For anyone with patience and for super intelligent people like Roger, this
is informative. 2 different systems, financialized economic system vs mixed
market system. US against China, Russia, Eastern Europe, and the Global
South
In Quest of a Multi-Polar World
March 26, 2021
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Michael Hudson and Pepe Escobar resume their conversation about a global
monetary system that appears headed for divorce.
A portion of Chinas Great Wall at dawn. (Hao Wei, Flickr, CC BY 2.0)
Read Part One of this conversation.
Pepe Escobar in conversation with Michael Hudson
At The Henry George School of Social Science
Michael Hudson: Fifty ago, I wrote Super Imperialism about basically how
America dominates the world financially and gets the free ride.
I wrote it right after America went off gold in 1971, when the Vietnam War,
which was responsible for the entire balance of payments deficit, forced the
country to go off gold. And everybody at that time worried the dollar was
going to go down. Thered be hyperinflation. And what happened was something
entirely different.
Once there was no gold, America strong-armed its allies to invest in U.S.
Treasury bonds because their central banks dont buy companies. They dont
buy raw materials. All they could buy is other central banks treasury
bonds. So, all of a sudden, the only thing that other people could buy with
all the dollars coming in were U.S. Treasury securities.
And the securities they bought essentially were to finance yet more war
making and the balance of payments deficit from war and the 800 military
bases America has around the world. And the largest customer, I think we
discussed it before, are the Defense Department and the CIA that looked at
it [Super Imperialism] as a how-to-do it book. Well, that was 50 years ago.
Michael Hudson. (Wikimedia Commons)
And what Ive done is not only re-edit the book and add more information
thats come out, but Ive picked up the last 50 years and how its
absolutely transformed the whole world. And its a new kind of imperialism.
There was still a view 50 years ago that imperialism was [essentially]
economic. And this is the view that theres still a rivalry for instance,
between America and China or America and Europe and other countries.
But I think the whole world has changed so much in the last 50 years that
what we have now is not really so much a conflict between America and China
or America and Russia, but between a financial system economy run by finance
and an economy run by governments democratic or less democratic, but
certainly a mixed economy.
Well, everything that made industrial capitalism rich, everything that made
America so strong in the 19th century, through its protective tariffs,
through its public infrastructure investment all the way down through World
War II and the aftermath. We had a mixed economy in America, and that was
very balanced. Europe had a mixed economy. Every economy since Babylon and
Rome has been a mixed economy, but in America youve had since 1980
something entirely different. That was not foreseen by anybody because it
seemed to be so disruptive.
And what that was, was the financial sector saying we need liberty and by
liberty, meaning we have to take planning and subsidy and economic policy
and tax policy out of the hands of government. And put it in the hands of
Wall Street.
And so, libertarianism and free market is a centralized economy that is
centralized in the hands of the financial centers, Wall Street, the City of
London, the Paris Bourse. And what youre having today is the attempt of the
financial sector to take the role that the landlord class had in Europe,
from feudal times through the 19th century. Its a kind of resurgence.
If you look at the whole last 200 years of economic theory from Adam Smith
and, Henry George and Marx, onward the whole idea was that everybody
expected a mixed economy to become more and more productive and to free
itself from the landlords, to free itself from banking to make land a public
utility.
That was the tax base to make finance basically something public, and
government would decide who gets the funding and thus, the idea of finance
in the public sector was going to be pretty much what it is in China. You
create bank credit in order to finance capital investment in factories. It
means the production of machinery, agricultural modernization, of transport,
infrastructure of high-speed trains of ports and all of that.
But in the United States and England, you have finance becoming something
completely different. Banks dont lend money to factories. They dont want
money to make means of production. They make money to take over other
assets. Eighty percent of bank loans are mortgage loans to transfer the
ownership of real estate. And of course thats what created a middle class
in the United States.
The middle class was able to buy its own housing, it didnt have to pay rent
to landlords or absentee owners or warlords and their descendants in England
and Europe. They could buy their own. What nobody realized is that if you
borrowed the money to take a mortgage, theres still an economic rental
value that is not paid to the landlords. Its paid to the banks. And so, in
the Western civilizations in America and Europe, the banks have played the
role that the landlords played a hundred years ago.
