devaluation of the dollar. And that’s going to raise prices because now you have to pay a larger dollar sum for imports that remain the same price in foreign countries, quite apart from Trump’s tariffs, which are also raising prices.
So Trump has managed to pick the worst of both worlds for the United States. It’s made the 1% richer, and it’s ended the whole era of easy growth for the United States.
RICHARD WOLFF: Let me comment on that, and take it a couple of steps further. It wasn’t very long ago (I’m talking a matter of months), when there was nearly parity between the Euro and the dollar. I checked this morning, and the Euro is now costing $1.18. Okay, that’s a devaluation relative to the Euro of 18%.
By the way, a devaluation of the dollar by 18% means that you have a situation where you have to give more and more dollars to get the European currency. It’s a statement to everyone in the world who has dollar assets, who holds anything denominated in a dollar — like a U.S. Treasury note, of which there are 700 billion in the hands of China, of which there are a trillion in the hands of Japan, and so on — are now worth 18% less.
That is a screaming message because, as Michael correctly says, that’s a devaluation at a speed that is frightening. That is a screaming recommendation to people to get rid of the dollar before they suffer worse losses. They’ve been doing that for the last year, and they’re going to continue to do it since there is no end in sight. And if Mr. Powell, or his successor, is going to lower interest rates because Mr. Trump is beating the drum to do it, it will make all of that likely worse. Okay, that’s the first thing.
The second thing: Let’s do a little history. The only meaningful economic act achieved by Mr. Trump in his first presidency was the tax cut of December 2017. Let’s remember, that was an enormous tax cut for corporations and the rich. It happened at the end of a 40-year period — mid-1970s to 2015 (40 years) — during which we have had a massive redistribution of wealth, from the bottom and the middle, to the people at the top.
Never, therefore, in the year 2017, never did an American corporate sector, or rich sector, need a tax cut less than they did at the end of a 40-year redistribution. Mr. Trump gave it to them anyway.
And that signaled an out-of-control ruling class that is simply grabbing as much as they can before it all disappears. A behavior very common in empires that are declining. The people at the top are in a position because they’re at the top to hold on to wealth. Everybody else pays the price of the declining empire.
So weak were the Democrats in 2017 that the only thing they could do was not to stop the tax cut, not to stop all the damage it did, but to put a proviso that it would end on the 31st of December of this year, 2025 — eight years into the future, then.
What did they bring Mr. Trump back into office for? To do the next logical step: to get rid of the little limit that the Democrats, in their weakness, imposed.
And that’s what this new bill does. It permanently fixes the cuts of 2017. It negates the sunset they were supposed to suffer at the end of this year, and they add a few more.
Therefore, the gross inequality of the last 40 years, which was worsened by the tax cut of 2017, will be further worsened by what we’re going through now. And in my opinion, that’s the biggest threat to social stability in this country at this time.
You are taking away medical support for poor people at the same time that you are giving the wealthy yet another… it is grotesque! As, by the way, even a significant number of Republican and Democratic politicians have been able to say: It is grotesque! You are taking away from the food stamp — the SNAP program — supports that they give. From the poorest people, you take food and medical care. This is like a cartoon come to life. And it is a severe additional inequality that the country suffers.
I did some work on the New York City — where I live — economic situation. The city of New York is the richest city in the United States, and the city of New York is among the ten poorest cities. Both statistics are correct.
How is it counted?
If you take a measure, the percentage of the people in the city who live at or below the poverty line, you can get a list of the ten poorest cities. New York City is among them.
If you ask about wealth, New York City is the richest city in the country. Listen to these numbers: 380,000 millionaires live in New York City; 88 people who have 100 million or more live in New York City; and 66 billionaires live in New York City.
How is a city as rich as that among the ten poorest cities in the country?
Because we live in a society in which the gap between rich and poor is stupefying. And that’s not tenable. That’s not tenable in any society, very long.
But in a society whose entire 20th century was devoted to saying: We are the exceptional society? We don’t have rich and poor? Everybody here is in the middle class? A society trained with that, dumped into what’s happening now, is a recipe for catastrophe.
And the poor people look, and they watch, and they see that there are special police called ICE who beat up and harass poor immigrants. How much of a step do you think it takes to wonder whether the next poor people they will be going after are the ones that were born here? Come on. We are training people.
I learned this morning — last point — that in Los Angeles, there is now a volunteer civilian patrol: local people who mobilize and drive their cars in and around the immigrant neighborhoods, with cameras, who have been trained by lawyers as to what immigrants’ rights actually are, and what ICE can, or cannot, legally do.
There it is, folks. There’s the escalation. We’re going to have an army on both sides. This is the end of whatever the consensus was that held this country together.
We are watching the people at the top desperate to become even wealthier than they already are. And this is their own undoing.
And they will all look back when Warren Buffett, himself one of our great billionaires, told us over the recent years that there’s something wrong, that his secretary pays a higher percentage of taxes on her income than he does on his.
MICHAEL HUDSON: Well, if any of you have taken an Economics 101 course, you’re taught in the first week that what Richard said could not possibly happen because all of the price theory is based on diminishing marginal utility. The idea is that wealth is like bananas. The first one tastes good, after about the tenth banana, you really get sort of sick of it. So the idea is that as people get wealthier and billionaires, they become satiated.
And if that really were how economies work, what Richard has described couldn’t possibly happen.
The irony is that the Greeks, and the Romans, and most of antiquity before that, realized that there was such a thing as wealth addiction, as money love. And the fact is that wealth is addictive, and they keep wanting more and more. It is insatiable and grows, exponential.
But I want to focus, my specialty has always been the balance of payments. And I want to explain why Trump’s budget is going to lower the dollar’s exchange rate. And that’s what affects the 1%, as Richard said, are the whole group behind the bill. Most of the media blames the deficit, as if this money is going to be spent into the economy to raise prices, instead of on stocks and bonds and bank loans.
But already in the 17th century (the mid-1600s), there was an argument, just like today. And the British economists said: Well, wait a minute. Rich people don’t buy goods and services, except for luxury Italian imports and luxuries, and luxury real estate. All this money gets recycled into more and more loans.
And from the vantage point of foreign investors and money managers, the most serious threat to the dollar’s exchange rate is Trump’s pressure on the Federal Reserve to lower interest rates. And he said that if Federal Reserve Chairman Powell does not lower rates, once his term expires next year, he’s going to handpick a successor whose loyalty to Trump will lead him to lower interest rates yet more.
And I want to describe how this policy is going to be an exclamation point beyond the dynamic that Richard has just been explaining. It’s going to have a twofold return.
First of all, as I mentioned, investors can make an easy arbitrage gain by borrowing lower interest rates here to buy high interest rates in other countries. They can do it freely. All they have to do is arrange at their bank: Lend me money at 4.5%. I’ll buy something yielding 6%.
And there’s been so much money flowing into junk bonds in Europe, as the Financial Times explains, that shipping lines and tourist lines that had to pay double-digit interest rates a year or two ago, now are only paying 6.5%. There’s a flooding of the market — the stock market and bond market — in Europe and America, and all over the world, with money.
Well, the second point is that as the dollar declines relative to foreign currencies, the bonds and stocks of countries with higher interest rates are going to rise, and there will be a foreign exchange premium over and above this. So if you’re an American investor, and you move out of 4.5% in the U.S. to buy a 6.5% bond in England, that’s going to push up England’s exchange rate, and you get an exchange rate premium on top of the interest rate you’re getting.
So you borrow at a low rate, buy securities yielding a higher rate, all on credit for debt-financed capital gains.
None of this has anything to do with actual GDP production or incomes for the non-financial sector, except to interfere with it, as I’ll explain.
The decline in the dollar’s exchange rate is probably going to exceed the interest that you make on the American bond. And if that’s the case, then why would foreign investors and governments and national wealth funds want to invest in the United States? If the highest returns are likely to be made abroad, it’ll weaken the dollar. That’s going to raise prices and higher import costs, plus the tariffs.
And the result is that Trump is actually destroying America’s financial free lunch of being able to run a balance-of-payments deficit without limit. But he’s spurring the stock market. And as Adam Smith said: Wealth is very often most apparent in countries “going fastest to ruin.”
Well, that’s exactly what’s happening in the United States. We’re seeing what the classical economists realize: When you let the income be made not by production, not by industrial capital, businesses, or labor’s living standards, but solely in a financial way, that is purely manipulative, and turns out to be anti-labor and also anti-business.
That’s what’s ultimately so destructive about Trump’s Big Beautiful (Budget Deficit) Bill. And it makes a lot of free, easy money for the billionaires and those financial speculators and hedge funds and other capital funds. But in order to make money for themselves in this way, they’re willing to sacrifice the actual business.
Because why would a foreign investor do what Trump has promised that he’s going to do, and move their production facilities, their automobile companies, and others, into the United States? They can’t, despite the high tariffs in the United States that keep Japan’s cars out of the United States. And Trump says he’s going to raise the tariffs on Japanese cars and other imports to the U.S. to 35 to 40%. Well, even if Toyota and other companies were to move their plants into the United States to avoid the tariff, they’re going to have to pay a 20% tariff on aluminum, on steel, on the components that go into the car.
It’s not going to work.
The whole bill and the logic that the economics profession is trying to popularize turns out to be junk economics that’s going to be destructive because lower interest rates mean easier debt financing. That’ll increase the stock and bond prices for the wealthy, not consumer prices. But the consumer prices are going to rise anyway because of the tariff policy.
And you can be sure that a lot of the tax cuts that are being given are going to be spent on buying up yet more real estate, concentrating the absentee-landlord-owned real estate at the expense of homeowners.
So they’re ending the membership in the middle class that, as Richard just said, is supposed to be what America is all about.
So the effect of the giveaway to the financial sector is going to accelerate America’s de-industrialization. And that’s the dynamic of today’s finance capitalism. And because it’s the dynamic, that’s why the big campaign donors — indeed, as Richard said — threw all their support behind him to make sure he was the candidate. And also, they must have encouraged the Democratic Party to lose, to throw the fight — by keeping either Biden or Harris — which guaranteed Trump’s victory.
RICHARD WOLFF: Let me give you a different way of handling this. In many ways, the world’s manufacturers are comparing the United States and the People’s Republic of China as possible, or likely, locations for manufacturing industry. China, in recent years, has not imposed tariffs in anything like the way the United States has. It hasn’t been changing the few tariffs it imposed because most of them are responses to what Mr. Trump did, if they happened at all.
The country is very stable. It has promised manufacturers that if you come to China, you will have access to well-educated, well disciplined, relatively low-wage workers, and you will have access to the largest and fastest-growing market in the world. They have consistently offered that to the world’s manufacturers, and after much hesitation, the world’s manufacturers took the invitation and went there, including many, many American mega corporations.
They voted with their feet that they preferred being in a country run by a communist party, which was the political adversary, more or less, of the United States, of which they were a company because that was a better deal than the United States could offer them.
What do we have now?
China is offering pretty much the same it always did, and doing a good job of giving reasons to go there. Their technology is now top of the line, the dispersion of their industry extraordinary, and their social stability equally extraordinary.
Whereas the United States? We don’t know from one day to the next what the tariffs will be. We don’t know from one week to the next what the value of the dollar in exchange will be. We don’t know how long Mr. Trump will survive as president. We don’t know what he’ll do. We don’t know what his successors will do.
So, yeah, if in that situation, all the cards say go to China, then what Mr. Trump is doing are marginal shifts that cannot change that process. That’s what Michael has just explained.
Whatever he does, it’s marginal to what all led to what we have now lived through in the last 30 to 40 years, which is deindustrialization. That’s why we are cutting Medicaid and food stamps. Mr. Starmer in England is reducing the money laid out for people with disabilities, and the Chinese got an award for lifting 800 million people out of poverty.
Hello? There’s a difference here. And that difference has to do with the totality.
No company is going to come here because of a tariff for a moment, or a value of the dollar for a while. There are too many other variables that they need to have under control that aren’t under control here, or going in the wrong direction. An 18% drop in the value of the dollar. That means if you come here and you have inputs that are imports, what are you going to do? You factored that in?
Think clearly and you will understand. The biggest likelihood for a downturn in the American economy is the fact that we’re going to have stagnation because the industrial foundation of this economy keeps shrinking, as do the recent numbers for manufacturing in this country.
The return of manufacturing has not happened. He promised it in his first administration. It did not happen. Mr. Biden promised it. It did not happen. Mr. Trump has promised it again. It still hasn’t happened.
You have to now answer the question: Why not?
And that’s because the totality of variables that any decision-making corporate executive uses says: Don’t be crazy, don’t undertake the costs and the risks of moving production to the United States, given the uncertainties and the instability of what is going on in the United States. And Mr. Herky-Jerky Trump’s tariff policy and interest rate policy, only makes that worse.
MICHAEL HUDSON: Well, let’s look at China’s success and see: What is it doing so differently from the United States?
Why do American leaders accuse China of being America’s existential enemy? They are singling it out as an enemy because it demonstrates that there is a better way of organizing an economy, and raising living standards, and creating prosperity, than the finance capital model that the United States and Europe are following.
And what China’s doing is actually following the classical economics of industrial capitalism. They call it industrial socialism, but industrial socialism was the logical evolution of industrial capitalism already by the late 19th century. The idea of a free market, from Adam Smith’s time to John Stuart Mill all the way through Marx, was a market free from rentier income, free from the landlords.
The first half of the 19th century was spent by the industrialists saying: We cannot compete with foreign countries if we have a landlord class that is going to block food imports in order to make higher farm rents for their agricultural land at the cost of higher food prices by the labor that we have to employ. You have to repeal the Corn Laws.
Well, that took 30 years from the time that the Corn Laws were imposed in 1815.
The economists then said: It’s more than landlords. It’s economic rent. It’s the excess of prices over the real cost of production. And that cost can be not only for land rent, but for the monopolies. And the monopolies are created largely to help kings and parliamentary governments raise money to pay the war debts that they were running up ever since the 13th century.
And the final problem to be attacked was that banks in England and America didn’t really play a role in financing industry at all. The whole idea was to change the financial system that actually financed industry.
None of that worked out. All of these hopes: What everybody expected to see, that economies would be socialized into a mixed public and private economy, they’d be regulated markets to get free of economic rent, so that people wouldn’t have to deal with a class of wealthy people that made money without working and contributing to production in any way.
Well, it turns out that China’s biggest, unique characteristic of industrial socialism has been to keep money and finance in the hands of China’s central bank, in its own Treasury. So it’s the government that creates money, not an independent commercial banking system.
And so China’s banks don’t lend for corporate takeovers. They don’t borrow money to make dividend payouts or stock buybacks to push up their prices. The credit that’s created based on the Chinese Treasury and the People’s Bank of China is designed to build infrastructure, factories, and all of the things that China has been doing.
To the Americans, that’s what makes China an existential enemy. If America were to do that strategy of raising industrialization, increasing employment and living standards, that would free the American economy from this billionaire class that we’ve been talking about for the last half hour. The billionaire class is — think of it almost as a tumor on the economy, as a parasite. They pretend to be part of the real economy of production and consumption. They pretend to be helpful, and even necessary, for industry to take place.
But they’re not helpful at all.
They’ve led the de-industrialization of the country. And so, of course, what we’re dealing with is almost a civilizational conflict now between a society, from Europe to the United States, run by billionaires who make money by de-industrializing the economy, and squeezing living standards, and driving the wage-earning force further into debt so that it can’t afford to buy the products that it makes, on the one hand.
And then you have China’s model on the other. And by providing this model — the antithesis of the American model — that’s what today’s fights internationally, including next week’s BRICS meetings, are all about.
NIMA ALKHORSHID: Richard, I think we can bring in the case of BRICS and the conflicts we have — the conflict in Ukraine, in the Middle East, with China, all of that. How are these conflicts with the West going to be translated into the future of BRICS?
We have the BRICS summit here in Brazil. In your opinion, what are the main issues to be considered by this summit?
RICHARD WOLFF: The way I would begin this is to remind everyone of a really historic statistic that was released last week. And that statistic said that, for the first time, the total of trade within the BRICS community crossed $1 trillion. It had never done that before, and, for me, this is a summary of everything we’ve been talking about.
What the BRICS are — and at this point, I feel free to exaggerate a little bit because the line of direction is clear — the BRICS are becoming the economic alternative, the other context for Russia, China, India, Brazil, and South Africa, and the other countries that are involved. They are now in a position to do what they never could do before in at least three or four hundred years: namely, live and grow without a dependency on the United States or Western Europe or Japan.
And that is what this statistic shows.
They could find in one another the market for their exports and the source for their needed inputs that would enable them to have a growth path adequate to sustain those societies. That’s never been true, in my judgment, before.
Part of the result of colonialism and its lasting economic achievement was to force Asia, Africa, and Latin America into a subordinate position in Western capitalism. So that whatever they might do, their dependence on that subordinated position would hold them back from doing anything that the West didn’t want them to do, which included becoming independent.
Oh, they could become, after a while, independent politically, when that couldn’t be prevented anymore — when the Mau Mau in Kenya and Mahatma Gandhi in India put an end to all of that — they were still subordinate to economic capitalism.
Now, for the first time, they have created an institution that was the dream of the Bandung Conference back in 1955, but could not be realized. Now it’s realized. And the credit for that goes to China.
This has nothing to do with endorsing what happens in China or being critical of China, which you can be, and should be, in many ways. They have their flaws like everybody else.
But what they have achieved, no amount of pretense can be taken away from them. They now are able to say to the United States that the longer you act as a rogue nation in the world, the more we will build an alternative to you that will, in the end, isolate you. And you better be careful, lest the policies you choose accelerate your isolation rather than overcome it.
And I’ll give you two examples.
The decision to push NATO all the way into Ukraine. The Americans understood it. The literature there is clear. They understood what they were doing. They understood that the Russians opposed it. They made that clear. They understood that the deal at the end with the unification of Germany entailed a commitment not to move NATO to Russia’s border. When they did it anyway, Russia was too weak to do anything, when they did it in Poland or they did it in the Czech Republic, or they did it in Romania. But when they finally came to Ukraine, Russia felt it had the military means, but just as important, it had the BRICS. And that meant it could be free of its dependence.
The first thing that the Europeans and the Americans did, once the Russian military moved into the Donbass in February 2022, was to develop the so-called sanctions policy. They didn’t need to develop the military. They had been working militarily with the Ukrainians for at least the previous eight years.
What was new, what was different, and what was thought to be decisive were the sanctions. Europe would no longer buy Russian oil and gas. If Russia was a gas station pretending to be a nation — a joke made in America — well, they would show them what happens to a gas station when no one stops by to load up with gas.
What they never counted on was the BRICS, that Russia could turn to two BRICS allies — India and China — and sell all the oil and gas it could pump; and thereby fund the very military operation that the sanctions were supposed to make impossible.
That was a miscalculation whose results we’re living through: the de-industrialization of Europe because it doesn’t have cheap energy from Russia anymore; the particular disintegration of the leading position of Germany, which was the dominant economy and is, now, with Britain, the basket case of the European economy… Wow, the cost of not understanding the BRICS!
And now the Chinese can make jokes about Mr. Trump’s tariffs. If they can’t sell in the United States, they have another place to go.
This is cataclysmic in its consequences, not just in terms of economics, but in terms of military struggles, political struggles, on and on and on. Israel cannot proceed against Iran if Iran’s membership as a BRICS nation gives it access, as it looks like it does, to the support of Russia, China and India.
And of course, you have to have a ceasefire. Israel, I mean, that’s not going to work: Israel has 8 million Jewish Israelis, and Iran has 90 million Muslims. You don’t want to do that. You do not want to do that. Not unless you have the old colonial system. It’s really the old colonial system that’s finally dying.
And we have to understand that we have been living through 300 to 400 years in which colonialism has been the way the world capitalist system organized itself. It shouldn’t have, didn’t have to, but that was the way it developed. And now those chickens are coming home and the world has changed.
And the BRICS that meets next week, having achieved the milestone of a trillion dollars worth of trade among them, is in the driver’s seat.
And the United States is watching because that’s about all it can do.
MICHAEL HUDSON: Well, President Trump certainly agrees with you, Richard, about the BRICS and China, what you just said. I’ve also been saying it, and I think we’ve been saying it on Nima’s show.
Trump has been threatening this week and next week. He says he’s threatening countries that trade with China by imposing very high tariffs to deny them the U.S. market. Well, as you point out, the United States isn’t the only market, and the market it has is shrinking anyway. So, of course, this is going to lead China to work with other Asian countries and global south countries to develop the market.
Trump is also imposing sanctions on Russia. If countries don’t impose trade sanctions on Russia, they’re going to have very high tariffs. I think, for China, he said the tariff will be 500%. That’s five times the price of the imported good if you trade with China. This really is, for Trump, a conflict of civilizations, and he’s betting everything on it.
And you’re right. What is he defending? It’s financial colonialism.
And although, quite rightly, this is no longer the old colonialism of military occupation and settler states that you’ve had from Africa to South America to North America, it’s still very highly military. And as we’ve discussed before, the military arm is the final threat that America has against other countries to enforce its policy.
Well, to do that, you need an enormous military expenditure. And if you look at the United States and also Europe, the leaders of the stock market are the military firms. This is called Military Keynesianism. Trump’s bill, I think, is leading to a trillion dollars to be spent on building the Golden Dome, his version of Israel’s Iron Dome, to protect itself from Russian missiles — if they go very, very slowly. But Russian missiles don’t go very, very slowly. It doesn’t work.
The whole strategy is so transparently just a means of spending the largest element in the budget for arms and products that don’t have a function, except to make profits for the investors in these companies. That’s yet another element in America de-industrialization for all of this.
But it’s also very dangerous because it’s threatening the whole world. If you’re going to have all of these arms, you’re going to try to use them sometimes. They don’t work, and you’re going to lose, just as you’re losing in Ukraine. But that’s the policy we have, and it’s a bipartisan policy.
Democrats and Republicans together all have pretty much the same donor class funders for deciding who’s going to be on the ballots when you vote in November. So that’s really the problem.
The BRICS and China are not only breaking away with trade and investment in the United States, they’re creating a different kind of economy. And that’s really what Richard and I have been talking about for most of our lives: a socialist economy as opposed to a finance capitalist economy.
RICHARD WOLFF: Yeah, I should also remind people that the United States, once, as the empire, had what its supporters like to call things like ideological influence, or cultural hegemony, or, you know, a lot of words — soft power — words like that.
And there is a great anxiety right now in Washington. I don’t want to minimize this. Mr. Trump doesn’t have a clear sailing.
There’s a great deal of anxiety that, for example, eliminating USAID, whatever you think of it, is damaging American soft power. It was an agency that did some good around the world — hyped the good it did for the maximum amount of publicity you could get for it — but those are parts of what successful empires do. It made sure that when votes came up in the United Nations, it could mobilize pretty much the whole world to vote in a particular way, to make it look like what the United States was doing was globally supported.
All of that is gone now. One of the reasons they’re giving all the money to the military is their economic influence is shrinking and their political influence is shrinking.
Really, one of the few things they have is the ability to keep being the number one military power, at least by the amount that they spend. There’s a famous statistic, been well known for the last 50 years, that the United States spends more on military than the next nine countries, together, spend. And those nine include Russia and China, and the remaining ones are all allies of the United States.
So, with this overwhelming predominance, you’re getting a mentality that shouldn’t surprise you: that the military has to be what we celebrate, and focus on, and rely on.
And I think you could see it coming up when a decision is made, a week or so ago, by Mr. Trump — unilaterally — to bomb Iran, a country with whom we were not at war, which had not declared on us, nor we on them, that we were in the midst of actual negotiations with. Mr. Trump suddenly hit them with a bomb, and then immediately the next day said: Now let’s sit down and talk.
Well, that is a use of the military to intimidate, and to shape, and to control, what’s going on. And maybe it’ll work for a while, but it is the last card they have to play. And it should be understood in that light.
And that’s why the BRICS is important. And I need to say to some of my fellow economists: This is not an argument that the BRICS represent the socialist future, or that the BRICS are homogeneous. They’re not. Mr. Modi in India is a different thing from Xi Jinping in China. And they’re both very different from Lula in Brazil, and so on. They have enormous differences, as an international collection of 25 countries would have to be.
What I’m focusing on is the project they all share. That’s what’s remarkable. They haven’t been able to do that in the past. They haven’t overcome all of their differences to be able to do that in the past. They are now being caught up, in my judgment, in this historic moment of the final end of colonialism that they know they’ve been fighting all of their lives.
They know the end is in sight.
And the United States is a society devoted to not seeing what I just said.
That’s why, in the last presidential election, neither Mr. Trump, nor Mr. Biden, nor Kamala Harris, ever said a word about a declining empire. This is the greatest example of collective denial that you could ask for. But for just that reason, it jumps out at those of us who don’t need to deny it. We see it all too clearly.
MICHAEL HUDSON: Well, what you’re saying is that the BRICS and the other countries, despite their differences, they’re reinventing the wheel. And what’s so striking is that the wheel that they’re reinventing is very much like the revolutionary impact of industrial capitalism that it had in Britain and the rest of Europe. The British had to deal with the problem that there was land rent that was taken by their landlord class. There isn’t a landlord class; they got rid of it. But the BRICS countries have something much like a landlord class, and that’s the foreign investors in their subsoil wealth; foreign investors in their oil, their mining, their forests.
RICHARD WOLFF: And, Michael, what you specialize in: their heavy international debt.
MICHAEL HUDSON: Yes, that too. But I want to focus, first of all, on the fact that they’re dealing with the rentier class — that England and Germany and the industrial capitalist countries of the 19th century had to deal with — [it] was domestic. But the BRICS have to deal with a foreign capitalist class. That’s what makes financial imperialism so different and independent from colonialism. The monopolies, because the attempt to finance their economy when the foreign investors take all of their natural wealth rents for themselves — instead of leaving it as the tax base for their own countries — means that the government doesn’t have enough money to build the infrastructure necessary to make a balanced economy like the industrial capitalists.
And so they run a budget deficit and a balance of payments deficit. They have to borrow from the International Monetary Fund, or else see their currencies plunge and their inflation going up. And that requires them to sell off their natural monopolies — their communications, their transportation infrastructure — all the things that were kept in the public domain in the mixed economies of Europe and the United States. Well, of course, once they sell this off, the monopoly rents have to be sent abroad, along with the land rents.
And finally, as you point out, the debt service. Once you borrow from the IMF and from bondholders to finance the balance-of-trade deficits that you’ve suffered as a result of letting the United States and Europe impose a neoliberal model that doesn’t work, then you’re left without national self-sufficiency and sovereignty anymore.
The BRICS countries are trying to — for the first time — achieve the sovereignty that they have not been able to achieve by running into debt, by not being able to tax foreign investment in their natural resources, by not being able to tax monopoly rents from the public utilities that they’ve had to sell off.
All of this had to break down at a point. And Trump has catalyzed all of this breakdown because, by imposing tariffs on these countries, they can’t pay their foreign debts anymore. The United States is going to treat this as an existential threat and do everything it can against them.
So now they think: Well, why don’t we do what made industrial capitalism work so well in its take-off? Why don’t we impose rent taxes on foreign investors in our national resources? Why don’t we nationalize the monopolies by passing antitrust legislation? And why don’t we just realize that the debts that we’ve run up have been run up as a result of financial colonialism, not our sovereign decisions, but their odious debts.
That’s the fight that we’re going to see, is the inherent logic of the situation.
RICHARD WOLFF: We’ve already seen that in recent years. There are movements around the world to cancel the debts. There is a reminder for those who take seriously the religious histories that almost all religions many centuries ago understood how we began today’s conversation: that unbridled inequality, if allowed to continue, destroys the community, destroys whatever social cohesion holds us together.
So they developed, and attributed to whatever deity they believed in, the commandment for a Jubilee year, for every 10 years, or every 20 years. It varied. You would take the land and redistribute it. If you happened to have gotten a good piece of land that made you a rich person, in the redistribution, that land would go to whom? It would go to a person whose land didn’t get enough rain or didn’t get enough soil fertility, and that way the rich would become poorer and the poorer would become richer. And no one would become crazy about accumulating wealth because you are getting every day closer to the time when you would lose it anyway.
It just transformed the whole relationship of people to accumulated wealth.
And the irony is, of course, the same religion, once capitalism comes, has to get rid of that, and does get rid of that, because it would undercut the whole notion of the value, the incentive value, of becoming rich, which was their argument, which would justify the endlessness of exploitation.
All of that is coming to an end. That’s what it means to be at the end of an empire. The really interesting question, which maybe we should take up, is whether the end of the U.S. capitalist empire, is it the end of capitalism itself? Or not? That’s like asking: Is China the next empire? Or will the Chinese bring us a multinational community, which was after all the ideal of the League of Nations, the United Nations, and people who wanted to see peace as the rule of law, rather than violence, which is what we have now.
NIMA ALKHORSHID: Thank you so much. Michael, do you want to add something?
MICHAEL HUDSON: No, I’ve been saying the same thing that Richard has been saying. We’re the two people who were saying this because we’re taking the long historical point of view. And what Richard has just described is what Confucianism was all about: rulers were supposed to keep the peace. They were supposed to keep the population satisfied enough so that they did not revolt. And again, they’re reinventing the wheel now.
It’s a different mentality from America’s bully mentality: If you don’t let us take all of the wealth for ourselves, we’re going to hurt you.
I don’t think that was the philosophy of any earlier religion, which was the ideology of their societies. It’s Western finance capitalism, or whatever you want to call it, that has diverged from this core of civilization from the very beginning. So, in a sense, you could say that the BRICS and China and global majority are moving back to this central norm, leaving the United States and Europe isolated, unless they join the movement of history, instead of accusing this return to civilization as being a clash of civilizations, as if the U.S. and Europe is actually a self-sufficient civilization, instead of barbarism. The world will choose socialism, not barbarism, as Rosa Luxemburg put it.
RICHARD WOLFF: Well, I would add that we should remember one more historical reality. Successive kings of France accumulated wealth. But when the accumulation of wealth reached absolutely insane proportions in the 18th century, when you would have unbelievable urban poverty in Paris, and an hour away, in Versailles, you would see, as you can still see today, the most spectacular collection and concentration of wealth imaginable by the last king. He’s also the one who got his head chopped off. That’s how that story of the accumulation… you know.
And when you watch Jeffrey Bezos take over the city of Venice for two weeks of indulgence of his wedding, when he arrives at the port in his $500 million dollar yacht, that’s what we’re watching. We’re watching this eon’s Versailles. And we’re going to get the next step of it, likely, also.
MICHAEL HUDSON: Well, the question then is: Can this return to civilization that we’re talking about be done without a military confrontation? Is America actually going to war with China? It’s trying to stir up fights against China, with Taiwan, with its neighboring countries. It’s trying to stir up fights in Central Asia against Russia.
China was able to make its reforms because there was a revolution in 1945.
And when China emerged as a country in 1949, they didn’t have a financial class. So, of course, the government had to create the money. But that took a revolution.
Will it take a revolution, a defensive revolution, for the BRICS, and this higher civilization, to emerge?
Because the violence will not be on their part. Marx pointed out that there would probably be violence by the privileged classes, the rentier classes, by the landlords and the wealthy against the people attempting to get a revolution, as you saw in the Paris Commune in 1871. It’s the people who have made wealth without working, who know that there are parasites who are willing to fight so hard, and so violently, to preserve their claims on wealth that consist of the ability to impoverish the rest of the population below them.
RICHARD WOLFF: Yeah, and you have to wonder whether that isn’t matched by the military thinkers who tell us that looking, as a military person, at China over the last 40 years and the United States, one is crystal clearly ascending, and the other one is crystal clearly descending. And what that means is time is on one side, and not the other.
And what will that lead the military of the United States to contemplate?
NIMA ALKHORSHID: Thank you so much, Richard and Michael. Great pleasure, as always. Have a great time. Bye-bye.
A storm in a teacup is raging after Mr Wang Yi’s visit to Europe. Wang Yi visited various European officials including German Foreign Minister Wadephul in Berlin, Belgian Deputy Prime Minister and Foreign Minister Maxime Prévot and French Foreign Minister Jean-Nolé Barro.
This post deals with his 4-hour meeting with the ‘brilliant’ Kaya Callas and other european poodles dignataries.
Wang Yi’s visit was to mark the 50th anniversary of the establishment of diplomatic relations between China and the European Union (EU), and as is customary in diplomatic affairs, he made a positive speech to kick off this visit. He said that the 50th anniversary is of great significance in building on past achievements and charting the future. China-EU cooperation has grown from scratch and expanded steadily. Today, the daily trade volume between the two sides is equivalent to the total annual trade volume of previous years. China-EU relations have also kept reaching new heights, forming a comprehensive strategic partnership. Both sides should take the 50th anniversary of the establishment of diplomatic relations as an opportunity to thoroughly review and reaffirm important inspirations drawn from history. In other words, the China-EU relationship should be characterized as a partnership, with cooperation being the defining feature, independence the key value, win-win outcomes the prospect for development. Both sides should take this year’s high-level exchanges as an opportunity to cherish the efforts made by predecessors, carry forward the hard-won spirit of cooperation, and work together to open up the next 50 years of China-EU relations that will be more resilient and autonomous, more mature and stable, and more forward-looking.
Since the start of Trump’s tariff regime when Europe as a bloc realized that Trump is not going to spare them, there has been a line of European visitors to China, to do some business. Mostly they were received with dignity but sometimes China ignored them and in some cases, they landed at the airport with no dignatories to greet them. It has been a rocky relationship to say the least. This was thus a visit to build and repair relationships and open trade mechanisms and Wang Yi arrived with a friendly and conciliatory stance. It was a longer visit, from June 30 to July 6.
Mr. Wang Yi walked into a hellscape of accusations, and various parts of this visit are now being cancelled and changed. The allegations were around China’s support of Russia in the SMO and there were some unhinged accusations regarding rare earth minerals. Ms. Kallas demanded that her Chinese counterpart stop “any material support for the Russian military-industrial complex” and expressed concern about Chinese companies’ cooperation with Russia. Then she demanded that China ends its unfair practices, including restrictions on the export of rare-earth metals, which pose significant risks to European companies and threaten the reliability of global supply chains,” according to the EU press service.
Mr. Wang Yi sat in his chair for four hours of this. According to the Chinese readouts, he remained courteous.
Wang Yi said that the Ukraine crisis, occurring in Europe, has global ramifications. China’s position has been open and consistent, which includes to promote peace talks, not to provide lethal weapons to parties in the conflict, and to strictly control the export of dual-use articles, including drones. China has not only effectively fulfilled its international responsibilities but also initiated the Group of Friends for Peace with Brazil and other Global South countries at the United Nations, gathering greater collective efforts for ceasefire and cessation of hostilities. China’s objective and impartial stance has gained broad recognition from the international community.
It takes more than one cold day for the river to freeze three feet deep. President Xi Jinping has repeatedly pointed out that there is no simple solution to complex issues. Although there are still major differences in the positions of the parties involved, it is better to talk than to fight. The history of Europe over the past several centuries has demonstrated that no matter how complex and difficult the circumstances may be, the door to peace and reconciliation must never be closed. China welcomes all parties to play a constructive role in this regard, working to reach a comprehensive, lasting, and binding peace agreement, building a balanced, effective, and sustainable European security architecture, and achieving enduring peace and stability in Europe at an early date.
So far so good. Wang Yi remained in his chair and for that he deserves a medal.
Two news outlets, The South China Morning Post (out of Hong Kong, unreliable and at least half of their reporters are still Brits) and Bloomberg started reporting about the conversations during the four hour meeting, all ‘allegedly’ and from unknown ‘sources’.
Wang Yi openly admitted that China cannot allow Russia to lose in the Ukrainian conflict, and that prolonging it is even beneficial for Beijing.
This prevents the United States from fully shifting its focus to Asia, which gives China a strategic window.
In addition, the minister allegedly stated that if Beijing were to provide any assistance to Moscow in the Ukrainian conflict, the conflict would have ended earlier.
Did Wang Yi say those things or did he not? Was he set up for a failed high profile diplomatic meeting? And if so, who was set up and by who?
In the background, the trade negotiations in London between China and the US continue and the reporting from there is that they are making progress specifically on the issues of rare earth metals. China will not export these if they are of dual use. In the Chinese readout on the European accusations on rare earth metals state that this has little to do with consultations between Europe and China. Let’s call them the third force for now.
Did the third force set up both Wang Yi and Europe to make sure that any relationships and trade negotiations fail in order to give their own negotiations and agenda a better change of success?
China is already responding and we will see strong measures. They do not take it lightly that their Minister of Foreign Affairs is disrespected. The Chinese Ministry of Commerce announced the imposition of anti-dumping duties ranging from 27.3% to 34.9% on European cognac and brandy imports for a period of five years, effective from July 5.
London Paul and Ken from the Sirius Report discuss:
A short update from a journalist that is to be admired.
KAJA KALLAS BECOMES CHINA CRYING CLOWN
Kaja Kallas, is usually found strutting around Brussels like she’s the queen of geopolitics, preaching about freedom and sanctions, she’s thinks that single handed she is holding back Russia, while conveniently forgetting her husband’s company was trucking goods to Moscow during her anti-Russia sermons, hypocrisy much.
This shrill shrieking non entity was wanting to play at being a diplomat and to be taken as seriously as her father. The woman who would start a bar fight reading a peace treaty was a poor choice. Her idea of diplomacy is wagging her finger at anyone who disagrees, then lecturing people on values and democracy. An ego so bloated she thinks she is more than an Estonian cardboard cut out of Ursula Von der Leyen. She storms into EU meetings like a yapping chihuahua with a vendetta. So watching her walk into a meeting with Wang Yi, a cool consummate diplomat, know for his coolness and utter reasonableness was always going to be unmissable. In the red corner, a hardened diplomat, winner of many battles and skirmishes and in the blue corner, the venomous harpy desperate to shake off the ” I only got the job because of daddy ” image.
This horrific little harridan opened with a petulant demand that China obeys the rules based order, which was listened to in bemused and stony silence. Taking this silence for weakness, this colossal clown screeched about China not helping to arm Russia. In typical Baerbock style, neoNazi fashion, she also demanded that China condemned the Russian SMO and that China use it’s influence to obtain a halt to Russia’s inexorable, leisurely march across Ukraine.
Now anyone with an ounce of common sense, would know that to tackle or defeat China, you would need Russia’s help, and vice versa. That ship sailed long ago leaving, China as the only player in town, holding a fistful of aces. Bluffing in this situation was never going to work and to try so with China, is to invite disaster. So sending this inadequate and diplomatically barren desperate wannabe with all the charm of a sexually transmitted disease, was as deluded as thinking the European Union mattered.
She was listened to, according to our friends in the know, with bemusement, bafflement and incredulity. The Chinese were fully aware that the damsel of density was not know for her tact, but even they were taken aback by the complete lack of awareness of her situation. Once the initial shock had worn off, she was then fed into the diplomatic shredder of glaring reality.
Wang Yi pointed out that China has not helped Russia in the conflict with Ukraine and that had China done so, the conflict would already be over. It was further pointed out to a red faced and very chastened Kaja Kallas, that China had no intention whatsoever of interfering in the current conflict. A crestfallen Kallas was then informed that China had no intention of seeing Russia lose either, because they believe that, if Russia were defeated, then it would be China’s turn next. To get Wang Yi, angry enough, for that kind of volley and brevity, shows a special talent for stupidity. So at the end of this, Kallas with her preening and posturing, pushed Russia and China into an ever deepening embrace.
As our Chinese friends pointed out, they had never seen Wang Yi so angry or so publicly inclined to slap Kallas diplomatically, into oblivion. This is not the first time the European Union has sent one of it’s pre menstrual posse to lecture the Chinese. Von Der Leyen and Baerbock equally suffered a hapless humiliation when confronting China with a rhetoric full of rubbish. All three had one job, just one and between the three of them handled it with the deftness of an OnlyFans model trying to convince the world they were marriage material.
WARREN THORNTON INVESTIGATIVE JOURNALIST
The transcript is not available yet but this is Important (and fast!), so please leave enough time for it. The effect of the BBB is going to end the Dollar’s free lunch, says Michael. They’re running for the exits – We’re seeing the end of an Era! This bill is that important. (And this is only the start of it! I was wondering whether Michael would pause to take a breath 
). Richard takes over and describes a ‘screaming’ devaluation of the dollar – the number he quotes is 17%. There is an ‘out of control’ ruling class who is grabbing as much as they can before it all disappears – a clear sign of a fast declining empire. Grotesque, says Richard – from the poorest people you take food and medical care. The gap between rich and poor is stupifying.
It sounds like hyperbole and that is what I thought, until I understood the game and realized, Grotesque and Stupifying is correct. We will see wealth initially in the 1% sector, (not food, or production or working people, or business, or healthy trade, but financialization).
Michael quotes Adam Smith: “Wealth is very often most apparent in countries going fastest to ruin.”
This ‘exceptional society’ is becoming better than a movie to watch, but it is deathly serious and this is a must listen to! I won’t spill any more fascinating beans. Thank you Michael, Richard and Nima for making the space!
Why would foreign investors do what Trump wants them to do?
Halfway through the sheer pace reduced. Take a good note of Michael’s explanation between China and the US (+ Europe), as a civilizational conflict.
Transcript
NIMA ALKHORSHID: Hi, everybody. Today is Thursday, July 3rd, 2025, and our friends, Richard Wolf and Michael Hudson, are back with us. Welcome.
RICHARD WOLFF: Glad to be here.
NIMA ALKHORSHID: I want to start, Michael, with you and the “Big Beautiful Bill” of Donald Trump. We could manage to do something with the bill, but we know that the history between Donald Trump and Elon Musk — Elon Musk went against him — and what has happened in the aftermath. But when it comes to the bill, what is the importance of this bill for Donald Trump? And we know that he’s insisting on it. He’s somehow trying to do everything to get it passed. Your take on that?
MICHAEL HUDSON: Well, I think that Trump’s bill — the (Republican) Big Beautiful (Budget Deficit) Bill — along with Trump’s tariff policy will have the effect of ending dollar hegemony and will lead to a falling exchange rate of the dollar because Trump has said he wants the dollar’s exchange rate to go down, imagining that this is going to make America’s industrial exports more expensive.
The problem is it doesn’t have many industrial exports anymore. They’re all made abroad.
So it’s a fantasy that somehow lowering the exchange rate of the dollar is going to cure America’s trade deficit and enable much more profit to be made and hence taxes to be paid. So it’s all a fantasy. It’s amazing junk economics. And looking at the newspaper and media coverage this morning, it’s all about how so many Republicans say: We can never be re-elected after we pass this bill. We’re not even going to run next time our Senate term’s up.
And some of the House Representatives have said — [Thom] Tillis, he can’t run again because the cutbacks in medical coverage and Medicaid are going to hurt his constituency so much that they just give up.
So the effect is going to end — the dollar’s free lunch — this exorbitant privilege of being able to run huge military and trade deficits, without having to see its exchange rate decline and prices rise. Now you’re having a flight out of the dollar. The dollar’s exchange rate has gone down 10%. That’s the largest decline since Franklin Roosevelt devalued the dollar in 1933. They’re running for the exit. So we’re seeing the end of an era. This bill is that important.