And just as the landlord is trying to do everything they could through the
House of Lords in England and the upper houses of government in Europe,
theyre trying to block any kind of democratic government. And the fight
really is against government that would do anything that is not controlled
by the 1 percent, by the banks. Essentially the merger between finance
insurance and real estate; the FIRE sector. So, you have almost a relapse of
capitalism in the West back into feudalism, but feudalism with a
financialized twist much more than it was in medieval times.
The fight against China, the fear of China is that you cant do to China,
what you did to Russia. America would love for there to be a [former
Russian President Boris] Yeltsin figure in China to say, just give all of
the railroads that youve built, the high-speed rail, the wealth, all the
factories to individuals. And let the individuals run everything and, then
well lend them the money, or well buy them out and then we can control
them financially.
And Chinas not letting that happen. And Russia stopped that from happening.
And the fury in the West is that somehow, the American financial system is
unable to take over foreign resources, foreign agriculture. It is left only
with military means of grabbing them as we are seeing in the near East. And
youre seeing in the Ukraine right now.
Chinese President Xi Jinping, left, with Russian President Vladimir Putin
during a state visit to Moscow. (Kremlin)
Pepe Escobar: Well, as an introduction, Michael that was perfect because now
we have the overall framework geo-economic and historically at least for
the past 70 years.
I have a series of questions for you. I was saving one of these for the end,
but I think I should start really the Metallica way. Lets go heavy metal
for a start, right?
So considering what you describe as a new kind of imperialism and the fact
that this sort of extended free lunch cannot apply anymore because
sovereigns around the world, especially Russia and China, I tried to
formulate the idea that there are only three real sovereign powers on the
planet, apart from the hegemon; Russia, China, and Iran, these three, which
happen to be the main hub and the main focus of not only of the New Silk
Roads but of the Eurasia integration process, they are actively working for
some sort of change of the rules that predominated for the past 70 years.
So my first question to you would be, do you see any realistic possibility
of a, sort of a Bretton Woods 2.0, which would imply the end of the dollar
hegemony as we know it, and petrodollar recycling on and on and on, with the
very important presence of that oily hacienda in the lands of Arabia. And do
you think this is possible considering that President [Vladimir] Putin
himself only a few days ago reiterated once again that the U.S. is no longer
agreement- capable? So that destroys already the possibility of the
emergence of the new rules of the game. But do you think this is still
realistically possible?
Michael: I certainly do not see any repetition of a Bretton Woods because as
I described in Super Imperialism, the whole of Bretton Woods was designed to
make American control over Britain, over Europe total. Bretton Woods was a
U.S.-centered system to prevent England from maintaining its empire. Thats
okay. To prevent France from maintaining its empire and for America to take
over the sterling area and, essentially with the World Bank, to prevent
other countries from becoming independent and feeding themselves, to make
sure that they supported plantation agriculture, not land reform. The one
single fight of the World Bank was to prevent land reform and to make sure
that America, and foreign investors, would take over the agriculture of
these countries.
And very often people think of capitalism, certainly in the sense that Marx
described in Volume One, capitalism is the exploitation of wage labor by
employers. But capitalism also is an appropriation of the land rent, the
agricultural rent, the natural resource rent, the oil and the mineral rent.
And the idea of Bretton Woods was to make sure that other countries could
not impose capital controls to prevent American finance coming in and
appropriating their resources, of making the loans to foreign governments so
that governments would not create their own money to promote their own
social development but would have to borrow from the World Bank and the IMF,
which essentially meant from the Pentagon and the State Department, in U.S.
dollars.
World Bank headquarters in D.C. (Bruno Sanchez-Andrade Nuño, Flickr)
And they would dollarize their economies and the economies would all be
sucked. The economic rents from oil, agriculture, mining would all be sucked
into the United States. That kind of Bretton Woods cannot be done again. And
since Bretton Woods was an idea of centralizing the worlds economic surplus
in a single country, the United States, no, that can never be done again.
What is happening? You mentioned the world of free, free lunch, and thats
what was a theme of Super Imperialism, when America issues dollars, for
these all end up in central banks and they hold the dollars as a surplus.
That means what can they do? All they can do is really lend them to the
United States. America got a free lunch. It could spend and spend on its
military, on bumping up corporate takeovers of other countries. The dollars
have come in and foreign countries couldnt cash them in for gold. They had
nothing to cash them into. And all they could do is finance the U.S. budget
deficit by buying Treasury bills.
Thats the irony now, what has happened in the last few years in the fight
against Russia and China is America has killed the free lunch because it
said, okay, now were going to have sanctions against Russia and China.
Were going to all of a sudden grab whatever money you have in foreign banks
like we grabbed Venezuelas money. Lets go, were going to excommunicate
you from the bank clearing system. So, you cant use banking. Were going to
put sanctions against banks that deal with you.
So obviously Russia and China said, okay, we cant deal with the dollar
anymore, because the United States just crammed them. And if we do have
dollars, were just going to hold everything in reserves and lending to the
United States, the dollars that its going to spend building more military
bases around us to make us waste our money on monetary spending. And so,
America itself by the way, in fighting against China and Russia, has ended
the free lunch.
In America youve had since 1980 something entirely different. That was not
foreseen by anybody because it seemed to be so disruptive.
And now, Russia and China as you pointed out, are de-dollarizing, theyre
trading in each others currency. Theyre being the exact opposite of
everything that Bretton Woods tried to create. Theyre trying to create
independence from the United States.
If Bretton Woods is this dependence on the United States, a centralized
system dependent ultimately on Wall Street financial planners then, what
China and Russia are trying to create is an economy thats not run by the
financial sector, but it is run by, lets say, industrial and economic
engineering and saying, what kind of an economy do we need in order to raise
living standards and wages and self-sufficiency and preserve the
environment, what is needed for the ideal world that we want?
Well, in order to do that, youre going to have to have a lot of
infrastructure. And in America, infrastructure is all privatized. You have
to make a profit. And once you have infrastructure, a railroad or electric
utility, like you see in Texas recently, its a monopoly. Infrastructure,
for 5,000 years, Europe, the near East, Asia was always kept in the public
domain that goes, if youll give it to private owners, theyll charge a
monopoly rent.
Well, the idea that China has is, OK, were going to provide the
educational system freely and let everybody try to get an education. In
America if you have an education, you have to go into debt for the banks for
between $50,000 and $200,000. And whatever you make youre going to end up
paying the bank while in China, if you give free education, the money that
they earned from the education will be spent into the economy, buying the
goods and services that they produce, and the economy will be expanding, not
shrinking, not having it all sucked out into the financial banks that are
financing the education, same thing with the railroads, same things with the
healthcare.
If you provide healthcare freely then the employers do not have to pay for
the healthcare because thats provided freely. In the United States, if the
corporation and the employees have to pay for healthcare, that means that
the employees have to be paid a much higher wage in order to afford the
healthcare, in order to afford the transportation that gets him to work, in
order to afford the auto loans, in order to drive to work, all of this is
free, or subsidized in other countries, who create their own credit.
In the United States and Europe, governments feel that they have to borrow
from the wealthy people in a bond and pay interest. In China they say, we
dont have to borrow from a wealthy class. We can simply print the money.
Thats Modern Monetary Theory. As Donald Trump has explained in the United
States, we can print whatever we want. Dick Cheney said, deficits dont
matter. We can just print it. And of course, Stephanie Kelton and my
colleagues in MMT at Kansas City for many years have been saying.
The economy has been saturated and Reaganized and the result is a fight of
economic systems against China and Russia.
The banks fear this because they say, Wait a minute, Modern Monetary Theory
means its not feudal monetary theory. We want feudal monetary theory. We
want the rich people to be able to have a choke point on the economy that
you cant survive unless you borrow from us and pay us interest. We want the
choke points. Thats called economic rent.
And so, you have the West turning into a rent-extractive economy, a
rent-seeking economy. And youll have the whole ideal of Russia, China, and
other countries being the ideal of not only Marx, but Adam Smith, John
Stuart Mill, Ricardo. The whole of classical economics was to free economies
from economic rent. And the American economy is all about extracting rent
through the real estate sector, the financial sector, the health insurance
sector, the monopolies and infrastructure sector.
The economy has been saturated and Reaganized and the result is a fight of
economic systems against China and Russia. So, its not simply that, theres
a fight between who makes the best computer chips and the best iPhones.
Its: are we going to have a fallback of civilization back into feudalism,
back into control by a narrow class at the top of the economy, that 1
percent? Or are we going to have the ideal of democratic industrialization
that used to be called socialism but it was also called capitalism.
Industrial capitalism was socialism; it was socialized medicine, it was
socialized infrastructure, it was socialized schooling. And so, the fight
against socialism is a fight against industrial capitalism, a fight against
democracy, a fight against prosperity.