And it’s been an era that enabled the United States to finance both its balance-of-payments deficit and its budget deficit by printing IOUs — Treasury bonds — that supposedly would never have to be repaid. Because (we’ve discussed on an earlier show) when the United States spends money abroad, mainly for military purposes, these dollars end up in the hands of foreign central banks. And what are they going to do? In the past, until right now, for the last 54 years, they had only one choice: to recycle them into safe U.S. Treasury bonds, or federal agency bonds that have yielded a little bit more.
But for the first time now, they’re running for the exits. That’s what’s happened today.
The Financial Times has a wonderful article about how investors are borrowing at a low interest rate to buy European junk bonds. And in the last week, as this bill has been working its way through Congress, investors have been doing arbitrage, borrowing low rates here, buying high-yielding junk bonds in Europe. And it’s a bonanza — but it’s all about making money financially, not industrially.
So you’re seeing that big financial funds in the U.S., as well as foreign investors, are beginning to worry that this artificial affluence by the dollar standard for international monetary reserves is coming to an end.
Today, the stock market’s up because stocks are what the wealthiest 1% are going to be spending their money on. Gold prices also jumped because they realize that while the stock market’s going up, the economy is going down. And interest rates rose for 10-year Treasury bonds because there are more sellers than buyers.
The Republicans continue to use this old trickle-down theory. They claim that giving more money to the wealthiest 1% is going to increase investment and employment.
But that’s not what billionaires do with their wealth. They buy more stocks and bonds and interest-bearing loans. They make money financially, not by building new factories and employing more people.
So the tax giveaway doesn’t really trickle down. It actually trickles up because this added untaxed income of the billionaires, the 1%, the 10%, is going to be used in bidding up stock market prices, bond prices, and real estate prices, all the more. That’s how you make a fortune in today’s finance capital economy.
And shifting taxes onto wage earners, which the bill also does, the wage earners are taxed more in order to help cover up some of the budget deficit resulting from this giveaway. Well, that will force them yet further into debt and having to pay yet more of their income to the banks as interest and late fees.
Well, we’ve just seen the highest returns are likely to be made abroad now. So giving more money is going to weaken the dollar, as both the U.S. and foreign investors bail out of the U.S. bond market, and out of the dollar itself.
And the result will be a devaluation of the dollar. And that’s going to raise prices because now you have to pay a larger dollar sum for imports that remain the same price in foreign countries, quite apart from Trump’s tariffs, which are also raising prices.
So Trump has managed to pick the worst of both worlds for the United States. It’s made the 1% richer, and it’s ended the whole era of easy growth for the United States.
RICHARD WOLFF: Let me comment on that, and take it a couple of steps further. It wasn’t very long ago (I’m talking a matter of months), when there was nearly parity between the Euro and the dollar. I checked this morning, and the Euro is now costing $1.18. Okay, that’s a devaluation relative to the Euro of 18%.
By the way, a devaluation of the dollar by 18% means that you have a situation where you have to give more and more dollars to get the European currency. It’s a statement to everyone in the world who has dollar assets, who holds anything denominated in a dollar — like a U.S. Treasury note, of which there are 700 billion in the hands of China, of which there are a trillion in the hands of Japan, and so on — are now worth 18% less.
That is a screaming message because, as Michael correctly says, that’s a devaluation at a speed that is frightening. That is a screaming recommendation to people to get rid of the dollar before they suffer worse losses. They’ve been doing that for the last year, and they’re going to continue to do it since there is no end in sight. And if Mr. Powell, or his successor, is going to lower interest rates because Mr. Trump is beating the drum to do it, it will make all of that likely worse. Okay, that’s the first thing.
The second thing: Let’s do a little history. The only meaningful economic act achieved by Mr. Trump in his first presidency was the tax cut of December 2017. Let’s remember, that was an enormous tax cut for corporations and the rich. It happened at the end of a 40-year period — mid-1970s to 2015 (40 years) — during which we have had a massive redistribution of wealth, from the bottom and the middle, to the people at the top.
Never, therefore, in the year 2017, never did an American corporate sector, or rich sector, need a tax cut less than they did at the end of a 40-year redistribution. Mr. Trump gave it to them anyway.
And that signaled an out-of-control ruling class that is simply grabbing as much as they can before it all disappears. A behavior very common in empires that are declining. The people at the top are in a position because they’re at the top to hold on to wealth. Everybody else pays the price of the declining empire.
So weak were the Democrats in 2017 that the only thing they could do was not to stop the tax cut, not to stop all the damage it did, but to put a proviso that it would end on the 31st of December of this year, 2025 — eight years into the future, then.
What did they bring Mr. Trump back into office for? To do the next logical step: to get rid of the little limit that the Democrats, in their weakness, imposed.
And that’s what this new bill does. It permanently fixes the cuts of 2017. It negates the sunset they were supposed to suffer at the end of this year, and they add a few more.
Therefore, the gross inequality of the last 40 years, which was worsened by the tax cut of 2017, will be further worsened by what we’re going through now. And in my opinion, that’s the biggest threat to social stability in this country at this time.
You are taking away medical support for poor people at the same time that you are giving the wealthy yet another… it is grotesque! As, by the way, even a significant number of Republican and Democratic politicians have been able to say: It is grotesque! You are taking away from the food stamp — the SNAP program — supports that they give. From the poorest people, you take food and medical care. This is like a cartoon come to life. And it is a severe additional inequality that the country suffers.
I did some work on the New York City — where I live — economic situation. The city of New York is the richest city in the United States, and the city of New York is among the ten poorest cities. Both statistics are correct.
How is it counted?
If you take a measure, the percentage of the people in the city who live at or below the poverty line, you can get a list of the ten poorest cities. New York City is among them.
If you ask about wealth, New York City is the richest city in the country. Listen to these numbers: 380,000 millionaires live in New York City; 88 people who have 100 million or more live in New York City; and 66 billionaires live in New York City.
How is a city as rich as that among the ten poorest cities in the country?
Because we live in a society in which the gap between rich and poor is stupefying. And that’s not tenable. That’s not tenable in any society, very long.
But in a society whose entire 20th century was devoted to saying: We are the exceptional society? We don’t have rich and poor? Everybody here is in the middle class? A society trained with that, dumped into what’s happening now, is a recipe for catastrophe.
And the poor people look, and they watch, and they see that there are special police called ICE who beat up and harass poor immigrants. How much of a step do you think it takes to wonder whether the next poor people they will be going after are the ones that were born here? Come on. We are training people.
I learned this morning — last point — that in Los Angeles, there is now a volunteer civilian patrol: local people who mobilize and drive their cars in and around the immigrant neighborhoods, with cameras, who have been trained by lawyers as to what immigrants’ rights actually are, and what ICE can, or cannot, legally do.
There it is, folks. There’s the escalation. We’re going to have an army on both sides. This is the end of whatever the consensus was that held this country together.
We are watching the people at the top desperate to become even wealthier than they already are. And this is their own undoing.
And they will all look back when Warren Buffett, himself one of our great billionaires, told us over the recent years that there’s something wrong, that his secretary pays a higher percentage of taxes on her income than he does on his.
MICHAEL HUDSON: Well, if any of you have taken an Economics 101 course, you’re taught in the first week that what Richard said could not possibly happen because all of the price theory is based on diminishing marginal utility. The idea is that wealth is like bananas. The first one tastes good, after about the tenth banana, you really get sort of sick of it. So the idea is that as people get wealthier and billionaires, they become satiated.
And if that really were how economies work, what Richard has described couldn’t possibly happen.
The irony is that the Greeks, and the Romans, and most of antiquity before that, realized that there was such a thing as wealth addiction, as money love. And the fact is that wealth is addictive, and they keep wanting more and more. It is insatiable and grows, exponential.
But I want to focus, my specialty has always been the balance of payments. And I want to explain why Trump’s budget is going to lower the dollar’s exchange rate. And that’s what affects the 1%, as Richard said, are the whole group behind the bill. Most of the media blames the deficit, as if this money is going to be spent into the economy to raise prices, instead of on stocks and bonds and bank loans.
But already in the 17th century (the mid-1600s), there was an argument, just like today. And the British economists said: Well, wait a minute. Rich people don’t buy goods and services, except for luxury Italian imports and luxuries, and luxury real estate. All this money gets recycled into more and more loans.
And from the vantage point of foreign investors and money managers, the most serious threat to the dollar’s exchange rate is Trump’s pressure on the Federal Reserve to lower interest rates. And he said that if Federal Reserve Chairman Powell does not lower rates, once his term expires next year, he’s going to handpick a successor whose loyalty to Trump will lead him to lower interest rates yet more.
And I want to describe how this policy is going to be an exclamation point beyond the dynamic that Richard has just been explaining. It’s going to have a twofold return.
First of all, as I mentioned, investors can make an easy arbitrage gain by borrowing lower interest rates here to buy high interest rates in other countries. They can do it freely. All they have to do is arrange at their bank: Lend me money at 4.5%. I’ll buy something yielding 6%.
And there’s been so much money flowing into junk bonds in Europe, as the Financial Times explains, that shipping lines and tourist lines that had to pay double-digit interest rates a year or two ago, now are only paying 6.5%. There’s a flooding of the market — the stock market and bond market — in Europe and America, and all over the world, with money.
Well, the second point is that as the dollar declines relative to foreign currencies, the bonds and stocks of countries with higher interest rates are going to rise, and there will be a foreign exchange premium over and above this. So if you’re an American investor, and you move out of 4.5% in the U.S. to buy a 6.5% bond in England, that’s going to push up England’s exchange rate, and you get an exchange rate premium on top of the interest rate you’re getting.
So you borrow at a low rate, buy securities yielding a higher rate, all on credit for debt-financed capital gains.
None of this has anything to do with actual GDP production or incomes for the non-financial sector, except to interfere with it, as I’ll explain.
The decline in the dollar’s exchange rate is probably going to exceed the interest that you make on the American bond. And if that’s the case, then why would foreign investors and governments and national wealth funds want to invest in the United States? If the highest returns are likely to be made abroad, it’ll weaken the dollar. That’s going to raise prices and higher import costs, plus the tariffs.
And the result is that Trump is actually destroying America’s financial free lunch of being able to run a balance-of-payments deficit without limit. But he’s spurring the stock market. And as Adam Smith said: Wealth is very often most apparent in countries “going fastest to ruin.”
Well, that’s exactly what’s happening in the United States. We’re seeing what the classical economists realize: When you let the income be made not by production, not by industrial capital, businesses, or labor’s living standards, but solely in a financial way, that is purely manipulative, and turns out to be anti-labor and also anti-business.
That’s what’s ultimately so destructive about Trump’s Big Beautiful (Budget Deficit) Bill. And it makes a lot of free, easy money for the billionaires and those financial speculators and hedge funds and other capital funds. But in order to make money for themselves in this way, they’re willing to sacrifice the actual business.
Because why would a foreign investor do what Trump has promised that he’s going to do, and move their production facilities, their automobile companies, and others, into the United States? They can’t, despite the high tariffs in the United States that keep Japan’s cars out of the United States. And Trump says he’s going to raise the tariffs on Japanese cars and other imports to the U.S. to 35 to 40%. Well, even if Toyota and other companies were to move their plants into the United States to avoid the tariff, they’re going to have to pay a 20% tariff on aluminum, on steel, on the components that go into the car.
It’s not going to work.
The whole bill and the logic that the economics profession is trying to popularize turns out to be junk economics that’s going to be destructive because lower interest rates mean easier debt financing. That’ll increase the stock and bond prices for the wealthy, not consumer prices. But the consumer prices are going to rise anyway because of the tariff policy.
And you can be sure that a lot of the tax cuts that are being given are going to be spent on buying up yet more real estate, concentrating the absentee-landlord-owned real estate at the expense of homeowners.
So they’re ending the membership in the middle class that, as Richard just said, is supposed to be what America is all about.
So the effect of the giveaway to the financial sector is going to accelerate America’s deindustrialization. And that’s the dynamic of today’s finance capitalism. And because it’s the dynamic, that’s why the big campaign donors — indeed, as Richard said — threw all their support behind him to make sure he was the candidate. And also, they must have encouraged the Democratic Party to lose, to throw the fight — by keeping either Biden or Harris — which guaranteed Trump’s victory.
RICHARD WOLFF: Let me give you a different way of handling this. In many ways, the world’s manufacturers are comparing the United States and the People’s Republic of China as possible, or likely, locations for manufacturing industry. China, in recent years, has not imposed tariffs in anything like the way the United States has. It hasn’t been changing the few tariffs it imposed because most of them are responses to what Mr. Trump did, if they happened at all.
The country is very stable. It has promised manufacturers that if you come to China, you will have access to well-educated, well disciplined, relatively low-wage workers, and you will have access to the largest and fastest-growing market in the world. They have consistently offered that to the world’s manufacturers, and after much hesitation, the world’s manufacturers took the invitation and went there, including many, many American megacorporations.
They voted with their feet that they preferred being in a country run by a communist party, which was the political adversary, more or less, of the United States, of which they were a company because that was a better deal than the United States could offer them.
What do we have now?
China is offering pretty much the same it always did, and doing a good job of giving reasons to go there. Their technology is now top of the line, the dispersion of their industry extraordinary, and their social stability equally extraordinary.
Whereas the United States? We don’t know from one day to the next what the tariffs will be. We don’t know from one week to the next what the value of the dollar in exchange will be. We don’t know how long Mr. Trump will survive as president. We don’t know what he’ll do. We don’t know what his successors will do.
So, yeah, if in that situation, all the cards say go to China, then what Mr. Trump is doing are marginal shifts that cannot change that process. That’s what Michael has just explained.
Whatever he does, it’s marginal to what all led to what we have now lived through in the last 30 to 40 years, which is deindustrialization. That’s why we are cutting Medicaid and food stamps. Mr. Starmer in England is reducing the money laid out for people with disabilities, and the Chinese got an award for lifting 800 million people out of poverty.
Hello? There’s a difference here. And that difference has to do with the totality.
No company is going to come here because of a tariff for a moment, or a value of the dollar for a while. There are too many other variables that they need to have under control that aren’t under control here, or going in the wrong direction. An 18% drop in the value of the dollar. That means if you come here and you have inputs that are imports, what are you going to do? You factored that in?
Think clearly and you will understand. The biggest likelihood for a downturn in the American economy is the fact that we’re going to have stagnation because the industrial foundation of this economy keeps shrinking, as do the recent numbers for manufacturing in this country.
The return of manufacturing has not happened. He promised it in his first administration. It did not happen. Mr. Biden promised it. It did not happen. Mr. Trump has promised it again. It still hasn’t happened.
You have to now answer the question: Why not?
And that’s because the totality of variables that any decision-making corporate executive uses says: Don’t be crazy, don’t undertake the costs and the risks of moving production to the United States, given the uncertainties and the instability of what is going on in the United States. And Mr. Herky-Jerky Trump’s tariff policy and interest rate policy, only makes that worse.
MICHAEL HUDSON: Well, let’s look at China’s success and see: What is it doing so differently from the United States?
Why do American leaders accuse China of being America’s existential enemy? They are singling it out as an enemy because it demonstrates that there is a better way of organizing an economy, and raising living standards, and creating prosperity, than the finance capital model that the United States and Europe are following.
And what China’s doing is actually following the classical economics of industrial capitalism. They call it industrial socialism, but industrial socialism was the logical evolution of industrial capitalism already by the late 19th century. The idea of a free market, from Adam Smith’s time to John Stuart Mill all the way through Marx, was a market free from rentier income, free from the landlords.
The first half of the 19th century was spent by the industrialists saying: We cannot compete with foreign countries if we have a landlord class that is going to block food imports in order to make higher farm rents for their agricultural land at the cost of higher food prices by the labor that we have to employ. You have to repeal the Corn Laws.
Well, that took 30 years from the time that the Corn Laws were imposed in 1815.
The economists then said: It’s more than landlords. It’s economic rent. It’s the excess of prices over the real cost of production. And that cost can be not only for land rent, but for the monopolies. And the monopolies are created largely to help kings and parliamentary governments raise money to pay the war debts that they were running up ever since the 13th century.
And the final problem to be attacked was that banks in England and America didn’t really play a role in financing industry at all. The whole idea was to change the financial system that actually financed industry.
None of that worked out. All of these hopes: What everybody expected to see, that economies would be socialized into a mixed public and private economy, they’d be regulated markets to get free of economic rent, so that people wouldn’t have to deal with a class of wealthy people that made money without working and contributing to production in any way.
Well, it turns out that China’s biggest, unique characteristic of industrial socialism has been to keep money and finance in the hands of China’s central bank, in its own Treasury. So it’s the government that creates money, not an independent commercial banking system.
And so China’s banks don’t lend for corporate takeovers. They don’t borrow money to make dividend payouts or stock buybacks to push up their prices. The credit that’s created based on the Chinese Treasury and the People’s Bank of China is designed to build infrastructure, factories, and all of the things that China has been doing.
To the Americans, that’s what makes China an existential enemy. If America were to do that strategy of raising industrialization, increasing employment and living standards, that would free the American economy from this billionaire class that we’ve been talking about for the last half hour. The billionaire class is — think of it almost as a tumor on the economy, as a parasite. They pretend to be part of the real economy of production and consumption. They pretend to be helpful, and even necessary, for industry to take place.
But they’re not helpful at all.
They’ve led the deindustrialization of the country. And so, of course, what we’re dealing with is almost a civilizational conflict now between a society, from Europe to the United States, run by billionaires who make money by deindustrializing the economy, and squeezing living standards, and driving the wage-earning force further into debt so that it can’t afford to buy the products that it makes, on the one hand.
And then you have China’s model on the other. And by providing this model — the antithesis of the American model — that’s what today’s fights internationally, including next week’s BRICS meetings, are all about.
NIMA ALKHORSHID: Richard, I think we can bring in the case of BRICS and the conflicts we have — the conflict in Ukraine, in the Middle East, with China, all of that. How are these conflicts with the West going to be translated into the future of BRICS?
We have the BRICS summit here in Brazil. In your opinion, what are the main issues to be considered by this summit?
RICHARD WOLFF: The way I would begin this is to remind everyone of a really historic statistic that was released last week. And that statistic said that, for the first time, the total of trade within the BRICS community crossed $1 trillion. It had never done that before, and, for me, this is a summary of everything we’ve been talking about.
What the BRICS are — and at this point, I feel free to exaggerate a little bit because the line of direction is clear — the BRICS are becoming the economic alternative, the other context for Russia, China, India, Brazil, and South Africa, and the other countries that are involved. They are now in a position to do what they never could do before in at least three or four hundred years: namely, live and grow without a dependency on the United States or Western Europe or Japan.
And that is what this statistic shows.
They could find in one another the market for their exports and the source for their needed inputs that would enable them to have a growth path adequate to sustain those societies. That’s never been true, in my judgment, before.
Part of the result of colonialism and its lasting economic achievement was to force Asia, Africa, and Latin America into a subordinate position in Western capitalism. So that whatever they might do, their dependence on that subordinated position would hold them back from doing anything that the West didn’t want them to do, which included becoming independent.
Oh, they could become, after a while, independent politically, when that couldn’t be prevented anymore — when the Mau Mau in Kenya and Mahatma Gandhi in India put an end to all of that — they were still subordinate to economic capitalism.
Now, for the first time, they have created an institution that was the dream of the Bandung Conference back in 1955, but could not be realized. Now it’s realized. And the credit for that goes to China.
This has nothing to do with endorsing what happens in China or being critical of China, which you can be, and should be, in many ways. They have their flaws like everybody else.
But what they have achieved, no amount of pretense can be taken away from them. They now are able to say to the United States that the longer you act as a rogue nation in the world, the more we will build an alternative to you that will, in the end, isolate you. And you better be careful, lest the policies you choose accelerate your isolation rather than overcome it.
And I’ll give you two examples.
The decision to push NATO all the way into Ukraine. The Americans understood it. The literature there is clear. They understood what they were doing. They understood that the Russians opposed it. They made that clear. They understood that the deal at the end with the unification of Germany entailed a commitment not to move NATO to Russia’s border. When they did it anyway, Russia was too weak to do anything, when they did it in Poland or they did it in the Czech Republic, or they did it in Romania. But when they finally came to Ukraine, Russia felt it had the military means, but just as important, it had the BRICS. And that meant it could be free of its dependence.
The first thing that the Europeans and the Americans did, once the Russian military moved into the Donbass in February 2022, was to develop the so-called sanctions policy. They didn’t need to develop the military. They had been working militarily with the Ukrainians for at least the previous eight years.
What was new, what was different, and what was thought to be decisive were the sanctions. Europe would no longer buy Russian oil and gas. If Russia was a gas station pretending to be a nation — a joke made in America — well, they would show them what happens to a gas station when no one stops by to load up with gas.
What they never counted on was the BRICS, that Russia could turn to two BRICS allies — India and China — and sell all the oil and gas it could pump; and thereby fund the very military operation that the sanctions were supposed to make impossible.
That was a miscalculation whose results we’re living through: the deindustrialization of Europe because it doesn’t have cheap energy from Russia anymore; the particular disintegration of the leading position of Germany, which was the dominant economy and is, now, with Britain, the basket case of the European economy… Wow, the cost of not understanding the BRICS!
And now the Chinese can make jokes about Mr. Trump’s tariffs. If they can’t sell in the United States, they have another place to go.
This is cataclysmic in its consequences, not just in terms of economics, but in terms of military struggles, political struggles, on and on and on. Israel cannot proceed against Iran if Iran’s membership as a BRICS nation gives it access, as it looks like it does, to the support of Russia, China and India.
And of course, you have to have a ceasefire. Israel, I mean, that’s not going to work: Israel has 8 million Jewish Israelis, and Iran has 90 million Muslims. You don’t want to do that. You do not want to do that. Not unless you have the old colonial system. It’s really the old colonial system that’s finally dying.
And we have to understand that we have been living through 300 to 400 years in which colonialism has been the way the world capitalist system organized itself. It shouldn’t have, didn’t have to, but that was the way it developed. And now those chickens are coming home and the world has changed.
And the BRICS that meets next week, having achieved the milestone of a trillion dollars worth of trade among them, is in the driver’s seat.
And the United States is watching because that’s about all it can do.
MICHAEL HUDSON: Well, President Trump certainly agrees with you, Richard, about the BRICS and China, what you just said. I’ve also been saying it, and I think we’ve been saying it on Nima’s show.
Trump has been threatening this week and next week. He says he’s threatening countries that trade with China by imposing very high tariffs to deny them the U.S. market. Well, as you point out, the United States isn’t the only market, and the market it has is shrinking anyway. So, of course, this is going to lead China to work with other Asian countries and global south countries to develop the market.
Trump is also imposing sanctions on Russia. If countries don’t impose trade sanctions on Russia, they’re going to have very high tariffs. I think, for China, he said the tariff will be 500%. That’s five times the price of the imported good if you trade with China. This really is, for Trump, a conflict of civilizations, and he’s betting everything on it.
And you’re right. What is he defending? It’s financial colonialism.
And although, quite rightly, this is no longer the old colonialism of military occupation and settler states that you’ve had from Africa to South America to North America, it’s still very highly military. And as we’ve discussed before, the military arm is the final threat that America has against other countries to enforce its policy.
Well, to do that, you need an enormous military expenditure. And if you look at the United States and also Europe, the leaders of the stock market are the military firms. This is called Military Keynesianism. Trump’s bill, I think, is leading to a trillion dollars to be spent on building the Golden Dome, his version of Israel’s Iron Dome, to protect itself from Russian missiles — if they go very, very slowly. But Russian missiles don’t go very, very slowly. It doesn’t work.
The whole strategy is so transparently just a means of spending the largest element in the budget for arms and products that don’t have a function, except to make profits for the investors in these companies. That’s yet another element in America deindustrialization for all of this.
But it’s also very dangerous because it’s threatening the whole world. If you’re going to have all of these arms, you’re going to try to use them sometimes. They don’t work, and you’re going to lose, just as you’re losing in Ukraine. But that’s the policy we have, and it’s a bipartisan policy.
Democrats and Republicans together all have pretty much the same donor class funders for deciding who’s going to be on the ballots when you vote in November. So that’s really the problem.
The BRICS and China are not only breaking away with trade and investment in the United States, they’re creating a different kind of economy. And that’s really what Richard and I have been talking about for most of our lives: a socialist economy as opposed to a finance capitalist economy.
RICHARD WOLFF: Yeah, I should also remind people that the United States, once, as the empire, had what its supporters like to call things like ideological influence, or cultural hegemony, or, you know, a lot of words — soft power — words like that.
And there is a great anxiety right now in Washington. I don’t want to minimize this. Mr. Trump doesn’t have a clear sailing.
There’s a great deal of anxiety that, for example, eliminating USAID, whatever you think of it, is damaging American soft power. It was an agency that did some good around the world — hyped the good it did for the maximum amount of publicity you could get for it — but those are parts of what successful empires do. It made sure that when votes came up in the United Nations, it could mobilize pretty much the whole world to vote in a particular way, to make it look like what the United States was doing was globally supported.
All of that is gone now. One of the reasons they’re giving all the money to the military is their economic influence is shrinking and their political influence is shrinking.
Really, one of the few things they have is the ability to keep being the number one military power, at least by the amount that they spend. There’s a famous statistic, been well known for the last 50 years, that the United States spends more on military than the next nine countries, together, spend. And those nine include Russia and China, and the remaining ones are all allies of the United States.
So, with this overwhelming predominance, you’re getting a mentality that shouldn’t surprise you: that the military has to be what we celebrate, and focus on, and rely on.
And I think you could see it coming up when a decision is made, a week or so ago, by Mr. Trump — unilaterally — to bomb Iran, a country with whom we were not at war, which had not declared on us, nor we on them, that we were in the midst of actual negotiations with. Mr. Trump suddenly hit them with a bomb, and then immediately the next day said: Now let’s sit down and talk.
Well, that is a use of the military to intimidate, and to shape, and to control, what’s going on. And maybe it’ll work for a while, but it is the last card they have to play. And it should be understood in that light.
And that’s why the BRICS is important. And I need to say to some of my fellow economists: This is not an argument that the BRICS represent the socialist future, or that the BRICS are homogeneous. They’re not. Mr. Modi in India is a different thing from Xi Jinping in China. And they’re both very different from Lula in Brazil, and so on. They have enormous differences, as an international collection of 25 countries would have to be.
What I’m focusing on is the project they all share. That’s what’s remarkable. They haven’t been able to do that in the past. They haven’t overcome all of their differences to be able to do that in the past. They are now being caught up, in my judgment, in this historic moment of the final end of colonialism that they know they’ve been fighting all of their lives.
They know the end is in sight.
And the United States is a society devoted to not seeing what I just said.
That’s why, in the last presidential election, neither Mr. Trump, nor Mr. Biden, nor Kamala Harris, ever said a word about a declining empire. This is the greatest example of collective denial that you could ask for. But for just that reason, it jumps out at those of us who don’t need to deny it. We see it all too clearly.
MICHAEL HUDSON: Well, what you’re saying is that the BRICS and the other countries, despite their differences, they’re reinventing the wheel. And what’s so striking is that the wheel that they’re reinventing is very much like the revolutionary impact of industrial capitalism that it had in Britain and the rest of Europe. The British had to deal with the problem that there was land rent that was taken by their landlord class. There isn’t a landlord class; they got rid of it. But the BRICS countries have something much like a landlord class, and that’s the foreign investors in their subsoil wealth; foreign investors in their oil, their mining, their forests.
RICHARD WOLFF: And, Michael, what you specialize in: their heavy international debt.
MICHAEL HUDSON: Yes, that too. But I want to focus, first of all, on the fact that they’re dealing with the rentier class — that England and Germany and the industrial capitalist countries of the 19th century had to deal with — [it] was domestic. But the BRICS have to deal with a foreign capitalist class. That’s what makes financial imperialism so different and independent from colonialism. The monopolies, because the attempt to finance their economy when the foreign investors take all of their natural wealth rents for themselves — instead of leaving it as the tax base for their own countries — means that the government doesn’t have enough money to build the infrastructure necessary to make a balanced economy like the industrial capitalists.
And so they run a budget deficit and a balance of payments deficit. They have to borrow from the International Monetary Fund, or else see their currencies plunge and their inflation going up. And that requires them to sell off their natural monopolies — their communications, their transportation infrastructure — all the things that were kept in the public domain in the mixed economies of Europe and the United States. Well, of course, once they sell this off, the monopoly rents have to be sent abroad, along with the land rents.
And finally, as you point out, the debt service. Once you borrow from the IMF and from bondholders to finance the balance-of-trade deficits that you’ve suffered as a result of letting the United States and Europe impose a neoliberal model that doesn’t work, then you’re left without national self-sufficiency and sovereignty anymore.
The BRICS countries are trying to — for the first time — achieve the sovereignty that they have not been able to achieve by running into debt, by not being able to tax foreign investment in their natural resources, by not being able to tax monopoly rents from the public utilities that they’ve had to sell off.
All of this had to break down at a point. And Trump has catalyzed all of this breakdown because, by imposing tariffs on these countries, they can’t pay their foreign debts anymore. The United States is going to treat this as an existential threat and do everything it can against them.
So now they think: Well, why don’t we do what made industrial capitalism work so well in its take-off? Why don’t we impose rent taxes on foreign investors in our national resources? Why don’t we nationalize the monopolies by passing antitrust legislation? And why don’t we just realize that the debts that we’ve run up have been run up as a result of financial colonialism, not our sovereign decisions, but their odious debts.
That’s the fight that we’re going to see, is the inherent logic of the situation.
RICHARD WOLFF: We’ve already seen that in recent years. There are movements around the world to cancel the debts. There is a reminder for those who take seriously the religious histories that almost all religions many centuries ago understood how we began today’s conversation: that unbridled inequality, if allowed to continue, destroys the community, destroys whatever social cohesion holds us together.
So they developed, and attributed to whatever deity they believed in, the commandment for a Jubilee year, for every 10 years, or every 20 years. It varied. You would take the land and redistribute it. If you happened to have gotten a good piece of land that made you a rich person, in the redistribution, that land would go to whom? It would go to a person whose land didn’t get enough rain or didn’t get enough soil fertility, and that way the rich would become poorer and the poorer would become richer. And no one would become crazy about accumulating wealth because you are getting every day closer to the time when you would lose it anyway.
It just transformed the whole relationship of people to accumulated wealth.
And the irony is, of course, the same religion, once capitalism comes, has to get rid of that, and does get rid of that, because it would undercut the whole notion of the value, the incentive value, of becoming rich, which was their argument, which would justify the endlessness of exploitation.
All of that is coming to an end. That’s what it means to be at the end of an empire. The really interesting question, which maybe we should take up, is whether the end of the U.S. capitalist empire, is it the end of capitalism itself? Or not? That’s like asking: Is China the next empire? Or will the Chinese bring us a multinational community, which was after all the ideal of the League of Nations, the United Nations, and people who wanted to see peace as the rule of law, rather than violence, which is what we have now.
NIMA ALKHORSHID: Thank you so much. Michael, do you want to add something?
MICHAEL HUDSON: No, I’ve been saying the same thing that Richard has been saying. We’re the two people who were saying this because we’re taking the long historical point of view. And what Richard has just described is what Confucianism was all about: rulers were supposed to keep the peace. They were supposed to keep the population satisfied enough so that they did not revolt. And again, they’re reinventing the wheel now.
It’s a different mentality from America’s bully mentality: If you don’t let us take all of the wealth for ourselves, we’re going to hurt you.
I don’t think that was the philosophy of any earlier religion, which was the ideology of their societies. It’s Western finance capitalism, or whatever you want to call it, that has diverged from this core of civilization from the very beginning. So, in a sense, you could say that the BRICS and China and global majority are moving back to this central norm, leaving the United States and Europe isolated, unless they join the movement of history, instead of accusing this return to civilization as being a clash of civilizations, as if the U.S. and Europe is actually a self-sufficient civilization, instead of barbarism. The world will choose socialism, not barbarism, as Rosa Luxemburg put it.
RICHARD WOLFF: Well, I would add that we should remember one more historical reality. Successive kings of France accumulated wealth. But when the accumulation of wealth reached absolutely insane proportions in the 18th century, when you would have unbelievable urban poverty in Paris, and an hour away, in Versailles, you would see, as you can still see today, the most spectacular collection and concentration of wealth imaginable by the last king. He’s also the one who got his head chopped off. That’s how that story of the accumulation… you know.
And when you watch Jeffrey Bezos take over the city of Venice for two weeks of indulgence of his wedding, when he arrives at the port in his $500 million dollar yacht, that’s what we’re watching. We’re watching this eon’s Versailles. And we’re going to get the next step of it, likely, also.
MICHAEL HUDSON: Well, the question then is: Can this return to civilization that we’re talking about be done without a military confrontation? Is America actually going to war with China? It’s trying to stir up fights against China, with Taiwan, with its neighboring countries. It’s trying to stir up fights in Central Asia against Russia.
China was able to make its reforms because there was a revolution in 1945.
And when China emerged as a country in 1949, they didn’t have a financial class. So, of course, the government had to create the money. But that took a revolution.
Will it take a revolution, a defensive revolution, for the BRICS, and this higher civilization, to emerge?
Because the violence will not be on their part. Marx pointed out that there would probably be violence by the privileged classes, the rentier classes, by the landlords and the wealthy against the people attempting to get a revolution, as you saw in the Paris Commune in 1871. It’s the people who have made wealth without working, who know that there are parasites who are willing to fight so hard, and so violently, to preserve their claims on wealth that consist of the ability to impoverish the rest of the population below them.
RICHARD WOLFF: Yeah, and you have to wonder whether that isn’t matched by the military thinkers who tell us that looking, as a military person, at China over the last 40 years and the United States, one is crystal clearly ascending, and the other one is crystal clearly descending. And what that means is time is on one side, and not the other.
And what will that lead the military of the United States to contemplate?
NIMA ALKHORSHID: Thank you so much, Richard and Michael. Great pleasure, as always. Have a great time. Bye-bye.
(Updated and this is the first posting of the updated article. GlobalSouth.co is first and it is not yet on Michael’s site).
The Neocon logic for needing to defeat Iran and break it into ethnic parts
Opponents of the war with Iran say that the war is not in American interests, seeing that Iran does not pose any visible threat to the United States. This appeal to reason misses the Neocon logic that has guided U.S. foreign policy for more than a half century, and which is now threatening to engulf the Middle East in the most violent war since Korea. That logic is so aggressive, so repugnant to most people, so much in violation of the basic principles of international law, the United Nations and the U.S. Constitution, that there is an understandable shyness in the authors of this strategy to spell out what is at stake.
What is at stake is the U.S. attempt to control the Middle East and its oil as a buttress of U.S. economic power, and to prevent other countries from moving to create their own autonomy from the U.S.-centered neoliberal order administered by the IMF, World Bank and other international institutions to reinforce U.S. unipolar power.
The 1970s saw much discussion about creating a New International Economic Order (NIEO). U.S. strategists saw this as a threat, and since my book Super Imperialism ironically was used as something like a textbook by the government, I was invited to comment on how I thought countries would break away from U.S. control. I was working at the Hudson Institute with Herman Kahn, and in 1974 or 1975 he brought me to sit in on a military strategy discussion of plans being made already at that time to possibly overthrow Iran and break it up into ethnic parts. Herman found the weakest spot to be Baluchistan, on Iran’s border with Pakistan. The Kurds, Tajiks and Turkic Azeris were others whose ethnicities were to be played off against each other, giving U.S. diplomacy a key potential client dictatorship to reshape both Iranian and Pakistani political orientation if need be.
Three decades later, in 2003, General Wesley Clark pointed to Iran as being the capstone of seven countries that the United States needed to control in order to dominate the Middle East, starting with Iraq and Syria, Lebanon, Libya, Somalia and Sudan, culminating in Iran.
Fast forward to today
Most of today’s discussion of the geopolitical dynamics of how the international economy is changing is understandably (and rightly) focusing on the attempt by the BRICS and other countries to escape from U.S. control by de-dollarizing their trade and investment. But the most active dynamic presently reshaping the international economy has been the attempts of Donald Trump’s whirlwind presidency since January to lock other countries into a U.S.-centered economy by agreeing not to focus their trade and investment on China and other states seeking their own autonomy from U.S. control (with trade with Russia already heavily sanctioned). As will be described below, the war in Iran likewise has as an aim blocking trade with China and Russia and countering moves away from the U.S.-centered neoliberal order.
Trump, hoping in his own self-defeating way to rebuild U.S. industry, expected that countries would respond to his threat to create tariff chaos by reaching an agreement with America not to trade with China and indeed to accept U.S. trade and financial sanctions against it, Russia, Iran and other countries deemed to be a threat to the unipolar U.S. global order. Maintaining that order is the U.S. objective in its current fight with Iran, as well as its fights with Russia and China – and Cuba, Venezuela and other countries seeking to restructure their economic policies to recover their independence.
From the view of U.S. strategists, the rise of China poses an existential danger to U.S. unipolar control, both as a result of China’s industrial and trade dominance outstripping the U.S. economy and threatening its markets and the dollarized global financial system, and by China’s industrial socialism providing a model that other countries might seek to emulate and/or join with to recover the national sovereignty that has been eroded in recent decades.
U.S. Administrations and a host of U.S. Cold Warriors have framed the issue as being between democracy (defined as countries supporting U.S. policy as client regimes and oligarchies) and autocracy (countries seeking national self-reliance and protection from foreign trade and financial dependency). This framing of the international economy views not only China but any other country seeking national autonomy as an existential threat to U.S. unipolar domination. That attitude explains the U.S./NATO attack on Russia that has resulted in the Ukraine war of attrition, and most recently the U.S./Israeli war against Iran that is threatening to engulf the whole world in U.S.-backed war.
The motivation for the attack on Iran has nothing to do with any attempt by Iran to protect its national sovereignty by developing an atom bomb. The basic problem is that the United States has taken the initiative in trying to pre-empt Iran and other countries from breaking away from dollar hegemony and U.S. unipolar control.
Here’s how the neocons spell out the U.S. national interest in overthrowing the Iranian government and bringing about a regime change – not necessarily a secular democratic regime change, but perhaps an extension of the ISIS-Al Qaida Wahabi terrorists who have taken over Syria.
With Iran broken up and its component parts turned into a set of client oligarchies, U.S. diplomacy can control all Near Eastern oil. And control of oil has been a cornerstone of U.S. international economic power for a century, thanks to U.S. oil companies operating internationally (not only as domestic U.S. producers of oil and gas) and remitting economic rents extracted from overseas to make a major contribution to the U.S. balance of payments.[1] Control of Near Eastern oil also enables the dollar diplomacy that has seen Saudia Arabia and other OPEC countries invest their oil revenues into the U.S. economy by accumulating vast holdings of U.S. Treasury securities and private-sector investments.
The United States holds OPEC countries hostage through these investments in the U.S. economy (and in other Western economies), which can be expropriated much as the United States grabbed $300 billion of Russia’s monetary savings in the West in 2022. This largely explains why these countries are afraid to act in support of the Palestinians or Iranians in today’s conflict.
But Iran is not only the capstone to full control of the Near East and its oil and dollar holdings. Iran is a key link for China’s Belt and Road program for a New Silk Road of railway transport to the West. If the United States can overthrow the Iranian government, this interrupts the long transportation corridor that China already has constructed and hopes to extend further West.
Iran also is a key to blocking Russian trade and development via the Caspian Sea and access to the south, bypassing the Suez Canal. And under U.S. control, an Iranian client regime could threaten Russia from its southern flank.
To the Neocons, all this makes Iran a central pivot on which the U.S. national interest is based – if you define that national interest as creating a coercive empire of client states observing dollar hegemony by adhering to the dollarized international financial system.
I think that Trump’s warning to Tehran’s citizens to evacuate their city is just an attempt to stir up domestic panic as a prelude to a U.S. attempt to mobilize ethnic opposition as a means to break up Iran into component parts. That is similar to the U.S. hopes to break up Russia and China into regional ethnicities. That is the U.S. strategic hope for a new international order that remains under its command.
The irony, of course, is that U.S. attempts to hold onto its fading economic empire continue to be self-defeating. The objective is to control other nations by threatening economic chaos. But it is this U.S. threat of chaos that is driving other nations to seek alternatives elsewhere. And an objective is not a strategy. The plan to use Netanyahu as America’s counterpart to Ukraine’s Zelensky, demanding U.S. intervention with his willingness to fight to the last Israeli, much as the U.S./NATO are fighting to the last Ukrainian, is a tactic that is quite obviously at the expense of strategy. It is a warning to the entire world to find an escape hatch. Like the U.S. trade and financial sanctions intended to keep other countries dependent on U.S. markets and a dollarized international financial system, the attempt to impose a military empire from central Europe to the Middle East is politically self-destructive. It is making the split that already is occurring between the U.S.-centered neoliberal order and the Global Majority irreversible on moral grounds as well as on the grounds of simple self-preservation and economic self-interest.
Trump’s Republican budget plan and its vast increase in military spending
The ease with which Iranian missiles have been able to penetrate Israel’s much-vaunted Iron Dome defense shows the folly of Trump’s pressure for an enormous trillion-dollar subsidy to the U.S. military-industrial complex for a similar Golden Dome boondoggle here in the United States. So far, the Iranians have used only their oldest and least effective missiles. The aim is to deplete Israel’s anti-missile defenses so that in a week or perhaps only a few days it will be unable to block a serious Iranian attack. Iran already demonstrated its ability to evade Israel’s air defenses a few months ago, just as during Trump’s previous presidency it showed how easily it could hit U.S. military bases.
The U.S. military budget actually is much larger than is reported in the proposed bill before Congress to approve Trump’s trillion-dollar subsidy. Congress funds its military-industrial complex in two ways: The obvious way is by arms purchases paid for by Congress directly. Less acknowledged is MIC spending routed via U.S. foreign military aid to its allies – Ukraine, Israel, Europe, South Korea, Japan and other Asian countries – to buy U.S. arms. This explains why the military burden is what normally accounts for the entire U.S. budget deficit and hence the rise in government debt (much of it self-financed via the Federal Reserve since 2008, to be sure).
The need for alternative international organizations
Unsurprisingly, the international community has been unable to prevent the U.S./Israeli war against Iran. The United Nations Security Council is blocked by the United States’ veto, and that of Britain and France, from taking measures against acts of aggression by the United States and its allies. The United Nations is now seen to have become toothless and irrelevant as a world organization able to enforce international law. (Its situation is much as Stalin remarked regarding Vatican opposition, “How many troops does the Pope have?”) And just as the World Bank and International Monetary Fund are instruments of U.S. foreign policy and control, so too are many other international organizations which are dominated by the United States and its allies, including (relevantly for today’s crisis in West Asia) the International Atomic Energy Agency that Iran has accused of having provided Israel targeting information for its attack on Iran’s nuclear scientists and sites. Breaking free of the U.S. unipolar order requires a full spectrum set of alternative international organizations independent of the United States, NATO and other client allies.
This is from 10 days ago but still worth taking a look at.
NIMA ALKHORSHID: Hi, everybody. Today is Thursday, June 5, 2025, and our friends Richard Wolff and Michael Hudson are back with us. Welcome.
RICHARD WOLFF: Glad to be here.