[See previous coverage: The Consequences of Moving from Industrial to
Financial Capitalism]
Thats why what youre seeing now is a fight for what direction civilization
will go into. And you cant have a Bretton Woods for a single kind of
organization because the United States would never join that civilization.
The United States calls a country trying to make its labor force prosperous,
educated and healthy instead of sick with shorter lifespans, they call it
communism or socialism.
Well, it can call it whatever it wants, but thats the dynamic we are
talking about.
Pepe: Well, you put it very, I would say starkly. The opposition between
two completely different systems, what the Chinese are proposing, including,
from productive capitalism to trade and investment all across Eurasia and
beyond, including Africa, parts of Latin America as well. And the rentier
obsession of the 0.01 percent that controls the U.S. financial system. In
terms of facts on the ground, are we going slowly but surely and ominously
towards an absolute divorce by a system based on rentier,
ultra-financialization, which is the American system, not productive
capitalism at all.
May 14, 1984: Pop superstar Michael Jackson, center, with President Ronald
Reagan and First Lady Nancy Reagan. (Pete Souza, White House)
I was going through a small list of what the U.S. exports, its not much as
you know, better than I do. Agricultural products but always privileging
U.S. farmers. Hollywood, we are all hostages of Hollywood all over the
world. Pop culture? Thats not the pop culture that used to be absolutely
impregnable and omniscient during the 60s, the 70s, during the Madonna,
Michael Jackson era in the 80s, right? Infotech. And thats where a big bet
comes in. And this is maybe the most important American export at the moment
because American Big Tech controls social networks all over the planet. Big
Pharma. Now we see the power of Big Pharma with the whole Covid operations,
right? But Boeing prefers to invest in financial engineering instead of
building decent products. Right?
So, in terms of a major superpower, the hyperpower, thats not much, and
obviously buyers all over the world already noticed that. So, China is
proposing the New Silk Roads, which is a foreign-policy strategy, and a
trade, investment and sustainable development strategy. [Its] applied not
only to the whole of Eurasia, but Eurasia and beyond to grow a great deal of
the Global South and thats why we have Global South partners to the New
Silk Roads 130-and-counting as we speak.
So, the dichotomy could not be clearer. What will the 0.001 percent do?
Because they dont have anything seductive to sell. To all those nations in
the Global South to start with; the new version of the Non-Aligned Movement,
NAM, the countries that are already part of New Silk Road projects, not even
to Europe and this, we could see by the end of last year when the
China-European Union agreement was more or less sealed. Its probably going
to be sealed in 2021 for good.
And at the same time, we had the Regional Economic Comprehensive
Partnership, RCEP, with the ASEAN 10, my neighbors here, the Association of
South East Asian Nations, China, Japan, South Korea, Australia, and New
Zealand. So, when you have the China-EU deal, and when you have RCEP, you
have China as the number one trade partner on the planet, no competition
whatsoever.
And obviously every one of these players wants to do business with China.
And theyre privileging doing business with China to doing business with the
U.S., especially with a country that once again, according to President
Putin, is non-agreement capable. So, Michael, what is your key geo-economic
view of the next steps? Are we going towards the divorce of the American
financialization system and the Eurasia-and-beyond integration system?
Sept. 25, 2015: Vice President Joe Biden, center, raises a toast in honor of
Chinese President Xi at a State Department luncheon. U.S. Secretary of State
Johh Kerry on right. Jill Biden lower left. (Wikimedia Commons)
Michael: Well, you youve made the whole point clear. There is
incompatibility between a rentier society controlled by the finance and real
estate interests and military interests and an industrial democracy.
Industry in England and Europe in the 19th century the whole fight for
democratic reform to increase the role of the House of Commons against the
House of Lords in England and the lower house in Europe was a fight to get
labor on the side of industry [and] to get rid of the landlord class. And it
was expected that
capitalism [would then be] free of the landlord class,
free of something that wasnt really capitalism at all, it was a carry-over
from feudalism. Once you free capitalism, you wouldnt have this overhead of
the idle 1 percent, only consuming resources and going to war, anymore.
And then World War I changed all of that .
Already, in the late 19th
century, the landlords and the banks fought back, and they fought back
largely through the Austrian School of individualism and the English
marginalist and they called it freedom. They call it free markets. Free
market meant giving power to the monopolists, to the oppressors, to
violence. A free market was where armies can come in, take over your
country, impose a client dictatorship like [Gen. Augusto] Pinochet in Chile
or the neo-Nazis in the Ukraine. And you call that a free market.