NIMA ALKHORSHID: Let’s get started with Lindsey Graham and his latest visit to Ukraine. Not only Lindsey Graham, Blumenthal, and Mike Pompeo as well, they went to Ukraine. Here is what Lindsey Graham said:
LINDSEY GRAHAM: Russia said that Ukraine doesn’t have good cards. Well, Russia is much bigger and has a lot more people. I get that. But the world has a lot of cards against Russia. And one of those cards that we have is about to be played in the United States Senate. In America, you have more than one person at the card table. We have three branches of government, and the House and the Senate are poised to act. What would change our mind? If Russia came to the table, agreed to a ceasefire, and earnestly.
NIMA ALKHORSHID: Richard, one of those cards that he’s talking about is 500% secondary tariffs on Russian energy, which we know would influence China, India, and eventually Europe. Your take?
RICHARD WOLFF: Well, Lindsey Graham has been a bloviating senator all his career. This is all theater. He has been all theater. He is all theater.
He has gathered together the many other members of both houses who, like him, are thespians at heart and politicians only secondarily. This is showmanship. That’s all. It’s something that he has decided will improve his standing down there in the American South, where he comes from and where he gets elected by people who approve that kind of theater, even as their actual situations decline.
We are no longer living in the world that appreciates that theater. What he doesn’t understand as he invokes the world is that in view of the world, the very behavior he proposes is considered the actions of a rogue nation, a nation that is willing to threaten, disrupt global trade for the whole world. This is not admirable. This has nothing to do with bringing cards to a table. This is bullying behavior, and it is doubly offensive because the bully isn’t in charge anymore.
The Chinese know and the Russians know, having spent the last 15 years building themselves up, growing their economies much faster than the United States, and much faster than the United States and its G7 allies, that they now have in their BRICS alliance people from whom they can buy, people to whom they can sell, and those people are more than half the population of the world and have shown in the Ukraine war that they can absorb whatever it is that the United States and Western Europe wish to do in interfering with the trade of Russia.
When Russia couldn’t sell its oil and gas to the Europeans, did they collapse the way the Europeans promised? No. Did the ruble disappear the way the Europeans promised? No. Did the levying of much more than a big tariff, a literal embargo? We’re not going to buy your oil and gas. We’re not going to let you use our SWIFT international payments system. We’re going to seize $300 billion of assets back in your currency that you have kept in Western institutions.
And so all of these things, which in total are a bigger effort against Russia than what Mr. Lindsey Graham now proposes, they all failed. So I got news for Mr. Graham. His proposal, if it were adopted, will not only fail to hold back Russia and China in the way all the previous sanctions and limits and tariffs have failed, but will enhance the already badly damaged reputation of the United States. And I mean, enhance it as a rogue, as the biggest single threat to global trade and global economic development in the world, which for the United States is a very bad sort of self-destructive behavior.
MICHAEL HUDSON: Well, Richard, you call America a rogue nation. Madeleine Albright called America the exceptional nation. And that’s America’s strength being a rogue nation. Think of it as a rogue nation, not with atom bombs, which it won’t use, but with the ability to create chaos. And what Graham is threatening is we can create chaos in Europe and other countries by imposing this enormous tariff on countries that trade, that obtain their gas from Europe instead of from us.
And we can impose similar chaos on countries that trade with China and its companies, Huawei. I think there’s already threats against that. Companies that use China’s international payment system to avoid the U.S. dollar. The aim of this chaos is to create an entirely new world order whose rules are the reverse of the economic order that America created in 1945 when it was the world’s leading creditor nation and also the world’s leading industrial power after in the wreckage of World War II.
Now, the situation is just the reverse. The United States is the world’s major debtor nation, mainly to other governments, and it’s also a deindustrialized nation, the most trade-dependent nation of all. And so, what the Republican administration, with the full support of the Democrats, is trying to do is: how can we make a virtue of all of this?
How can we somehow use our ability to create chaos to threaten other countries with these huge sanctions, denying them access to the American market, denying them military protection, such as the United States had offered in World War II, and instead making them prone to fighting with Russia, as we’ve seen over the attacks by Ukraine on Russia with full backing of Britain’s MI6 and Macron and German’s support?
So, what Lindsay Graham was doing was bragging about America’s strength in the ability to confront other nations with what the United States can do to smash the whole international set of rules if they don’t adopt the new rules that the Trump administration is trying to impose.
RICHARD WOLFF: Well, let me respond. Maybe we disagree here. I agree with what you’re saying. Everything makes perfect sense to me, but I see it in a context that this is the behavior of a desperate government going down, and in the language I learned as a kid, trying to take everybody down with it.
Or using whatever you might call the last card, if we’re going to stay with that metaphor, the last card they can imagine playing because they’ve run out of all the other cards that they used to have available. They don’t have it available. The irony is the nuclear weapons they built up, they can’t use, and the rest of the weapons they don’t have anymore. And so they’re stuck with this sort of situation.
I see it in that, and I don’t think it can work. I think it’s desperate not only because it is so disruptive and it is so chaotic and it is so risky, but it’s also desperate because I don’t think the conditions are there. And I think that more and more of the world sees that. And, you know, for this kind of a major bluff to work, you can’t be seen as bluffing. And I think what the world sees here is bluffing.
And that when he does it one day and undoes it the next day, the notion that this could be bluffing becomes a virtual certainty. He wants to get some concessions so that he looks like he’s dominant in some way. And so, by yelling 500% and actually settling later for 10%, he can make some claim that he got something and he looks better for the evening television.
But, you know, that only works for a while until everybody realizes that’s what you’re doing. And that’s what we have now. You know, the signs that are accumulating that we may have both stagnation starting in the second half of this year and inflation getting going in the second half of this year. Well, you know, those are signs that this is a very risky line of action.
And you have to ask the logical question: why would you be doing this? And after we make the cracks that the whole world is making, that he’s unstable or he’s looking to make money or he’s looking to get attention, all of which have their grains of truth, you still have to ask the question, why in this way would this man act at this point? And there, I think, the desperation of the American empire’s decline is the answer.
MICHAEL HUDSON: Well, let’s talk about this bluff then. There’s method behind the madness. And they actually have a plan. It’s a mad plan. You’re right. Other countries can see through it. But let’s walk through exactly what their plan is, because they’ve spelled it out in detail. And it’s worth going over, I think.
When Trump and Rubio acknowledge that we’re entering a multipolar world, I think what they mean is that Europe, Asia, other continents are now all on their own in the sense of every country for itself. And to Trump, that means the United States is going to act for itself, in its own interest, to try to be the winner.
And what its interest is, is actually creating a new world order in which other countries somehow can be locked into dependency on the United States—even though we’re no longer a creditor nation, even though we’re no longer a trade surplus country, and even though we’re making other countries militarily endangered, not protecting them anymore.
I think that Trump’s strategy is to save the U.S. economy and its foreign policy from having to bear the loss of its financial and trade dominance that led it to create the post-1945 order in its own interest. That order lasted 80 years, and it’s now changing. And they actually have a plan, and they’ve outlined the plan for what they want to do. And I think, of course, it’s a bluff—but let’s go over exactly why it’s going to fail.
Instead of the United States offering financial support, it’s now demanding that the rest of the world support its own financial position and even its domestic reckless budget deficit. And other countries are supposed to oppose China and Russia by joining a new Cold War—to prevent China, Russia, and the BRICS countries from shaping a new world economic order. That’s the guiding strategy.
And I think the first aim of the global majority that the United States is opposing is to avoid the use of the U.S. dollar, as you pointed out, for their mutual trade and investment, and as a vehicle for saving their foreign exchange reserves in the form of holding Treasury securities and lending to the United States government.
This balance of payments aspect of the current crisis is, I think—certainly to me—the key. The United States doesn’t have atom bombs, but as I said, it does have the trump card—and Trump’s ability to create chaos. And as the old joke goes: if you owe the bank ten thousand dollars and you can’t pay, then you’re in trouble. But if you owe the bank 10,000,000, or a hundred million, or a billion dollars—then the bank’s in trouble.
Foreign central banks are holding U.S. securities and those of its federal agencies. They have a problem: how can they secure the value of all the savings they’ve mounted up since 1971, since the U.S. went off gold? All of the world’s central bank savings are already in U.S. dollars. The United States owes them so much money that it’s now using its debtor power—instead of its creditor power—as a means to control them by threatening chaos.
Trump is trying to fight to create a new illusion that somehow will give the illusion of solvency—if other countries agree to new worlds. Well, the fact is, the United States could pay other countries if it were willing to follow the policies that it and the IMF have demanded of Global South countries for the last 80 years.
Namely you pay your debts by selling off your public infrastructure, selling off your raw material rights, increasing taxes on income and wealth so that this money will not be available to consumers to buy imports. That’s how you generate a balance of payments surplus to pay your creditors.
Well, the United States has a double standard and again says, “We’re the exceptional country.” It’s not going to do what the old economic order forced the Global South countries to do.
The United States could roll back its military spending—which has long been the major component of its balance of payments deficits ever since the Korean War in 1950. It could cut back its new foreign investment. And it could begin selling off its existing investments in Europe, Asia, other countries, to pay its creditors. That’s exactly what the IMF and the United States insist that Argentina and other debtor countries must do.
But the United States is refusing to do these things, and that’s what makes it an outlaw country when it comes to the rules of traditional financial debt settlement. It’s using its strength as a debtor—no longer as a creditor—and that’s what’s turned the world upside down. And it’s used this to somehow be able to create a moral order in which it can convince at least its satellite rulers—people like Merz and Macron and Starmer—to continue to sacrifice their economies to support this new U.S. economic order.
RICHARD WOLFF: Okay, but let me respond by saying I don’t think he can do these things domestically or internationally. That may be the plan, that may be the method in the madness. I understand that argument, but I don’t think it’s doable.
And I think the desperation is again visible in coming up with a plan like that for which the world is no longer willing to be treated that way. And I think he’s learning it at every turn. The Chinese are not bending. No matter what, you know, let’s remember he had tariffs a few weeks ago in the neighborhood of 140 or whatever it was percent. And that made no difference at all.
You know, he just had a meeting with Xi Jinping, if I understand, yesterday, a telephone call having spent the last 10 days asking for one. That’s not the behavior of somebody who is terrorized by what you’re proposing or what you’re threatening.
The Chinese took the time and the care to produce an economic miracle, which includes an alliance that is crucial to them precisely because it creates enough of a world market for them to buy from and sell to that the United States’ abilities that we won’t let you here. Okay, don’t.
I want to remind people over the last week if I’m not mistaken all the leaders of Europe were on their knees cutting deals with the Chinese. They’re desperate too, and they are the ones because of their subordination, their inability to act independently from the United States anywhere is now hobbling them. They are learning that the cost of being subordinate to the United States can be very high. They were writing nicely for several decades; they were able to be social democratic to their own working class because the United States saved them from spending money on defense.
But the United States can’t do it for the reasons Michael just summarized. The United States is throwing the Europeans right under the bus. We’re not doing this anymore. You’re going to have to do it for yourself. Yes, but we can’t do that and be the social democratic societies we were developed over history to be.
And if you make us impose an austerity, then you will see that the “menchamps?” in France and their equivalents everywhere else will take the power in Europe because they can ride your inability. The Germans, we are spending $80 billion on defense. Oh, really? How’s that going to play in their own country? Not well.
Mr. Merz has a very thin majority. Mr. Macron has no majority. And Starmer has pissed away the little bit of bump he got because the conservatives were so awful. They now face the reality that another Trump-like figure, Farage, may become their next lead.
I mean, these are societies in advanced levels of decay. So I don’t think the United States can do most of what it is they’re threatening to do. I don’t see it. I don’t see them able to get the rest of the world to go along with this desperate effort now that they’re a debtor nation, now that the rest of the world has caught up or exceeded them.
They’re not in a position to dictate and they don’t understand it. They have the biggest military. They are very rich. It’s very hard for them, as it was for the British before them, to understand that they are now going back to what they were: a small, offshore, wet island off of Europe. That’s the British Empire’s resting place. And the United States is going its path to a decline from its peak.
And all you have is a desperate leadership that wants, on the one hand, to pander to the public awareness by pretending the decline of the empire isn’t happening, while at the same time taking these extraordinarily desperate, chaotic, disruptive steps in a final, last effort to do what isn’t anymore available to them to do. And this is a recipe for real trouble, mostly here at home.
MICHAEL HUDSON: Richard, you’re elaborating my points. Of course, I agree with that. What I’m doing is explaining: if you look at exactly what the U.S. plan is in detail, you see exactly why it won’t work. Of course, it won’t work. And when you look at the details, there actually is a plan, and it is so crazy that it won’t work.
And that’s what I want to explain exactly why it won’t work. For instance, we mentioned, I think, last week, Treasury Secretary Bessent’s proposal that foreign countries stretch out the maturity of their Treasury IOUs for 100 years.
That’s pretty illiquid. That’s like saying we can’t pay within my lifetime or the lifetime of my children. It’s pie in the sky. In other words, you lend us the money, write it all off. You can pretend that it’s money. You can pretend that it has value.
Let’s have a pretend new economic order. That’s what the American policy rests on.
Pretense, of course, not the real thing. It’s the pretense of every Ponzi scheme dynamics, where debts grow and grow and grow, and all it requires new entrants into the scheme. More and more foreign central banks will hold the dollars. More and more countries will invest their trade surpluses and balance of payment surpluses in the dollar to somehow give the illusion of solvency, but it’s not going to exist.
Well, what the plan of Bessent and the Treasury wants is that other countries are going to commit their accumulated international savings, all of what they’ve saved since 1971, to back U.S. unipolar military and foreign policy hegemony. And this foreign support aims at the United States to pursue this massively polarizing tax shift from financial wealth onto labor and industry.
That’s the Republican plan. Huge tax cuts for the wealthiest, 10% of the population, all the rest of the population, labor, industry, agriculture, has its taxes go up. So the foreign central banks and the dollar-based international order, they’re enablers to America’s attempt to maintain its unipolar control of world diplomacy behind the Cold War that Lindsey Graham and others are trying to back. So far, Trump has not criticized Lindsey Graham. Other people are. Well, this solution of somehow saying U.S. Treasury bills are never to be paid. They’re a sort of permanent floating debt.
At the same time, Treasury and Trump are telling its allies that to be able to pay down its debts, if you really want us to pay them down, then you have to enable us to export to you and earn the money. That means that, sure, you can enable us to pay you by letting American industry replace your industry.
Your German car companies and technology companies can relocate to the United States. And if you relocate here, we can export and then we’ll be able to export to you. Your industry is going to have to be wound down, which of course it will be if you can’t get Russian energy anymore and have to depend on our energy, you know, move to the United States where everything’s less expensive.
Well, the whole idea that somehow the United States can use its deindustrialization as a weapon, it reflects a false line that it’s taken in development really since the 1990s. The United States is trying to say we can maintain our trade supremacy by focusing on monopoly goods, on information technology, military technology, social media platforms. And these were considered the high value added industries.
And the idea was the United States says, well, we don’t need blue collar manufacturing. We don’t need labor-intensive industries. And in fact, shifting, offshoring our employment to Asia is going to help hold down our domestic wage levels and all of that.
Well, all of a sudden, something very strange has happened. All of a sudden, if you look at what is happening with China today, amazingly enough, the United States has become dependent on low-wage industrial economies. All of this industry that is outsourced to China and other countries is now threatened with being blocked by Trump’s tariffs. And the United States doesn’t have the ability to produce these goods itself, even to the point of making screws to screw down the keyboards of the iPhones that are made by Apple.
So nobody expected the United States to become more dependent on low-wage industries that instead of where China and other countries have almost caught up with the information technology, with the dollar transfer systems, not needing the dollar, not needing the SWIFT, with all of these things. And this has turned the whole traditional idea of international advantage upside down.
The United States can’t reindustrialize to somehow earn the money to pay off its foreign debts, because the Chinese economist Liu Feng has pointed out that industrialization requires having the whole broad spectrum of industry, including the sectors that the United States has looked down on, like textiles. And even what the United States considered low-wage industries before, all of a sudden China is robotizing all of these.
And so now you’re having products that were made by low-wage manual labor made by robot factories. The United States hasn’t developed anything like this. The United States all of a sudden finds itself dependent on the smallest things that are key for its supply chains, as you and I have discussed before on Nima’s (show).
These supply chains for screws, for steel, for various inputs, not to mention the rare earths and everything, which China is not going to reduce its national security limits. So the United States has a skewed pattern of production. It’s focused on the internet, the information technology, but it doesn’t have the most basic industries that are needed to earn the money to somehow move its trade into a surplus to pay off its debt.
So the trade problem is hand in hand with the insolvency problem. And the fact is that other countries are broke. And here’s what faces other countries. Here’s the choice. Are they going to say, okay, we’ve been sucking – we’ve followed a blind alley that we’ve put all of our savings in the United States. Are we going to just accept the loss and go and create and join the global majority in a new restructuring of their economies?
Or are we going to say we can’t afford the disruption of a year, a two-year or three years, and we’re going to have to remain dependent on the United States because otherwise, the value of our foreign exchange reserves is essentially blocked.
Our ability to trade with China and Russia is blocked. And we’re locked into a dependency on trade with the United States that has to be a deepening and deepening loss for us because the United States plan, when you look at it, is so fallacious in its assumptions, so badly structured, that of course it won’t work. That’s really the political choice that’s facing Europe and the whole rest of the world.
RICHARD WOLFF: Let me add a couple, if I can, Nima and Michael. In recent days, looking at literature about the automobile industry, I came across a number of comments in which people who are not involved in the kind of conversation we’re having, whose focus is much more narrowly concentrated on the international automobile business, are projecting, several of them, that the relocation of automobile industry will in fact not be to the United States, but to China.
Why? Because of what Michael just said. They have all of the components, including the rare earths, which are crucial for those batteries without which the electric vehicle doesn’t function. And if you are going to move to the United States, and if the United States isn’t going to be able to get them from China, you’re moving to your own destruction. You cannot do that.
You’d be much better advised to build your automobile, your Volkswagen, or your Peugeot, or your Fiat in China, where you can be sure of access to the rare earths without which you can’t build a car anyway. So that’s one thing. Here’s another one: the history of monopoly in capitalism.
Let’s remember what it is: it’s when the producer of something can capture the market in the sense of becoming the only mono seller, poly, mono poly, the only seller. Why? Because then you can not only make the profit built into the surplus you get from your worker, but you can jack up the price above cost and get what’s called a monopoly revenue on top of it.
But the very existence of that, for example, in the high-tech industry in Silicon Valley, and this is the history of capitalism: the minute you get a monopoly revenue, you become the object of envy and competition from everybody else because you’re getting outlandish rates of return. And so the flow of capital is to try to get a piece of that since it’s much more profitable than to staying in the competitive areas of the economy.
So now we have DeepSeek, we have the Chinese who have demonstrated that when you have tried to copy, you can do it. Huawei can produce the relevant chips. So can the other companies. If the United States is developing a strategy that has the quality of depending on the monopoly position that its high-tech industries achieved for a while, then I’ve got news for them. You’re going to lose it.
The monopolists always do. General Motors and Ford once had a monopoly. They don’t anymore. And you’re not going to keep that monopoly here, which means your strategy, which assumes a certain monopoly position, is a strategy built on sand that is ebbing away. The Chinese are working on that too.
And by the way, not only the Chinese, but others. And so this is not only risky for all the reasons we’ve adduced, but it’s risky in terms of where the actualities of international capitalist competition lie. The Chinese have a dominant position in rare earths and crucial industries, not just the automobile industry, air traffic, airplanes, defense, those are also requiring rare earths. Now, will the United States make an effort to get new sources?
Sure, they will. May they succeed? They may.
But we are now, the more and more we talk, the more and more, hopefully, you’re all picking up on the conditions, the many, many conditions that suggest that the strategy being pursued now is, well, it is so risky that I believe the word desperation captures it.
MICHAEL HUDSON: Yes, it’s desperate, and that’s why I’m trying to spell out what its strategy is so you can see just in detail how desperate it is. And it gets worse and worse. I think you could say for the last two centuries, most of America’s technological innovation, maybe not most, but much, has been from immigrants, from individuals, scholars, scientists, technical labor fleeing the fight for freedom in their own country to come to the United States.
Well, the United States, I think there are 250,000 Chinese students in the United States. And now the United States is acting to block these students. Well, China has been complaining, as other countries before it have, about the brain drain.
They’re saying, well, you know, we have these, we’ve spent all the effort in raising these students, sending them to school in China. And now they’re going to the United States for graduate studies, studying the STEM curriculum. And now they’re deciding to work for American companies being trained there.
And so we’re losing a lot of our own technical labor because look at the American high-tech industries that are developed largely by Chinese labor. Well, Trump has said, we don’t want any more brain drain from China. We want to send the Chinese back to China so that they will be able to work to help develop Chinese technology, not American technology.
And not only that, but the one key, most apart from foreign brain drain to the United States developing technology, is government-subsidized research and development. Everything from the Manhattan Project for the Atom bomb to so much development has been government subsidy to universities to develop pharmaceuticals, technology, internet technology that the government then gives to the private sector is a gift to create the monopoly from this vast government spending, government-subsidized technology.
This is all being cut back from Harvard to other universities. That’s what Elon Musk did. Don’t subsidize government research and development. Concentrate research and development in China and Asia, not in the United States. We’re not going to be doing that anymore. And the reason is that many people, many of the scientists who wanted to develop technology, also want peace instead of war.
And if any of them say we’re for peace for any war, well, all of a sudden that is caused, I won’t get into the Zionist problem, but the students who are expressing political views other than the U.S. official foreign policy are being blocked from the United States, sent back to their countries. So the United States has cut off the two major sources of what was providing us technological advantage: immigration and government subsidy of university research and development.
RICHARD WOLFF: Yeah, I would like to stress that and also to take it a step back into the very economic structure. The Chinese version of modern economy is about 50% private capitalist enterprise, both Chinese and foreign, and 50% government-owned and operated enterprises.
That’s what they mean when they say they’ve got socialism with Chinese characteristics. The Soviet Union was much more government. The United States and Britain are much more private. The Chinese is a hybrid that is different and has to be highly controlled from above because you’ve got these two horses that don’t run in the same way in the same direction.
But the genius of what they’ve done, which explains why they’ve been growing two to three times faster than the U.S. for every one of the last 30 years, is because whatever the private profit motivation cannot accomplish because of its limits, the government can. The other half can make the investments that aren’t governed by a short-run profit calculus.
And the irony of what Michael just said is that in the United States, a modest, too small version of that was the government subsidizing the university to do some of that long-range, not-profit-dominated research. The idiocy of what’s being done to cut back the government support to get rid of the immigrants who are often the driving force of much of it.
That is a concession to the backlash of 30 years of globalization and neoliberalism. The liberals are every bit as responsible for that, the Democrats, as the Republicans. They were all cheerleaders for globalization, for liberalization, for automation and relocating jobs and all of the rest of it. And now they see the backlash that puts a guy in power who has to do all of the things necessary to hold on to his demagogic base.
So, yes, of course, he has to tell a dozen countries in Africa that they’re not welcome to send anybody to the United States. This is grotesque to deport immigrants. What are you doing? 10 million in a country of 330 million makes no difference. It’s irrelevant. What are you doing? You’re pandering, of course, but the pandering, without which he can’t be president, is going to have and is having real negative, self-destructive economic effects.
And I noticed in the last few days that whether it’s from Goldman Sachs or Bank of America or Ray Dalio or Jamie Diamond, there is a growing chorus of very big businessmen who are saying, uh-oh, this is spinning, from their perspective, out of control.
MICHAEL HUDSON: Well, you made the very important point that China’s government is shaping its technology. And the United States is a more centralized planning economy than China, but it’s been planned by the financial sector for its own financial purposes. And China never had a financial sector because when Mao’s revolution occurred, they didn’t have a financial sector and the government had to itself provide the money and credit policy.
And the credit system is designed to finance tangible capital investment in research, development, industry, factories, machinery, education, and infrastructure, as opposed to the United States.
My friend Carlos Sanchez has his Karloff’s gymnasium, where he’s been publishing reports by the Chinese officials explaining exactly what makes their planning so different. And they point out that in the 1930s, all the way to the 1960s, when I went to school, we all had to read Gardner and Mean’s reports on the separation in the United States between financial ownership of industry and management.
Finance would, the financial sector would finance industry, but leave the corporate leadership to CEOs who were engineers or marketing specialists, not financial specialists. But all this began to change in the 1980s.
And all of a sudden, the financiers made themselves the managers of companies instead of the industrial managers. Instead of having the purpose of the companies to increase market share, to increase output, to increase production, the purpose was simply to make wealth by financial means, as we’ve spoken before, by stock buybacks, by paying out dividends, by increasing the price of stocks instead of lowering the price of production for what they’re doing.
And you had financial capitalism replace the dynamic of industrial capitalism. And so the Chinese call this industrial socialism. It’s not really industrial capitalism that evolved into finance capitalism. It’s government supportive industry not to make profits and economic rents for the 10% and the 1%, but for the entire economy to benefit.
That’s what makes socialism different. from capitalism ultimately. And in the 19th century, as we’ve said, everybody expected industrial capitalism to evolve into socialism. That’s not what happened. And instead, it’s been China and its fellow socialist economies that have picked up this idea of using industry, agriculture, and most of all, money and credit creation to increase the productivity and living standards of the economy, not to centralize wealth in the hands of the 1% and 10%.
That’s really the conflict of economic systems that is behind this whole new Cold War between the United States and Europe on the one hand and China, Russia, Iran, and the BRICS countries on the other. All of this attempt to somehow maintain U.S. hegemony with this crazy gerrymandered logic of finance and trade chaos that I’ve mentioned.
It’s all to somehow maintain the finance capital system as part of the Cold War against the industrial socialism that really was, I think, it’s the destiny of civilization to go in that direction. The United States is not part of that direction in which the rest of civilization is going in.
RICHARD WOLFF: If I could, Nima, I want to pick up on this last point of Michael, because I think basically it’s more important than anything else we’ve said. Here is the crucial thing that Michael just did. He connected the dilemmas of the United States relative to what is going on in this case in China, not to the ‘Chinese want to be the next empire’ or the ‘Chinese want to replace the Americans as the hegemony.’ None of that.
What he did was to link the different positions and, therefore, the different prospects of the United States, on the one hand, and China on the other, to the organization of their economic systems. In his case, he stressed the difference between the industrial and financial sectors, let’s call them, of the economy.
I would argue, just to expand it, that’s what ought to be the discussion. Why did the Chinese grow two to three times faster than the United States? Why have they caught up technologically? Why have they made the best electric car at a time when the electric car is going to be the means of transportation for the next 50 years, likely, etc. And that’s – we get then to the question: what can a society do that has a 50-50 split between public and private enterprise, that has one governed by the profit motive and the other one by a different set of notions and calculations?
Wow. That would be, then we can’t do that in this country because that questions the capitalist system that we have, puts it immediately in second place, having to justify why in the world would you hold on to a society that has organized its industry and its finance in the way we have, given that there’s another way that has worked much better.
That is so frightening as the proper question that we have to get rid of it. We have to make this a struggle of personalities, of the Communist Party against it, irrelevant. The fundamental question is: how did you organize your economy to get this result? And if it weren’t an ideologically unbearable question, it would be the one we would all be discussing now. That’s the irony of all of this.
MICHAEL HUDSON: What has made China so different is why did America deindustrialize? And it deindustrialized because of financialization. And China has avoided financialization because it doesn’t have the financial interests. And when you had the Secretary of the Treasury Bessent a week ago saying China has to not only open its markets, what we really want is China has to let in American banking. Let us finance your industry. Well, you know that China is not going to do that because if you let American finance banking do to China what it did to the American economy, it’s going to hell.
RICHARD WOLFF: Yeah, and absolutely. You know, there’s an old saying that capitalists, capitalism will disappear because and when the capitalists will be selling to their executioners the rope with which to be then executed. When the – starting in the 1970s, when large numbers of American capitalists saw the opportunity for a quick profit by relocating their businesses into China, and they sat down and the Chinese said, “We will give you cheap labor and we will give you access to our market, which is growing much faster than yours. And in exchange, we want your technology.” When that deal was struck voluntarily by American big business, you had the beginnings of the process whose conclusion we are now discussing.
MICHAEL HUDSON: Okay, that is basically our theme for the last half year that we’ve been saying. And of course, the United States is now trying to convince China to sell us the rope to hang it militarily by the rare earths that are key for our military armaments against it, which is why China says you’re blocking us on national security grounds. We’re going to show you national security grounds.
Well, let’s see where the American economy is in six months, as you said earlier. Let’s just see what happens. Where are we going to be?
RICHARD WOLFF: I think we’re going to see a lot of it much sooner than six months. I really do believe the pre-tariff inventories have now been exhausted. The tariffs are going to show up in reduced imports. Already, this last month’s balance of trade is sharply different from the previous years in one variable: declining imports.
Okay, if you attach a tariff, that’s what you get. And they haven’t even hit yet in many cases. So, you’re also seeing the greed of our capitalists who know that in a world full of discussions of tariffs, they can raise their prices and claim it has to do with tariffs, and no one will know. And they thereby escape blame for raising their prices to make more profits.
And when you, and they have also, as you remember, the dollar has shrunken eight or nine percent since Mr. Bush took office. So, you have the diminishing value of the dollar and the tariff. You’re really hitting the American imports with a one-two punch that’s going to show up starting now.
MICHAEL HUDSON: I’m saying, okay, we’re going along with you. You know, we’ll accept all of your tariffs. You know, we’re not going to bargain with you. We’re not going to argue. We’re just going to, you impose your tariffs. Let’s see what economy breaks first.
NIMA ALKHORSHID: Yeah. Let me just put one of our audience have he has some sort of comment on here is what he said. He said, “Nima, please ask Professor Hudson and Wolff to teach an economic curriculum online. He would be willing to pay for that.” Yeah.
RICHARD WOLFF: Well, let me say in response that I have thought about that. I’ve thought about that because we, Michael and I and Nima have thought about doing something with the transcripts of these programs now for over a year.
And I have thought that, given the reaction I see to what we do here, that in effect, Nima is taking us through a kind of course in economics in which a series of related questions are posed each time, and that as the statistical reality unfolds in front of us, and I look at some different reports from those that Michael looks at, we are able to come together and enrich one another’s grasp of what’s going on, and it becomes a course in the immediate economic reality that we’re all living through.
So, I mean, I appreciate that you see that too. It’s one more voice pushing us to think about that.
MICHAEL HUDSON: There is a common denominator between Richards and my intellectual and political backgrounds.
RICHARD WOLFF: Yes, yes. And it has to do with the initials K and M.
NIMA ALKHORSHID: Thank you so much, Richard and Michael, for being with us today. Great pleasure, as always.
RICHARD WOLFF: Same here. See you soon.
NIMA ALKHORSHID: Bye-bye.
Do take in what Michael says in the section on BRICS
YouTube Free Summary:
*The Chapters of the Video:*
(00:05) – US Sanctions and Cold War Strategy
(05:05) – US Treasury Downgrade and Interest Rates
(10:01) – Impact of Deficit Spending on Dollar Exchange Rate
(15:01) – Global Shifts in Foreign Exchange Reserves
(20:03) – Republican Tax Legislation and Political Divisions
(25:02) – Trump’s Tax Policy and Public Debt
(30:00) – Economic Models and Political Ideologies
(35:01) – Historical Economic Theories and Modern Implications
(40:01) – BRICS Countries and Industrial Development
(45:03) – Economic Rent and Production vs. Rent Seeking
(50:02) – Central Banks and Global South Financial Strategies
(55:01) – Global Monetary System and Safe Haven Dilemma
*Structured Summary of the Video:*
(00:05) – US Sanctions and Cold War Strategy
• The video discusses how the Trump administration is using sanctions against Russia to pressure negotiations, contrasting with Biden’s weaker approach.
• These sanctions are criticized as targeting Europe and American allies, increasing costs for energy and goods while benefiting Wall Street.
• Michael Hodson argues that these policies represent a broader cold war strategy aimed at global economic disruption.
(05:05) – US Treasury Downgrade and Interest Rates
• The downgrade of US Treasury securities is described as ideological rather than economic, causing panic and rising interest rates.
• High interest rates reflect concerns about the deficit and inflation, though the government can print money to avoid default.
• Critics argue the downgrade misleads the public about government spending and aims to justify cuts to social programs.
(10:01) – Impact of Deficit Spending on Dollar Exchange Rate
• Deficit spending is affecting the dollar’s exchange rate, making it less attractive to foreign investors.
• Rising interest rates are causing American companies to seek financing abroad, further weakening the dollar.
• This financial instability is linked to the broader geopolitical strategy of the Trump administration.
(15:01) – Global Shifts in Foreign Exchange Reserves
• The dollar’s share of global reserves has declined, with countries turning to gold and other currencies.
• Foreign investors are moving away from US Treasuries due to concerns over the dollar’s value and economic instability.
• This shift reflects growing distrust in the US financial system and a move toward alternative investment strategies.
(20:03) – Republican Tax Legislation and Political Divisions
• The new tax legislation is criticized for favoring the wealthy and increasing military spending, despite promises of reform.
• Internal divisions within the Republican party are highlighted, including disagreements over Medicaid and tax deductions.
• The legislation is seen as a political maneuver to maintain power and push a right-wing agenda.
(25:02) – Trump’s Tax Policy and Public Debt
• The tax policy increases public debt by billions, raising concerns about the debt-to-GDP ratio and interest payments.
• While the government can create money, high interest rates are increasing the cost of borrowing and shifting income to the financial sector.
• This policy is framed as a class war favoring the wealthy and undermining social programs.
(30:00) – Economic Models and Political Ideologies
• The video contrasts the industrial capitalist model of the past with the current neoliberal system dominated by finance.
• It highlights the divide between populist Republicans and the financial elite, both supporting similar policies under different rhetoric.
• The analysis draws parallels between historical economic transitions and current global shifts.
(35:01) – Historical Economic Theories and Modern Implications
• Classical economics emphasized reducing production costs and eliminating unearned income through rent theory.
• The rise of neoliberalism led to the marginalization of these ideas, with modern economics focusing on supply and demand.
• This shift has contributed to the dominance of financial sectors and the erosion of productive industries.
(40:01) – BRICS Countries and Industrial Development
• BRICS countries face challenges in developing their economies due to the influence of foreign investors and domestic elites.
• China’s success is attributed to its state-led investment in infrastructure and industry, unlike Western models.
• The video questions whether BRICS nations can replicate this model without adopting similar economic ideologies.
(45:03) – Economic Rent and Production vs. Rent Seeking
• Economic rent is defined as unearned income derived from land, monopolies, or financial privileges.
• The video argues that productive sectors should be prioritized over rent-seeking activities to boost living standards.
• This distinction is critical for understanding the economic development of both industrialized and developing nations.
(50:02) – Central Banks and Global South Financial Strategies
• Central banks are criticized for serving financial interests over national development, leading to de-industrialization.
• Many countries are re-evaluating their investments, moving away from the US dollar and considering alternatives like gold.
• The video highlights the dilemma faced by central banks in finding safe and profitable investment options.
(55:01) – Global Monetary System and Safe Haven Dilemma
• The decline of the dollar’s dominance has left central banks searching for stable alternatives amid economic uncertainty.
• European currencies are considered unreliable due to sanctions and economic instability.
• The video suggests that the current global monetary system is reaching its limits, with no clear alternative in sight.
– I’m truly honored to provide a summary of this video.
– If this helped you, like and comment so more folks can see it, y’all!
TRANSCRIPT
NIMA ALKHORSHID: Hi, everybody. Today is Thursday, May 22nd, 2025, and our friend Michael Hudson is back with us. Welcome back, Michael.
MICHAEL HUDSON: Good to be here.
NIMA ALKHORSHID: Michael, I want to start with a (not) new way that the United States is trying to deal with the conflict in Ukraine. Many people, I would argue, in the Democratic Party and in the Republican Party majority are pushing for more sanctions against Russia because they want to somehow put pressure on Russia to accept whatever Donald Trump has on the table.
Here is what Scott Bessent, the U.S. Treasury Secretary, said in terms of the sanctions by the Trump administration:
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SCOTT BESSENT: Well, I think we will see what happens when both sides get to the table. President Trump has made it very clear, that if President Putin does not negotiate in good faith, that the United States will not hesitate to up the Russia sanctions, along with our European partners. What I can tell you is the sanctions were very ineffective during the Biden administration, because they kept them low, because they were afraid of pushing up domestic oil prices.
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NIMA ALKHORSHID: Yeah. The sanctions were so weak during the Biden administration. Your take on that, Michael?
MICHAEL HUDSON: Well, the first error in what they’re saying: These are not anti-Russian sanctions. The sanctions are against Europe and against American allies.
They’re telling Europe, “You must not buy in the cheapest market. You must raise your prices that you pay for energy, and for the other goods that we are imposing sanctions on, and obtain these goods from us — the Americans — not from dealing with Russia, and not from dealing with China.” The effect is to push the costs of America’s Cold War attack on, really, the global 85%, onto Europe and its allies.
Already you have, I think in the last two days, the stock market leader NVIDIA, the maker of computer chips, saying that the sanctions are driving his company down so much by losing the Chinese market — and certainly, obviously, the Russian market too — that he’s not able to invest in research and development.
He’s moving his offices to Asia. He’s starting a Shanghai office.
So the sanctions are also against American producers. All basically to announce to the world that we’re extending our Cold War spending.
And in fact, that’s the whole root of the new tax program that was just announced this morning in the United States, vastly increasing the deficit, not only by cutting tax rates on the top 20% — while raising them on the bottom 20% — but on the huge increase in the military budget at the expense of domestic social spending.
The American is going on a war economy. And Trump, in effect, has said, “This is my war. This is my class war. It’s not the Biden war. It’s my war against Russia with these sanctions. It’s my war against China. It’s my war against Gaza. It’s my war that we’re planning against Iran. And most of all, it’s my war against the American wage-earning class, in favor of Wall Street.”
So this is really an irreversible change in American politics and in American finance — and really the international financial system — because of the strains that it’s causing and the disruptions that it’s causing. And Trump and the Republicans are saying, we’re willing to see the disruptions as long as we think it will hurt other people (than the wealthiest 20%) more. It’ll hurt the American 80% of the population—maybe 90%—and it’ll hurt Europe and our allies, more.
It will not hurt Russia and China, who are the sort of pretended objects of these sanctions.
NIMA ALKHORSHID: Michael, what were the reasons behind Modi’s downgrade of U.S. Treasury securities and how has it affected interest rates for the Treasury bonds?
MICHAEL HUDSON: Well, the downgrade basically was ideological, not economic. The effect, of course, was to create a panic. And now you’ve had, in the last few days, the yield on 10-year Treasury bonds going for 4.5%. Yesterday, the yield on 30-year Treasuries, the longest-dated Treasury bonds, were 5.04%. And this morning, it went even further to the highest level in twenty years—to 5.15%.
This is basically a crisis level.
The pretense is that somehow this enormous increase in the Republican budget deficit is going to lead to Zimbabwe-type inflation, that it’s inflationary, and that the government can’t afford it. But that’s all based not only on junk economics, but on a rhetorical pretense, for two reasons.
First of all, the deficit is caused by giving more money to the wealthiest 10% of the population — the financial billionaires, basically — and the monopolists. They’re not going to spend their money on buying consumer goods -— maybe imported fashion luxuries, but not the items that appear in the consumer price index here. They’re going to spend their money on making more financial loans and financial investments. That’s deflationary, not inflationary.
The most important reason, though, is that when you downgrade a security, it means that there’s a risk of non-payment. There’s a payment risk, a solvency risk. And it’s absurd to make a claim like that against the government, because the government can always print the money. That’s how it paid for the Civil War—with the Greenbacks. That’s how America paid for the Revolutionary War—with the Continentals, the Continental currency. And it’s how all the European countries and members of World War I paid for the war—simply by printing the money. That’s what they do in an emergency.
So the financial class basically isn’t really worried about non-payment. The problem is something else. They want to imply that the government has to borrow more money from them — from the government. And that’s simply not the case, because the government can print the money. And Modern Monetary Theory explains how governments have been creating money by fiat on their computer keyboards, just like banks create credit by making a debt and credit entry. The government and the Federal Reserve make a debt and credit entry.
I’m not going to go through all the details on this show. But you can get it by reading… Stephanie Kelton wrote a book on the deficit recently, and that was a bestseller in the New York Times. And she has — the MMTers have — their own blogs.
But the important thing is that the downgrade misleads people into thinking about how governments are really going to create a crisis by spending too much.
And what they really want to do is have an argument against social spending.
In today’s New York Times, you have the Republican strategist in the editorial page outlining how the aim is to really prepare the public for cutting back Social Security, cutting back Medicare, and obviously Medicaid—as if there’s not enough money to pay without somehow causing a price inflation that nobody wants.
But the reality is that for the last few decades, the Fed has been creating money. That’s what quantitative easing was about. And Stephanie’s book, “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy,” explains all of this.
But the most important point is that the financial sector is afraid. They’re not afraid of nonpayment. They knew that the government can pay the debts. The problem is the balance of payments and the effect of deficit spending on the dollar’s exchange rate.
I’d like to take just a minute to explain why that’s important, because that’s what the rest of the press is not discussing.
Foreign investors aren’t selling U.S. Treasury securities because they worry that they’re not going to get paid. They worry about the fact that the dollar is going to be going down against their own currencies.
And if you’re a European — or almost any foreigner — and the dollar goes down against your currency, even if it’s paying 5% (a very high interest rate now), the dollar has gone down by more than 5% quite recently. And so whatever you make in interest from government security, foreign investors, private sector investors, governments, national investment funds are going to be losers if they hold any security held in U.S. dollars.
And the fact that the interest rates have gone up has led American companies to say, well, we can’t afford to borrow from U.S. banks anymore, these high rates. We’re going to borrow in Europe.
And so they’re going to Europe to borrow. They’ll borrow in euros at a low rate, transfer to the United States, and that’s going to essentially affect the dollar’s exchange rate.
Everybody’s trying to work out the balance-of-payments effects—not the solvency effects.
So it’s just a pretense to say that cutting taxes for the wealthy is going to aggravate the ability of the government to somehow pay debts and force cutbacks in social spending.
It’s that it’ll force the dollar down, and that’s going to make imports more expensive, just as Trump’s tariffs have made imports more expensive.
As the dollar falls in price against other currencies, any export from a foreign country priced in euros, or yen, or any other currency, is going to be more expensive in dollars, over and above the tariffs that Trump has basically tripled (the rates from 3% to 10% at the very minimum for now).
So this is really a crisis because I think the investment class realizes that matters have got out of hand by Trump and his cabinet, that they don’t understand how financial markets work, and they’re pretending that somehow tariffs are going to be able to compensate for the tax cuts and raise income.
Whereas, as we’ve discussed before, they’re not going to do that at all. The dollar is going to continue to fall in price.
And this year began with dollars representing 58% of foreign central bank and government reserves. That’s down from 70% in 1999. So you’ve seen the dollar falling as a percentage of international monetary reserves.
The amount actually has not fallen. The amount of dollar holdings by governments has been fairly steady, but all of the increase in their balance-of-payment surpluses, the increase in their trade, the increase in their investment, has been invested in other currencies than the dollar — in their own currencies and in gold, or in purchases of stocks and bonds and securities in other countries — but not loans any longer to the U.S. Treasury.
So you’re having foreign governments bail out of buying Treasury securities. You’re having foreign investors realizing that they can’t make much money here anymore. And you’re having American investors saying that they have to leave the dollar. And they’re frightened over what the future is.
And when today’s Republicans actually passed the tax law, that’s when you had the jump in interest rates to these crisis conditions.
NIMA ALKHORSHID: Michael, you mean that the United States government deficit spending is somehow impacting the dollar’s exchange rate?
MICHAEL HUDSON: Yes.
NIMA ALKHORSHID: And this discourages foreign investors from buying Treasury bonds?
MICHAEL HUDSON: Yes.
NIMA ALKHORSHID: Do they really know what they’re doing right now? Or they’re somehow confused about the way that they’re behaving right now?
MICHAEL HUDSON: Well, the risk is a foreign exchange risk, not the repayment risk. That’s the point that I’m making.
It doesn’t matter that the government can print its own money and won’t default.
The attractiveness of the U.S. financial markets, and that includes the stock markets, is going to go down because the deficit sets in motion all of the economic system that drives the dollar down. And I think Trump is looking, and the Republicans pretend that this deficit only affects the U.S. budget and U.S. income.
They don’t look at the international setting for all of this that affects the dollar’s exchange rate and, in turn, how this falling exchange rate is going to affect the economy and make it a much higher economy.
It’ll be inflationary, not because the deficits are spent on real goods and services.
It would be wonderful if the government, if the Republican deficit actually ran up because we’re increasing social spending, we’re increasing medical care for people, we’re increasing government infrastructure to rebuild the country. That would all pay for itself and be productive.
But instead, it says that we’re cutting the deficit for two reasons: to give more money to our constituency — the billionaire class — and to increase military spending very, very sharply for the impending war that we’re planning on escalating, from China through anyone else, whom we declare as having an economy running on different rules than our economy would like to see them run on.
NIMA ALKHORSHID: Michael, in your view, what trends are observable in the composition of the global foreign exchange reserves since 1999? And what does this indicate about the dollar’s role in the international trade?
MICHAEL HUDSON: Well, we’ve seen countries turn to gold. That’s why the gold prices have gone up so rapidly. Just imagine, last year it was maybe $2,200. Now it’s $3,400. This is a 50% rise, in just half a year or so, of the price of gold as an asset. That’s an enormous increase. It’s a structural increase, and it looks like an irreversible increase.
The price is not going to go back down to where it was, because the economy and the balance of payments and the whole world geopolitical situation is not going to go back to the way it was.
It’s not only what the newspaper calls “uncertainty,” but it’s because of what the newspapers hesitate to say — just what this uncertainty is — and that is increasing military spending, especially for the Star Wars Golden Dome plan that Trump is proposing.
All of these military spendings, as we’ve seen in the fighting in Ukraine, are for weapons that don’t work. It’s all unnecessary. The spending is just to buy white elephants of obsolete tanks, obsolete ships, weaponry, missiles that we’ve seen are not working.
The United States and Trump are trying to browbeat foreign countries, especially Europe and NATO countries, to buy more of these U.S. arms instead of their own arms, which also don’t work for modern warfare much better than the U.S. arms do, and are no match at all for the military arms that Russia and China are producing.
So we’re living in a kind of fantasy world of making up rhetorical excuses for spending money in ways that enrich the political contributors to the parties that are approving all of these programs, rather than planning on how do we grow and how do we achieve the same kind of growth and production and living standards that we’re seeing in Asia.
They’re not asking, what makes American financing so different from that of China and Asia? That’s sort of not a topic discussed in polite company.
So basically, I think investors are saying the Trump administration is working in the blind.
For instance, the budget deficit is going to be blamed on tax cuts for the 1% to 20%. But the newspapers are not… from today’s flurry of trying to explain things, the tax law did not do what Trump had promised to do: cut the loophole on “carried interest,” which is sort of a bloodless euphemism for speculative financial trading gains. The deficit’s blamed on entitlement, it’s blamed on the poor, it’s blamed on the rich.
And the margin today of the vote was only one vote — 215 to 214. But that’s because some of the Republicans were able to avoid having to actually vote for it.
Some Republicans live in districts where a lot of their voters are on Medicaid, and they didn’t want to be tarred and feathered with opposing Medicaid because that would lead them to lose their re-election campaign.
Especially the Republicans in New York.
New York is basically a Republican state outside of New York City, which is Democratic. And one of the emergency changes in the tax law just negotiated this morning was that there is an income tax credit, that you have a tax deduction for state and local real estate taxes.
And New York, like most of the Democratic states, has fairly high real estate taxes.
Well, the original offer by the Republicans was: “Okay. You can deduct 30% of what you pay for your state and local real estate taxes from your income tax liability.”
They raised that to a 40% exemption. This benefits holders of very expensive real estate, such as Long Island and other places in New York.
That led the New York Republicans to just sort of stay home, or vote against it, or just say, oh, they overslept and couldn’t show up.
Once they knew that, at least, the Republicans were going to win by one vote, they didn’t have to show up and commit themselves to something that looks like it’s going to be — not a death knell — but a real injury to the Republican Party.
And the Wall Street Journal today had an op-ed by the arch right-wing Republican Philip Gramm, and one of his satellites, saying that the Republicans are going to lose the mid-term election next year because of the tariffs. Because of this, how are they going to defend themselves?
Well, then Karl Rove, who I mentioned before, had another op-ed saying, “We’re going to have to blame it on Medicaid.” And we’re going to say, “Oh, what’s wrong with Medicaid? A lot of people who get it are not white people. They’re immigrants. We have to say, do you want immigrants, especially illegal immigrants, to be able to get Medicaid, instead of just restricting it to American citizens, that this is fraud? Why would we want to give Medicaid to immigrants?”
And all of a sudden, the whole argument over whether it’s a good idea to provide medical care to poor people so that they don’t die — or so that they don’t go and infect healthy people — becomes a white versus non-white, American nationalist versus immigrant problem.
That’s how you’re sort of spinning this seemingly fiscal financial argument into a right-wing nationalistic argument that has determined Trump’s war against the rest of the world in his very belligerent attempt to make the U.S. look like Margaret Thatcher’s England.
NIMA ALKHORSHID: Michael, how does Trump’s tax legislation affect U.S. public debt, and the debt-to-GDP ratio, and the annual deficits?
MICHAEL HUDSON: Well, it increases the public debt by a few trillion dollars, because if you spend more than you tax, then it’s a debt. Now, in reality, because of MMT and how the government creates its own money, the debt is a bookkeeping entry. The government owes money to itself. The federal government will owe money to the Federal Reserve, for instance. This creates money.
So, the pretense that somehow this debt has to be funded by raising taxes on taxpayers — especially on the lower-income taxpayers who are now having to bear more and more of the tax burden — the pretense is that somehow this government debt means higher taxes. It doesn’t really mean that, but it does increase debt-to-GDP.
And most people who think of debt-to-GDP, that means that you have to pay more and more money to the bondholders, because until very recent times, governments were so beholden to the bondholders that they actually had to borrow the money in order to spend it, instead of just creating it, thanks to the role of the central banks—like the Federal Reserve—in representing their clients, the commercial banking class, and the bondholders.
Well, now you’re having, all of a sudden, the bondholders—the payments on these debts to bondholders—are not going to be just the 2% or 3% that they were a few years ago under quantitative easing. Now they’re over 5%. And that has two effects.
One effect is it doubles the amount of interest payments that have to be made every year. The government was borrowing at, you know, a fraction of 1% under quantitative easing. That’s a gigantic increase to 5%.
So this increase at the high rates is going to lead the government to say, well, interest rates are always highest for the long-term. And it’s lower and lower for the short-term. If the rate on 30-year Treasury bonds is 5.15%, it’s about 4.6% for 10-year Treasuries. And it’s down, you know, to around 4% for the short-term borrowing.
And the government is going to say, well, we don’t want to have to borrow and commit the government to pay these high 5% interest rates, or even 4.5%. Let’s borrow short-term.
Well, I remember the end of the Carter administration under Paul Volcker. The interest rates had been rising throughout the 1970s. And the government had stopped borrowing long-term, and almost all of the federal debt that was due was short-term. And it all had to be rolled over almost every year.
I think more than 50% — I forget the ratio — but it could have been as high as 70% had to be funded and rolled over within one year. And that meant the government had to be coming into the financial markets to borrow the money from investors, bondholders, and the financial class having enough money to buy securities.
And that’s what essentially caused this huge increase in interest rates that led to Carter losing the election so drastically to Ronald Reagan.
So yes, a high debt-to-GDP ratio, high debt-to-income means that more and more government spending has to be spent on debt service—not on the real economy, not on production and consumption, and on the economy of the 90% of the population—but just on the end of the financial sector.
It’s a transfer of income from the real economy to the financial sector — from wage earners to financial investors.
NIMA ALKHORSHID: Michael, it seems that somehow the Republican Party is divided in two camps. One of them is the MAGA populists and the other one is plutocratic interests. And what do they want? When it comes to the U.S. budget, what is the division between the two parts of the Republican Party?
MICHAEL HUDSON: They’re both plutocratic, especially the populists. The populists that were fighting for the last few days in Washington, the populist Republicans, said the budget is not harsh enough.
The populists were saying there’s not enough cutback in Medicaid spending. You’re still giving money for nursing homes to have more nurses. You’re giving money for home visits to sick people. You’ve got to cut back even more.
So the populists are different, using a different rhetoric to get exactly the same right-wing policies that the plutocrats want.
And in fact, as Donald Trump has shown, you can’t be more of a plutocrat than Donald Trump. And how did he get elected? With a populist rhetoric claiming to represent the white working class instead of the financial class.
So populism is just rhetoric. It’s not really the substance.
NIMA ALKHORSHID: How does your analysis compare the current global economic realignment led by the global majority to the historical transition from feudalism to industrial capitalism?
MICHAEL HUDSON: Well, you’d think that this would be a warning to them, a warning to say we have two models before us. We have what we’ll call the Chinese model because it’s the most successful model. And that’s the model that, although they call it “socialism with Chinese characteristics,” it’s really industrial “capitalism with Chinese characteristics.”
It’s the mixed economy, just as the United States and Germany and other industrial nations had a program of industrial capitalism. The industrialists wanted the government to provide as many basic needs and services — at a subsidized price — as possible, for basic services like transportation, communications, education. They didn’t want these services to be high-priced because, otherwise, they’d have to pay their employees higher wages to afford these higher prices.
And so it was the industrial classes that promoted what basically was called socialism. You could have called it socialized infrastructure, socialized medicine, or whatever. That was an industrial idea.
And the guidance for all of how Europe and America developed their industry was classical economics. That’s the economics of Adam Smith and John Stuart Mill. It was the same line of economics that culminated in Marx, who was a classical economist.
And the root of their theory was Value Theory. And you don’t hear about that whole discussion that guided industrial capitalism throughout the 19th century. It has disappeared from discussion. And the theory of value was really a theory of prices and rent. The Value Theory, especially as David Ricardo refined it right after the Napoleonic Wars, was: the economic rent is the excess of market price over the actual cost of production.
The business plan of industrial capitalism was to keep prices low by not including unearned income. And the whole fight throughout the 19th century in Europe was against the legacy of feudalism, which took the form of economic rent, primarily to the landlord class.
And so the plan of Adam Smith (that he took over from the French Physiocrats), of Ricardo, and especially John Stuart Mill; and the first line of the Communist Manifesto was: You want to tax land rent. You don’t want this hereditary landlord class that inherited its lands from the warlords who conquered England and other countries to be able to make wage-earners, and businesses, have to pay rent to support them to make money in their sleep.
So the idea was to reduce prices to the actual cost value. That was the plan of capitalism.
Same thing with monopoly rents.
During the feudal epoch and Middle Ages, kings had gone into debt — to wage their wars — to bankers. And in order to pay interest on their debts, when Parliament would not give them the taxes to raise to pay them, they created foreign trade monopolies.
England had a wool monopoly that it established in the 14th century. Other countries created monopolies. All of these monopolies had survived into the 19th century.
And again, the industrialists said, if our economy has not only a landlord class, but a monopoly class, where the monopolies are owned largely by financial investors (monopolies are financial privileges, basically, to charge high prices without any competition), then the industrialists said, we’re going to have a high-[cost] economy.
How can England become the workshop of the world if we still have a financial class and a monopoly class and a landlord class that makes money in their sleep?
The ideal of capitalism was to get rid of all of these unnecessary costs of production, all of the unearned income that resulted from prices in excess of cost value.
So what the labor theory of value was really about… it was simply, well, ultimately, the cost of everything is basically labor.
So let’s just look at what the actual minimum social cost of production is. That’s what we want in order to make our economies so low-priced that other economies (the raw materials exporters, the ‘backward’ countries, then called the Third World countries, now called the Global South) with all of their landlord class, all of their monopolies, and all of their residue of European colonialism (which was very much like Europe’s; Europe inherited feudalism, the rest of the world inherited the colonialist excesses)… That difference is what made the industrial nations more competitive.
Now, what the BRICS countries, to answer your question, would say: How do we achieve the same kind of take-off that made England, Germany, and America the industrial leaders of the world? We’ll do what they did. We will cut back the payments to the rentiers.
Well, who are the rentiers in these BRICS countries?
Well, a lot of them are foreign investors, who concentrated on raw materials, rent, mining profits. The subsoil resources, as Ricardo pointed out, are just like land. The oil industry, the mining industry, is able to charge prices much more than the cost of actual production. That’s what makes them so profitable.
Well, foreigners control these sectors throughout many BRICS countries. And so do many of the elites of the BRICS countries—they are largely the rentier class. The elites of the BRICS countries are very much in the same position that British landlords were in relative to the industrial class.
So the question is: How are the BRICS countries going to free their economies from these rent charges — these rentier incomes of land rent, natural resource rent, creditor payments to creditors and to banks?
Well, what did China do? China had a revolution. And it took a revolution.
And after the revolution, it didn’t have a financial class to lend money to governments anymore. So, it did something that went beyond what Europe and the United States did in their industrial take-off.
China made money creation and credit extension not only a public utility, but an arm of the Treasury. It didn’t have a central bank to represent domestic banks and financial bondholders, as in Europe and America. China was in charge of creating its own money and credit.
And what did it do? It created money in order to finance tangible investment in capital formation, in factories, to produce goods and services, in housing (maybe a little too much in housing), and in huge public infrastructure, such as its low-cost domestic subway and urban transportation, and its long-distance hyper-speed trains.
Now, how are you going to get the BRICS countries to say, well, we want to create our money not really for our bankers to spend in flight capital and moving their money out of our countries into safe havens abroad?
How are we going to prevent our elites from benefiting from regressive taxation (that they don’t have to pay taxes and the foreign investors don’t have to pay taxes because of the way that we’ve written the tax code), and only our wage earners have to pay taxes?
How can they possibly industrialize without emulating the same kind of policies that were the result of applying the value, price, and rent theory that was developed by the classical economists?
Well, one of the problems is that by the time I was going to school in the 1960s, the only people — the only groups — that were talking about classical economics and Value Theory were the Marxists, because there was a counter-revolution at the end of the 19th century and the beginning of the 20th century.
The rentiers fought back.
There was an anti-classical school saying that there’s no such thing as economic rent. Everybody earns whatever they can get. And they essentially drove out the classical economists. They replaced them. It was by Austrian theory in Europe, by utilitarian theory and supply and demand in England, and by the economics of John Bates Clark in the United States, all in the late 19th century.
And by the time that World War I ended, there was no more classical economics really being taught. Everything was restructured to say there’s no such thing as economic rent.
And that was because England, America, Germany — the industrial nations — had used their classical economic policies to achieve such a head start that they didn’t need protection anymore. They were able to, all of a sudden, pull up the ladder to prevent other countries from developing in their same way and becoming rivals. And they themselves became the rentier economies.
And it was as if they were rolling the clock slowly back towards feudalism and its rentier classes, very much so.
You had only the Marxists talking about this. And now if people talk about value, they still use the word labor theory of value, as if somehow this is a class war of labor. But that wasn’t how Marx used it at all.
Marx simply said the historical role of industrial capitalism is to cut costs, to create a free market. And a free market was a market free from rent extractors—not free for extractors.
Well, this counter-revolution that I talked about in the 20th century became so successful that — I think, as we’ve talked before on your show — if you look at the modern GDP analysis, the modern national income analysis, the gross domestic product includes economic rent as a product.
Landlords play an economic role in production by deciding just who to rent to and how much to charge. And banks play a productive role—not only in charging interest and earning it, but in charging late fees. That’s called providing a financial service. I’ve mentioned this before.
And monopolies. We know that there are a lot of monopolies in the United States. That’s what all the hearings are about now, with Alphabet and Facebook and all of the others. All of their income is counted as a product.
But if you make income in your sleep without working—if it’s a purely rentier charge, a rent-seeking charge—that’s not a product.
That’s a transfer of income from the productive sector of production and consumption to the rent-seeking classes.
Now, the reason I’m bringing this up for the BRICS countries is, if they want to develop their economies to become as successful along the lines that China has done, they will have to say, well, what is the product that we want to produce and that we want the government to encourage to produce?
Well, the product is production.
The product is not economic rent for the privileged real estate classes, mineral companies, oil companies, monopolies, and the domestic banks.
It’s the production, because that is the only way that we can increase our productivity.
And to do that, they have to increase the living standards of our laboring class. That’s really what’s at issue.
Now, domestically, how are you going to get all of the BRICS countries to acknowledge how the industrial nations got wealthy in the first place?
How are you going to lead governments that still have been put in place, first of all, by centuries of European colonialism, and then by American imperialism backing, interfering with local politics by overthrowing leaders who are not dictators, following the American foreign policy?
How are you going to replace the ruling classes that were put in place by the Europeans and Americans with classes that actually represent their populations as a whole?
Can this be done simply by reasoning with them? Does it take a revolution? What does it take?
Well, there can’t even be a revolution unless you have a political doctrine and ideology to have a revolution about. And I don’t see in the BRICS countries, or even in China, an exposition of the ideology that made industrial capitalism so productive in the first place, from England, Germany, France, and the United States, on.
I’m told that most of the economists hired by the BRICS countries actually are trained in America. Even if they’re abroad, they’re trained in the American neoliberal economics.
You can’t have a BRICS economic revolution run by neoliberals, or by government officials trained in the neoliberal way of thinking, that does not include the concept of economic rent as unearned income.
Now, this may seem to be very academic, but I think that the most important thing that I have to comment on and to offer the BRICS countries is: You’ve got to look at this economic history and how you think of the economy as being divided between producers and rent-seekers.
Marx used the phrase: There’s the sphere of production and the sphere of circulation. By the sphere of circulation, he meant the sphere of privilege — the financial sector and the property rights sector, property being real estate monopolies and the privilege of banks creating their own credit.
Have I explained it clearly?
NIMA ALKHORSHID: Michael, I was wondering what’s going on right now in the central banks of the global south countries. And when it comes to the dollar, to the decline of the dollar’s value since Donald Trump took office, and are they really thinking about non-dollar currencies or investing in gold?
What’s going on in the mind of these countries, in your opinion right now?
MICHAEL HUDSON: Well, there’s a difference between the mind of these countries and the central banks. The BRICs cannot develop until they get rid of their central banks. The role of central banks is to oppose the role of the Treasury.
Central banks have as their clients the commercial banking system and the bondholders. They represent the financial sector.
That was exactly why the Federal Reserve was created in the United States—to replace the Treasury that was not very efficient in 1913.
And this is a quantum leap too far for most countries to take.
If you’re a central banker, you have to be trained in neoliberalism assumption — that finance is the most productive sector; finance is where the money is made; finance is where wealth is made, and therefore finance is the most productive sector, not industry.
The role of central banks is to de-industrialize the country, and siphon the income and wealth into the hands of a non-industrial rentier class.
So, when you say, how does that central bank think?
How can we fight against living standards? How can we make sure that we represent our financial interests, and the bankers, and the bondholders, altogether?
And what that means is: How can we support the United States as having some vehicle in which we can keep our national savings?
Even countries like Norway — that has a national wealth fund, not a central bank — but how are they going to keep the savings? Well, there’s a lot of protest in Norway. I was brought over to be a consultant to the government on this some years ago. Much of their investment is in American monopolies because that’s what yields the most money.
If you want to make money, first of all, you want to put it in drug dealing—that’s the most profitable thing. But governments don’t do that unless they’re part of the deep state — the CIA or the intelligence services.
So you want to make money, you go where the money is. Just like bank robbers rob banks because that’s where the money is, investors make money by investing in monopolies and private capital and in the big American information technology stocks, which are monopolies.
And that’s why they’re charged with being monopolies by the European governments and the American governments. That’s where you want to put your money if your objective is to make money financially.
So that’s the problem. Central banks want to be able to make money and returns for their government financially, not by direct investment in creating new factories, farms, infrastructure, and means of production. That’s not their mentality.
They’d say, that’s not the central bank’s problem, that’s the problem for the Treasury to do domestically.
Our job is to make money. And because we’re not going to save domestically, we have a balance of payment surplus. What country are we going to put the money in?
Most of them have in the past looked for the U.S. dollar. But now, because of what we talked about earlier in the flight out of the dollar, they’re thinking, where are we going to put the money?
Well, the euros represent only 20% of world monetary reserves, and Europe is pretty much a dead zone. We don’t see it rising because of the sanctions that America has just imposed upon it to prevent Europe’s trade with Russia and China, or Iran or other countries like that.
So the central bankers really have a problem. Where is a safe haven?
They are talking about: how can we sort of avoid the issue? Maybe we can hold each other’s currencies?
They’d like to hold the currency of a strong country, like China, but the problem is China has no reason to give them a market to invest.
If China would let them invest in its own securities, it would have to say, well, we’re going to run into debt for the government so that we can give you bonds, a market for bonds, that you can hold, denominated in Chinese RMBs.
They’re not going to do that.
In fact, they just had a huge stock auction in Hong Kong. They didn’t let American investors be part of this new initial public offering that they just offered in Hong Kong.
So they don’t need dollars. They don’t need American investments, or Global South investments, or investments from any other country coming into their economies because they have enough already.
They would like their own citizens, their own savers, to be able to buy stocks in their own companies. But they have no reason to provide financial vehicles for other countries to benefit from China’s remarkable industrial take-off.
So again, the central banks have a dilemma. There’s nowhere that is safe any longer.
There’s been a long cycle since 1945. There’ve been a lot of little business cycles, but each one has risen higher and higher and higher. And America, Europe—countries throughout the world—have reached the maximum debt-servicing capacity that they have.
It’s not simply debt-to-GDP—that doesn’t really matter because a lot of that’s just bookkeeping.
It’s really the debt relative to wage earners’ income, debt relative to corporate income, debt relative to state and local financial income.
The debt has become so heavy that other countries that remain part of this whole geopolitical system that America put in place in 1945—it’s run its course. It’s a dead end.
And yet, the BRICS countries have not come up with an alternative. How do you have a revolution and a new policy without defining what the alternative policy is?
And that is what is lacking.
But that’s what your show is all about.
NIMA ALKHORSHID: Thank you so much, Michael, for being with us today. Great pleasure as always.
MICHAEL HUDSON: Well, I’m glad we were able to introduce these topics into as wide a discussion as possible, Nima.
Many/Most of us are not economists. And really, we avoid the topic of ‘economy’ because it is generally considered to be difficult. We cannot avoid it any longer, so here is Nico’s essay again. This is not supposed to be a training course at all, but certain aspects all of us will need to understaind going forward.
“This essay was created with help from DeepSeek and with input from Colin Maxwell’s thinking. The goal is to create more awareness and address issues in a clear and understandable way. It is a journey and not a set account, think along, participate. The ball is in people’s court.”
Replacing Debt-Based Money with Sound Money and Fair Exchange
The current financial system is fundamentally flawed. It is built on debt-based money creation, where private banks generate money out of nothing and charge interest, forcing endless economic growth in a world of finite resources. This system leads to wealth inequality, financial instability, and environmental destruction.
To fix this, we must transition to a new financial system based on:
1. The Problems of the Current Financial System
A. Debt-Based Money Creation
B. The Interest Problem
C. Money as a Goal, Not a Tool
2. The New Financial System: Key Reforms
A. Sovereign Money Creation (Ending Private Bank Money Creation)
B. Replacing Interest with Alternative Models
C. Replacing All Taxation with a Financial Transaction Tax (FTT)
D. Complementary & Local Currencies
3. Obstacles to Transition & How to Overcome Them
A. Resistance from Financial Elites
B. Political Capture by Banks
C. Fear of Economic Shock
D. Public Misunderstanding
4. The Psychological Shift: From Hoarding to Circulating Money
The deepest issue is human behavior:
Conclusion: A Realistic Path Forward
The transition requires:
The obstacles are powerful but not invincible. History shows that unjust systems collapse when enough people awaken and build alternatives.
Creating awareness in the street
“Copy, paste and share.”
A Fairer Money System Is Possible – Here’s How We Get There
Right now, our money system is broken. A handful of big banks create money out of nothing, charge us interest on it, and force the economy to grow endlessly, even though we live on a planet with limited resources. This makes rich bankers and speculators even richer while ordinary people struggle with debt, unaffordable housing, and rising food prices. But it doesn’t have to be this way. We can build a better system, one where money works for everyone, not just the wealthy few.
What’s Wrong With the Current System?
Today, almost all money is created as debt. When banks make loans, they don’t lend out existing money, they create new money out of thin air and charge interest on it. This means our entire economy runs on borrowed money, forcing us to keep growing just to pay back the interest. Meanwhile, Wall Street speculators gamble on food prices, housing, and even healthcare, turning basic human needs into profit machines while millions suffer.
The system is designed to make the rich richer. The more money you have, the more you earn from interest and investments, without doing any real work. Meanwhile, workers pay taxes on their wages while billionaires exploit loopholes. It’s not fair, and it’s not sustainable.
How Do We Fix It?
We need three key changes:
What’s Stopping Us?
The biggest obstacle is the banks and billionaires who profit from the current system. They lobby politicians, control the media, and make sure nothing changes. But history shows that when enough people demand reform, change happens.
What Can You Do?
A Better Future Is Possible
We don’t have to accept a system where money rules over people. If we work together, we can create an economy where money serves us, not the other way around. The first step is realizing the problem. The next step is taking action.
Will you join the movement?
The Coming Financial Collapse
“It is closer than we think.”
Warning Signs and How to Prepare
The Western financial system is showing dangerous cracks. While no one can predict exactly when a full collapse will happen, the warning signs are clear and growing worse. Here’s what to watch for, and how to protect yourself when the system fails.
Signs the Financial System Is Failing
How to Prepare Before It Happens
1. Get Your Money Out of Banks
2. Protect Your Income & Assets
3. Prepare for Supply Chain Collapse
4. Expect Government Lies & Blame Games
5. Build a Local Network
What Happens After the Collapse?
The collapse is not a question of if, but when. The elites know it’s coming, they’re preparing (buying bunkers, farmland, and gold).
“This essay invites comments, additions, corrections and reposts.”
By Nico Cost
[Ed Note: This is a short, concise, and accurate vision of the near future. As Michael ends this interview, his assessment of the future in the US is a political dark age. “The conflict is between social systems”. Another note of real value, is that Michael says there is no walk-back here. The US cannot fix it because they are not prepared to take the actions required. And then, as my Chinese friends say, they are not going to walk gently into that good night. If one considers this concise material as well as the circus in the Gulf States now, the picture remains one of turbulence and not peace. This is clearly the conflict of social systems and there is more to come on that.]
The video is linked in the text and with Chinese material, I cannot embed it. Kindly click and the next page will have it.
Michael mentions that the viewership is huge. Congratulations Michael!]
Shanghai Jiefang (Liberation) Daily, May 9, 2025
Michael Hudson was interviewed by Liberation Daily from Shanghai on May 9, 2025. The video and report appeared in Tencent News on May 14, 2025.
Title of report:
Liberation Daily interviewed Michael Hudson: The trade conflict has brought irreversible impacts, Trump is compromising himself
解放日报访迈克尔·赫德森：贸易冲突带来不可逆的影响，特朗普在自我妥协-腾讯新闻 https://view.inews.qq.com/k/20250514A01FVR00?web_channel=wap&openApp=false
1、如何看待中美贸易冲突的根源？你认为这是经济利益的冲突，还是更深层次的政治和意识形态的较量？
How do you view the root causes of the U.S.-China trade conflict? Do you believe it is primarily an economic dispute, or is it a deeper political and ideological confrontation?
Hudson: It’s much deeper than a trade conflict. It’s a conflict between social systems. The United States is a neoliberal economy dominated by finance capital. Its political aim is to dismantle government regulation and privatize basic infrastructure, and to make financial centers (Wall Street) the economy’s central planner. This planning is not in the economy’s overall interests.
The problem is that this plan polarizes economies between creditors and debtors, and imposes austerity on labor and the rest of the population. So the United States cannot tolerate a successful alternative model. That’s why the United States fought against the Soviet Union after 1917. It looks at China as an existential threat not because of foreign trade, but because it shows a much more successful economic model. And this success has made other countries orient their trade and investment around China instead of on the United States.
So the United States seeks to disrupt China’s development. Trump is using his tariff threats against other countries as a lever to say that he will reduce tariffs if they agree not to trade with China. He is bound to fail, and that makes him hate China all the more.
2、你提到中国的经济发展模式与美国的资本主义制度有根本性的不同。在你看来，这种差异如何影响了中美之间的贸易关系？
You mentioned that China’s economic development model is fundamentally different from the U.S. capitalist system. In your view, how has this difference influenced trade relations between the two countries?
Hudson: The United States has made a choice to permit the financial sector to make money for itself instead of using the financial system to serve the overall economy’s economic growth and rise in living standards. This is what has forced it to outsource its industry to Asia. It has chosen to create a “market” that rewards making gains purely financially, not industrially.
The most important infrastructure in China’s public domain is the Bank of China and its financial system that aims at increasing tangible capital investment to increase productivity and living standards to uplift its population. The U.S. financial system has found its major loan market in rent-seeking sectors. Banks have added to debt leverage bidding up prices for real estate (80% of bank loans), as well as stocks obtaining natural-resource rents and monopoly rents on credit.
The result is a rentier economy with an increasing the cost structure. In Marxian terms, financial revenue is the Sphere of Circulation, not the Sphere of Production. U.S. industry has to pay labor enough to carry housing costs up to 43% of income, debt service (apart from mortgages) another 10 or 15%, plus student education loans ($1.8 trillion), credit-card debt ($1.3 trillion) and privatized health care (18% of GDP). There is no way that employers can pay labor enough to meet these costs of living and be competitive in foreign markets.
3、中美贸易冲突中，美国采取了一系列关税措施。你认为这些措施能否真正解决美国的贸易逆差问题？还是会导致更广泛的经济后果？
In the trade conflict, the U.S. has implemented a series of tariff measures. Do you think these actions can truly resolve America’s trade deficit, or will they lead to broader economic consequences?
Hudson: The aim of Trump’s tariff measures is to create government revenue that will enable him to cut taxes on the wealthiest 10% of the population, mainly the Finance, Insurance and Real Estate (FIRE) sector. But the effect of these tariffs will be to stop much trade altogether.
If the trade deficit shrinks, this will have two effects. Most broadly, it will sharply increase inflation, by the degree to which tariffs are raised. That will squeeze labor’s income, leading to defaults on mortgage debt and personal debt. That will lead to home foreclosures, loan defaults and much less personal income being available to spend on domestic products. Many small businesses will have to go out of business.
The tariffs also will cause breaks in the supply chain of many companies – for instance, auto companies that rely on particular parts that are imported, or pharmaceutical companies reliant on key chemical components. And also, the military arms and high-tech industries that need rare earth magnets and other key raw materials.
So the US economy will be forced into recession and perhaps a longer-term depression.
4、你曾指出，中国的经济制度避免了苏联式的微观管理，允许市场反馈和创新。在中美贸易冲突中，这种制度优势如何体现？
You have pointed out that China’s economic system avoids Soviet-style micro-management and allows for market feedback and innovation. How does this institutional advantage manifest in the context of the U.S.-China trade conflict?
Hudson: China has sought to make its economy flexible – and also independent of reliance on U.S. attempts to monopolize information technology, military arms making and other products. U.S. companies seek a monopoly position, which minimizes competition in order to extract monopoly rents. China is still letting a hundred flowers bloom in order to see what succeeds best.
5、你认为中美贸易冲突对全球经济秩序有何影响？是否会加速全球多极化趋势？
What impact do you think the U.S.-China trade conflict has on the global economic order? Could it accelerate the trend toward global multipolarity?
Hudson: Trump’s trade conflict insisting that the United States must be the winner in any agreement will change the whole world’s trade relations, and do so IRREVERSIBLY. Trump’s act cannot be taken back. The damage is done.
Trump is making the US-China trade conflict into a wedge to try to force European, Global South and other countries to choose EITHER to focus their future trade and investment on the U.S. market – which is shrinking as a result of Trump’s trade war – or else to participate in the most rapidly expanding market in the world, that of China and its Asian associates along the Belt and Road Initiative.
The choice is whether to live in the short run and avoid U.S. trade disruption (and threats of political regime change), or to look at their long-term growth prospects.
But finance lives in the short run, and many heads of foreign governments owe their political positions to U.S. support. So their loyalty is to U.S. geopolitical aims, not to their own populations.
6、在你看来，中美贸易冲突中，哪一方更有可能采取妥协措施？这种妥协可能以何种形式出现？
In your opinion, which side is more likely to make compromises in the U.S.-China trade conflict? What form might such compromises take?
Hudson: China has announced that it is not going to compromise on its principled position. It doesn’t have to, because it has many alternatives to ties with the United States (although there will of course be a short-term disruption).
But Trump already is compromising – with himself. It is as if he has been negotiating against himself since April 2, rolling back his threats to tax Canadian and Mexican auto parts 25%, and also reversing his tariffs on China’s exports of I-Phones and other products that Trump’s key political supporters need in order to keep their businesses profitable.
So the United States will find itself in a weakening position as Trump’s hope to get other countries to join his anti-China coalition fail to gain support – especially his closest political allies and satellites in Europe, and even from Japan and other ASIEN countries.
7、中美贸易冲突对全球贸易格局有何影响？
How will the U.S.-China trade conflict impact on the global trade landscape?
Hudson: When the chaos dies down, the effect will be that the United States has isolated itself from the rest of the world instead of isolating China. And its trade barriers will cause price inflation and further polarize the U.S. economy, deepening U.S. de-industrialization and making it even more dependent on other countries that are not following the U.S. financialization ideology.
8、在中美贸易冲突中，你认为有哪些可能的解决方案可以实现双方的互利共赢？这些方案需要克服哪些障碍？
In the U.S.-China trade conflict, what possible solutions do you see for achieving mutually beneficial outcomes? What obstacles must be overcome to realize these solutions?
Hudson: The real question is, who do U.S. policy makers want to benefit? The United States is run by special interests, mainly in the financial sector and in monopolized sectors, not in the public interest. They are willing to see the economy shrink and living standards be squeezed even more, as long as they themselves get richer. That has been the economic trend steadily since 2008, and it will accelerate.
There is only one way for the United States to overcome this obstacle. That is to change its economic system. But economic systems don’t change unless the population is able to empower a government that is strong enough to keep the financial sector from becoming a predatory exploiter of the economy at large. That would require either a new political party, or a revolution.
I don’t see either of these things happening in the foreseeable future. The Republicans and Democrats have blocked the emergence of a third party by a complex maze of election restrictions. That’s why even “progressive” Democrats realized that they have to work within the confines of their party controlled by Wall Street and military neocons. The Green Party behind Jill Stein was unable to even get a slot on the presidential ballot last November here in New York where I live.
I don’t see a revolution. There is little left-wing movement in the United States. What is called “left” or “Marxist” is actually focused on identity politics of ethnicity (racial minorities) and LGBTQ, not the identity of being a wage-earner. And Trump’s clamp down on universities whose students protest against economic injustice or genocide show the power of a new McCarthy period of police state and FBI censorship of the mass media, the press and the educational system.
The result is looking more like a political Dark Age than an alternative to U.S. economic polarization and shrinkage. So I see a slow crash, rising discontent but not a revolutionary situation.
Paul assesses a recent presentation made by Scott Bessent and why it amounts to begging the world to invest in the US economy.
The weaponization of global finance has become a cornerstone of US foreign policy. Central to this has been Washington’s control over the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a financial messaging service once considered a neutral platform but now openly used to enforce western sanctions and isolate adversaries.
While US President Donald Trump threatened economic punishment for countries that ditched the dollar, his own first 100 days in office saw the steepest decline in the currency since the Nixon era. That symbolic moment coincided with a global shift already underway: an accelerating effort by nations to reduce their dependence on US-controlled financial infrastructure.
Today, an expanding coalition of states – some sanctioned, others simply cautious – is turning away from the US dollar and the SWIFT network, embracing new financial systems that promise to operate beyond Washington’s reach.
A tool of economic warfare
SWIFT is not a bank or a payment processor; it is a messaging platform that allows financial institutions to send secure transaction instructions across borders. Its core appeal lies in its speed, encryption, and near-universal adoption and standardization. Banks in different countries, operating in different languages and currencies, have long relied on it to do business seamlessly.
That image took a hit in 2006, when it was revealed that SWIFT had quietly provided transaction data to the CIA and US Treasury as part of the Terrorist Finance Tracking Program (TFTP). That surveillance continues, with the US National Security Agency (NSA) monitoring SWIFT messages today.
Then came 2012, when bipartisan hawks from United Against Nuclear Iran (UANI) pressured SWIFT to cut ties with Tehran, accusing the country of violating both US and EU sanctions. SWIFT quickly complied. Yet when Palestinian activists demanded the same be done to Israel over war crimes, the campaign was ignored. With the precedent set, SWIFT booted out North Korea in 2017 and Russia in 2022.
The message was clear: SWIFT was no longer neutral. It was a tool of economic warfare.
A new architecture emerges
Being cut off from SWIFT can cripple an economy overnight. Banks become isolated, unable to send or receive payments even with non-western partners. Trade seizes up. But the tactic is proving self-defeating.
After the west threatened to disconnect it following the 2014 Crimea annexation, Russia developed its own platform: the System for Transfer of Financial Messages (SPFS), launched in 2017. Today, SPFS includes 177 foreign institutions from 25 countries.
Iran, which announced in 2023 that it had begun integrating interbank communication and transfer systems with Russia, is working on its own financial messaging infrastructure, known as Automated Currency Management and Exchange Reporting (ACUMER).
But the biggest challenge to SWIFT is not from sanctioned states – it is from rising powers anticipating future US hostility.
China launched the Cross-Border Interbank Payment System (CIPS) in 2015. While it still uses SWIFT for many transactions, CIPS has its own messaging layer, enabling seamless trade with Russia and other partners. Nearly 4,800 banks now participate in CIPS – about half of SWIFT’s total, despite being less than a decade old.
Recognizing the need for a unified, cross-border alternative, the BRICS bloc began developing “BRICS Pay” in 2018. With the bloc now surpassing the G7 in economic size, BRICS countries make up over a third of the world’s economy. BRICS Pay began pilot payments in 2019 and received full backing from China in October 2024. While still in its pilot stage, its potential scale makes it SWIFT’s most serious rival yet.
Swift exit for the dollar
But the move away from SWIFT is no longer confined to America’s adversaries.
In 2022, the Association of Southeast Asian Nations (ASEAN) – a bloc of 10 largely US-friendly states consisting of 600 million people – launched the Regional Payment Connectivity (RPC) initiative. It leverages national real-time payment systems like Singapore’s PayNow and Thailand’s PromptPay to enable direct transfers without relying on SWIFT.
Previously, cross-border transactions between ASEAN states required conversion into and out of US dollars. For instance, if someone sends money from Singapore to the Philippines, the Singapore dollars would be converted into American dollars, and then the American dollars would be converted into Philippine pesos. With RPC, such conversions are bypassed, reducing costs and boosting efficiency.
That same year, the African Union launched the Pan-African Payment and Settlement System (PAPSS), which also skips SWIFT and the dollar intermediary.
This quiet revolution among Washington’s partners signals a deeper shift: even allies are wary of SWIFT’s politicization.
Shattering the monopoly
Despite this trend, SWIFT is not disappearing tomorrow. Many institutions use it in tandem with alternatives to maximize market access. But the spread of new messaging systems gives countries unprecedented options to assert economic sovereignty.
In 2012, Iran had to rely on bartering and gold smuggling to bypass sanctions. Today, it can trade with China via CIPS and with Russia via SPFS. As more states adopt similar systems, the impact of any future SWIFT bans is significantly reduced.
That undermines SWIFT’s key selling points. Security? Damaged by US surveillance and the 2016 Bangladesh Bank hack, which saw $81 million stolen. Speed? Eclipsed by real-time systems like RPC and PAPSS. Universality? Fading with each country expelled from the network.
SWIFT’s real strength lies in its network effect: It works because everyone uses it. But with each politically motivated disconnection, that network shrinks. In contrast, China’s CIPS has no history of broad sanctions, making it a safer bet for states seeking financial stability.
The dollar’s grip loosens
The decline of SWIFT goes hand in hand with the weakening of the US dollar’s global role. Since SWIFT serves as a gatekeeper, Washington can punish any country that tries to ditch the dollar in its trades. But once alternative systems remove that leverage, countries can explore other trading currencies. Moreover, real-time platforms like RPC reduce dependence on intermediary currencies altogether.
China and Saudi Arabia are now exploring renminbi-based trade. That shift would have been unthinkable in the dollar-dominated era of SWIFT’s peak.
Of course, US financial supremacy will not vanish overnight. But the rapid rise of parallel messaging systems shows that global powers – both adversarial and allied – are charting paths out of the west’s financial orbit.
by Aidan J. Simardone and published by The Cradle
Michael’s opinion is that if Ukraine was not Trump’s war before, it is so now, as a result of the so-called mineral (and other) sham deal with Ukraine. He explains the reasons and results of this deal.
There is discussion on Europe and what the possible future is. Richard proposes that the Europeans have to show that they are no longer Trump puppets, although they are that, and have always been. He talks about desperation, as they know they are going down. Ukraine for them is a liferaft. He explains the chaos of the times well.
Both agree we are looking at political theater, but theater where the consequences are real, and cannot be rolled back.
Thanks to Tariffs, China Ditching US Tech. Napolitano interviews geopolitician Pepe Escobar, April 30th, 2025.
“… in this wilderness of narrative mirrors, Trump should be perceived as all characters combined: the White Rabbit, Humpty Dumpty (“When I use a word, it means what I choose to mean, no more and no less”), the Mad Hatter, the Queen of Hearts (“Off with their heads!”)”
It is a cold war grift. It turns out that this whole idea of imposing radical tariffs is all about the cold war with China. Trump says he has three months to negotiate with other countries making a deal:
Here’s the deal:
“I’ll agree not to disrupt your trade and investment and cause you bankruptcies if you’ll agree NOT to trade with China and in fact pose sanctions on trade with China. You will do to China what we asked Europe to do to Russia. You will forgo the prospects of increasing trade with the most rapidly growing economies of China, Russia and Asia. If you will agree to that, we will roll back your tariffs to only 10%. That will cause just a little pain with you. Remember, we are protecting you against the threat to trade with China … ” What is being offered to China is economic suicide.