Poster of the mongrel dog symbol of social protests in Chile since the
student demonstrations of 2011. (Carlos Teixidor Cadenas, CC BY-SA 4.0,
Wikimedia Commons)
The free world was a world centrally planned by the American military and
finance together. So, its Orwellian, and the dynamic of this world is
shrinking because its polarizing and youve seen with the Covid pandemic in
the United States, the economy has polarized much more sharply than ever
before between the 1 percent, the 10 percent and the rest of the economy.
Well, as opposed to that here, you have economies that are not run by a
rentier class, that do not have a banking class and the landlord class
controlling the economy, but a partnership. The kind of thing you had in
Germany in the late 19th century, government industry and labor, all working
together to design how we provide the financing for industry so that it can
provide not only industrial capital formation, but public funding for us to
build infrastructure and uplift the population.
What China is doing is what made America rich in the 19th century, what made
Germany rich. Its exactly the same logical engineering plan. Now, this plan
because its based on economic expansion, and environmental preservation and
economic balance instead of concentration, this is going to be a growing
economy. So, youre having a growing economy outside of the United States
and a shrinking economy in the States and its satellites in Europe.
What China is doing is what made America rich in the 19th century, what
made Germany rich.
Europe had a choice; either it could shrink, and be American, or it could
join the growth. Europe has decided unanimously, we dont want to grow. We
want to be constant. We want our banks to take over just like in America.
Thats a free market because Americans have found out, and Im told by
American officials we just buy the European politicians, theyre bribable.
Thats why when president Putin says, America and Europe are not agreement
capable, it means theyre just in it for the money. There is no ideology
there. There is no idea of the overall social benefit. The system is how
can I get rich, and you can get rich by being bribed? Thats why you go
into politics. As you can tell in America with the Supreme Court law saying
politics can be personally financed.
So, youre having two incompatible systems and, theyre on different
trajectories and if you have a system that is shrinking like the West and
growing in the East, you have resentment. People who obtain their wealth in
crooked ways, or without working by inheritance, by crime, by exploitation
they will fight like anything to keep that. Whereas people who actually
create wealth, labor, capital, they, theyre not willing to fight, they just
want to be creative. So you have a destructive military force, in the West.
And, basically a productive, economic growth force. And in Eurasia, the
clash now is occurring largely in Ukraine. Youre having the United States
back the neo-Nazis.
Pepe: The old Nazi movement!
Michael: Its the same swastika-carrying group that threatened Russia in
World War II. And this is like waving a red flag before a bull. Putin
continues to remind the Russians. We know what happened with the 22 million
Russians that died, in World War II with Europe coming in. Were not going
to let it happen again.
And you can be certain Russia is not going to be sucked into invading the
Ukraine. The United States has its military advisers in the Ukraine. Now,
the Vineyard of the Saker has a very good report on that. Americas trying
to needle Russia into fighting back against the terrorist groups and Russia
has no desire at all to. Theres nothing that Russia has to gain by taking
it over. Its essentially a bankrupt country.
The United States is trying to provoke a response so it can say Russia is
attacking the West. The result will probably be that Russia will very
simply provide arms to the Eastern Ukrainians to fight back the invasion.
And youre going to have a wasteland in Western Ukraine and Poland. And this
wasteland will be the new buffer state with Europe. Already you have, maybe
10 percent of the Ukrainians having moved to Russia and the east. [Another]
10 percent are now plumbers in England and Europe, working. Theyre
beginning to look like Latvia and other neo-liberalized countries.
Neo-liberalized countries? If you want to see the future, look at Latvia,
Estonia. Look at Greece. Thats the American plan. Essentially, an
emigration of skilled labor, a sharp reduction of living standards, a 20
percent decline in population. And although it may appear to have more
income, all of this income and GDP is, essentially, interest collection and
rents to the FIRE sector.
All the American GDP growth is essentially payment to the bank, to the
landlords and the monopolist, its not, the population, the employees are
not sharing in the GDP. Its all concentrated at the top. They make a
desert, and they call it growth.
Street in Detroit in 2009. (Bob Jagendorf, Flickr, (CC BY-NC 2.0)
It hasnt changed. Rome was a predatory economy held by military force that
ultimately collapsed and America is on the same trajectory as Rome. And it
knows this, I have spoken to American policymakers and they say, you know,
we were going to be dead by then. It doesnt matter if the West loses. Im
going to get rich. Im going to buy a farm in New Zealand and make a big
bomb shelter there and live underground, you know, like a cave dweller.