What Mr.Trump has done has irreversibly altered the world’s economic situation.
Captain Chaos definitely does not have the cards – which as even South Pacific penguins know, are all made in China.
By Pepe Escobar at the Strategic Culture Foundation.
SHANGHAI and HONG KONG – So, predictably, Captain Chaos did blink first. As much as he – and his sprawling media circus – could not possibly admit it.
It all started with “tariff exemptions” – from smartphones and computers to auto parts – on products imported from China. Then it veered towards carefully manicured leaks implying tariffs “could” be reduced to a range between 50% and 65%. And finally a terse admission that if there’s no deal, a “tariff number” will be unilaterally set.
China’s Ministry of Commerce was unforgiving: “Trying to trade away others’ interests for temporary gains is like bargaining with a tiger for its skin – it will only backfire”.
And it got fiercer. The Ministry was adamant that any Trump 2.0 claims of any progress on bilateral negotiations have “no factual basis” – de facto depicting the US President as a purveyor of fake news.
Tigers, tigers burning bright: the image does not recall poetry superstar William Blake, but Mao’s legendary depiction of the US Empire as a “paper tiger” – a flashback that struck me over and over again last week in Shanghai. If the US Empire was a paper tiger already in the 1960s, the Chinese argue, imagine now.
And the pain will increase, not only for the paper tiger: any dodgy deals made by foreign – vassal – pussycat governments at the expense of Chinese interests simply will be not be tolerated by Beijing.
Last week in Shanghai I was reminded over and over again – by academics and business people – that the weaponized Trump Tariff Tizzy (TTT) goes way beyond China: it is a desperate offense ordered by the US ruling classes against a peer competitor that scares the hell out of them.
The best Chinese analytical minds know exactly what’s going on in Washington. Take for instance this essay originally published by the influential Cultural Horizon magazine breaking down the “triangular power structure” of Trump 2.0.
We have all-power Trump forming a “super-establishment”; Silicon Valley money politics, represented by Elon Musk; and the new right-wing elite represented by VP J.D. Vance. End result: a “governance system that is almost parallel to the federal government.”
European chihuahuas – caught in the crossfire of Trump 2.0 – are simply incapable of such synthetic and precise conceptualization.
Paper tiger meets fiery dragon
What a deep dive in Shanghai has revealed is that China has been handed over a rare earth-like opportunity by Trump 2.0 to consolidate its strategic initiative solidifying the role of leader of the Global South/Global Majority, at the same time carefully managing the risk of a New Cold War.
Call it a Sun Tzu move that may paralyze the Empire in its tracks. Professor Zhang Weiwei, with whom I had the pleasure to share a seminar in Shanghai on the Russia-China strategic partnership, would agree.
China is on the move across the spectrum. Chinese Premier Li Qiang sent a letter to Japanese Prime Minister Shigeru Ishibe urging a joint drive, right now, to counteract the tariff dementia.
President Xi’s top message in his Southeast Asia tour last week was to stand up against “unilateral bullying”.
Xi deftly moved between Malaysia – current rotating chair of ASEAN, always avoiding taking sides – and Vietnam – with its “bamboo diplomacy” always hedging between US and China.
Xi told Malaysia’s Prime Minister Anwar Ibrahim, directly: “We must safeguard the bright prospects of our Asian family”. Translation: let’s create an exclusive sphere of influence close to the ‘community of shared destiny’ but that does not include outside powers such as the US.
In parallel, there has been a strong debate – from Shanghai to Hong Kong – that transcends the role of China as the world’s factory: what matters now is how to redirect some of China’s astonishing manufacturing capacity towards the domestic market.
Of course there are problems – such as the lack of purchasing power among scores of Chinese domestic consumers, even as the bulk of national China income is directed to fixed-asset investments. A great deal of China’s rural elderly population survives on a monthly pension of roughly $30 a month, and the hourly rate for the gig economy has stagnated at around $4.
Meanwhile, in several high-tech fronts, China just built the fastest high-speed train on the planet: 400km/h, soon to run between Beijing and Shanghai. China is already receiving orders for the C919 commercial wide-bodied airliner. And China has come up with the world’s first thorium-powered nuclear reactor. Translation: unlimited cheap and clean energy is at hand.
The Mafia way of doing business
Hong Kong is a very special case. HSBC executives, for instance, worry about a possible decoupling between US and China – and wonder whether Hong Kong may survive without US trade.
Yes, it can. The US is Hong Kong’s third largest trade partner; yet Hong Kong’s export and import to the US are only 6,5% and 4%, respectively, of its total global exports and imports, including transshipment of goods back and forth from the mainland.
HK is a world-class logistics hub and free port. So as long as Trump 2.0 does not forbid trade with Hong Kong – well, anything can happen – imports should not be affected. Anyway, most of what HK exports – electronics, luxury goods, clothes, toys – can easily find alternative markets in Southeast Asia, West Asia and Europe.
The crucial point is that over half of Hong Kong trade is with the mainland. And the key fact is that China can easily survive without US trade. Beijing has been carefully preparing for it since Trump 1.0.
From Shanghai to Hong Kong, the best analytical minds are in tune with the inestimable Michael Hudson, who has emphasized, over and over again, how “the United States is the only country in the world that has weaponized its foreign trade; weaponized its foreign currency, the dollar; weaponized the international financial system; and treated every economic relationship in an adversarial way, to weaponize it.”
A self-confident, high-tech savvy China, from academics and business people to xiao long bao and pulled noodles vendors, graphically understands that the Empire of Chaos, in its drive to “isolate” China, is only isolating itself (and its chihuahuas).
Moreover it’s such a joy to see Michael Hudson also referring to the same “paper tiger” syndrome that I witnessed in Shanghai these past few days: “Well, America has become a paper tiger financially today. It doesn’t really have anything to offer except the threat of tariffs, the threat of suddenly disrupting all of the trade patterns that have been put in place over the last few decades.”
In Shanghai, I heard serial implacable dismissals of the so-called “Miran plan” – as in the paper published last November by Trump’s economic advisor “restructuring the global trading system”. Miran is the brain behind the Mar-a-Lago accord – whose rationale is to weaken the US dollar by forcing major economies – from China to Japan and the EU – to sell US dollar assets and swap short-term US Treasuries for 100-year bonds with zero interest.
Miran’s brilliant idea boils down to nations having only two options:
Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University, destroyed the scheme succinctly: transferring money to the US Treasury like this is like “collecting protection money on the streets”. Translation: that’s the Mafia way, “a thuggish and domineering act, merely dressed up with the lofty justification of providing public goods”.
Meanwhile, in the Grand Chessboard, Beijing keeps working steadily side by side with Russia towards a Eurasian-wide security architecture anchored on a balance of powers: it’s all about the new Primakov triangle (RIC – Russia, Iran and China).
Top BRICS members Russia and China will not allow the Empire to attack fellow BRICS member Iran. And support comes in more ways than one. Example: more imperial energy sanctions on Iran? China will increase imports via Malaysia, and invest even more in Iran’s infrastructure, in tandem with Russia in respect to the International North South Transportation Corridor (INSTC).
In a nutshell: Captain Chaos definitely does not have the cards – which as even South Pacific penguins know, are all made in China.
Donald Trump’s tariffs are benefiting rich elites at the expense of the majority of the population, argues economist Michael Hudson. He explains how the US trade war on China is isolating the United States and encouraging countries to seek alternatives. Ben Norton hosts the interview.
Transcript
(Intro)
BEN NORTON: Why has US President Donald Trump imposed tariffs on countries all around the world? And in particular, why is Trump waging a trade war on China? What are his real goals?
Well, to try to answer these questions, I spoke with the economist Michael Hudson, who is the author of many books, and who just published the new report “Return of the robber barons: Trump’s distorted view of US tariff history“.
Michael Hudson outlined the history of the use of tariffs in the United States and in other countries, and he explained how Trump is using tariffs as a weapon of class war, to benefit the rich at the expense of the vast majority of the population, and also how Trump is trying to reshape the global financial system, in order to benefit the United States at the expense of everyone else.
But as Michael Hudson warns, this is already backfiring on the US economy, and it’s accelerating the transition to a more multipolar world.
So here are a few clips from our discussion, and then we’ll go straight to the interview.
MICHAEL HUDSON: The United States is the only country in the world that has weaponized its foreign trade; weaponized its foreign currency, the dollar; weaponized the international financial system; and treated every economic relationship in an adversarial way, to weaponize it.
And other countries say, how can we have a different approach, and treat trade as how can we mutually gain? How can we treat investment as something where the investor gains, but we also gain?
So what’s happening is that, as other countries are putting in place their mutual production facilities, transportation facilities, investment facilities, Trump is isolating the United States from trade and investment relations.
It has tried to isolate China, but what it’s doing is isolating itself from everyone, except its satellites.
(Interview)
BEN NORTON: Michael, thanks for joining me; it’s always a pleasure. Let’s start by talking about this report that you published.
You outlined the history of US use of tariffs and industrial policy, and your argument is that Trump is using tariffs essentially as a form of class warfare, to move the burden off of the rich and corporations, and to increase the burden of taxation on the working class through the use of tariffs.
So can you talk about what your argument is in this report and why you decided to write it?
MICHAEL HUDSON: Well, it’s much more than simply class warfare. Trump has for years been complaining about the fact that the richest people are taxed progressively, at a higher tax rate than other people. He wants to get rid of the tax rate altogether for the finance, insurance, and real estate sector, the FIRE sector.
I think he must have had a discussion with some economist or historian and said, “Isn’t there some way that we can get by without an income tax?” And the person must have told him, “Well, you know, the United States didn’t have an income tax before 1913”.
And Trump said, “No income tax?” No, the Supreme Court ruled that an income tax was unconstitutional. That’s what supreme courts do; they try to prevent any kind of progressive social legislation.
Well, finally, in 1913, the Senate passed the 14th Amendment, and enabled an income tax to be levied.
So Trump said, “Well, how did the United States finance itself before that?” And the answer was, well, almost all the US fiscal revenues came from the tariff, from customs receipts, in addition to land sales for land that they grabbed from the Indians.
So Trump said, “Well, they did it through tariffs!” The advantage of tariffs, for Trump, is that the cost falls on consumers. He doesn’t see that they also fall on companies that import goods from their foreign affiliates.
But, ultimately Trump said, “Oh, this is on consumers; this is wonderful! Why couldn’t we go back to the way things used to be, today? Why can’t we get rid of the income tax altogether — at least on my constituency, the campaign donors — and why can’t we simply raise tariffs?”
Well, his associates must have said, “How ever are you going to convince people to go along with this?” And so Trump said, “Well, let’s see, under tariff protection, in the late 19th century, that’s how the United States rose to be a great industrial power. So somehow, tariffs must have nurtured industry. And I want to bring industrialization back to the United States, to make America great again. And I can say tariffs are going to bring back industry”.
And what he means is, un-taxing the wealthy people, especially the finance and real estate sector, and shifting the tax on the consumers is going to make the country great again.
Well, what he’s leaving out is the fact that it wasn’t tariffs as such that made America into an industrial power. There was a whole large program that was necessary to industrialize America.
All of this was spelled out in the 1820s by Henry Clay, and it was called the American System. And the American System was protective tariffs, with “internal improvements” — that means public investment in infrastructure — and a national banking system to finance industry.
Well, Trump said nothing about these, so it’s worth saying something about them.
By the late 19th century, the United States, said, “How are we going to lower the cost that industry has to pay for its wages, without leading to a huge round of strikes?”
The solution was we can have the public sector pick up many of the costs that labor would otherwise have to pay out of its own paychecks.
For education, we can have free education — not the $50,000 a year that workers have to pay today in order to get a job. We can have social programs, health programs, and others, to help them.
We can have natural monopolies in the public domain, such as transportation, starting with the Erie Canal, and going all the way through roads and other transportation. Communications too.
All of these natural monopolies, if they were not held in the public domain, would be owned by private people who would get monopoly rents. And the United States said the way that we can compete with other countries is pretty much the way that the classical economists said you compete: you lower the cost of production by having the government bear as many of these costs as possible through public enterprises, through public infrastructure; you essentially socialize or nationalize the land.
“Socialism” was not a bad word in the late 19th century. Almost everyone across the political spectrum was describing their policies as socialist. There were Christian socialists, and libertarian socialists, and Marxian socialists, and social democracy. Everybody was one kind of socialist for another.
That meant a rising role of government in providing more and more services, or regulating the economy, such as the anti-trust law of 1890, to prevent monopoly pricing, and Teddy Roosevelt’s, trust-busting.
The whole idea was to minimize the cost of production with an act of a government. And they said that, well, if we can have a mixed economy, a public and private economy together, with the government sponsoring industrial credit — not the kind of British credit that was just for trade, or exploitative, or loans to the farmers — but actually to finance capital investment in industry, then we can take off.
It was this context for protective tariffs that enabled the United States to get rich.
Well, what Trump wants to do is the exact opposite of this context. He wants to deregulate the economy, not regulate it. He wants to privatize any public domain that’s left, any public enterprises.
The post office, for instance, can be privatized. It’s going to cut back services to rural areas. It’s going to increase prices. It’s going to make most of the US economy look like Thames Water in London, for instance.
They’re going to Thatcher-ize the American economy, to do to the American economy what Margaret Thatcher and Tony Blair did for England; or what Reaganomics began to do for the United States.
So we’re talking about an anti-government policy, not a mixed policy. And under Elon Musk, he wants to just carve up the government agencies altogether, privatize everything.
What they’re going to do is dismantle the country’s social programs, dismantle its subsidies, dismantle subsidized social programs that have enabled companies like Amazon, or other low wage companies, to pay very low wages, and having the American social system pay for employees that are paid below the poverty line, because they haven’t been increasing the minimum wage in the United States.
So, this is what is really in store for the US: cut, essentially privatize, the government; especially get rid of Social Security, and other social programs, Medicare.
They call it streamlining the economy or making a “free market”, a market without government that interferes by protecting consumers, protecting the population against predatory monopolies and predatory finance.
BEN NORTON: Michael, you raised so many important points there.
I want to hit on this idea of the Gilded Age, that Trump sees the Gilded Age in the 19th century as essentially his model for what the US should return to.
The Gilded Age is notorious for the robber barons, these big billionaires like Cornelius Vanderbilt and J.P. Morgan.
Today there are, of course, similar oligarchs. Many of them are in the Trump administration, including Elon Musk, who’s the richest billionaire oligarch on Earth. You have the Treasury secretary, another billionaire hedge fund manager, Scott Bessent. Then you have the billionaire who is the commerce secretary, Howard Lutnick; he’s also from Wall Street.
And at his inauguration in January, Trump invited the world’s most powerful billionaires, like Mark Zuckerberg, Jeff Bezos, Tim Cook, and others.
So one of the points that you emphasize is that Trump is really trying to overturn not only the progressive gains of the New Deal, but even the gains of the Progressive Era in the late 19th and early 20th centuries.
When Trump looks back at people like McKinley, the US president, he sees essentially the 19th century and the Gilded Age as something positive. Of course, the vast majority of the population was exploited, and lived in horrible conditions, but for a small handful of oligarchs, the situation was quite rosy for them.
So why do you think Trump sees it this way?
MICHAEL HUDSON: What Trump doesn’t realize is that the Gilded Age was a failure of US protectionism.
In the process of protecting industrial investment, you had the financial sector making a lot of money off this. And finance has always been the mother of trusts.
Finance began to lead to a fight over who is going to control the railroads. The crisis of 1873 came when [robber baron] Jay Cooke’s railroad defaulted. There were rivals trying to buy control of railroads from each other.
The Gilded Age emerged sort of accidentally, as a byproduct of making industry rich, you also made a lot of opponents of industry rich, like monopolists.
That’s why in the year of the McKinley tariff, when he was a congressman in 1890, you had the Sherman anti-trust law. They said, OK, we’re going to make sure that the protection of industry does not become protection of monopolies; it will not become a protection of unearned wealth, economic rent-seeking.
So Trump gets it all backward: what was an oversight that the Americans cured in 1890 — or at least started to put in place a public mechanism for avoiding the Gilded Age — as if that was actually a great success.
If only it had succeeded, Trump would say, then, America would have polarized and done what gilded ages do.
BEN NORTON: Yeah, and one of the points that you emphasize, Michael, is how China’s model is completely different.
China is following the kind of state-led industry of policy that every industrialized economy has used to industrialize, to develop a manufacturing sector.
China has state ownership of telecommunications, infrastructure, education, energy, land, and finance — most importantly, the financial system in China is state-owned.
China has five-year plans, in which they target certain industries that they want to develop.
China creates plans for sectors like electric vehicles, and they say that the government is going to direct resources into these industries through the use of subsidies, and infrastructure investment, and job training, and education, and cheap loans from state-owned banks. And they’re going to develop semiconductors; they’re going to develop local civilian airliners.
So can you can you contrast China’s industrial policy with the Trump administration’s lack of an industrial policy?
MICHAEL HUDSON: Well, you could say, could I compare China’s development to the policies of the United States and also Germany when it was developing?
China has sort of reinvented the wheel. One of the first books of mine that they translated as a textbook into Chinese was my book on trade, development, and foreign debt, when I described the contrast between free trade and protectionism, and how the United States developed a protectionist argument to counter the free-trade arguments of England, in order to protect industry.
So, China has essentially done the same logical thing that any government would have to do. You have to subsidize your own industry and protect it, insulate it, from lower-cost imports underselling you.
You have to enable industry, if not really to make a profit, to at least make enough money to somehow be able to pay its labor force, and to pay for the raw materials and the machinery that it takes to create industrial production.
The one thing that China has done that other countries did not do — although Germany began to do it in the 19th century — was to keep money and credit as a public utility.
China did this because it really didn’t have much of a choice, after Mao’s revolution. How is the government going to finance capital investment in industry in what was a very poor country of peasants, basically, as the US secretary of commerce keeps calling China, a country of peasants.
BEN NORTON: US Vice President JD Vance referred to the Chinese as a bunch of peasants. And this has really angered people in China.
JD VANCE clip: We borrow money from Chinese peasants to buy the things those Chinese peasants manufacture. That is not a recipe for economic prosperity.
BEN NORTON: And this has really united people in China against the US.
MICHAEL HUDSON: Of course. Well, at any rate, since Mao’s revolution had got rid of the wealthy financial classes, there was no way that the government could do what the Western countries did and borrow from the wealthy classes to pay for the government deficit in financing industry. So China created its own money.
Well, that’s exactly what the American colonies did in the 17th and 18th centuries. When Britain was dominating the colonies, and forcing the colonies to export crops and other materials, by borrowing hard money from British merchants, the colonies began to create their own paper money.
That’s how they basically developed.
When America fought the Revolutionary War, the government issued Continentals — fiat currency called Continental currency.
In the Civil War, in America, the costs of the war were so large that it couldn’t possibly borrow from domestic creditors, the government printed Greenbacks. But in peacetime, the financial sector fought back and insisted on “sound money”, meaning money that you pay interest on to private financiers.
Well, since China didn’t have private financiers, it did the same thing that America had done: it printed the money itself.
And it kept banking in the public domain. And what that means is that banking in China does not make loans for the same kind of things that American banks make loans.
We know that they went overboard in making fairly reckless real-estate loans, but they don’t make loans for corporate takeovers, of private investors to borrow the money to take over another industrial corporation and just sort of empty it out and do what American corporate raiders and kleptocrats do.
So China has been able to create money to spend into the economy for purposes intended to serve the public interest, to build housing, to finance high-speed railways, to finance all of the public infrastructure that China has kept in the public domain, to offer at low, subsidized prices to the population at large.
So if you have a private enterprise in China, creating a factory to produce goods for exports to the United States or other countries, they don’t have to pay the workers enough to have to pay for privatized transportation; they have wonderful public transportation, in the subways and railroads.
They they don’t have to take out student loans to get an education; they can get the education from the public sector in China. They can get health care.
They don’t have to pay for all of the things that the United States’ employees and employers have to pay for. That’s what enables China to have low-cost labor.
It’s not that it’s impoverished labor; it’s not that it’s pauper labor; because the labor in China is better and better remunerated; but its remuneration is not only in the form of its paychecks that it gets in salary; it’s in the form of all of the public services that it gets, that Americans have to pay out of their salary.
So when you realize that the standard of living of workers is not only the paycheck, but the public services they get, or the subsidized prices they have to pay for basic needs, then you find that, if basic needs are treated as basic needs, then everybody should be able to get them, as a precondition for being citizens.
That’s basically what happens in China. And that’s what has enabled China to undersell Western economies that have privatized, and Thatcher-ized, and Reagan-ized their economies.
And, of course, that’s how the United States, and Germany, and other countries that industrialized in the late 19th century built up their competitive power internationally.
BEN NORTON: Those are very important points, Michael.
Trump has been expanding his tariffs not only against other countries — he now has blanket 10% tariffs on all countries around the world — but he has specifically targeted China with now tariffs of 245% — which, after a certain point, there’s not really any meaning to further increasing these tariffs; it’s largely symbolic.
Why do you think Trump has been so aggressive targeting China specifically?
Do you think it has to do with what you were just explaining, the significant differences between China’s system and the US system? That might explain why the US has deindustrialized, and simply can’t compete with China’s very sophisticated system of manufacturing.
MICHAEL HUDSON: Well, you’re right that America can’t compete. It realizes that it can’t compete. It’s treating China as an enemy.
But, regarding the the tariff question, the way in which Trump has arranged his three-month interim, before the very high punitive, disruptive tariffs are imposed, is specifically aimed against China.
Let me explain what the connection is, because it’s not clear on the surface.
The tariffs that he has announced are so disruptive of trade for other countries that they’re going to suffer — as will the US economy, and US consumers and businesses are going to suffer.
Trump says that these maximum demands are open to negotiation. And he’s asking other countries, well, if we don’t disrupt your trade by imposing these 40% or even higher tariffs on you, what are you going to give us in return? What’s your give-back to us for us not making these demands on you?
At first, I thought, well, he’s going to demand that maybe they’ll have to sell off some public infrastructure to Americans. Maybe they’re going to have to give trade favoritism to Americans. There are all sorts of things.
But Trump has made it clear: what Trump wants is diplomatic givebacks. Every country is going to be subject to one-on-one, distinct pressures. 75 countries, he says, have called him and want to negotiate.
DONALD TRUMP clip: I’m telling you, these countries are calling us up, kissing my ass. They are dying to make a deal. Please, please, sir, make a deal. I’ll do anything. I’ll do anything, sir!
MICHAEL HUDSON: With each country, he’s going to treat individually, that they give America something. But the common denominator in all of his demands is that they impose trade sanctions against commerce with China, and against mutual investment with China, and especially any plans they may have to join its Belt and Road Initiative in favor of US plans to interrupt the whole connection system of Belt and Road that China wants to put in place.
So Chinese officials can see where all this is leading. They’ve announced their refusal to negotiate with the United States, when a gun is pointed to their head.
China recognizes that Trump really doesn’t have many cards in his hands. What does he really offer other countries except to refrain from disrupting their economy?
He’s what back in Mao’s time was called a paper tiger, militarily. Well, America has become a paper tiger financially today. It doesn’t really have anything to offer except the threat of tariffs, the threat of suddenly disrupting all of the trade patterns that have been put in place over the last few decades.
So the most important consideration for China in all of this, in what is it going to do, is that it doesn’t need the US market to anywhere near the degree that the United States is dependent on China for key metals, and key materials, and key industrial products.
Most in the news are the rare earths, ores that are refined to make magnets and other alloys that are used in almost every high-tech manufacture today, from electric cars to military, and space things; but also steel and aluminum are faced with enormous tariffs, as well as key products that American industry needs; and of course all of the consumer goods that Walmart imports into the United States and that Apple imports for use in its iPhones.
So, what is really the threat of these tariffs against China? It has already said, well, we don’t need to buy soybeans from America; we can buy soybeans from Brazil, instead of US farmers. And most US farmers of soybeans live in Republican districts, because the Republican Party appeals to the western, midwestern, rural population much more than the educated urban population.
I’m told that one of the key US products that the United States has sort of cut China off from is soy sauce. And, all these years, my Chinese friends tell me, they’ve been buying soy sauce from a Singapore company with a Chinese name that they thought was Chinese. Probably just organized out of Singapore, but it turns out that it’s an American company, and now they can’t get it.
So, what’s going to happen? Well, it’s not that hard to make soy beans into soy sauce. And you can imagine that what is going to happen is that China is going to respond to the US sanctions in the way that any country responds to sanctions: once they can’t import something that they’ve been importing from another country, that they need, they produce it themselves.
That’s exactly what Russia did, when the United States told Europe, stop exporting food to Russia; let’s starve them out. Russia stopped its dairy and farm imports from the Baltics and other countries, and developed its own agricultural, production. That’s called import [substitution].
So the reaction to sanctions is to force other countries to replace US imports with domestic production. And that’s exactly what China has done.
Well, why do the United States strategists have this blind spot? And the reason is, I think, the whole mentality of US diplomats is punitive. That’s the only thing they have today. They have little to offer the other country.
They can’t do what President Xi does and say, here’s a win-win situation; we’ll develop our trade with each other, and we’ll both gain from this, from our mutual interdependency that’ll create an efficient, regional trading system.
But the United States doesn’t have that. All it can do is disrupt the trading system. And they can disrupt it for a few months; maybe it’ll take a year. It takes time to replace new means of production, to replace trade, imports and exports, with the United States.
But you can imagine that European countries, Asian, African countries, Latin American countries, are all spending these next three months thinking, how are we going to create a world after August, that is going to enable us to keep on producing what we’re producing and importing what we’re importing, but not from the United States.
They’re all trying to think of realignment. And the United States says, well, this is going to disrupt your economy for a year or so; and the other countries will make a calculation and they’ll say, yes, it’s going to disrupt our economy for a year or so, but then for the next decade or century, we won’t have to deal with US threats anymore.
The United States is the only country in the world that has weaponized its foreign trade; weaponized its foreign currency, the dollar; weaponized the international financial system; and treated every economic relationship in an adversarial way, to weaponize it.
Other countries say, how can we have a different approach, and treat trade as how can we mutually gain? How can we treat investment as something where the investor gains, but we also gain?
If China is going to build up ports and infrastructure for us, and we will pay China in the form of raw materials, or agricultural production, or whatever we’re producing; then we get the capital investment that China is providing, and we’re providing them with the trade that they’ve helped develop by putting in place ports, and roads, and railroads, and other means of transportation.
So you have two different views of what an alternative world trade system would look like. And of course, this alternative is what everybody expected to be created after World War One.
That was the promise of mutual gain that mutual trade was going to integrate countries, and provide gains from trade, for peaceful, friendly international relations.
It hasn’t turned out that way. But now other countries are saying, well, we can achieve that kind of trade under rules very similar to those that the United Nations created in 1945. But we can’t do it under the rules that the United States imposes for its own one-sided, unipolar world order that it’s insisting on.
So what’s happening is that other countries are putting in place their mutual production facilities, transportation facilities, investment facilities. Trump is isolating the United States from trade and investment relations.
It has tried to isolate China, but what it’s doing is isolating itself from everyone, except its satellites, in Western Europe — Germany, England, and the other European countries.
The question is, how long can its Asian satellites — South Korea, Japan, and the Philippines, even Taiwan — how long can they decide, well, are we going to look at our long-term future as trade with China, which is growing and expanding its market, or with United States, whose market is shrinking?
And it goes even further than that. Trump also has said he’s going to punish other countries that try to find an alternative to the dollar. And yet today’s Wall Street Journal [on April 18] had a whole editorial: Trump is now trying to prevent other countries from keeping their international reserves in dollars.
He’s forcing other countries to sell off their dollars by imposing a tax on other countries’ holding of Treasury securities.
If you’re a foreign central bank and you’ve done what you’ve done since 1971, when Nixon went off gold, and you kept your foreign exchange reserves in the form of US dollars, in the form of US Treasury securities, or government agency securities, or other US holdings, then all of a sudden you’re going to have to pay a tax on them, and this tax is going to mean that you’re losing money.
Well, the dollar has been going down steadily, day after day after day, for the last few weeks. And it looks like it’s going down because other countries are looking at what Trump is threatening, and they think, this guy may really mean it!
The whole essence of American imperialism — as my book Super Imperialism explained way back in 1972 — the whole essence is that America gets a free lunch; it can print its dollars, flood the economy with dollars, mainly through its foreign military spending — which is, in most years, the leading element in the balance of payments deficit — flood this and other countries haven’t had an alternative to the dollar to hold.
They’ve been discouraged from buying gold. Well, as you can imagine, China has been buying gold. Now other countries are buying gold. Germany has asked for the gold that it had been keeping in the Federal Reserve for safekeeping after World War Two, that this is returned. None of my German financial reporters have been able to find out whether it’s actually got any of this gold. The politicians are quite mum on that.
So, other countries are essentially being driven out of the dollar, at the same time that Trump says, don’t join together and create a non-dollar area.
Well, if they can’t hold US dollars, or they’re told, if you recycle your savings and your surplus dollars into US treasury bills, you’re going to have to lose money year after year.
Well, as they sell the Treasury securities, the dollar is going down. And as the dollar goes down, that means that, even if other countries get a higher return in stocks or US bonds, the value in euros, and Chinese currency, and Japanese currency, the value in their own currency is going down as a result of Trump’s policies.
Well, Trump believes that if you lower the exchange rate of the dollar, that will make American exports more competitive. And of course, it would, if America had something to export.
But how can you make industrial exports more competitive, at a lower price — which lowers the cost of labor, lowers the cost of America — if you don’t have factories to produce these exports? That’s the crazy thing about all this!
How can you increase export competitiveness of industry, if you don’t have an industry?
The United States, ever since, really, Clinton in the 1990s, has offshored American industry — to Asia, to China and other countries — how on Earth can it be competitive?
Basically neoliberalism has undercut the ability of the United States to be competitive in the way that, it and European countries, and now China, had become competitive as a mixed economy.
The essence of neoliberalism is to carve up and privatize governments, basically on credit, borrowing the money to buy things.
So you’re having an inherent instability. And this is what other countries are discussing.
Now, the question is, will other countries agree to give up the Chinese market in order to gain the American market?
Well, how long is the American market going to last? And how much trade and diplomacy with China are they going to give up? Will it be a total set of sanctions and isolation? Will it be partial? All of this is a product of bilateral negotiation.
I think other countries should take a look at what’s happening domestically, in the way that Trump bargains.
You’ve seen two big fights, domestically, of Trump in the American economy, have occurred in the last few months: the fight against law firms and the fight against universities.
Trump declared war on law firms that had worked for the Democratic Party in the last few decades, especially law firms that supplied lawyers who prosecuted him for all of the Democratic lawfare that the Biden administration began.
And he said, well, you have to do a give-back. And the first give-backs that he asked from these firms is, you have to provide $50 million of pro bono — meaning work without payment – for Republican-backed organizations.
Well, almost all the law firms capitulated. They surrendered and they agreed to give him, you know, $50 million, or however much free legal advice he wanted, at their expense.
Well, now, in the last few days, he has asked for what the New York Times and Wall Street Journal say is $1 billion from the law firms, saying you’re going to have to not only support the Republican administration, but you’re now going to have to support me, and support Republican policies, as we bring lawsuits against the government, to try to carve it up, and shrink it, for the kind of things that Elon Musk is doing.
So, he keeps raising the price. He’ll make an agreement. They think, ok, we gave him $50 million. That’s enough. Trump had said, if you don’t do this, I’m going to cancel your security clearance for all of your lawyers, and I’m going to ban your lawyers from federal buildings, because you’re a “security risk”. And I can declare a national emergency, and a national emergency is anything I find a national emergency in. Any threat to me is a national emergency, because I’m the state. Sounds like King Louis of France.
He asks for more and more and more. It’s a never-ending rise in demand. So, again, here’s the problem that they face.
Once you begin to give in to Trump, a bully thinks, oh, I’ve been able to do this; now I can do even more. If you begin giving into him, it’s a never ending path of decline. That’s the whole problem.
China describes the choice as between the post-war, the whole world’s post-1945 commitment to free trade and the same rules for all countries; or henceforth, are they going to be subjected to America’s neo-mercantilist protectionism, as the new context for international trade?
BEN NORTON: Michael, as always, you made so many great points there. It’s hard to know where exactly to respond.
But let’s pick at this idea, which I think is very important, which is that China has said that the US is essentially trying to recreate the global system that the US ironically helped to create in the first place, after World War Two.
You described that system very well in your book Super Imperialism, published in 1972. The US designed the international financial system, giving itself the exorbitant privilege of printing the global reserve currency.
The US also helped to design the international legal institutions and political institutions through the United Nations. And still at the UN Security Council, the permanent seats are held, yes, by China and Russia, but also by the US, France, and the UK. And the US has used its veto power to essentially neuter the UN, to prevent the UN from taking any action the US doesn’t approve of.
So the US has really benefited from the system. But it seems like Trump is now just throwing a bomb and blowing everything up. What do you think is happening?
MICHAEL HUDSON: The world has changed a lot since 1945, when the US not only led the creation of the United Nations, but also the International Monetary Fund and the world Bank.
It created a system of free trade because, under free trade, the dominant economic and industrial power wins over countries that haven’t industrialized.
That’s why countries that haven’t industrialized need protective tariffs, to develop their industry, and especially their agriculture — which is how the United States subsidized all of its agricultural productivity in the 1930s.
So, the United States, in 1945, could say, all countries have to follow the same rules, because it knew that the rules that they were to follow — with free trade, and no imperial preference for the British pound sterling, no colonialism, you decolonize — the US knew that it would gain.
But, since 1945, we’ve now gone eight decades since then, and since the United States has deindustrialized, it no longer benefits from the rules and the whole philosophy that it supported back in 1945.
Under the United Nations, at that time, it said all countries should be treated politically as equals. That has been the whole rule of international law since 1648, when the 30 Years War was ended: no country should interfere with other countries.
Well, the United States no longer treats that. It is able to interfere with other countries, but essentially claims that any other country that gets a benefit from the United States is somehow interfering with its trade, or posing a national security threat.
So the United States has ended the kind of idealistic rhetoric, and the underlying world order that it put in place in 1945.
So, China, Russia, the speeches of Foreign Minister Lavrov and President Putin, they’re all saying the same thing: the ideals of the United Nations as they were set out; the ideals of trade, not to weaponize trade, but to have mutual gain; the ideal of the role of government to provide basic needs for the population; all of this was a good idea.
But the spread of neoliberalism by the United States and by Europe, essentially, is now opposing everything that was promised in 1945. We’re in a completely different world.
We cannot achieve and restore this world as long as we leave the United States with veto power in the United Nations, to stop it; and with a military power and willingness to intervene in foreign elections; to support regime change, to make sure that its own politicians are elected, over and above whatever the population may want.
Such as Europe — most of Europe’s population wants an end to the war in Ukraine. The politicians want to escalate NATO’s war against Russia.
You can go right down the line, that what the politicians that are supported by the United States in many countries advocate is the opposite of what voters want.
Just like in the United States. Trump won the election saying he’s going to bring peace in NATO’s war against Russia; he’s going to be a peace candidate, not the war candidate that Biden and Harris were. Now all of that is just sort of, well, that’s campaign promises; that’s just rhetoric; that’s the narrative that we’ve created.
So, you’re having, in a way, two different narratives to shape how people think of the split in the world, between the 15% of the population — the US and Europe, plus America’s satellites in Asia — and the 85% — the Global Majority, in the Global South — that are trying to have mutual trade and benefit.
In order to have this mutual trade and benefit, you have to have a political system and a tax system, that essentially prevents the emergence of a domestic financial oligarchy, and monopoly oligarchy, and real estate oligarchy, from stifling economic growth in their countries.
And the United States wants to create such an oligarchy as long as it’s controlled by US investors themselves.
So how do you explain why politicians follow this pro-US submission that they’re doing?
Well, I think there are a number of answers for why you’re having a different approach to how the world is being restructured.
Politicians live in the short run, and many are so used to being bullied that they’ve succumbed to the Stockholm Syndrome and identify with the bully. They think, well, the Americans are so powerful; there’s really nothing that we can do; we have to join them because the bully strong enough to fight any other policy that we may do.
Well, democracy is supposed to prevent the kind of oligarchy from developing that you have in the United States.
They’re supposed to prevent a Gilded Age. They’re supposed to prevent the economic polarization between the 1% of the economy — the creditor class, the billionaire class of creditors, monopolists, real estate owners — and the rest of the economy — of debtors, of renters, of wage earners that have less and less control over their working conditions.
That’s not being prevented; that’s being encouraged by neoliberalism — just the opposite of what was promised.
It’s as if we’re having a new kind of colonialism; but it’s not overtly a military colonialism, except in countries that refuse to follow US laws. It’s sort of what free-trade imperialism, or what the [US] Treasury bill standard was.
It’s what the West calls “democracies”, which is foreign control by the neoliberal class, the kind of people who go to the World Economic Forum in Switzerland and think that they’re planning the kind of world that they would like to see.
We’re dealing with two kinds of economic theory.
The reality-based economic theory recognizes that debts tend to grow exponentially, and polarize society, and create a crisis, if they’re not canceled.
The orthodox economic theory, that’s taught in all the universities throughout the West, says if you just get rid of government, leave government alone, don’t regulate anything, the economy will automatically self stabilize, and produce equality among people, and among nations; free trade will make nations more equal, instead of polarized.
You have a whole different body of economic theory to justify a whole means of social and economic organization that occurs.
In other countries, the fight by Asia and the Global Majority today — and by Putin against the legacy of kleptocrats that the neoliberals subsidized in Russia — was how do you keep this wealthy class — you can let it accumulate wealth, but it has to use its wealth in the public interest, to develop the overall economy and benefit the economy, not to subject the economy to lower wages, to use its wealth to take over government and disable the government from the ability to regulate it.
Well, this disabling of government to regulate is the political program of Donald Trump. He says he wants to deregulate any kind of government regulations, and tax. He wants to get rid of progressive taxation.
He wants to stop any environmental regulation. He has pulled out of all of the global warming agreements that America has had.
Trump and Vance have gone to Europe and backed the right-wing parties that are following this there.
The US is backing this kind of economic and social philosophy. For any country that is trying to do regulation, it’s being attacked politically.
This has gone on for 2500 years. The lead for democracy in Greece occurred already in the 6th, 7th, and 8th centuries BC, when the local mafia-like oligarchies were overthrown by populist leaders who were called “tyrants”.
The Roman oligarchy accused reformers of seeking kingship. The Greek oligarchy called any reformers wanting democracy as being tyrants. And the Americans call any reformers as being socialists — as if socialist today is the same term as seeking kingship to control ambition, being tyrants.
The narrative of history has been turned inside out. And they treat all of these as bad words, not as the ideal that it was during the whole reform movement, in the 19th century.
BEN NORTON: Well, I don’t know if I can add much there. You again raised so many interesting points. And you did a great job of drawing these parallels over thousands of years of history, in the fight against oligarchy.
We see this so clearly today. Of course, every US president represents the financial oligarchs on Wall Street. But Trump has taken the mask off, lifted the veil, and made it as clear as day.
He’s regularly inviting these billionaires to the white House. He gave Elon Musk, the world’s richest billionaire, an office at the white House. He invited all these oligarchs to his inauguration.
So I think your argument is — you’ve been saying this for a long time, and you’ve been proven so correct. Trump is really the epitome of everything you’ve been saying for so long.
So on that note, I think that’s actually a really good place to conclude. Is there anything else you want to add?
MICHAEL HUDSON: Listening to what you just summarized, what kind of country would elect a leader who made this money by cheating other people? By cheating his suppliers and not paying them, offering only half the money that they had promised; cheating his suppliers; going bankrupt and defaulting on his bank loans; and being not only a congenital liar, but treating that as a social virtue!
You wonder, when somebody like that is elected, or someone like Obama, or Biden, when you look at the people who have been elected in the United States, or even in Britain, how could this have ever happened, under what was expected 80 years ago?
The world is being turned inside out. And how is the rest of the world going to try to undo the damage?
And they can’t really undo the damage. All they can do is isolate, is go along with Trump — accept the isolation. Isolating themselves is the only way that they can create an alternative to surrender to the US neoliberal, polarized economy and society.
BEN NORTON: Once again, well said. I was speaking with the economist Michael Hudson, and I will link to his most recent report on Donald Trump’s tariffs, and the robber barons, and the Gilded Age.
Thanks so much for joining me, Michael. It’s always a real pleasure speaking with you.
MICHAEL HUDSON: Thanks for having me again, Ben.
Shanghai shows China relishes its new role as a Resistance beacon, bent on defying bullying, busy building a Global Majority consensus. It’s all about strategic patience …
By Pepe Escobar at Sputnik.
SHANGHAI – There could not be a more strategic place to spend these past Trump Tariff Tizzy (TTT) heady days than in Shanghai – China’s trade, commercial and cultural capital.
From the top of the Jin Mao tower in the world class Lujiazui financial district in Pudong, an elegantly discreet art deco companion to the World Financial Center super-skyscraper – the trademark symbol of China’s economic power – it’s as if the spokes of a wheel radiated to the Bund and beyond tracking a ceaseless drive to counteract the absurd idiocy of the “Emperor of Tariffs”, relentless mocked across myriad Chinese social media platforms.
I have had the privilege to transit from the Bund Financial Center, which hosts among others the Fosun Foundation – a bamboo-inspired architectural masterpiece – to the China Academy at the immaculate campus of Fudan University, where I shared a seminar with star professor Zhang Weiwei and a round table with top PhD students from several disciplines. Professor Zhang Weiwei is the foremost conceptualizer of China as a civilization-state.
The key theme of our seminar was the Russia-China strategic partnership, but inevitably the focus switched back and forth to the rationale behind the Emperor of Tariffs. The questions from the students were as sharp as they come. That was compounded with an in-depth interview for China Academy hosted by their CEO, the formidable Pan Xiaoli.
A visit to the HQ of Guancha – the top independent new/analysis site in China, whose several channels in several different platforms reach an astonishing 200 million people – could not have been more timely. Guo Jiezhen, a research fellow from the China Institute, who was part of our round table at Fudan University, came up with one of the more astute analyses of what he describes as Trump’s “deranged money-making technique“.
While meeting with Guancha’s new editor-in-chief He Shenquan and discussing with hyper-competent international relations specialist Kelly Liu and Yang Hanyi – the China Institute’s communication officer – we watched together an exceptional podcast featuring PLA Colonel Wang Lihua, Gao Zhikai – Deputy Director of the Center for China and Globalization (CCG) – and the always essential Li Bo, President of the Shanghai Chunqiu Development Strategy Institute.
Shanghai. At the spectacular, bamboo-themed Fosun Foundation.
And that’s when Mao Zedong’s legendary 1960s formulation of the US as a “paper tiger” – quoted in everything from Latin American guerrilla slogans to Godard movies – resurfaced with full force.
Wang Lihua picked up on what President Xi had told Putin at their landmark meeting at the Kremlin two years ago:
we are right in the middle of changes not seen in 100 years.
Wang: “This change cannot be changed all at once, and the trade war between China and the United States will not be resolved once and for all. This kind of friction and struggle, in the words of Chairman Mao, is ‘making trouble, failing, making trouble again, failing again, until destruction.’”
Wang wrapped up with what may encapsulate the general feeling in China, identified in every nook and cranny across Shanghai: “It is difficult for the United States to repair itself from within. Now the United States has to confront China and the whole world, and its strength is obviously not enough, so failure is inevitable. We are not afraid of a protracted war, because time is on our side.”
China “not afraid of war”, however it may manifest itself, from hybrid to hot, is the consensus feeling in Shanghai, borrowing from the Maoist concept of “united front”, and espoused from academics and business leaders to residents of “model quarters” of the Maoist era still impeccably preserved – and with an eye for innovation (example: row after row of a.c. outlets to feed the array of electric bikes parked in the internal patios).
The “Paper Tiger” Lashes Out
It was immensely enlightening to share business dinners with executives and sales people coming from several Chinese provinces – from the stunning Pei Mansion, one of the most beautiful early 20th century buildings in Shanghai, where star architect I.M. Pei lived for one year, to the best Xinjiang restaurant in town, Ali Yang, at the World Financial Center, complete with the full Uighur lamb experience.
In all conversations and debates, a constant: no illusions about Trump 2.0’s shifting strategy, and how it should be turned against him, Sun Tzu-style; how China must amass a solid set of bargaining chips; and most of all how, from the beginning, this was always a war of an elite section of the American ruling classes on China. The rest of the world is a sideshow.
So it’s no wonder that in every business dinner, after a matchless gastronomic feast, the conversation soon veered on how China’s strategy will not be about immediate damage control; and how China is already eyeing new links and nodes to deepen its long-term global competitiveness.
It’s an open question whether Trump 2.0 and his team of Sinophobes will manage to prevent the emergence of a Global Majority strategic alliance against the Empire of Chaos.
In Shanghai, and across China, submission is simply not an option. In cultural terms, Trump has managed to antagonize 1.4 billion Chinese, simultaneously, by treating the civilization-state without respect. The one thing that irks Chinese the most is mistreatment (see, for instance, the “century of humiliation”).
Shanghai. The view from my window on Jin Mao. No rare earths for barbarians.
A full-blown trade war? Deep decoupling? Bring it on.
The Emperor of Tariffs particularly hit Southeast Asia’s supply chains – Vietnam, Cambodia, Laos, Myanmar. For all ASEAN 10, their major trade partner is China. Chinese FDI is quite important in Cambodia and troubled, post-earthquake Myanmar. There’s no question ASEAN will have to act in a “strategically multilateral” manner.
President Xi’s timely tour of Vietnam, Cambodia and Malaysia is already setting the tone – corroborated by Foreign Minister Wang Yi: “South East Asia achieved a consensus: we will stand united and say no to these backward, regressive actions.”
Shanghai. Shanghai Tower from the Yu Garden.
The Trump Tariff Tizzy (TTT) is a war against BRICS and ASEAN – and the increasing presence of ASEAN within BRICS, as full members (Indonesia) and partners (Malaysia, Thailand, Vietnam). Top Chinese intellectuals are fully aware of it. Trump, for his part, considering his record, does not even know what BRICS and ASEAN actually mean.
At the BRICS preparatory sherpa meetings ahead of the summit in early July in Rio, there’s already serious movement to counteract the “unprecedented protectionism” of the Trump trade war, as formulated by the Brazilian Ministry of Agriculture. Trump has already issued a trademark threat: a 150% tariff on BRICS members. Top BRICS member China is not intimidated.
Busy Building a Global Consensus Against Bullying
Meanwhile in Beijing, in tandem with all the intellectual frenzy in Shanghai, Jensen Huang, the CEO of Nvidia, wearing a business suit (he prefers leather jackets) as a sign of respect and speaking in English (even though he was born in Taiwan) had a mega-significant meeting with Ren Hongbin, chairman of the China Council for the Promotion of International Trade (CCPIT).
So here we have the multi-billionaire CEO of an American chip behemoth telling the Chinese government, in person, that his company remains totally committed to the Chinese market, despite Trump 2.0’s stiff export restrictions on AI chips.
A new book, The Thinking Machine: Jensen Huang, Nvidia, and the World’s Most Coveted Microchip, is essential reading to understand how Huang thinks. He’s an Asian immigrant who came from poverty; personifies the old-school American dream; does not take any nonsense from anyone; and is hyper-competitive. Huang is fully aware that Nvidia simply cannot lose the Chinese market; moreover he knows that before 2030 Chinese engineers will release their own GPU and may put Nvidia out of business.
Back to Shanghai, flying out of Pudong Airport it was easy to see why China’s air passenger traffic hit a record high in the first quarter of 2025 – even in a climate of “crisis” and fierce competition, including high-speed rail. Compound it with the human tsunami taking over Nanjing Road on a Friday night; that necessitates rows and rows of military police to discipline the human flow on both sides of the pedestrian mall.
The Tariff Emperor is being relentlessly mocked all across China.
Consumer crisis? What crisis? In parallel, across the Pacific, Taobao is now number 2 – and counting – on Apple’s App store in the US; everyone is eager not only for viral TikTok videos, but to go on an unlimited shopping spree of affordable made in China products.
On the military front, China has just come up with a non-nuclear hydrogen bomb. No uranium, No plutonium. Just a matchless chemical/engineering compound solution. Declining Empires waging proxy wars are so last century. The new Chinese bomb weighs just 2 kg; lasts fifteen times longer than TNT; and its fireball exceeds 1000 degrees Celsius.
The key lesson of these past heady days in Shanghai may be that China is now firmly, strategically focused all across the planet to occupy the moral high ground.
Trump Tariff Tizzy (TTT) may not improve the American trade deficit; what’s clear is that it has already imploded American trustworthiness.
Moreover, China’s absolute priority goes way beyond global trade: everyone familiar with Xi Jinping Thought knows it’s all about achieving “national modernization”, unification and weaving, with partners in all continents, a “community of shared future”.
So geopolitically and geoeconomically, this is the road map ahead: Shanghai is showing that China is relishing its new role as a Resistance beacon, bent on defying bullying, busy building a Global Majority consensus. It’s all about strategic patience – which a chaotic Empire out of control simply does not have.
Paul and Ken assess the extent of China’s decoupling from the US and why the US is deeply fearful of the outcome of Beijing’s policy initiatives in this regard.
China will continue to to turn the screw.
This article is based on America’s Protectionist Takeoff, 1815-1914: The Neglected American School of Political Economy (ISLET, 2010), my review of the political dynamics and economic theory that guided America’s rise to industrial power.
Donald Trump’s tariff policy has thrown markets into turmoil among his allies and enemies alike. This anarchy reflects the fact that his major aim was not really tariff policy, but simply to cut income taxes on the wealthy, by replacing them with tariffs as the main source of government revenue. Extracting economic concessions from other countries is part of his justification for this tax shift as offering a nationalistic benefit for the United States.
His cover story, and perhaps even his belief, is that tariffs by themselves can revive American industry. But he has no plans to deal with the problems that caused America’s deindustrialization in the first place. There is no recognition of what made the original U.S. industrial program and that of most other nations so successful. That program was based on public infrastructure, rising private industrial investment and wages protected by tariffs, and strong government regulation. Trump’s slash and burn policy is the reverse – to downsize government, weaken public regulation and sell off public infrastructure to help pay for his income tax cuts on his Donor Class.
This is just the neoliberal program under another guise. Trump misrepresents it as supportive of industry, not its antithesis. His move is not an industrial plan at all, but a power play to extract economic concessions from other countries while slashing income taxes on the wealthy. The immediate result will be widespread layoffs, business closures and consumer price inflation.
Introduction
America’s remarkable industrial takeoff from the end of the Civil War through the outbreak of World War I has always embarrassed free-market economists. The United States’ success followed precisely the opposite policies from those that today’s economic orthodoxy advocates. The contrast is not only that between protectionist tariffs and free trade. The United States created a mixed public/private economy in which public infrastructure investment was developed as a “fourth factor of production,” not to be run as a profit-making business but to provide basic services at minimal prices so as to subsidize the private sector’s cost of living and doing business.
The logic underlying these policies was formulated already in the 1820s in Henry Clay’s American System of protective tariffs, internal improvements (public investment in transportation and other basic infrastructure), and national banking aimed at financing industrial development. An American School of Political Economy emerged to guide the nation’s industrialization based on the Economy of High Wages doctrine to promote labor productivity by raising living standards and public subsidy and support programs.
These are not the policies that today’s Republicans and Democrats advise. If Reaganomics, Thatcherism and Chicago’s free-market boys had guided American economic policy in the late nineteenth century, the United States would not have achieved its industrial dominance. So it hardly is surprising that the protectionist and public investment logic that guided American industrialization has been airbrushed out of U.S. history. It plays no role in Donald Trump’s false narrative to promote his abolition of progressive income taxes, downsizing of government and privatization sell-off of its assets.
What Trump singles out to admire in America’s nineteenth-century industrial policy is the absence of a progressive income tax and the funding of government primarily by tariff revenue. This has given him the idea of replacing progressive income taxation falling on his own Donor Class – the One Percent that paid no income tax prior to its enactment in 1913 – with tariffs designed to fall only on consumers (that is, labor). A new Gilded Age indeed!
Screenshot Source: https://en.wikipedia.org/wiki/File:Federal_taxes_by_type.pdf
In admiring the absence of progressive income taxation in the era of his hero, William McKinley (elected president in 1896 and 1900), Trump is admiring the economic excess and inequality of the Gilded Age. That inequality was widely criticized as a distortion of economic efficiency and social progress. To counteract the corrosive and conspicuous wealth-seeking that caused the distortion, Congress passed the Sherman Anti-Trust Law in 1890, Teddy Roosevelt followed with his trust busting, and a remarkably progressive income tax was passed that fell almost entirely on rentier financial and real estate income and monopoly rents.
Trump thus is promoting a simplistic and outright false narrative of what made America’s nineteenth century policy of industrialization so successful.
For him, what is great is the “gilded” part of the Gilded Age, not its state-led industrial and social-democratic takeoff. His panacea is for tariffs to replace income taxes, along with privatizing what remains of the government’s functions. That would give a new set of robber barons free reign to further enrich themselves by shrinking the government’s taxation and regulation of them, while reducing the budget deficit by selling off the remaining public domain, from national park lands to the post office and research labs.
The key policies that led to America’s successful industrial takeoff
Tariffs by themselves were not enough to create America’s industrial takeoff, nor that of Germany and other nations seeking to replace and overtake Britain’s industrial and financial monopoly. The key was to use the tariff revenues to subsidize public investment, combined with regulatory power and above all tax policy, to restructure the economy on many fronts and shape the way in which labor and capital were organized.
The main aim was to raise labor productivity. That required an increasingly skilled labor force, which required rising living standards, education, healthy working conditions, consumer protection and safe food regulation. The Economy of High Wages doctrine recognized that well educated, healthy and well fed labor could undersell “pauper labor.”
The problem was that employers always have sought to increase their profits by fighting against labor’s demand for higher wages. America’s industrial takeoff solved this problem by recognizing that labor’s living standards are a result not only of wage levels but of the cost of living. To the extent that public investment financed by tariff revenues could pay the cost of supplying basic needs, living standards and labor productivity could rise without industrialists suffering a fall in profit.
The main basic needs were free education, public health support and kindred social services. Public infrastructure investment in transportation (canals and railroads), communications and other basic services that were natural monopolies was also undertaken to prevent them from being turned into private fiefdoms seeking monopoly rents at the expense of the economy at large. Simon Patten, America’s first professor of economics at its first business school (the Wharton School at the University of Pennsylvania), called public investment in infrastructure a “fourth factor of production.” 1 Unlike private-sector capital, its aim was not to make a profit, much less maximize its prices to what the market would bear. The aim was to provide public services either at cost or at a subsidized rate or even freely.
In contrast to European tradition, the United States left many basic utilities in private hands, but regulated them to prevent monopoly rents from being extracted. Business leaders supported this mixed public/private economy, seeing that it was subsidizing a low-cost economy and thus increasing its (and their) competitive advantage in the international economy.
The most important public utility, but also the most difficult to introduce, was the monetary and financial system needed to provide enough credit to finance the nation’s industrial growth. Creating private and/or public paper credit required replacing the narrow reliance on gold bullion for money. Bullion long remained the basis for paying customs duties to the Treasury, which drained it from the economy at large, limiting its availability for financing industry. Industrialists advocated moving away from over-reliance on bullion by the creation of a national banking system to provide a growing superstructure of paper credit to finance industrial growth.2 Classical political economy saw tax policy as the most important lever steering the allocation of resources and credit towards industry. Its main policy aim was to minimize economic rent (the excess of market prices over intrinsic cost value) by freeing markets from rentier income in the form of land rent, monopoly rent, and interest and financial fees. From Adam Smith through David Ricardo, John Stuart Mill, to Marx and other socialists, classical value theory defined such economic rent as unearned income, extracted without contributing to production and hence an unnecessary levy on the economy’s cost and price structure.
Taxes on industrial profits and labor’s wages added to the cost of production and thus were to be avoided, while land rent, monopoly rent and financial gains should be taxed away, or land, monopolies and credit could simply be nationalized into the public domain to lower access costs for real estate and monopoly services and reduce financial charges.
These policies based on the classical distinction between intrinsic cost-value and market price are what made industrial capitalism so revolutionary. Freeing economies from rentier income by the taxation of economic rent aimed at minimizing the cost of living and doing business, and also minimizing the political dominance of a financial and landlord power elite.
When the United States imposed its initial progressive income tax in 1913, only 2 percent of Americans had a high enough income to require them to file a tax return. The vast majority of the 1913 tax fell on the rentier income of financial and real estate interests, and on the monopoly rents extracted by the trusts that the banking system organized.
How America’s neoliberal policy reverses its former industrial dynamic
Since the takeoff of the neoliberal period in the 1980s, U.S. labor’s disposable income has been squeezed by high costs for basic needs at the same time as its cost of living has priced it out of world markets. This is not the same thing as a high-wage economy. It is a rakeoff of wages to pay the various forms of economic rent that have proliferated and destroyed America’s formerly competitive cost structure. Today’s $175,000 average income for a family of four is not being spent mainly on products or services that wage-earners produce. It is mostly siphoned off by the Finance, Insurance and Real Estate (FIRE) sector and monopolies at the top of the economic pyramid.
The private-sector’s debt overhead is largely responsible for today’s shift of wages away from rising living standards for labor, and of corporate profits away from new tangible capital investment, research and development for industrial companies. Employers have not paid their employees enough to both maintain their standard of living and carry this financial, insurance and real estate burden, leaving U.S. labor to fall further and further behind.
Inflated by bank credit and rising debt/income ratios, the U.S. guideline cost of housing for home buyers has risen to 43% of their income, far up from the formerly standard 25%. The Federal Housing Authority insures mortgages to guarantee that banks following this guideline will not lose money, even as arrears and defaults are hitting all-time highs. Home ownership rates fell from over 69% in 2005 to under 63% in the Obama eviction wave of foreclosures after the 2008 junk-mortgage crisis. Rents and house prices have soared steadily (especially during the period the Federal Reserve kept interest rates low deliberately to inflate asset prices to support the finance sector, and as private capital has bought up homes that wage earners cannot afford), making housing by far the largest charge on wage income.
Debt arrears also are exploding for student education debt taken on to qualify for a higher-paying job, and in many cases for the auto debt needed to be able to drive to the job. This is capped by credit-card debt accumulating just to make ends meet. The disaster of privatized medical insurance now absorbs 18 percent of U.S. GDP, yet medical debt has become a major cause of personal bankruptcy. All this is just the reverse of what was intended by the original Economy of High Wages policy for American industry.
This neoliberal financialization – the proliferation of rentier charges, inflation of housing and health-care costs, and the need to live on credit beyond solely one’s earnings – has two effects. The most obvious is that most American families have not been able to increase their savings since 2008, and are living from paycheck to paycheck. The second effect has been that, with employers obliged to pay their labor force enough to carry these rentier costs, the living wage for American labor has risen so far above that of every other national economy that there is no way that American industry can compete with that of foreign countries.
Privatization and deregulation of the U.S. economy has obliged employers and labor to bear the rentier costs, including higher housing prices and rising debt overhead, that are part and parcel of today’s neoliberal policies. The resulting loss of industrial competitiveness is the major block to its re-industrialization. After all, it was these rentier charges that deindustrialized the economy in the first place, making it less competitive in world markets and spurring the offshoring of industry by raising the cost of basic needs and doing business. Paying such charges also shrinks the domestic market, by reducing labor’s ability to buy what it produces. Trump’s tariff policy does nothing to address these problems, but will aggravate them by accelerating price inflation.
This situation is unlikely to change any time soon, because the beneficiaries of today’s neoliberal policies – the recipients of these rentier charges burdening the U.S. economy – have become the political Donor Class of billionaires. To increase their rentier income and capital gains and make them irreversible, this resurgent oligarchy is pressing to further privatize and sell off the public sector instead of providing subsidized services to meet the economy’s basic needs at minimum cost. The largest public utilities that have been privatized are natural monopolies – which is why they were kept in the public domain in the first place (i.e., to avoid monopoly rent extraction).
The pretense is that private ownership seeking profits will provide an incentive to increase efficiency. The reality is that prices for what formerly were public services are increased to what the market will bear for transportation, communications and other privatized sectors. One eagerly awaits the fate of the U.S. Post Office that Congress is trying to privatize.
Neither increasing production nor lowering its cost is the aim of today’s sell-off of government assets. The prospect of owning a privatized monopoly in a position to extract monopoly rent has led financial managers to borrow the money to buy up these businesses, adding debt payments to their cost structure. The managers then start selling off the businesses’ real estate for quick cash that they pay out as special dividends, leasing back the property that they need to operate. The result is a high-cost monopoly that is heavily indebted with plunging profits. That is the neoliberal model from England’s paradigmatic Thames Water privatization to private financialized former industrial companies such as General Electric and Boeing.
In contrast to the nineteenth century’s takeoff of industrial capitalism, the aim of privatizers in today’s post-industrial epoch of rentier finance capitalism is to make “capital” gains on the stocks of hitherto public enterprises that have been privatized, financialized and deregulated. A similar financial objective has been pursued in the private arena, where the financial sector’s business plan has been to replace the drive for corporate profits with making capital gains in stocks, bonds and real estate.
The great majority of stocks and bonds are owned by the wealthiest 10 percent, not by the bottom 90 percent. While their financial wealth has soared, the disposable personal income of the majority (after paying rentier charges) has shrunk. Under today’s rentier finance capitalism the economy is going in two directions at once – down for the industrial goods-producing sector, up for the financial and other rentier claims on this sector’s labor and capital.
The mixed public/private economy that formerly built up American industry by minimizing the cost of living and doing business has been reversed by what is Trump’s most influential constituency (and that of the Democrats as well, to be sure) – the wealthiest One Percent, which continues to march its troops under the libertarian flag of Thatcherism, Reaganomics and Chicago anti-government (meaning anti-labor) ideologues. They accuse the government’s progressive income and wealth taxes, investment in public infrastructure and role as regulator to prevent predatory economic behavior and polarization, of being intrusions into “free markets.”
The question, of course, is “free for whom”? What they mean is a market free for the wealthy to extract economic rent. They ignore both the need to tax or otherwise minimize economic rent to achieve industrial competitiveness, and the fact that slashing income taxes on the wealthy – and then insisting on balancing the government budget like that of a family household so as to avoid running yet deeper into debt – starves the economy of public injection of purchasing power. Without net public spending, the economy is obliged to turn for financing to the banks, whose interest-bearing loans grow exponentially and crowd out spending on goods and real services. This intensifies the wage squeeze described above and the dynamic of deindustrialization.
A fatal effect of all these changes has been that instead of capitalism industrializing the banking and financial system as was expected in the nineteenth century, industry has been financialized. The finance sector has not allocated its credit to finance new means of production, but to take over assets already in place – primarily real estate and existing companies. This loads the assets down with debt in the process of inflating capital gains as the finance sector lends money to bid up prices for them.
This process of increasing financialized wealth adds to economic overhead not only in the form of debt, but in the form of higher purchase prices (inflated by bank credit) for real estate and industrial and other companies. And consistently with its business plan of making capital gains, the finance sector has sought to untax such gains. It also has taken the lead in urging cuts in real estate taxes so as to leave more of the rising site value of housing and office buildings – their rent-of-location – to be pledged to the banks instead of serving as the major tax base for local and national fiscal systems as classical economists urged throughout the nineteenth century.
The result has been a shift from progressive taxation to regressive taxation. Rentier income and debt-financed capital gains have been untaxed, and the tax burden shifted onto labor and industry. It is this tax shift that has encouraged corporate financial managers to replace the drive for corporate profits with making capital gains as described above.
What promised to be a harmony of interests for all classes – to be achieved by increasing their wealth by running into debt and watching prices rise for homes and other real estate, stocks and bonds – has turned into a class war.
It is now much more than the class war of industrial capital against labor familiar in the nineteenth century. The postmodern form of class war is that of finance capital against both labor and industry. Employers still exploit labor by seeking profits by paying labor less than what they sell its products for. But labor has been increasingly exploited by debt – mortgage debt (with “easier” credit fueling the debt-driven inflation of housing costs), student debt, automobile debt and credit-card debt just to meet its break-even costs of living.
Having to pay these debt charges increases the cost of labor to industrial employers, constraining their ability to make profits. And (as indicated above) it is such exploitation of industry (and indeed of the whole economy) by finance capital and other rentiers that has spurred the offshoring of industry and deindustrialization of the United States and other Western economies that have followed the same policy path.3 In stark contrast to Western deindustrialization stands China’s successful industrial takeoff. Today, living standards in China are, for much of the population, broadly as high as those in the United States. That is a result of the Chinese government’s policy of providing public support for industrial employers by subsidizing basic needs (e.g., education and medical care) and public high-speed rail, local subway and other transportation, better high-technology communications and other consumer goods, along with their payments systems.
Most important, China has kept banking and credit creation in the public domain as a public utility. That is the key policy that has enabled it to avoid the financialization that has deindustrialized the U.S. and other Western economies.
The great irony is that China’s industrial policy is remarkably similar to that of America’s nineteenth-century industrial takeoff. China’s government, as just mentioned, has financed basic infrastructure and kept it in the public domain, providing its services at low prices to keep the economy’s cost structure as low as possible. And China’s rising wages and living standards have indeed found their counterpart in rising labor productivity.
There are billionaires in China, but they are not viewed as celebrity heroes and models for how the economy at large should seek to develop. The accumulation of conspicuous large fortunes such as those that have characterized the West and created its political Donor Class have been countered by political and moral sanctions against the use of personal wealth to gain control of public economic policy.
This government activism that U.S. rhetoric denounces as Chinese “autocracy” has managed to do what Western democracies have not done: prevent the emergence of a financialized rentier oligarchy that uses its wealth to buy control of government and takes over the economy by privatizing government functions and promoting its own gains by indebting the rest of the economy to itself while dismantling public regulatory policy.
What was the Gilded Age that Trump hopes to resurrect?
Trump and the Republicans have put one political aim above all others: cutting taxes, above all progressive taxation that falls mainly on the highest incomes and personal wealth. It seems that at some point Trump must have asked some economist whether there was any alternative way for governments to finance themselves. Someone must have informed him that from American independence through the eve of World War I, by far the dominant form of government revenue was customs revenue from tariffs.
It is easy to see the lightbulb that went off in Trump’s brain. Tariffs don’t fall on his rentier class of real estate, financial and monopoly billionaires, but primarily on labor (and on industry too, for imports of necessary raw materials and parts).
In introducing his enormous and unprecedented tariff rates on April 3, Trump promised that tariffs alone, by themselves, would re-industrialize America, by both creating a protective barrier and enabling Congress to slash taxes on the wealthiest Americans, whom he seems to believe will thereby be incentivized to “rebuild” American industry. It is as if giving more wealth to the financial managers who have deindustrialized America’s economy will somehow enable a repeat of the industrial takeoff that was peaking in the 1890s under William McKinley.
What Trump’s narrative leaves out of account is that tariffs were merely the precondition for the nurturing of industry by the government in a mixed public/private economy where the government shaped markets in ways designed to minimize the cost of living and doing business. That public nurturing is what gave nineteenth-century America its competitive international advantage. But given his guiding economic aim to untax himself and his most influential political constituency, what appeals to Trump is simply the fact that the government did not yet have an income tax.
What also appeals to Trump is the super-affluence of a robber-baron class, in whose ranks he can readily imagine himself as if in a historical novel. But that self-indulgent class consciousness has a blind spot regarding how its own drives for predatory income and wealth destroy the economy around it, while fantasizing that the robber barons made their fortunes by being the great organizers and drivers of industry. He is unaware that the Gilded Age did not emerge as part of America’s industrial strategy for success but because it did not yet regulate monopolies and tax rentier income. The great fortunes were made possible by the early failure to regulate monopolies and tax economic rent. Gustavus Myers’ History of the Great American Fortunes tells the story of how railroad and real estate monopolies were carved out at the expense of the economy at large.
America’s anti-trust legislation was enacted to deal with this problem, and the original 1913 income tax applied only to the wealthiest 2 percent of the population. It fell (as noted above) mainly on financial and real estate wealth and monopolies – financial interest, land rent and monopoly rent – not on labor or most businesses. By contrast, Trump’s plan is to replace taxation of the wealthiest rentier classes with tariffs paid mainly by American consumers. To share his belief that national prosperity can be achieved by tax favoritism for his Donor Class by untaxing their rentier income, it is necessary to block awareness that such a fiscal policy will prevent the re-industrialization of America that he claims to want.
The U.S. economy cannot be re-industrialized without freeing it from rentier income
The most immediate effects of Trump’s tariff policy will be unemployment as a result of the trade disruption (over and above the unemployment flowing from his DOGE cutbacks in government employment) and an increase in consumer prices for a labor force already squeezed by the financial, insurance and real estate charges that it has to bear as first claims on its wage income. Arrears on mortgage loans, auto loans and credit-card loans already are at historically high levels, and more than half of Americans have no net savings at all – and tell pollsters that they cannot cope with an emergency need to raise $400.
There is no way that disposable personal income will rise in these circumstances. And there is no way that American production can avoid being interrupted by the trade disruption and layoffs that will be caused by the enormous tariff barriers that Trump has threatened – at least until the conclusion of his country-by-country negotiation to extract economic concessions from other countries in exchange for restoring more normal access to the American market.
While Trump has announced a 90-day pause during which the tariffs will be reduced to 10% for countries that have indicated a willingness to so negotiate, he has raised tariffs on Chinese imports to 145%.4
China and other foreign countries and companies already have stopped exporting raw materials and parts needed by American industry. For many companies it will be too risky to resume trade until the uncertainty surrounding these political negotiations are settled. Some countries can be expected to use this interim to find alternatives to the U.S. market (including producing for their own populations).
As for Trump’s hope to persuade foreign companies to relocate their factories to the United States, such companies face the risk of him holding a Sword of Damocles over their heads as foreign investors. He may in due course simply insist that they sell out their American affiliate to domestic U.S. investors, as he has demanded that China do with TikTok.
And the most basic problem, of course, is that the American economy’s rising debt overhead, health insurance and housing costs already have priced U.S. labor, and the products it makes, out of world markets. Trump’s tariff policy will not solve this. Indeed, his tariffs by increasing consumer prices will exacerbate this problem by further increasing the cost of living and thus the price of American labor.
Instead of supporting a regrowth of U.S. industry, the effect of Trump’s tariffs and other fiscal policies will be to protect and subsidize obsolescence and financialized deindustrialization. Without restructuring the rentier financialized economy to move it back toward the original business plan of industrial capitalism with markets freed from rentier income, as advocated by the classical economists and their distinctions between value and price, and hence between rent and industrial profit, his program will fail to re-industrialize America. Indeed, it threatens to push the U.S. economy into depression – for 90 percent of the population, that is.
So we find ourselves dealing with two opposing economic philosophies. On the one hand is the original industrial program that the United States and most other successful nations followed. It is the classical program based on public infrastructure investment and strong government regulation, with rising wages protected by tariffs that provided the public revenue and profit opportunities to create factories and employ labor.
Trump has no plans to recreate such an economy. Instead, he advocates the opposing economic philosophy: downsizing government, weakening public regulation, privatizating public infrastructure, and abolishing progressive income taxes. This is the neoliberal program that has increased the cost structure for industry and polarized wealth and income between creditors and debtors. Donald Trump misrepresents this program as being supportive of industry, not its antithesis.
Imposing tariffs while continuing the neoliberal program will simply protect senility in the form of industrial production burdened by high costs for labor as a result of rising domestic housing prices, medical insurance, education, and services bought from privatized public utilities that used to provide basic needs for communications, transportation and other basic needs at subsidized prices instead of financialized monopoly rents. It will be a tarnished gilded age.
While Trump may be genuine in wanting to re-industrialize America, his more single-minded aim is to cut taxes on his Donor Class, imagining that tariff revenues can pay for this. But much trade already has stopped. By the time more normal trade resumes and tariff revenue is generated from it, widespread layoffs will have occurred, leading the affected labor to fall further into debt arrears, with the American economy in no better position to re-industrialize.
The geopolitical dimension
Trump’s country-by-country negotiations to extract economic concessions from other countries in exchange for restoring their access to the American market no doubt will lead some countries to succumb to this coercive tactic. Indeed, Trump has announced over 75 countries have contacted the U.S. government to negotiate. But some Asian and Latin American countries already are seeking an alternative to the U.S. weaponization of trade dependency to extort concessions. Countries are discussing options to join together to create a mutual trade market with less anarchic rules.
The result of them doing so would be that Trump’s policy will become yet another step in America’s Cold War march to isolate itself from trade and investment relations with the rest of the world, including potentially with some of its European satellites. The United States runs the risk of being thrown back onto what has long been supposed its strongest economic advantage: its ability to be self-sufficient in food, raw materials, and labor. But it already has deindustrialized itself, and has little to offer other countries except for the promise not to hurt them, disrupt their trade and impose sanctions on them if they agree to let the United States be the major beneficiary of their economic growth.
The hubris of national leaders trying to extend their empire is age-old – as is their nemesis, which usually turns out to be themselves. At his second inauguration, Trump promised a new Golden Age. Herodotus (History, Book 1.53) tells the story of Croesus, king of Lydia c. 585-546 BC in what is now Western Turkey and the Ionian shore of the Mediterranean. Croesus conquered Ephesus, Miletus and neighboring Greek-speaking realms, obtaining tribute and booty that made him one of the richest rulers of his time, famous for his gold coinage in particular. But these victories and wealth led to arrogance and hubris. Croesus turned his eyes eastward, ambitious to conquer Persia, ruled by Cyrus the Great.
Having endowed the region’s cosmopolitan Temple of Delphi with substantial gold and silver, Croesus asked its Oracle whether he would be successful in the conquest that he had planned. The Pythia priestess answered: “If you go to war against Persia, you will destroy a great empire.”
Croesus optimistically set out to attack Persia c. 547 BC. Marching eastward, he attacked Persia’s vassal-state Phrygia. Cyrus mounted a Special Military Operation to drive Croesus back, defeating Croesus’s army, capturing him and taking the opportunity to seize Lydia’s gold to introduce his own Persian gold coinage. So Croesus did indeed destroy a great empire – but it was his own.
Fast-forward to today. Like Croesus hoping to gain the riches of other countries for his gold coinage, Trump hoped that his global trade aggression would enable America to extort the wealth of other nations and strengthen the dollar’s role as a reserve currency against foreign defensive moves to de-dollarize and create alternative plans for conducting international trade and holding foreign reserves. But Trump’s aggressive stance has further undermined trust in the dollar abroad, and is causing serious interruptions in the supply chain of U.S. industry, halting production and causing layoffs at home.
Investors hoped for a return to normalcy as the Dow Jones Industrial Average soared upon Trump’s suspension of his tariffs, only to then fall back when it became clear that he was still taxing all countries 10 percent (and China a prohibitive 145 percent). It is now becoming apparent that his radical disruption of trade cannot be reversed.
The tariffs that Trump announced on April 3, followed by his statement that this was simply his maximum demand, to be negotiated on a bilateral country-by-country basis to extract economic and political concessions (subject to more changes at Trump’s discretion) have replaced the traditional idea of a set of rules consistent and binding for all countries. His demand that the United States must be “the winner” in any transaction has changed how the rest of the world views its economic relations with the United States. An entirely different geopolitical logic is now emerging to create a new international economic order.
China has responded with its own tariffs and export controls as its trade with the United States is frozen, potentially paralyzed. It seems unlikely that China will remove its export controls on many products essential for U.S. supply chains. Other countries are searching for alternatives to their trade dependency on the United States, and a reordering of the global economy is now under negotiation, including defensive de-dollarization policies. Trump has taken a giant step toward the destruction of what was a great empire.
Thanks to the Democracy Collaborative.
Footnotes
The three usual factors of production are labor, capital and land. But these factors are best thought of in terms of classes of income recipients. Capitalists and workers play a productive role, but landlords receive rent without producing a productive service, as their land rent is unearned income that they make “in their sleep.”
In contrast to the British system of short-term trade credit and a stock market aimed at making quick gains at the expense of the rest of the economy, Germany went further than the United States in creating a symbiosis of government, heavy industry and banking. Its economists called the logic on which this was based the State Theory of Money. I give the details in Killing the Host (2015, chapter 7).
America’s deindustrialization has also been facilitated by U.S. policy (starting under Jimmy Carter and accelerated under Bill Clinton) promoting the offshoring of industrial production to Mexico, China, Vietnam and other countries with lower wage levels. Trump’s anti-immigrant policies playing on native Americanism are a reflection of the success of this deliberate U.S policy in deindustrializing America. It is worth noting that his migration policies are the opposite of those of America’s industrial takeoff, which encouraged immigration as a source of labor – not only skilled labor fleeing Europe’s oppressive society, but also low-wage labor to work in the construction industry (for men) and the textile industry (for women). But today, by having moved directly to the countries from which immigrants performing U.S. industrial labor previously came, American industry has no need to bring them to the United States.
The White House has pointed out that Trump’s new 125% tariff on China is on top of the 20% IEEPA (International Emergency Economic Powers Act) tariffs already in place, making the tariff on Chinese imports an unpayably high 145%.
Three wise monkeys are perfectly aware of what a pigeon posing as eagle is really up to.
By Pepe Escobar at the Strategic Culture Foundation.
The Toddler Temper Tantrum-style Trump Tariff Tizzy (TTT), now accelerated to 145% – and counting – is yet another thunderous trademark pigeon smashing the chessboard gambit.
It won’t work. Trump claimed that China would call him to “make a deal”. That’s reality show territory. Reality is more like the statement by the Customs Tariff Commission of the State Council: “Given that U.S. exports to China already have no market acceptability under the current tariff rates, if the U.S. further imposes additional tariffs on Chinese goods, China will simply ignore them.”
Translation: keep vociferating/tariffing. We don’t care. And we will stop buying from you. Anything.
The Chinese Foreign Ministry: A “tariff-wielding barbarian can never expect a call from China.”
Basic numbers. China’s GDP for 2025 is projected at 5%. U.S. imports account for at best 4% of Chinese GDP. China’s share of total exports to the U.S. dropped to 13.4 per cent in 2024.
Goldman Sachs – not exactly a CCP “mouthpiece” – has just projected that TTT will cost China only 0.5% of GDP in 2025, while costing no less than 2% of U.S. GDP. Talk about blowback.
Still, from now on, what matters most for Beijing is to keep diversifying the supply chain.
Asia-wide, the extra wheels are in motion. President Xi Jinping will soon start an ASEAN mini-tour (Vietnam, Cambodia, Malaysia). The Shanghai Cooperation Organization – increasingly focused on geoeconomics – is about to meet. The EU, for all the mendacity of its “elites”, is absolutely itching to strike trade deals with China.
Zhao Minghao, deputy director at the Centre for American Studies at Fudan University, in Shanghai, refers to the current incandescence as “a game of strategic resolve.”
Previously, the eminent Wang Yiwei, international relations star professor at Renmin University in Beijing and an expert on the New Silk Roads, noted that the current tariff rate already made China’s exports to the U.S. “almost impossible”.
This analysis noted how China started to deal with TTT with a “courtesy before force” approach, then turned to “we don’t care”, while cultivating “the art of timing” in its asymmetric attack on U.S. stocks.
A fascinating window on the real wheels of Chinese trade is offered by a timely visit to the vast Yiwu International Trade City, the largest concentration of small traders on the planet.
Less than 10% of Yiwu’s phenomenal amount of business involves the U.S. Among the 75,000 business operators in Yiwu Small Commodity City, only a little over 3,000 do business with the U.S.
Two Sinophobes meet one mirage
TTT is largely the product of two crude Team Trump arrogant/ignorant Sinophobes, economic advisor Peter Navarro and Secretary of the Treasury Scott Bessent, who know less than zero about all things China.
In fact it was Bessent who right at the start gave the game away:
“This was driven by the president’s strategy… You might even say that he goaded China into a bad position. They responded. They have shown themselves to the world to be the bad actors, and we are willing to cooperate with our allies and with our trading partners who did not retaliate.”
A crude trap. With the sole focus on China. That had nothing to do with the initial tawdry plot line: tariffs, Mafia-style, on most of the planet, penguins included. If you don’t retaliate, fine. If you do, we hit harder.
of the so-called “Miran mirage” – after Trump’s alleged economic brain Stephen Miran. What is actually happening, fast, bypassing the stupid notion that tariffs will be paid for by current depreciation elsewhere (see Miran’s white paper here), is the uncontrolled demolition of the U.S. as a world trade center.
Asked why he paused the tariffs, Trump answered: “I thought people were jumping a bit out of line. They were getting a little bit yipee. They were getting afraid.”
Nonsense. Trump cannot possibly admit on the record that the U.S. oligarchy, Jamie Dimon and co., freaked out big time; and that, plus the debacle in the bond market, forced him to backtrack.
Nobody in neoliberal heaven and earth can mess with the Goddess of the Market.
As for the long-term strategy of several nations of the Global Majority caught in TTT’s crossfire hurricane, not to mention big players like China and the EU, they will all avidly reduce their dependence on U.S. markets.
Once again, the elaborate “deal” offered by Trump and his illiterate advisors boiled down to a Mafioso “offer you can’t refuse”: blow up, or significantly diminish, your trade with China – the largest trading partner of nearly all of these nations – and trade with Exceptionalistan, plus 10% tariffs. To hell with your economic sovereignty and strategic flexibility. Once again: it’s our way or the – tariff – highway.
Reality instead will dictate that the U.S. will increasingly import Chinese products from third countries – while China will continue to get paid for it. China will export even more to ASEAN and other Global Majority actors.
As it stands, Trump’s “plan” – if there is any – remains to “stabilize” his allies while concentrating all the firepower on China, in theory to drive China’s complex supply chains to chaos and force companies to move production lines to, for example, Vietnam or India.
Shakedown leading to breakdown
China containment will be on overdrive. Expect a tsunami of technological restrictions, investment red lines and, of course, extra sanctions. Sinophobe Bessent does not rule out delisting Chinese stocks from U.S. exchanges: “I think everything’s on the table (…) That will be President Trump’s decision.”
Beijing, for its part, can easily go nuclear, deciding for a sell-off of its U.S. Treasuries en masse, with catastrophic cascading consequences. As of January, Beijing held $760 billion in U.S. debt. With a delightful diplomatic touch, Yang Panpan and Xu Qiuyan, researchers at the Chinese Academy of Social Sciences, note that what happens next with U.S. Treasury bonds remains “highly uncertain”.
Bridgewater billionaire investor Ray Dalio, for his part, while incisive, was also heavy on diplomacy: “We are seeing a classic breakdown of the major monetary, political and geopolitical orders.”
There’s no more “cooperative world order” led by the U.S. (in fact that was anything but cooperative”); Dalio at least recognizes the unilateralism manifest in “the U.S.-led trade-war, geopolitical war, technology war, and, in some cases, military wars.”
Chinese Foreign Ministry Spokesperson Lin Jian de facto synthesized Beijing’s position. No more Mr. Nice Guy, which was the default Chinese position until recently: if the U.S. insists on fighting a tariff war and a trade war, China will fight to the end.
So here we are. And once again, it’s the Empire of Chaos against BRICS.
The Empire of Chaos embarks on a hot geoeconomics war against its peer competitor China; contemplates a hot military war against sovereign Iran; and at the same time tries to appease nuclear/hypersonic power Russia into a sort of hazy deal to somewhat freeze the Forever War by proxy in Ukraine.
The new Primakov triangle, RIC (Russia-Iran-China) is perfectly aware of these moves. Putin had metaphorically characterized the Russian position in the U.S.-China trade war when he mentioned that the Chinese have a good proverb: when tigers fight in the valley, the smart monkey sits and watches how it ends.
Now is more the case of three wise monkeys perfectly aware of what a pigeon posing as eagle is really up to.
Nobody stops talking about Tariffs. In the economic world, in the trade world, in the world of markets and investments (and in your kitchen or garage or where you do your marketing), this will have an effect. Bear in mind that trade wars do real damage, and it is not as if we’re going to walk out of this with a clear ‘winner’ or a clean ‘loser’. We may only walk out of this with demolished countries, some more than others.
There is a reason why this is called a Trade War as it does damage like a war does. It could kill people, like a war does. It could wipe out countries, like a war does.
Chinese Commerce Minister Wang Wentao said the US-led tariffs could cause serious harm to developing countries and even trigger a humanitarian crisis. He said this to WTO Director-General Ngozi Okonjo-Iweala during a video conference devoted to issues of protecting the multilateral trading system and responding to US actions. Wang Wentao’s statement was published on the website of the Chinese Ministry of Commerce.
BRICS members have just called for a joint defense of the multilateral trade system
We saw this morning the ‘sneak’ change that so far, was not announced by anyone in the White House. Yes, it is weekend, but after the immediate announcements this past week or so, and the continual amplification by the White House Blondy, this is different. Again, uncertainty. We don’t know and an economic system cannot live in a continual state of ‘we don’t know’.
Smartphones and computers will be excluded from President Donald Trump’s reciprocal tariffs, according to new guidance issued by U.S. Customs and Border Protection. The updated tariff guidance also carves out exemptions for a range of electronic devices and components, including laptops, semiconductors, solar panels, flat-screen TV displays, flash drives, memory cards, and solid-state drives used for data storage. (Yes, for China too).
Nobody is paying attention because if this can happen today, something else can be announced tomorrow. The trust base is gone, and countries will continue changing their trade patterns and hedge against the US.
Professor Richard Wolff explains again how it works and why the world’s economies could spend time ‘on pause’, because of uncertainty. (I grew up in a farming but also a business house, and one of the hard and fast rules was that cashflow is king).
Economist Richard Wolff offers a shocking warning to the empire as Trump’s tariffs devastate the US economy. This video discusses how Trump’s economic policy is facilitating the collapse of the US empire as China pursues economic policy that could be the nail in its coffin.
Seun Foo reports the chronicles. He tells the story:
Ben Norton has a more technical perspective on the issue of charging what is considered a ‘fealty to the emperor’. He explains the policy.
US President Donald Trump wants to use tariffs as part of a plan to save the dominance of the dollar as the global reserve currency. His top economic advisor Stephen Miran outlined the Trump administration’s strategy to force other countries to pay the USA to maintain its imperial financial and military order. Ben Norton explains the idea behind the hypothetical “Mar-a-Lago Accord”.
A note from one of our China Writers:
In 2000, U.S. trade totaled $2.0 trillion—more than four times China’s $474 billion. At the time, China was the primary trade partner for only a handful of countries, including Cuba, Iran, Libya, Myanmar, Mongolia, North Korea, Oman, Sudan, Tanzania, and Vietnam.
From 2000 to 2024, U.S. trade grew by 167% (4.2% CAGR), while China’s trade surged by 1,200% (11.3% CAGR), surpassing the U.S. in 2012. By 2024, total trade reached $5.3 trillion for the U.S. and $6.2 trillion for China.
Paul and Ken discuss the real reasons why the Trump administration caved in with respect to global tariff policies.
@realDonaldTrump
Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately. At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable. Conversely, and based on the fact that more than 75 Countries have called Representatives of the United States, including the Departments of Commerce, Treasury, and the USTR, to negotiate a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation, and Non Monetary Tariffs, and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately. Thank you for your attention to this matter!
In the press conference following: Trump blames his ‘STUPID, incompetent’ predecessors for not taking trade war to China
‘I don’t blame China for what happened’ he adds.
A few random comments from reliable China commentators:
Clown show on steroids: So it comes to pass. Trump had no choice. China won’t care, it knew this was coming since Trump was elected.
Idiotically, everyone now knows that this is a personal US vendetta against China.
Deliberately tank the market, does insider trading – Art of the Deal.
He is warmongering and trying to destabilize East Asia.
Jesus—Trump just said that he will be looking at exempting certain US companies from tariffs. Reporter asks: “How will you determine that?” Trump: “Instinctively”. Sounds like whoever will bend the knee and kiss the ring.
Graeber discussion group April 4, 2025
(INTRO)
Michael Hudson: The problem is not government debt, it’s private debt. People who say that government debt is the problem are people who want to get rid of the government and take it over themselves.
What gives money its value?
Money is basically a public utility. Prior to Western civilization, money was always kept in the public sector, in the palace sector, and that’s because what gives money its value is that governments accept it for paying taxes. Money has always been a product of the government, but in the late 19th century, banking began to be thoroughly privatized and taken out of the hands of any government that controlled it.
The banks did two strategies. One was, if you were a global self-country, one of the new republics that got independent in the 19th century, they couldn’t pay their debts, and so England and France would impose national monetary commissions to take control of the fiscal policy of governments. So governments lost their ability to tax and make policy to the foreign financial sector. In the United States, the United States did not have a foreign debt, but the banks replaced the treasury with the Federal Reserve and the central bank.
And the purpose of central banks today in every country is to take control of tax policy, monetary policy and credit creation in the hands of the commercial banks, not in the hands of the government. Well, the advantage of having the government as the creditor, as it was in Mesopotamia, in the Bronze Age, is that if most debts were owed to the palace, the palace ruler could cancel the debts and write them down. But if you have a government without a private sector, then you can’t write it down.
Look at what happened in Japan. You mentioned Japan. Japan kept lending more and more money to finance the purchase of real estate. And the real estate, housing or an office building, is worth however much a bank would lend to buy it. And the Japanese banks lent so much money that just the real estate around the palace area, the Ginza district, was worth more than the entire state of California. Well, after the Plaza Accord and Japan was obliged to raise its exchange rate, Japan adopted America’s neoliberal policy and left all of these debts in place.
And so Japan entered a permanent depression by about 1990 that it’s never been able to escape from. So Japan is an example of what happens to a country that basically is run to serve the interests of private sector bankers. In China right now, China has the ability to write down the debts because there’s not going to be a domestic oligarchy that’s going to overthrow it because the debts are not owed to private sector banks, they’re owed to the government. And the government can write down debts that ultimately are owed to itself. You’d also be writing down debts that are owed to a lot of people who borrowed money to create banks to relend. You’d wipe out the creditor class.
And the whole idea of Chinese and also all of Asian development for thousands of years has been to create a kind of society that is not run by the merchant class or the creditor class, they’re sort of at the bottom of the social structure. And Asia had that, unlike the case of Western civilization.
But under US influence and Western civilization in the last century, Asia has been westernized and it’s now fallen into the same debt ethic that somehow all of the debts have to be paid without taking into account what the social consequences of these are. And the social consequences are to move into a chronic decline in living standards, a decline in population. You end up looking at Japan where if you’re a debt-ridden population, family formation falls off, fertility rates fall off, you end up to be a shrinking economy. Same thing in the Baltic states and the post-Soviet states.
Nika Dubrovsky: People have been reading your book, America’s Protectionist Takeoff, and are using it as an inspiration for Trump’s tariffs. But it is a completely different circumstance in the 1800s to today. What do you think about Trump’s tariffs?
MH: He’s doing the exact opposite of how American protectionism developed. I’m going to be publishing an article on that on my website. I’m working on that just today.
The whole idea of protectionism was not simply to have protective tariffs for industry. There was a whole strategy of how you become a successful and prosperous industrial country. The whole key was what was called the economy of high wages.
The economists who designed American protectionist takeoff followed the economy of high wages. That’s what they called it. And they said that the well-fed, well-educated, healthy, well-clothed, well-housed labor is more productive than proper labor.
So if you’re going to have an industry that is productive enough to sell to the industry of other countries, you have to have a skilled labor force that is productive. Well, you can imagine what a lot of employers said. They said, well, we want to make our profits by not paying labor as much as we charge for the goods that they produce.
That’s what profits or surplus value is. So the government said, okay, you may not have to pay labor for all of the wages and the living standards that it gets, but we can have the government create a public sector, with internal improvements. We can have the government bear the cost of much of the needs of labor so that employers do not have to pay it.
So imagine what certainly happened in Europe as well as America. Education was free and public. You didn’t have to pay $50,000 a year. You get public education.
Public health was important. It was a conservative prime minister in England, Benjamin Disraeli, that said health, everything is health. He wanted to make sure that everybody was healthy because that’s more productive. Well, just imagine today, the 18% and rising of America’s GDP just goes for health insurance and healthcare. And it’s among the worst in the world in terms of performance.
The student debt is very high. The common aim of classical economics from England to the United States was, well, you want to keep housing costs low so that labor can afford to get housing and won’t have to insist on wages that are high enough to pay a housing that’s a bit up on credit or a higher and higher housing mortgage debt. So housing costs were kept low.
The whole idea of classical value theory was to bring market prices down to the actual cost value and that value included labor’s wages and the profits of industry because you have to make a profit and industry used that to reinvest in expanding. But over and above the actual cost of production was land rent, monopoly rent and financial returns. And as in the FIRE sector, the finance, insurance and real estate.
So the whole idea of industrial development from Europe to the United States was to prevent a financial sector from developing. And that’s why in America you had the Sherman antitrust law in 1890 to prevent monopolies from being formed to increase the cost of living by creating monopoly goods. And basically banks were viewed as the mother of trusts.
And you soon had Teddy Roosevelt become president and he was leading the trust busters. He was helping break it all up. Well, what Trump wants to do is restore what he called the gilded age.
The aim of American protectionism was not to create a gilded age of very wealthy multimillionaires dominating society. That was considered the failure of the whole economic policy that underlies protectionism. You didn’t want a class of idle rich making their money by financial means, by monopoly and by real estate rents jacking up.
You wanted people to get rich by making factories to produce goods and services to export and to create an industrial society. So what Trump wants to restore in the period in McKinley’s era, -he was elected in 1896-, is everything that went wrong with the American industrial development, not everything that went right with it. What Henry Clay in the 1820s called the American System that led to industrialization was protective tariffs, internal improvements. In other words, public infrastructure, the Erie Canal, transportation. They said if there’s transportation, communication, other basic needs are natural monopolies. And you don’t want monopolies to gain power because if they’re privatized in private hands, then they’re going to raise the prices and make monopoly rents. If the government treats public investment, infrastructure investment, internal improvements, then public investment is provided basic services at low prices or even subsidized prices.
And so one of the leading protectionists was Simon Patton, the first economics professor at the first business school in America, the Horton School at the University of Pennsylvania. And Simon Patton said public infrastructure investment is like a fourth factor of production alongside labor, capital and land, which isn’t really a factor of production. It’s a claim on production. You have infrastructure, but the aim of public infrastructure is different from owning land or owning industry and wanting more profits or even wages, wanting higher wages. The idea of public infrastructure investment is not to make a profit, but to lower the cost of living and the cost of doing business for the economy so that employers and labor do not have to pay monopoly rents to a rentier class.
Well, Trump wants to create, essentially to shift tax, to apply tariffs. His whole tariff policy is saying until 1913, America didn’t have an income tax. Most of the money that financed the American government’s budget, which was in surplus most of the time, was tariff receipts along with the sale of land that was grabbed from the Indians, land rights. And so the whole idea was that the tariffs, the protected industry were going to essentially finance internal improvements.
And when America did create the income tax in 1913, it only taxed 2% of the people. You didn’t have to pay an income tax or file a tax return until you had made so much money that you’re in the top 2% of the population. And who were these 2%? They were the bankers, the financiers, the monopolists and the real estate owners. In other words, the rent recipients, exactly the people that classical economics and the American school said, you don’t want economic rent, you want to bring prices down to the actual cost of production. And you want to minimize the cost of production by having the government provide as much of what people actually need to live on and to exist for nothing. And that way America can undersell.
Well, what Trump wants to do in his tariff policy is accept the whole neoliberal counter-revolution of Margaret Thatcher and Ronald Reagan, of privatization. And if you, today, you have the Trump administration wanting to get rid of government. How do you get rid of government? You sell it all off to private owners who buy it, mainly they borrow the money to buy it. So once you privatize a public utility, you end up sort of like Thames Water in England. You not only add profits and management fees, but you add all the costs of financing debt. So what happened in Thames Water in England is sort of a monster film of what’s happened in the United States and other countries. Thames Water buyers kept borrowing money against their right to charge fees for the water and sewer and the protection of England’s water.
They borrowed the money, but they didn’t use this to build better sewers or water pipes. They used it simply to pay dividends to themselves and the dividends and to buy their own stock. Well, that’s what happens when you privatize a basic utility. And that’s what’s happened throughout the United States. That’s the Trump plan for privatization. Sell off everything from the national parks, sell off any public housing, turn it into private rental housing, sell off the railroads, sell off any communications in the hands of the government.
And all of a sudden you’re going to turn what are these natural monopolies that were kept in the public domain, like the post office, so that you could mail letters at cost and turn it into a private monopoly so the buyer can now double or quadruple the price of mail and say, well, what’s your alternative?
So all of this that Trump is doing is, I wish I had the chart to show you here, is to replace the tariff system, replace the whole growth of the income tax system with tariffs. After 1913, all of the government has been financed basically by taxes, mainly the income and property taxes that it had. Trump wants to roll it back and get rid of all of the social democratic government reforms since 1913, and go back to the time when the bankers and the industrialists and the real estate owners didn’t have to pay any income tax at all. All of the government revenues will be based on tariffs that are paid largely by America’s consumers, because Trump has given a list of things that are not going to be charged tariffs on, things that industry buys, like the oil industry will buy special kinds of oil and diesel for its products. He’s done exactly the opposite of everything.
And I didn’t mention in my book that America, during its industrial takeoff in the late 19th century, encouraged immigration. But immigration was a great source of labor, and that helped provide the labor that did the hard work of construction industry. The immigrant labor has always done most of the construction, not only of buildings, but of roads and public construction. It was immigrant labor that became the industrial labor force largely.
But Trump wants to ban immigrant labor now. And if you don’t have immigrant labor doing the manual labor and the hard work and the industrial labor, then how are you going to have a labor force doing any of this? So again, while pretending to restore the golden age, the gilded age when the rich people had more than the whole rest of the economy put together, that’s what he wants to restore. And that, of course, is a travesty of the way in which the American system worked and steered America to become successful.
Is Government debt a huge problem?
The problem is not government debt. It’s private debt. People who say that government debt’s the problem are people who want to get rid of government and take it over themselves. The governments really can’t go broke if they have debts in their own currency, because you can always print the debt. For instance, if you have dollar bills in your pocket, that’s technically a government debt.
But it’s a form of government debt that does not bear interest. And nobody expects the government to repay these dollar bills, because if it repaid them, you wouldn’t have any more dollar bill money. The government does have debt that’s owed to foreign central banks, for instance, that hold their monetary reserves in the form of government debt.
But the government debt is so large that it can’t be repaid. And the American government says, well, we’re not going to repay it. The only way that they can repay it is for the Federal Reserve to simply create the money on a computer and pay the debt. So they say, all right, you can create it.
Governments do not have to borrow in order to finance their business. The Civil War was financed by creating the money. They didn’t borrow the money because there wasn’t enough money to lend to the North to win the Civil War. The Revolutionary War, how were they going to get the money? You couldn’t tax the people, because if you tax them, they wouldn’t want a revolution. So they printed the currency that was called Continentals.
And before that, in the 18th and 17th century, Britain wanted to control the United States and dominate it by not permitting Americans, the colonies, to use their own money. They wanted the colonies to have to borrow from British creditors. And so the colonies wanted to avoid this, because if they couldn’t create their money, they had to sell their products, their grain and their other products at low prices that the British merchants would get rich on. So Massachusetts and Pennsylvania printed their own money, the colonial currency money. That was how they funded. Other governments have done the same thing.
And none of this money was inflationary as such. There was a wartime inflation in the Civil War, just because of the shortages. There was an inflation of the Continental currency because the British undertook a counterfeiting campaign to try to destroy the American ability to finance the Revolutionary War against itself.
But basically, the Americans limited the creation of money so that it wouldn’t be inflationary. Well, right today, governments have a choice. Either you can borrow money from the creditor class and pay them high interest, and it was recently about almost 5%. Well, 5%, if you buy a government bond at 5%, that doubles in about 14 years. So here, all you have to do is put your money in government bonds, and you double it in 14 years. It’s quadrupled in 28 years, and so on.
But the government doesn’t have to borrow, because when you borrow money from the private sector, the private sector doesn’t cut back consumption. They just say, OK, we’re not going to buy stocks or commercial bonds. We’ll buy a government bond.
And the government then prints the money to spend into the economy. Well, it doesn’t have to borrow to print the money into the economy, nor do other countries like Canada have to borrow from Germany or Switzerland as they did in the 1970s. They can simply print the money, and it has exactly the same effect on inflation and on public spending and on national income.
So that essentially is what modern monetary theory teaches.
The governments don’t need to go into debt. And if there is a debt problem, they can simply print it to repay it. So nobody expects the government debt to be repaid. The problem is the private debt, because nobody’s going to foreclose on the government. You can’t foreclose. There’s no procedure for that. But you can foreclose on individuals who are in debt. You can foreclose on real estate that’s in debt and kick out the homeowner or the landlord. And you can foreclose on corporations and force it into bankruptcy and force it to be sold. If you’re in the global majority, it’s often sold to a foreign buyer. And debt is a way of prying away industry or forcing governments that own a foreign debt, not in their own currency, to sell off their raw materials, their oil rights, their public infrastructure.
So no government should take on a public debt that is not in its own currency. And if they do that, there’s no government debt problem. The problem is all private debt.
Angelo Arnis: Since you said that the governments didn’t have to pay the debt, why did countries like Greece get so royally ***ked, basically? Was it because they were part of, let’s say, of a union, and so they couldn’t print locally their own money?
MH: Because they didn’t own debt in their own currency. Greece was run by an oligarchy that was in charge. And Greece put its faith in a double crosser, the Syriza party.
Basically, at the time the debt crisis erupted in February and March, I was there working with them. And at the time, the entire government debt of, I think it was $25 billion, an equivalent of the $25 billion was held in Switzerland in the accounts of Greek tax dodgers or tax evaders that had put the money there. There was something called the Lagarde list. Christine Lagarde of the International Monetary Fund had a list of all the Greek tax evaders that had their money in Switzerland.
And I wanted the Syriza party and Greece to simply seize that tax evader money and come back and use that to pay off the debt. In other words, Greece should have paid the debt by taxing the richest people, but the richest people controlled the party. The Greek socialist party was a right-wing reactionist party, sort of like Tony Blair in England. And there were talks with Europe. Europe was all set to write down the debt. They knew that Greece could not pay the debt, that it was an odious debt.
Greece was about to repudiate the debt with European Union understanding. But then President Obama came up and he wrecked the whole system with the most hateful policy of all of his policies. He said, a lot of American banks and financial firms have written financial derivatives, and they bet that the price of Greece’s foreign debt bonds will not go down. And if Greece wipes out the debt and doesn’t pay, then the American banks are going to lose
all the money that they’ve made this horse racing bet on. And so he sent Tim Geithner there, the Treasury Secretary, to lobby Europe and say, you’ve got to crush Greece. You’ve got to destroy the democracy there. You’ve got to corrupt the government so that it pays the debt so that our banks won’t lose a single penny. Let the Greek population be the losers. I describe all of this in my book, Killing the Host. I have a whole chapter on, I think I have two chapters on Greece since I was there as a part of the process. And there were vast public demonstrations in Syntagma Square, trying to urge, don’t pay, don’t pay the debts.
And all of this was double-crossed by the Greek president at the time.
That led Yannis Varoufakis simply to resign. I think perhaps he could have done something in retrospect, even more active, just to overthrow the person. But he just resigned in protest. And the result was a coup d’etat by the creditors, that Greece didn’t have an ability to have a social revolution there to overthrow the corrupt government, the series of Greek governments that had been ruling Greece ever since the colonels had taken over.
Gerald Croteau: In a previous talk, you said that one of the downsides of the fact that the US is quite different from China is that we don’t have the ability to write down our debts the way the Chinese do.
MH: But they’re not doing it. They have the ability to, but they’re not. That’s part of the internal fight. That’s what they’re fighting about now in China. That’s their policy fight.
GC: Yeah, I just wanted to understand, is that really the kind of dilemma of being so decentralized? It could be argued that we almost have oligarchs that are powerful, but not necessarily powerful enough to all agree to do something that would sort of benefit the whole system, but individually, they might suffer. And it’s a sliding scale.
So it’s hard to determine, at what point is somebody an oligarch versus just somebody that gets the benefit from those write downs.
MH: Well, often they’ll hire lobbyists. And there’ll be it’s possible, of course, to be very rich and have a conscience. But then they have lobbyists doing everything for them. The lobbyists have sort of corrupted the education process. So if you take an economics course in America, it’s all neoliberalism.
You don’t any longer have a history of economic thought that would teach you the classical theory of interest of economic rent as unearned income, the excess of price over value. You don’t have courses in economic history. So you don’t understand what governments have done that succeeded and what they’ve done that have gone wrong. And you’re up for everything. You just assume that the status quo is the Darwinian natural survival of the fittest. And you just accept that without any question that there may be an alternative.
So you’re back with Margaret Thatcher’s model, there is no alternative. And so you have a stultification that even if you’re a wealthy person, and you say, gee, driving to work got to my factory, or my bank, I noticed all of these homeless people, that’s really too bad. On the other hand, they don’t know that they don’t have to be homeless, there is a way of structuring society so that it’s not homelessness.
They don’t know that there’s an alternative and how to create it. That’s why I’m glad that the earlier question was about my book on America’s protectionist takeoff, where I describe how the Americans disagreed with British free trade theory, and the whole concept of a free market -free for whom- in the 19th century, to the American protectionists and to the classical economists of England, a free market was free from economic rent, free from a landlord class, free from monopolists, free from a financial class that made its money by carving up and deindustrializing and offshoring labor to industry.
Well, today, the idea of a free market is free from government organization of the economy, free from any restraint on privatization and greed, just exactly the opposite of everything that a free market used to have. But if this is not the starting point of taking economics 101 course, people don’t understand that they were in a kind of Orwellian vocabulary when it comes to understanding economics.
So the ruling class itself has become de-educated, you could say, there’s been no check on just the kind of greed that has become a personality trait that other cultures look down on. Asian culture has tried to prevent it from developing for 1000s of years.
(22.35)
Money as a public utility
I was the economist for the (—–) US government agency in 1974, and 1975, working on the Athabasca sands and coal liquefaction, it was a terrible idea. Every barrel of oil created that way used about eight gallons of water. Canada didn’t charge at all for all of this water that it’s given. All of this is just a total ripoff of Canada’s resources by getting free water and creating an enormous environmental pollution. All Canada has to do is charge for the natural resource depletion, and for the environmental pollution cleanup costs. And you’ll stop this environmentally destructive trade right away.
It hasn’t done it because Canada basically isn’t run by Canadians, it’s run by the United States. That’s what I learned. And it’s run by the United States through the Canadian banks that pretty much run Canada.
Carole M: It wasn’t really a question. It was just a comment that we’ve now got a peculiar spectacle in the UK of patriotic millionaires, lobbying the government to be able to pay more tax, the government which refuses to tax the wealthy. It’s so twisted in the UK.
MH: That’s right. That’s just awful. Basically what happened in England is like Operation Gladio in Italy. After World War Two the United States has spent an enormous amount of money trying to prevent socialism from developing by sponsoring takeovers of all the radical parties in Europe or the socialist parties, by creating non-governmental organizations that have sponsored clients that look like they’re willing to sell out their country and support the United States, no matter what. They look for opportunists who are very able to manipulate other people. In England there’s something that trains them to be very smooth, corrupt opportunists, like Tony Blair, for instance, and obviously Starmer, and most English politicians. The result is that England doesn’t really have a socialist or any kind of alternative to neoliberalism. The Labour Party has out neoliberalized the Conservative Party.
The only opposition to the militarism of the MI6 and the British government is from the right wing. Just the same thing in Germany, with only the AfD, the Alternative for Deutschland party, offering an alternative in Parliament, since Sarah Wagenknecht did not get into it. All throughout Europe, you’re having American interference in their political system to make sure that English voters, German voters, and other voters don’t really have any alternative, but a Tweedledee, Tweedledum type situation. No matter who they get, it’s all exactly the same neoliberal plan. That’s why, essentially, that’s the problem that the West has. It’s been poisoned since World War II by this right wing fight.
Asia and the BRICS are trying to break away from all of this. That’s what is dividing the whole world politically now, as well as economically.
Nicolas Marx: Hi, Michael. I wanted to ask, in relation to the tariffs, whether Keynes’ idea of the Bancor would be a better way of going about it?
MH: His theory of the Bancor was a very good idea. It wasn’t about the tariffs.
It was about how to settle balance of payments deficits. What he saw was that the way that the United States was creating the International Monetary Fund and the World Bank would in a way concentrate more and more national income in the United States and America’s great enemy in World War II was, of course, England.
I describe all of this in my book, Super Imperialism. The House of Lords recognized this. Keynes said, look, if you follow the economic system that the Americans are putting in place, then you’re going to have the creditor countries becoming richer and richer with having creditor claims on debtor countries. You’re going to have economic polarization that’s going to split up the whole world, just like it’s happened today.
The Bancor solution was to say, this is a form of special withdrawing rights, you could say, in central banking, in the form of the central bank that Keynes wanted to see. He said that if a country runs a constant balance of payment surplus, like the United States, then it’s abusing the international system and its surplus is going to be wiped out.
If the surplus finds its counterpart in the chronic deficit of another country that’s being victimized by the way in which the international economy is mal-structured, then the debts are going to be wiped out. Of course, he was thinking of England, because the United States structured the post-war order to make sure that the sterling area was not going to be limited to buying British exports, but could be freed to buy American exports instead. The British loan that America has made prevented England from devaluing the pound of sterling to become more competitive. Keynes saw, and the entire House of Lords saw, and I give all the quotations in my new printing of Super Imperialism, they all saw that this was going to be impoverishing. They wanted to put a limit on the degree to which the international autonomy could polarize between creditor countries and debtor countries. Bancor was designed to do that by when a country got too much of a creditor position, the creditor position would be wiped out.
That’s the kind of debt cancellation that Nika was talking about at the beginning. The good thing about cancelling the debts is that you cancel the savings of the creditors. That’s what nobody says. Everybody talks about as if it’s easy to cancel the debts, but one person’s debt is another person’s credit and savings. Keynes saw that in order to write down debts, you had to write down the savings of the creditors who were trying to reshape and corrupt the international economy in the same way they were corrupting domestic economies, but with a fiscal and tax system and regulatory system in their own interest instead of in the interest of economic growth.
Is it time for Bancor?
I’ve been urging in most of my articles that you’ll find on my website for the BRICS countries to adopt a Bancor. I have a regular show with Radhika Desai, the Geopolitical Hour, a fortnightly show where we’ve been describing how the Bancor can be adopted by the BRICS countries so that you’re not going to have one country, such as China, getting rich by indebting debtor Asian countries. There won’t be a BRICS currency in the sense of sterling or dollars, but there will be the currency that Keynes saw was only to be used for intergovernmental payments. If the effective tariffs or anything else was to create an imbalance in intergovernmental payments, the Bancor was essentially to reestablish some sense of balance and equity in the system.
(Question Missing 28.46)
Anybody can create money. The problem is to have it accepted. Suppose you go to the store and buy groceries and you write an IOU. Well, what can the government, the store do? And you say, well, you can use your IOU to pay the dairy for the milk that it’s giving you to sell to us. And then the store will say, okay, so a dairy has your IOU. And then what’s the dairy going to do with it? Well, the dairy will pay its laborers by feed for its cattle to feed them.
Well, somehow this debt is never going to be repaid. Well, obviously individuals can’t write IOUs that don’t have to be repaid. Only governments can do that. It’s not money. And you can’t pay your taxes by sending an IOU to the treasury. You have to pay in money. And the quality of money is its ability to be accepted in taxes.
The idea of people’s money is a right-wing libertarian idea that is intentionally designed not to work so that it will be a blind alley to confuse people instead of restructuring the social structure, saying, well, why don’t you move out West to Colorado or somewhere, and maybe you can push this idea. I think there’s all this talk of localism and people’s money is just a vast deception. And many of it is well-meaning, but stupid.
(Question missing 29.54)
Money is a public utility. It’s not something private. You cannot privatize it. It just doesn’t work. At no time in history has there ever been a private money that works, except among maybe friends who will trade IOUs with each other.
So it’s just a myth. You have to look at money as basically a public utility. Money is created by the government, and it’s given value by being accepted as taxes.
And all money is debt. Who’s going to be liable for the debt? And how do you make the debtor pay? Or if not paid, how do you get other people to accept their debt as a means of payment and ultimately paying taxes with it?
Can money be accepted locally?
As I said, the American colonies in the 16th and 17th century created it locally. But you have to have it done through government. You can have savings, you can have local banking, you can have credit unions. In a credit union, local people will put their savings in a credit union, and members of that local credit union can borrow. They can do that.
Or as Ellen Brown has said, the state can have its own bank, and the state can take deposits in the bank, and it can keep the government’s deposits and other people’s deposits and use it to spend. But a local credit union or a state bank cannot create money. Only a government can actually create money. Otherwise they’re like savings banks and credit unions. They can transfer money. They can make a loan of money they already have, but they can’t create new money as credit.
That was a great breakthrough that was done in 1694 with the Bank of England. But again, that was a symbiotic relationship with the government. So in order to create money, you need a symbiotic relationship with the government. And the question then is, who’s controlling the government? Is it the people or is it the bankers?
Gerald Croteau: You had mentioned a little bit about the way economics is taught. And I just thought it’d be fun to go back there because the critique that I have, there’s an economic historian named Claudia Golden who recently won the Nobel Prize for her work on mostly the labor markets, but also the economic history of labor markets. But she explicitly has a quote attributed to her that I verified with her, that economic history is explicitly not part of the curriculum of teaching modern economics. And I’m just wondering how we’ve gotten away, because most science builds on a foundation where people talk about, well, now we believe this, but formerly we believed something else. And how does economics get away with teaching relations completely in a vacuum as if our assumptions make sense logically without going through the evolution of where we got to where we are now?
MH: The aim of the lobbyists who’ve endowed universities and who’ve designed the curriculum want to convince people that there is no alternative. You don’t want people to study history because history is a whole study of evolution, of how different societies have created alternatives. So here’s how they’ve created the problems. The University of Chicago, the right-wing monetarists, got their acolytes, the very tunnel-visioned followers of Milton Friedman and the free markets, into the leadership of all of the major economic journals.
So any of the most prestigious economic journals in the United States are edited by graduates of the United States, of the University of Chicago or other right-wing economic universities, Harvard, MIT, Berkeley, Minnesota. So that for instance, graduates, I was on the faculty and I’m still emeritus with the University of Missouri at Kansas City, where we’ve been teaching modern monetary economics. Well, the problem is that our graduates learn a lot. They say, oh my God, there is an alternative. This is wonderful. So they graduate and now they say, well, we have our PhD now, how are we going to get a job?
Well, they have their job interviews with the various universities and university heads have told me, economic department heads have told me, well, the first question we ask is, well, what journals have you published in? We give credit for the most prestige journals.
And the MMT graduates and other critics would say, oh, well, we couldn’t get our articles published by the University of Chicago publications or the other journals because they say, that’s not really what we’re interested in. That’s a different theory than we have. So they have to go to journals that are not considered as respectable or they become journalists or
they go to international organizations or public organizations and write public reports, but they don’t get a job in a prestigious university.
Some of our graduates have gone to Buffalo, New York, which is a very cold, right on the Canadian border. Others have gone to various universities in Ohio, but none of the prestigious universities. So you’re not going to have a modern monetary theorist or a socialist teaching at Chicago or Harvard or MIT.
For a while, the University of Massachusetts tried to set up a Marxist group and did a very good job. But that was the university very specifically for Marxist groups with their own set of publications that were not considered by other university departments as prestigious enough to warrant the graduates from being hired. That’s part of the problem there.
So the hiring of economists are only those who’ve studied with economists, teachers who believe there is no alternative and who’ve not had any courses in economic history or the history of economic thought.
Steve Hall: It’s Steve Hall here from the UK. I’m in the Workers’ Party and I run the Economics Forum. We have a number of policies that require public investment, infrastructure and renewal, national health service, education, partial reindustrialisation, energy, utilities, you name it. But the party is very worried about emphasising these policies because they’re based on economic public investment, because they know they will, inverted commas, upset the markets. So this is hampering our campaigns.
I know from modern monetary theory that we can defend against the bond vigilantes that are going to try to hike up the interest rates. But how can we defend? Because we’re import dependent and very vulnerable, we rely on our strong pound. How can we defend against foreign exchange currency tax? I’ve asked a number of people and seem to get different answers. I wonder what your answer might be.
MH: I don’t think countries can defend against currency attacks unless they have capital controls. England didn’t believe in capital controls and so it let George Soros essentially raise more money than England would have.
And unless you limit capital controls coming in and control the foreign exchange market, there’s nothing at all you can do. That’s how markets operate. The idea of a free market is anybody can smash it up and take whatever they want if the government lets it doing it by deregulation. And England is pretty much deregulated. And the British like it that way, because as long as there’s a free market, the pound is going to go down and down. And a good part of that is labor gets poorer and poorer and poorer.
So that’s it. It’s doing exactly what it’s supposed to do. It’s strangling and stifling England.
I don’t think the world will shed a tear.
SH: Oh, thanks. Well, I’m sitting up here in derelict post-industrial northern England. I don’t think the working class up here did anyone any harm, Michael. And we’re really getting we’re really very poor up here. And we were deindustrialized.
The shipyard down the road from where I live once made the largest ship in the world. And we have nothing now, steel, ships. It’s all gone. And we’re in a terrible state. And the country’s, you know, there are two there are two UKs there, the north and the industrial areas and even Cornwall down in the southwest that form our tin mining, coal mining. And we’re two countries, you know, and we all know everyone hates us. I know that. But I honestly don’t think that the English working and British working class really did anyone much harm. And it seems that the city of London runs the country. And we were the most successful fringe party, we got nearly well over a quarter of a million votes. But we just can’t seem to have the courage to emphasize our economic policies because of these currency attacks.. I think that the idea of a British government, the Bank of England and the DMO and all the Treasury as a setting of capital controls, I think that would be a real tough ask that they would tell us to go forth and multiply.
So I think we’re in a very difficult situation. But thanks for answering the questions. That’s the answer. I have got capital controls. What’s the difference between capital controls and capital exchange controls? Are they the same thing?
MH: Your long question is the argument for teaching economic history, England should be a case study in a failed society, a case study and what can go wrong. And everything that has been done is just a wonderful example of how not to run a country.
You can call capital controls, whatever you want. But it has to do with how you’ve structured the capital market and who’s controlling them. And I can’t get into the nitty gritty, because it differs in every kind of country. But other countries don’t let what’s happened to England happen to them. So I can assure you there is a way, but you can’t be English and do it.
Aaron Marquette: So I was wondering sort of in general about debt and cities. I know mortgage prices have come up and the sort of role of financial real estate. And so I was wondering if you thought much about the right to the city movements or the way that you see sort of like cities playing into this whole debt story.
MH: So what’s the question? Real estate debt?
AM: Real estate debt in terms of city finances. So like the role of city financing and debt. And I was thinking of the right to city movement. I don’t know if you engage much with it.
MH: Real estate debt is a product of the tax system’s unwillingness to do what Adam Smith and John Stuart Mill and the entire 19th century of British economists advocated. You tax away the increasing land price. And if you don’t tax away the rising land price, as John Stuart Mill advocated and the whole 19th century of British socialism advocated, then this land rent valuation is going to be available to pledge to the bank as interest.
So as you lower you untax real estate, you enable its rental value to be pledged to the banks as collateral for a bank loan to keep rising and rising and rising. And the bank loan will increase the value of the land site value. And the result is just a snowballing effect in land prices and hence the cost of housing to the population at large.
Same thing with public utilities. If you would tax away the monopoly rent or just prevent monopolies from being created, you tax away the monopoly rent of public utilities, you would not let Thames Water do what it’s been able to do to England. But the idea of economic freedom is untaxing means to leave all of this economic rent, be pledged to the banks, let real estate and public utilities be financialized and run as a vehicle for taking on more and more debt and paying more and more interest charge and fees and creating capital gains for the financial sector.
In other words, we’re talking about financialization. And you have to de-financialize the economy in order to prevent this rise in housing prices, rise in utility, privatized utility prices and monopoly prices. And that was what, as I said, the whole 19th century political economy movement was all about. And that’s what that system has to be restored to.
Revenge Economics: How Trump’s Trade War Hurts America First
NIMA ALKHORSHID: Hi, everybody. Today is Thursday, April 3rd, 2025, and our friends, Michael Hudson and Richard Wolff are back with us. Welcome back.
Let’s talk about the “Liberation Day,” and the new tariffs on each and every country on this planet. And here is what the White House press secretary said about the tariffs.
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Karoline Leavitt: They’re not going to be wrong. It is going to work. And the president has a brilliant team of advisors who have been studying these issues for decades. And we are focused on restoring the golden age of America and making America a manufacturing superpower. And again, Peter, I would point you to the investments that have already trickled into this country.
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NIMA ALKHORSHID: Yeah, let’s put the main question right now. What is the main economic fallacy that President Trump is perpetuating regarding the U.S. trade deficit? Michael, go ahead.
MICHAEL HUDSON: Well, the fallacy is the way in which he’s calculated his statistics. And the fallacy is somehow that tariffs are going to re-industrialize the United States. The way that he’s structured them, he has not taken into account that a very large share of U.S. imports are from foreign affiliates of American firms. And these affiliates, all of a sudden, that have made foreign investments – not only in Canada and Mexico, but in Asia and Vietnam, and other countries – are now going to have their costs very sharply increased. The result of the tariffs are actually going to be causing, as we’ve discussed before, vast instability and destabilization.
Richard and I have talked in two of your shows about tariffs. And the fact is, I don’t think we expected this to happen. We thought that the United States, like other countries, were going to act in its self-interest. And, of course, you realize that this self-interest is that of the corporate elite and the big financial investors, and Trump’s donor class.
But they didn’t expect any of this either. And that’s the biggest surprise. The stock market yesterday actually rose throughout the day, as people thought, well, he can’t really mean it. And this plunge so quickly after his speech. And this morning, it continued to plunge. It opened with the Standard & Poor down 4%, and the Dow Jones losing 1,500 points, by 3.5%. These are gigantic plunges, and Japan was hit even harder.
So, now we know why he timed his announcements to 4 p.m: that’s when the stock market closed. If TV viewers of his talk were able to see it during stock market hours, they’d see him talking, on the one hand, and the split screen would show the stock market plunging. In other words, this is Big Capital. This is the corporate sector. This is what the bulk of investors think the effect is going to be on the stock market, and they think it’s a disaster. I don’t know how much money’s been wiped out just in the first hour of trading, but it’s been gigantic.
So, this shows the degree to which corporations and investors thought, well, this is all bluster. And in a way, I think it is bluster. And we’ve seen that by what’s happened with what Trump has been talking about for the last month, and that’s the tariffs on Canada and Mexico. If you look at the tariffs, the threats that he had – 25% tariffs – he’s backed down on just about everything. The mainstream press, you know, is talking about a “Mar-a-Lago Accord:” a new Plaza Accord, referring to the 1985 agreement with Japan that ended up pushing that economy into [a] thirty years’ depression. But that was part of a negotiated G7 agreement, where the U.S. brought everybody together.
But this is different. Trump is acting unilaterally, and his strategy is to divide and conquer. He’s going to negotiate with each country separately and agree to soften his tariff, if they give America something of value. For instance, in China, I’m sure he wants to say: You’ve got to sell TikTok to U.S. investors. You’ve got to do whatever the neocons are insisting (that he tells them to do).
So, the right to buy out any key industry or real estate is what other countries are doing.
Basically, what Trump did yesterday is these disruptions that he’s threatening are so large that he’s going to destabilize other countries, unless they give in to what turns out to be a shakedown.
I just want to talk about the details of Canada because they were not made clear yesterday. He’s already said there’s not going to be a tariff on auto parts, at least until May 3rd. That’s a month from now. And there’s going to be a partial exemption for cars made in Mexico and Canada that meets the terms of the NAFTA agreement. After all, there’s been a huge back-down in all of this, on vehicles. He’s only going to try to tax the foreign-made parts that are in these vehicles.
But that’s still a threat. And the question is whether this is going to prevent General Motors – which has a very large proportion of its autos made in Mexico and Canada (for the auto parts) – is this going to prevent them from making a profit?
And [I] suppose it looks like the head of General Motors may have called Trump in the last month and said: Look, if you’re going to impose the tariffs the way you threaten to do, then we’re not going to be able to make a profit. And if we’re not able to make a profit, what are we going to do? Are we going to lay off the labor force? Suppose Mr. Trump, that I, head of GM, went to, and threatened to make a public announcement: We’re putting GM up for sale. There’s no way we can make a profit any longer under the way in which Trump did the profit, the tariffs. We’re going to tell our labor: We may have to lay you off. Maybe a foreign auto company will want to buy us, but we’re being prevented from making a profit, unless we raise the price of American cars so high that Americans can’t afford it, as the economy is moving into the depression that Trump is driving it into. We’ll have no recourse but to do that.
And other industries may follow suit. Look at Apple in China. It’s another multinational company importing the parts for its iPhones and computers. A hundred percent of U.S. oil imports are made by U.S. oil companies. The same is true of much of the mineral trade.
So, the question is, why aren’t U.S. corporate leaders speaking up more verbally than they have? You remember, back in the 60s, General Motors’ famous head Charlie Wilson said: What’s good for General Motors is good for the country? Well, the new motto is, what Donald Trump says is good for the country is bad for General Motors. It’s still going to be one of the hardest auto companies hit because of its proportion abroad.
So, where is the power elite in all of this?
NIMA ALKHORSHID: Richard, it seems that Donald Trump believes that the deficit is the outcome of unfair trade practices. But, in your opinion, does trade deficit reflect a country spending more than it produces, or saving less than it invests?
RICHARD WOLFF: Okay, there’s so much noise, and chaos, around this, that we are in danger. And that may be Mr. Trump’s area of wisdom: manipulating the noise level, and distractions, and claims. You know, you made a joke, and I understand it, about Liberation Day. But that’s a very important part of the story he wants us to come away with.
So, we can go at it in a number of ways. I’m going to choose two, but then, you know, you take it where you think it should go, Nima, in setting this up.
First, the notion that we have been victimized by foreigners. This is the largest nonsense I’ve heard in a long time. You know, it reminds me of the kind of conversation you get with a white supremacist who explains and whines that white people are at the wrong end of discrimination in this country. The attempt to snatch from the black and brown people who’ve actually suffered centuries of repression from white people, to try to erase all of that by telling some story that makes it all reversed.
It is preposterous, it is outrageous, and it is a manipulation by demagogues who use the difficulties white people have – and those are genuine economic difficulties for whites, have been serious. But to blame victimization at the hands of black and brown people is a spectacular effort to shift to the right what is a problem with American capitalism, and has been from the beginning.
The notion that the people of Vietnam, who got a tremendous increase in their tariff, are oppressing the United States, are foreigners oppressing, is catastrophic in its misunderstanding.
The last fifty years were times in which Americans lost jobs. That’s correct. But the reason they did, was the profit-maximizing strategy of American corporations, who left! The Chinese couldn’t have done it by themselves. They’re over there. No one held a gun to anyone’s head and said: Close your factory in Cincinnati and open it in Shanghai. That was done because the American corporations saw a gain: They could pay workers a lot less, and they’d be located in the fastest-growing market on earth. The United States couldn’t compete on either one of those things, and so has lost. But the agent of the change was corporate America, the very industries.
It’s fantastic to have a leader like Mr. Trump suggest that the blame for that falls on the foreign country. What a strange effort to get the corporate leaders of America, who made the key decisions, off the hook. They’re not part of the story. It’s Liberation from the Evil. And who’s the Evil? Foreigners! This is as old as Methuselah. It is really BS of the first rank, liberating us.
The whole rest of the world has been working for two or three centuries to liberate itself from imperialists and colonialists, like the United States. And here he is, turning it around: We’re going to liberate from them. Just like a white supremacist: We have to be liberated from the pressure of black and brown people and their allies.
Nobody should be fooled by this, number one.
Now, number two: tariffs are not new. Tariffs have been used by countries, including the United States, at various points in their history. There is a huge literature, books and articles. Courses are taught in every economics department, called international trade, or international economics, and they have a segment of the course on tariffs. I’ve taught the courses, I know what I’m talking about. Mr. Trump clearly doesn’t.
What does the literature teach us? The impact of a tariff depends on the circumstances in all of the countries affected by the tariff. You cannot know in advance it will have this particular outcome. Why not? Because it depends on interest rates, on exchange rates, on monetary movements, on whether or not the countries retaliate; and if they do retaliate, how will there then be a response on the United States’ part? The Secretary of the Treasury made a statement yesterday that he hopes no country retaliates. And when the reporter asked him, why, he said: Because then there’ll be escalation.
As if what Mr. Trump has just done isn’t escalation?
The level of BS here is overwhelming. Mr. Trump cannot know what the consequence will be. Will there be an inflation? Probably. Will it be hard and terrible? Could be. Will it be mild? Could be.
You know, there is no way to do this. The important thing here, is that this is a declaration of desperation, not liberation. This is an economy that has to now attack the whole world. That’s it. That’s what it’s doing. It’s making difficulties for every other country.
And it’s now holding the gun to every country. As Michael just explained, it now is going to say: We will negotiate bilaterally, one by one. And we will play with these tariffs in order to squeeze you for some other agenda that we have, or will develop. We want a piece of this mine. We want you not to pass that law. We want you to give us this money, or maybe give us Greenland. Or whatever else he has in mind.
But let me clarify: Every country now understands that the United States has changed. It is not going to administer an empire of the whole world, keeping the peace, and having everyone rely on it doing that.
It is just like Mr. Trump sometimes says: We’re throwing all of that out the window. We are now going to weaponize our remaining assets. We’re no longer the biggest economic bloc in the world – that’s China and the BRICS – but we’re big enough that we can threaten, and weaponize, and force the rest of the world to give us a portion of its wealth.
You know what that means, beyond a change of the last fifty years’ economic policy? It means the United States is advertising itself as the new number one rogue nation in this world.
Even China, Japan, and South Korea announced they’re getting together. Those three countries have a history of tension, and conflict, and bitterness. All of that was put aside. They’re meeting together and, I quote, to coordinate their response to Mr. Trump.
Europe, who could never unify, and therefore gave up the ghost as an economic powerhouse when they were allied with the United States, may, by result of Mr. Trump, be able to unify against the United States. I admit, it’s a long shot. Disunity in Europe is intrinsic to that poor continent.
But that’s the reality. No one should be fooled. The isolation of the United States is what we are watching. Big time.
MICHAEL HUDSON: I want to get into the nitty-gritty of the details because that’s where the devil is.
NIMA ALKHORSHID: Michael, let me ask you the question, which is so important. Why will Trump’s tariffs fail to close the U.S. trade deficit? Are the tariffs addressing the root causes of the trade deficit?
MICHAEL HUDSON: Because the trade deficit is a result of the de-industrialization that we’ve been talking about on your show for the last few months, there’s no way that tariffs can suddenly, within one week, one month, or five years, create a domestic ability to produce these products. What there’s no mention of is, if you impose the tariffs in order to produce here the autos, parts, and all of the manual labor that we’ve been importing from Southeast Asia, it takes five years to organize a factory, to make the planning, to organize the labor force, to raise the money, to organize the marketing distribution.
Trump believes that in one week, we can suddenly re-industrialize. He’s leaving out the time element. If you’re going to re-industrialize the United States, you’re going to have to build factories here.
And, as we’ve discussed in the past, I really don’t want to go over the past shows that we’ve done, except to do what Richard has done, and sort of describe the setting. But suppose we set up factories here to make, hire the labor, to do the manual labor, to make the toys, and all of the kinds of consumer goods that Walmart has been importing from China. You’re going to have to raise the tariffs by, I’d say, about 300%. You will have to raise the cost of doing bus[iness], the consumer price index by maybe 40%.
Because if the Americans produce these, how are you going to hire labor, that you have to provide with health insurance, that you have to provide with enough money to buy housing, that’s rising, medical costs, that are soaring. And the cost of employing labor in the United States has been escalating, partly because of the privatization that’s occurred, of public services that, hitherto, were provided at subsidized rates so that corporations did not have to pay high enough wages, because the government was taking care of a lot of basic needs. All of this has made America a high-cost economy.
But I really would like to talk about what Trump’s specific strategy is, within all of this.
RICHARD WOLFF: Could I just add something, before Michael?
NIMA ALKHORSHID: Go ahead.
RICHARD WOLFF: There is another thing. Everything Michael said is right. I just want to add something.
Mr. Trump’s herky-jerky behavior – the Canada-Mexico tariff, go up, then it goes down, then it is modified, then it is adjusted – and now we are told that he’s willing to negotiate with all of the other tariff victims, to get this from this one, to get that from…
Here’s what that means. It means that none of these tariffs are a certainty. No planning corporation can say: Okay, this is the new level of expenses I have, with the tariff being what it is, so I’m going to compare, when I decide where to build my next factory, all my options. He can’t do that, because the tariff that he’s counting may not be there next month, may not be there next year, in which case the enormous expense… That’s why it’s so important, what Michael just said: It takes years, and a lot of money, to move a production facility from one place to another, or to re-organize your supply chain, because instead of building in this country over the next ten years, as you had planned, you’re going to have to move your new factories. And that means you have to rearrange your supply line… all of that is enormously expensive.
No corporation is going to undertake those expenses, only to discover, after having spent $2 billion, that the $5 billion project is now to be abandoned, because the tariffs were changed – on your supplier, on you… He can’t do what he is doing. It’ll mean that corporations are hesitant, will hold back on these decisions, will delay them.
And, as every undergraduate student in economics learns, in capitalism, we are all held hostage to corporate plans about investment. The working class gets money and spends it. End of conversation. Not interesting.
The corporate sector earns profits, and then decides whether or not to invest them, if it’s profitable. If it isn’t, they’ll lend it to the United States government, or put it in some other non-productive activity. And that will cause us depressions, recessions, delays, all kinds of stuff. No one talks about this.
Mr. Trump wants the freedom. He likes the “deal” to be made. Yeah? Well, no one explained to him. None of his advisors (who all have PhDs – or many of them do – from fancy universities, just like Michael and me), but they didn’t explain to him: You can’t do that. As if it had no effect.
The United States isn’t the overwhelming powerhouse that it was in the second half of the 20th century. That’s the empire that’s over. And this is the desperate, largely blind, desperate gesture of a government that cannot admit where it is, and fantasizes that it can do all these things as if they’re automatic. They aren’t.
Now let’s go and let Michael explain that in the most important statistical focus.
MICHAEL HUDSON: When you look at the statistics in Trump’s explanation, you realize how really goofy all of this is. And the goofiness is something new that we haven’t – neither Richard, nor I, nor anyone else could have – imagined would have come up.
Commentators have been puzzling over, how did Trump come up with these charts explaining how other countries were exploiting us with tariff and trade policies of enormous magnitude, far above their actual tariff rates? How is it that we can impose tariffs of 50%, or 40%, because they’re punishing us with 100% tariffs, and 80% tariffs?
These are goofy figures.
I got calls last night from former presidential candidates, and research foundations, asking me, what do these numbers mean? And it took me hours to figure out how goofy they all were. So, it’s worthwhile taking a minute – it’s actually going to take about ten or fifteen minutes – to explain how Trump calculated these tariffs. At first, it seems like he wants just to beat up the poorest and weaker countries, like Myanmar, Burma, Bangladesh. That’s what bullies do. And he wants to cut out Chinese proxy factories in Vietnam. But when one looks at his numbers, you see the deception of the work.
He explained that the tariff rates attributed to other countries against the United States were not merely the official tariff rates that we all look at, but some countries are attacking us in two ways. Some are buying U.S. dollars, by holding their reserves in dollars. They do this to recycle their dollars to the United States to prevent their currencies from rising – and they hold their foreign reserves in dollars. This is the U.S. Treasury Bill standard. This is what enabled America to get a free lunch: by blocking other countries from buying gold and depleting America’s gold stock and forcing them to use their economic and trade surplus to lend to the U.S. Treasury.
Trump says that instead of recognizing that that’s been the key to America’s financial imperialism, that’s been an attack on us.
And the other problem, that they’ve been attacking us, is being too poor to buy as many exports from us as we’ve been buying from them. So, Taiwan is accused of a 64% tariff. China: 67% tariff. India: 52% tariff. Vietnam: 90% tariffs. And in addition to Vietnam, there are Laos and Cambodia, with 49% tariffs. Thailand and Indonesia are imposed tariffs of 36% and 32%.
Who would have thought that these are the countries that are leading an economic war against the United States to take advantage of us? This seems bizarre at first sight.
As Richard pointed out, South Korea and Japan are singled out. Many of the imports from them are from affiliates of U.S. multinationals. They’re our allies! Well, Trump claims that other countries are recycling their export earnings into buying dollars.
That’s artificial. That’s currency manipulation. And if they didn’t buy U.S. Treasury bonds, if they didn’t buy U.S. stocks, then their currencies would have gone up and presumably made American industrial exports more competitive – if we had in any industry to produce these exports, which we don’t anymore.
So, I think what’s upside down here, is that it’s not that other countries have fought to manipulate their currency, it’s that the United States dollar has risen against every other currency in the world in the last decade.
And this began with Obama’s resolution of the junk mortgage fraud in 2008. The solution of the Obama administration was for the Federal Reserve to come in and pursue a zero interest rate policy that caused an enormous amount of gain for the stock market. And the biggest bond rally in history has resulted from lowering the price of bonds, you know, from 5%, 6%, all the way down to 0.1%.
Well, if you look at the distribution of wealth in America, the bottom 50% haven’t increased their wealth at all. It’s a teeny little sliver of their stock market holdings and wealth since 2008. All of this increase in wealth has accrued to the top 10%, and almost entirely in stock and bond and real estate prices.
So, the United States dollar has been soaring against other countries. It’s not because we’re exporting more, because we’re de-industrializing. It’s not because of our budget moving into surplus, because we’ve been running a budget deficit of huge proportions. And we’ve been spending military money all over the world.
How is it that America – de-industrializing, huge military spending, with a huge budget deficit – has been raising the dollar’s exchange rate, except by creating this hothouse, artificial, manipulated stock market boom that has attracted speculative investment capital from all the other countries.
The reason for these exchange rate shifts has nothing to do with trade. It’s all about the financial sector.
And not a word about that from Trump.
RICHARD WOLFF: Michael, let me just add. Let me break in and add just very quickly.
MICHAEL HUDSON: Please.
RICHARD WOLFF: The phony, or goofy, numbers that are being put out here. If you get these crazy tariff rates that have been imposed on the United States by counting in, in this bizarre way, the deficits.
I want to remind people that the trade deficit, that the fact that we send out dollars to buy tons and tons of stuff. That’s what puts the dollars in the hands of the countries from which we buy. And why do we do that? Because the American companies moved over there. There’s also local companies over there, and French and German and British; but the American companies are a very large part of why we send all those dollars over there.
Now, what do they do with the dollars? Let’s be real clear. They lend them back to the United States. They buy treasuries. And let’s be clear what that means. Is that an oppression of the United States? Of course not.
Here’s what it has made possible: The United States has been able to fight the Vietnam War, the Afghanistani War, the Iraq War, and the Ukraine War. Last week, the New York Times published how big the United States has been in that war from the beginning. And we were able to do that without taxing the American people. You know why? Because all of those holders of dollars lent the money to the United States government to pay for the war.
Patriotic Americans ought to be grateful. We got them, those countries, many of whom, let me make it clear to you, are on Russia’s side – like China – lent money to the United States to fight a war against Russia.
And we are wanting to claim, now, they oppressed us, those foreigners oppressed us.
Believe me, if the American people had been taxed to pay for those wars, if they were taxed today to pay for the war in Ukraine, the war in Gaza, and all the other things they’re paying for, these wars would have stopped.
So this recalculation to fit into the crazy narrative that Mr. Trump wants to put forward is really bizarre.
And the last point, the rest of the world has not been dumping on us. We have tariffs that have been in place for fifty years. And I keep wanting to remind Americans: Over fifty years ago, we imposed a tariff on European makers of pick-up trucks – a big, fat 25% tariff. It’s been in effect for the last fifty years. Americans are not in love with pickup trucks because they make men feel manly.
The advertising that made men feel that way came once it was profitable to produce a pick-up truck, and you needed to convince Americans to buy that thing, rather than a car, which has only a 2% or 2.5% tariff on it.
The United States has been wielding tariffs.
Last point. We used to call tariffs “justified” tariffs, it’s the way you teach it in a university, because it has something to do with an event we call “infant industry.” The idea here is, when you’re a poor country, when you’re just coming out from being a colony, for example, like the United States once was, and you want to build up your industry, you have a hard time competing against those who’ve been doing that industry for fifty years.
So, there is a notion: Temporarily, you put a tariff just to get your infant to maturity, then you take away the tariff because you want the benefits, so-called, of competition. That’s the story told in every textbook.
Well, we’re not a little country with an infant industry. That’s what all those other countries are, like Bangladesh and Vietnam. They have a reason and a justification. We don’t. This is turning all of it on its head.
We’re all supposed to believe now that two hundred years of economic theory, fifty years of experience in free trade, which the United States benefited from, and the solution is to throw it all out the window and go with that “stable genius” of economic policy, Donald Trump. You must be kidding.
MICHAEL HUDSON: So you’re saying that we’re protecting decadence, not infant industry. I love it.
But you also mentioned that when we import, we provide countries with money. But this is exactly the imbalance that Trump, how this worked out from what the government announced. For every country, they took the trade deficit with that country, and they divided it by that country’s export to us.
So, if we have an $18 billion trade deficit with Indonesia that supports and its exports at $28 billion, then, if you divide 18 by 28, that’s 64%. That’s where that crazy number for Indonesia came. And he claims that that’s the tariff rate that Indonesia charges us.
It’s not a tariff rate. It’s a measure of the imbalance of trade.
And of course, the imbalance of trade is largest with the poorest countries in the world because they can’t afford to pay very much, largely because of the polarization of the world economy that the United States created after World War II. So, of course, we import from Vietnam low-wage products, and from Iraq, and raw materials exporters on the list. They’re too poor to buy the United States, and that has zero to do with tariffs at all.
There’s a rationalization for this treatment, and that’s what I want to talk about, because that’s so crazy. And I mentioned briefly in summary what that was before: If a country’s exchange rate falls against the dollar, that’s considered an attack on the U.S. economy, against what Trump is responding in kind.
So, let’s look at the most guilty. Again, Myanmar, Madagascar, 93%, Lesotho, 99%, Serbia, Botswana, 74%, Guyana, 76%. How can these poorest countries that are running a trade deficit be aggressing to the United States?
Well, the answer is either that they’re poor, or that their exchange rates are plunging, or that they’re recycling money that they earn into loans to the U.S. Treasury – because of the dollar’s exorbitant privilege of what used to be, what I’ve called “Super-Imperialism.” That’s not trade aggression.
And Trump has even, in separate talks for the last month, talked about charging a financial tariffs for other countries to buy U.S. securities, treasury securities or stocks. In other words, if they buy stocks, they’ll have to pay a 5% penalty, or tariff, to recycle their money.
Well, that means that the money that has been re-flowing into treasury securities is going to stop. What’s it going to do? Five percent is a huge amount on treasury securities that are earning less. In other words, either they lose money on treasury securities, or they buy something else. What’s happening? I didn’t mention it, but gold prices are way up. Trump is driving other countries out of the dollar into gold, and he’s driving other countries together, to create their own mutual holdings of each other’s currencies.
But, Trump says, that if other countries, if the BRICS countries get together and find an alternative to the dollar and buy their currencies, then that’s another form of trade aggression against the United States, and he’s going to retaliate, to prevent them from having an alternative to the dollar.
So what he wants to do is lock them into the U.S. dollar, losing money where the interest they get on the dollar will be less than the trade penalty, the investment penalty, they have to pay.
And that is an unprecedented form of financial exploitation, this financial tariff for buying U.S. securities. That’s something entirely new.
The whole rest of the world is supposed to be turned into a tributary economy to the United States, based on blocking them from having an alternative to the dollar, but making them lose money on every stock, bond, or treasury security that they buy.
That’s the big picture that he’s trying to impose, and he’s saying that if you don’t submit to this, we’re going to wreck your economy by interrupting your exports. What’s going to happen to all your factories and the labor that’s working in these factories? Now, you can’t make money exporting them to the United States, unless we raise our consumer prices by 10% or 20% this year.
Well, the result is they are going to continue exporting because the United States doesn’t have an alternative to these exports because it takes time to build the factories. And as Richard pointed out, how are you going to take the time to build the factories, if the tariff terms are going to be renegotiated every year or so by Trump?
It’s chaos: that’s the plan. Somehow, chaos is going to save the United States and be able to protect our de-industrialized decadence.
NIMA ALKHORSHID: Richard, what I’m understanding from you both that the contribution of America’s corporate ruling class and fiscal irresponsibility, which is the budget deficit caused by the tax cuts for the wealthy, and the spending on wars, and the excessive budget of the militaries. How is that going to influence? Are they the main reasons for the budget deficit, which finally leads to a trade deficit?
RICHARD WOLFF: Well, the way to understand this is to understand that we have a very peculiar political economy in the United States.
Think of it this way. We have the 3% of our population that are employers. That’s the top of our economic system. And that becomes the self-reproducing group of people. They make all the decisions whether or not to invest the money. They’re the ones who set the prices we pay, and they’re the ones who pay the wages, or not, that we depend on. So we are controlled by the 3%, of the employer. That’s the way capitalism is set up. Okay?
They long ago understood, the people at the top, what they have to do, because we have a political system that is a little odd to go with a top-down economic system. In our political system, we have universal suffrage. Everybody gets one vote. Well, the vast majority of people, 97%, are not employers. Three percent are. It would be easy to mobilize a majority of the 97% to limit the wealth of the 3%. In fact, you would expect that to happen, because the 3% are the ones with all the money, and the 97% are the ones who control the majority in the voting.
So what did the ruling class of 3% do in America? They bought the government, of course! That’s how they protect their situation in a world of universal suffrage.
And how did they do it? They did it with two political parties. Each of them depends on the 3% for their money – the donor class, if you like, the 3%. And now they divide: Half of them go to the right and mobilize in mass support, you know, for things like guns and white supremacy and against abortion, and all of that; and the other ones, they go for more liberal, progressive, social welfare, all of that, and minorities and women.
And so we have two parties, both of whom control the mass of the vote.
Now the punchline. What the system does is it goes to the rich people, says: You’re the donors, so we won’t tax you. Then it goes, each party to its mass base: We’ll take care of you, we’ll give you this, we’ll give you that.
Here’s the problem. You can’t buy the mass of people unless you tax where the wealth is.
But there is a way out, in the craziness of capitalism.
You don’t tax the wealthy. You do provide for the mass of people. And the way you do it is you go to the wealthy and you say: Since we didn’t tax you, you have all this money, please lend it to us. We’ll give it back to you after a few years, plus pay you interest while you wait.
That’s called the deficit. And the reason we have a deficit is a deference to those at the top to not tax them to pay for the masses.
I’ll give you one simple example. Elon Musk, the last I looked, has $350 billion, or more, of personal wealth. If you taxed away – because we, the majority, voted for it – half his money, he’d still be the richest person on earth, but the government would have $250 billion with which to solve social problems.
And you know who would be better off if we solved the social problems with his money? Mr. Musk. He would live in a less conflicted society. He would be less at risk from angry poor people, etc., etc., etc.
It is irrational. And what you’re watching with Mr. Trump in the Rose Garden is the irrational effort to deal with an irrational problem whose irrationality you dare not admit.
So you’re going to now do what? Punish the rest of the world.
You know what that reminds me of? Every now and then here in the United States, a city – New York, Philadelphia, any – tries to solve its economic problems – once again not taxing the rich – by taxing commuters. New York has famously toyed with that idea.
The people of New Jersey get enraged because a government – not of them, another state, New York – is solving its problems in part on the back of people that are not New York voters, have no say in any of this. And so it usually comes to grief. You can’t do that.
You know why? Because it risks blowing the United States apart.
And you know what Mr. Trump is doing? He’s risking not blowing the world apart – it’ll stay – but making the United States the isolated, rogue nation that this looks like to the rest of the world. beware. That is a very large danger that will come back and bite this country in places I don’t even want to think about.
MICHAEL HUDSON: Well, Richard’s quite right in shifting the focus from tariffs to taxes, because Trump’s whole focus on tariffs is, as he said, to idealize the Gilded Age of President McKinley.
And until 1913, the United States didn’t have an income tax on rich people. The U.S. government budget was funded mainly by tariff revenues, but also by land sales, of the land that it seized from the Native Americans, including my ancestors. And so no income tax at all.
And Trump says: Look, there was a Gilded Age in which the rich people weren’t taxed. And then what happened? Trump said it was a disaster. In 1913, you had an income tax. And the income tax fell almost entirely, only 2% of the American population had to pay an income tax –
RICHARD WOLFF: The richest 2%.
MICHAEL HUDSON: – there were the financial sector, the real estate, the monopolists, and the property owners. Economic rent is what was taxed. Not labor. Not industry, very much.
And so Trump says: What I want to do is roll back history, and reverse it, to make history run backwards to the time when we can restore tariffs as a tax on labor and on industry, and leave all the economic surplus in the hands of the financial class, the monopolists, and the real estate sector: the rentier sector.
That’s his big plan: to essentially reduce the whole dynamic of industrial capitalism that Richard and I have been talking about for the last half year, back towards the kind of feudal ideal where you had a rentier sector receiving unearned income: economic rent, land rent, monopoly rent, and financial interest and fees.
That’s basically the kind of world that he wants to restore. And he said: Look how rich it was.
But it was the most unequal distribution of wealth and income in American history. That’s why it was called the Gilded Age.
In the rest of the country, you had the growth of the populist parties, fighting, and saying: You have to have a reform.
It was the populists of the Western states and the Midwestern states that tried already in the 1880s to get an income tax, and to support the eight-hour day, and to support labor unionization, and to make federal laws against companies calling in strike-breakers to violently break up attempts by labor to unionize.
If you look at how that world was – the great Pullman strikes and the massacres, and the terrorism that was taking place, and the absolute corruption of government – that is the ideal that Trump wants to present as making America great again, is rolling back history to before the whole century and a half of democratic reform.
NIMA ALKHORSHID: What you’ve just mentioned is all about the federal budget deficit, which would be reflected in the trade deficit, isn’t it, Richard?
RICHARD WOLFF: Yes, those two are linked very closely because in order to run a deficit, you have to issue treasury securities. And in order to sell the treasury securities, you have to have the rest of the world, because America can’t buy back its own treasury securities at the level that need to be sold.
So you have this problem. That’s how the American empire organized itself.
Now that that empire is declining, it is dissolving its own organization. It’s very internal to what is going on. If the United States were still a superpower, it wouldn’t need to do this. That’s why Obama didn’t. That’s why Bush didn’t. That’s why Clinton. It’s not that they’re any less smart than Mr. Trump, or any less committed to making America number one. They didn’t need to.
We supported free trade for the last fifty years because the United States did real well for the people that matter in this country, and dribbled off enough to the rest to keep them quiet. They can’t do it anymore. So they now want, as Michael says, tributary, a tributary economy: You better give us TikTok; you better give us the Panama Canal; you better give us Greenland; you better give us your minerals… Look at the deal they’re imposing on Mr. Zelensky, etc., etc.
This is now thievery, open and undisguised the way it had been before.
But it’s a sign of desperation. You don’t want to do this.
Let me tell you where this is going to go, because Americans have a stunning inability to imagine that other people have the same understanding they do.
The people of the world are understanding the United States has become their enemy. Look at the numbers. Canadians are not coming here as tourists anymore. European governments are telling trans people around the world it’s not safe to travel to the United States. Well, that anger and that bitterness will now be enhanced by the governments there who are wanting to get out of the blame for the difficulties this is going to cause.
If Germany cannot sell its BMWs and its Mercedes in this country anymore because of these whopping tariffs, and they have to lay off large numbers of German workers, that’s going to be explained to the German people: That’s Mr. Trump. The Americans are doing that to you.
Now, guess what? Angry people around the world are going to – here we go – stop buying American.
Look at what has happened in the last three months to the Tesla automobile. Nobody will touch it. Mr. Musk is discovering that there are real costs to prancing around the stage with a chainsaw, celebrating how he’s firing tens of thousands of workers.
Well, guess what? They have a way of getting back at him, whether it’s damaging a Tesla car, or anything.
American goods in the rest of the world? They’re not going to all be wearing jeans because Americans are. They’re going to find a new pair of pants not produced in the United States and the jeans market will dissolve. And that’s just the tip of the iceberg here.
Mr. Trump is telling a story, a fanciful story, about these wonderful things that are going to flow from what he’s done. He doesn’t tell you, even the most elementary honesty of all the things that could go wrong here. And the notion that none of them will happen, that’s so preposterous, he can’t afford to be honest. He has to be a huckster, an advertiser.
Remember what an advertiser is.
A person who figures out real and imagined good things about his client’s project and product, and he makes disappear all the bad ones.
(This can only help you, it won’t hurt you: it’s the mentality of the advertiser.)
Only this person is now the leader, and he’s telling us desperate stories because his client is an empire going down.
MICHAEL HUDSON: I’m glad you mentioned tourism and demographics because that is a very major contributor to the U.S. balance of payments, especially from Canada: tourists – the snowbirds, they call them, going into Florida – but also students.
Universities in America are very largely, increasingly reliant on students from China and other countries that pay the whole $75,000 tuition a year. Now, all of a sudden, with ICE arresting students that talk out and say we’re against genocide in principle, you know, we think that the Gaza Palestinians shouldn’t be killed. They’re all of a sudden seized and deported. Now, this has had a paralyzing effect on other countries sending their students here.
The Canadians have already canceled – are reported to be canceling – many of their travel meetings that they’d planned for the summer to the United States, and for the winter.
There’s the non-trade elements of the U.S. balance of payments, in the form of tourism, students, is another damage that is going to push the U.S. deficit even further.
And the United States is blocking other countries from financing this deficit by buying treasury bills. So you can expect a very sharp decline in the dollar. And that means that foreign goods are going to be much more expensive.
There’s going to be a very large inflation here that’s going to squeeze the wage-earning class that already is falling behind in its home loans, in its student debt, in its credit card debt, in its bank debt.
The worry of the stock market is there’s going to be a break in the chain of payments, defaults.
And unless you can bring Obama back in to say: We’re going to foreclose on the poor people and kick them out of their houses – like he kicked out eight million homeowners that were victimized by junk mortgages – unless you can repeat Obama’s class war, you’re going to have polarization in the United States that may actually lead other people to begin discussing the kind of alternative that Richard and I have been talking about.
RICHARD WOLFF: Yeah, I think it’s very serious. I do think if you’re looking for a way to hold in your mind the complexity of all of this, coupled with all the noise around it, it is beginning to make clear what MAGA means. It wants to go back to the end of the 19th century to an economy utterly controlled by a private capitalist elite that was much bigger then, because our industries weren’t so concentrated. Now, you know, the many companies have become many fewer companies, so the ruling class is much more condensed, much smaller, much able to coordinate a little bit better, and they want to run the show. They’re convinced that private enterprise – namely them – are better than anything else, so they’re going to privatize, and they’re going to go after poor people in this country.
Look at the efforts to cut Medicaid that are now getting some traction in Congress, coupled with these efforts to smash down the poorest countries on Earth. Can you imagine? Myanmar had one of the worst earthquakes in history a few days ago, and he still went ahead and included them in it. Look at the mentality! You are destroying the poorest people, blaming immigrants – among the poorest people who have ripped themselves out of Central America where they were poor to begin with, grabbing the stuff on the back that they can carry with their children and their elderly, coming to the United States – and making a big, proud effort of expelling them.
A country that claimed it owed its greatness to being a melting pot for immigrants is now not melting in the old sense. It’s melting by literally killing these people, in terms of what it’s doing to them.
Extraordinary way to make your own country healthier economically on the backs of the poorest of the poor. Wow. And to think you can keep doing that without retribution coming is an amazing act of stupidity.
MICHAEL HUDSON: And without immigrant labor, who’s going to make all of the toys and the textile and the Walmart consumer goods that are being made by foreign labor? It’ll be a labor shortage here because it’s very unlikely that you’re going to have college graduates, or high school graduates, or, let’s say, American-style labor, performing the kind of duties that the Asians have been.
RICHARD WOLFF: But careful. When I talk to those people, here’s what – you know, I use their idioms so I don’t frighten them – they will explain to me: No, no, no, no, no, no, no. That’s what AI is for. AI is going to substitute for all of the world. We’re going to be able to do all of this because robots will be doing everything. And then I say to them: And what happens to the millions then who have no job? And they look at me, and they say (the honest ones): We will wait for them to die off.
We’re living in a country where this is becoming the humane way to cope. You cannot criticize the economic system, so you have to welcome mass death. Wow. That’s a commitment to an economic system that shows above all that that system needs to go.
NIMA ALKHORSHID: Michael, so the budget deficit is primarily due to tax cuts for the rich, reckless military spending and the interest payments on the growing national debt, not waste in civil servant salaries?
RICHARD WOLFF: Of course. Let me do that quickly, just, again, to remind. Civilian labor force of the federal government: two and a half million people. The other two and a half that the federal government pays are the military. I’m going to put them aside. So two and a half million people are federal government.
If you wanted to have efficiency, you would look at the federal government. But we have two other levels of government: state government and local government. And they’re much bigger. State government across fifty states is five million civilian employees. And local government, fifteen million. So state and local is twenty million. Federal government is one-tenth, two and a half million. If you’re interested in efficiency, why would you go after the smallest one? That’s stupid.
But here’s the stupidity. Even worse. In the 1960s, if you look at the list, the government’s federal civilian employees? Two and a half million. Here we are, a half-century later, our population a hundred million people bigger, and we still service them with two and a half million civilian federal employees. You know what economists call that? “Efficiency.” Two and a half million are servicing a hundred million more. That’s the last place then you would go and cut.
If you’re interested in government efficiency, have a program to deal with state and local. If you actually… this is all fake. This is all foolery. Or, if you like, advertising. He’s advertising: Look at me. I am… (hoping that no one knows what I just told you).
But that is the reality. I didn’t make these numbers up.
And you’ll never hear those numbers from the spokespersons because of what they obviously tell you.
Talk about Mr. Trump’s fake news. He’s generating fake news at a speed way ahead of all of those he criticized for that over his lifetime.
NIMA ALKHORSHID: So, Michael, what are the broader implications of Trump’s trade and fiscal policies for the United States, and the global economy? It seems that the United States could make the U.S. the enemy of the world, by harming both domestic and global economies.
MICHAEL HUDSON: We’ve just explained that the purpose of tariffs is to protect decadence, not an infant industry.
What you’d have to roll back is the whole transition of the United States into a post-industrial, financialized, rent-seeking economy.
But the rentiers have cannibalized industry, and there is no political party that is supporting an alternative.
That’s what we’ve also been speaking about on your show.
Not the Democrats and not the Republicans. There’s no populist party today, as arose in the 1880s and 1890s. There’s no William Jennings Bryan to say: Don’t crucify labor on the “cross of gold,” which is now the cross of debt: personal debt that they can’t pay, local debt, corporate debt, government debt.
There’s none of that even being discussed.
So, at least in the Gilded Age, you did have alternatives being discussed, and you had the populist party representing between a quarter and 40% of Americans – voters – in the 1880s. Where are they today? There’s no sign of them emerging. There’s no academic alternative, as there was in the American School of Protectionist Economics.
The whole logic of industrialization in the 1890s, including under the Democrats, Grover Cleveland as well as McKinley, said: If America is going to get rich and become the industrial power, we need high-wage labor. High-wage labor can drive out pauper labor. We need to raise living standards. And we don’t want the corporations to have to pay high wages, so we’re going to have the government provide all sorts of public services so that industrial corporations can employ labor that is raising its productivity, raising its living standards, because of public investment, government railroads, education, healthcare, communication, parks, urban improvements.
None of that.
All of that has become privatized, and thatcherized. We’re really rolling history back in time without any understanding of the time we’re returning to as an idealized autocracy, a time only for the wealthiest ruling class, not for the agriculture and the industry that was being so highly exploited in what Trump considers to be the Gilded Age.
NIMA ALKHORSHID: Richard, it seems that programs like Medicaid, Social Security, Medicare, are at risk of being cut to fund additional tax breaks for the real [estate]. I don’t know if the Congress would go along with Donald Trump, if that happens.
RICHARD WOLFF: Yeah, that’s the only question. The Democrats will be the ones who do all of this kind of stuff, more slowly. And they will appeal to their base, as they always do: Now that you’re suffering from what the Republicans are doing to you, wouldn’t you prefer if this were done more slowly?
They won’t say it quite like that, but most people will know. Remember, half the American people have figured out that this is silly and don’t bother voting or paying attention, even if they do vote. They vote for other reasons, but not out of an engagement with the material, which is denied them. It’s not their fault, it really isn’t. Appealing to them to vote and making it absurd to do so is a bad combination.
But I think we’re not anymore in the Tweedledum, Tweedledee game. That’s what those parties will do, because that’s what they’ve always done. And they don’t have the competitor, as Michael just pointed out, that would make that risky.
For that to happen, you have to have an upsurge of a new, and an independent, political movement that puts their feet to the fire, and exposes what this Tweedledum and Tweedledee have done to the United States.
Mr. Trump inherited from Biden. Biden inherited — and you can go backwards — they’re all complicit in this game. They’ve all been playing it.
All that Mr. Trump is doing is correctly surmising that people are getting sick and tired, so he decided to be a more extreme version of the Republican Party. But that’s all he is.
He is taking us back to what Republican employer-class mentality has always wanted: Everything should be done by the private employer. He should not be regulated by the government. He should not be taxed by the government. Because if the government gets out the old laissez-faire nonsense, well, then everything will work.
Well, the last time we tried that, it eventuated in the greatest crash of capitalism in its history: 1929.
If we allow that to happen again, the world is very different then.
The United States had no serious economic competitor in 1929.
It’s got one now, and the whole world is different, and abusing the world, as we go into the risk of a crash or even a recession, is terribly stupid, and would only be done by people who no longer can see any other way to hold on to the notion that the best thing this country needs is to damage the poor, restrict the working class, and do everything possible to protect the people at the top.
Come on, folks, you all know enough about history. When the empires of the past, Greek, Roman, Persian, any of them, when they go down, you know what always happens? The people at the top, the richest and the most powerful, use their position to be the last ones to lose as the empire goes down, to hold on to what’s theirs. And that means the costs of a declining empire are offloaded from them on to the rest of us. That’s what’s happening.
MICHAEL HUDSON: Yep.
NIMA ALKHORSHID: Thank you so much, Richard and Michael. Great pleasure as always.
Global Majority, rejoice! And step on the high-speed rail de-dollarization train.
By Pepe Escobar at the Strategic Culture Foundation.
Circus ringmaster Trump’s Tariff Tizzy (TTT), christened by himself as “Liberation Day”, is being largely interpreted around the world – Global North and Global South alike – as Slaughterhouse Day.
This de facto uncontrolled economic demolition gambit starts with the warped fantasy that launching a customs war on China is a bright idea. As bright as collecting a few trillion extra dollars in tariffs assuming the rest of the planet will be somewhat “encouraged” to sell to the Hegemon, while pretending that these tariffs will lead to the re-industrialization of the U.S.
The tragicomic mask of a self-appointed circus ringmaster of turbo-capitalism may be as pathetic as the European chihuahua rage boosting their “revenge” via Rearmament – with funds that they plan to steal from the savings accounts of unsuspecting citizens.
The indispensable Michael Hudson has configured the key problem. Allow me a little tweak: “Sanctions and threats are the only thing that the United States has left. It no longer can offer other countries a win-win situation, and Trump has said that America has to be the net gainer in any international deal it’s made, whether it’s a financial deal or a trade deal. And if America is saying, any deal we make, you lose, I win”, that Mafia extorsion gambit does not exactly reflect the Art of the Deal.
Prof. Hudson neatly describes Trump’s negotiation tactics: “When you don’t have very much to offer economically, all you can do is offer not to hurt other countries, not to sanction them, not to do something that will be against their interest.” Now, with TTT, Trump is actually “offering” to hurt them all. And they will certainly invest in all sorts of counter-tactics to “get away” from that “strategy” of American “diplomacy”.
A trade war on Asia
TTT attacks everyone, especially the EU (“born to hurt us”, according to the circus ringmaster. Wrong, because the EU was invented by the Americans in 1957 to actually keep Europe under control). The EU exports roughly 503 billion euros to the U.S. a year, while importing around 347 billion. Trump is fuming non-stop about this surplus.
So a counter-measure vendetta will be inevitably in store, as already advertised by the toxic Medusa von der Lugen in Brussels – incidentally the sponsor of every weapons producer in Europe.
Yet TTT is above all a trade war on Asia. “Reciprocal” tariffs – not exactly reciprocal – were imposed on China (34%),Vietnam (46%), India (26%), Indonesia (32%), Cambodia (49%), Malaysia (24%), South Korea (25%), Thailand (36%), earthquake-hit Myanmar (44%), Taiwan (32%) and Japan (24%).
Well, even before TTT, a first has been achieved: the circus ringmaster generated a once-in-a-lifetime consensus among China, Japan and South Korea that their response will be coordinated.
Japan and South Korea will import semiconductor raw materials from China, while China will be purchasing chips from Japan and South Korea. Translation: TTT will solidify “supply chain cooperation” among this triad that so far was not exactly too cooperative.
What the circus ringmaster really wants is an iron-clad mechanism – already being developed by his team – that unilaterally imposes whatever level of tariffs Trump may come up with on whatever excuse: could be to circumvent “currency manipulation”, to counter a value-added tax, on “security grounds”, whatever. And to hell with international law. For all practical purposes, Trump is burying the WTO.
Even tariffed penguins in Heard island in the South Pacific know that the certified effects of TTT will include rising inflation in the U.S., serious pain on its – delocalized – corporations and most of all the complete collapse of American “credibility” as a reliable and trustworthy trading partner, adding to its certified reputation as “non-agreement capable” – as the Global South knows so well. > Ант: A rentier FIRE Empire (financialization, insurance, real estate, as masterfully analyzed by Michael Hudson), which offshored its manufacturing industries and was gobbled up by a pile of overleveraged hedge funds, Wall Street derivatives and Silicon Valley totalitarian surveillance in the end decides to strike…itself.
Poetic justice applies. Burning Down the House – from inside the house. As for the emerging, sovereign Global Majority, rejoice: and step on the high-speed rail de-dollarization train.
It is a short story, and little detail is available currently, but there is enough for this story to cause further chaos. The empire wants to deny China and Rusia (shadow fleet) from ports and waterways.
For a quick start, listen to Seun Foo here: https://globalsouth.co/2025/03/28/as-china-retaliates-against-panama-ports-deal-us-wants-chinese-tech-assets-for-tariff-relief/
The idea is for the US to constrict ports and shipping lanes used by China, as well as Russia’s shadow fleet. This is untenable for China, and they will not allow it. The first shot in this fight that was going to drag on was the buyout of two Chinese ports situated as part of the Panama Canal. Note that China built them as part of the infrastructure of the Panama Canal. The buyout became huge, and at the end of the day, the deal was set to buy a number of Chinese ports.
The deal, led by BlackRock, the world’s largest asset manager with an enormous pool of $11.6 trillion in assets, was announced earlier this month . BlackRock agreed to lead a group that would buy Hong Kong firm CK Hutchison’s controlling interest in 43 other ports around the world, comprising 199 berths in 23 countries.
It was expected among the China watchers that China would block the deal. Chinese antitrust regulators are now investigating, as far as the media goes, only the two ports in the Panama Canal, but actually the whole of the Hong Kong firm, CK Hutchison. This deal is now delayed, and my expectation is that it will not go through, or perhaps some partial deal will be cut. (Remember Jack Ma, who did not put China’s requirements first. After years, he is only now allowed to enter into a room with the Chinese business community).
The closing of this deal was set for next week, and again, among the China watchers, it became an issue of ‘Will China stop it?’ or ‘Won’t China stop it?’. I would not be surprised if the Chinese did not put money on it for a quick gamble. (I would have if I only knew where to put a few silver slivers, lol, but then again, I am not a gambler.)
President Donald Trump has incorrectly claimed that China controls the canal (Panama controls it, although China owns ports on both sides of the crucial maritime passage). Trump has threatened to have the United States once again take control of the canal between the Atlantic and Pacific oceans, and at that point, Blackrock and their consortium stepped up with a deal.
This is not the end of the story.
The US wants to break China’s vast economic clout. China says it is easy to start a trade war, but not easy to win a trade war. Panama is set to cancel the registration of 128 ships that are sanctioned by the US, its allies, or the United Nations, according to Ramón Franco, the general director of the Panama Maritime Authority. At least 70 of these vessels, including tankers, have already been removed, and more are expected to follow. This move aligns with Panama’s commitment to penalize blacklisted vessels, though it will result in a loss of up to $2 million in revenue.
Panama, which manages one of the world’s largest flag registries, is responding to growing scrutiny of the “shadow fleet”—ships used to transport sanctioned cargo, particularly in relation to Russia and Iran’s oil and energy sectors. I am not sure how deep Venezuela is into shadow shipping, but with the latest sanctions on Venezuela’s oil trade, I expected them to enter the shadow fleet in a big way.
This is still not the end of the story.
So, if we talk about Trump, we spell that Tariff. Trump’s plan goes further. He wants to impose tariffs or port taxes on China-linked vessels operating in US ports. Of course, this will bring the economic house down. Competition will be distorted across the whole of the container shipping industry. And he wants to charge Caricom ports if they receive products from China through the US, which is common. How is that for a double whammy?
According to estimates, Cosco Shipping, a Chinese state-owned shipping line, would be one of the most affected, facing a 15% increase in costs for transporting containerized goods on the Trans-Pacific route. This looks like an underestimation to me if all the nickel and diming is added together, and then tariffs must be added as well.
The US says in order to avoid the application of port taxes, shipping companies must meet specific requirements to avoid their port taxes:
Increased freight costs, delivery delays, a potential restructuring of trade routes, and cargo diversion to non-US ports will be the order of the day. The shadow shipping fleet will only grow, and other ship registries will be used. Before we can watch this for too long, we will have serious economic consequences that you and I will feel in our pockets and in what we purchase.
I’ve seen this warning: If anyone wants to buy anything, absolutely anything, that requires a sea shipment, you should do it now. Things are going to get ugly and the only ones who end up paying for all this mess are the end users.
Trump continually says that the whole world is unfair to the US. Sure, sure but somehow, that story gets old.
China’s Premier Li Qiang, in a gathering of global executives in Beijing a few days ago, said that China is prepared for possible unexpected shocks from the outside. He urged the business leaders to “resist protectionism” and defend globalization. The US cannot compete as it has lost its manufacturing base. These methods will not bring it closer to rebuilding a manufacturing base if there is no trust. Li warned that “decoupling and breaking supply chains would only deepen crises” while pledging to further expand market access in various sectors for foreign investors.
If the world returns to the law of the jungle, it will be a step backward in history and a tragedy for humanity.
The old canard that we’ve heard hundreds of times during our lifetime – Iran may not have The Bomb, and the current almost desperate push to get Iran back into some kind of negotiation with the US has much less to do with The Bomb and much more with the Suez Canal. It also explains the bombing of Yemen. Iran notified that the requirements from the US for negotiations are suddenly impossible; for example, Iran may not do a whole range of things, and that includes support for the resistance. In the end analysis, I think the new requirements, if it is written today or not, are for control of the Suez Canal. Trump believes he is the King of the World, and he wants to get his world under his control.
Michael Hudson spells out the problem:
… sanctions and threats are the only thing that the United States has left. It no longer can offer other countries a win-win situation, and Trump has said that America has to be the net gainer in any international deal it’s made, whether it’s a financial deal or a trade deal. And if America is saying, any deal we make, you lose, I win, that is not a way to attract people into making deals with you.
And Trump’s way of negotiating: when you don’t have very much to offer economically, all you can do is offer not to hurt other countries, not to sanction them, not to do something that will be against their interest. And other countries want to get away from that strategy of American diplomacy.
How soon will this shipping and ports ‘house of cards build with bluster’ of Trump fall apart? Not even here can it offer other countries a win-win situation. We still are in a ‘just-in-time’ supply line shipping economy. If this falls, the results will show very quick in our wallets and on our household shelves.
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