The financial time frame and the predatory rentier time frame is short term.
The Eurasian time frame is long-term. So, youve got to have the short-term
burning what wealth it has as opposed to the longer-term building up.
[Consider the Biden Covid relief measure.] They call it a stimulus bill, but
if youre starving, if you havent been able to pay your rent, if youre six
months behind in your rent and you get enough money to pay the landlord, at
least one month back rent, thats not a stimulus, thats a survival. And
its a one-time payment. This kind of stimulus checks that Americas sending
out are sent out every month in Germany and parts of Europe.
All the American GDP growth is essentially payment to the bank, to the
landlords and the monopolist.
The whole idea in Europe is: OK, you have a pandemic, you have business
interrupted. What were going to do is were going to have a pause. You
dont pay the rent, but the landlords are not going to pay the banks. And
the banks are not going to be in arrears. Were just going to have a pause
so that when its all over people will go back to normal. Well, China and
Russia are already pretty much there and where you are [in Asia], and
especially in Thailand, are already back to normal.
People in Guangzhou, China in February 2020, during the Covid-19 pandemic.
(Zhizhou Deng, CC BY 2.0, Wikimedia Commons)
But in America anybody whos renting or whos bought a house on mortgage
credit or who has credit card debt or personal debt or automobile debt
theyre way behind. And all of these stimulus checks are just being used to
pay the banks and the landlords not to not to buy more goods and services.
All theyre trying to do is, is get out of the hole that theyve been dug
into in the last 12 months. Thats not a stimulus thats a partial,
desperation payment. This problem never existed in other civilizations. You
have the whole tradition of Greece, Babylonia thats what my book Forgiving
the Debt is all about. The whole idea is when there is an economic
interruption, you have an interruption, you dont have people into debt. You
wipe out all of the arrears that have mounted up. You wipe out the tax
arrears, the rent arrears, the debt of payment arrears. So once the crisis
is over, you can start from a normal position again.
Theres no normalization in America, theres no normal position to start.
Youre starting from a position, even more behind the financial problems
than you were when you went in. The foreign economies of China and Russia
dont have that kind of problem, they dont have any kind of deficit. So,
the West is beginning with 99 percent of the population deeper and deeper
into debt to the 1 percent.
Protesters with Occupy Wall Street in NYC, Nov. 17, 2011. (Z22, CC BY-SA
3.0, Wikimedia Commons)
Where is that whole polarization between the 1 percent and the 99 percent?
It doesnt exist certainly in China and in Russia, Putin is trying to
minimize it, given the legacy of the kleptocracy that the neo-liberals put
in hes still trying to deal with that, but you really have that. Its a
difference in economic systems and the direction in which these systems are
moving in.
Pepe: Im really glad that you brought up Ukraine, Michael, because this,
lets say U.S. foreign policy, even, before Trump and now with the new
Biden-Harris administration, basically more or less what it boils down to is
sanction sanctions, sanctions, as we know, and provocations, which is what
theyre doing certainly in Syria with that recent bombing.
And, in the case of Ukraine and Donbass, its absolutely crazy because NATO
so-called strategists, when you talk to them in Brussels, they know very,
very well about each state or whatever they weaponize and financialize to
profit Kiev to mount some sort of offensive against the Donbass and even if
they would have like 300,000 soldiers against like 30,000 in Donbass.
If the Russians see that this is going to get really heavy if they intervene
in directly, with their bombing, with their super missiles, they can finish
this story in one day. And if they want it, they could finish the whole
story, including invading Ukraine in three days, like they did in 2008 with
Georgia and still they keep the provocations, loosely acted on by people
from inside the Pentagon.
And so, we have sanctions, we have nonstop provocations, and we have also a
sort of introducing a Fifth Column elements inside or at the top of
government which brings me to, and I would love to have your personal
analysis on the role of Mario (Goldman Sachs) Draghi now in Italy, which is
something I had been discussing with my Italian friends. And theres more or
less a consensus, among very well informed, independent Italian analysts
that Draghi may be the perfect Trojan horse to accelerate the destruction of
the Italian state, which will accelerate the globalist project of the
European Union, which is absolutely non-state centric.
Lets put it this way, which is also part of the Great Reset so if you could
briefly talk to us about the role of Super Mario at the moment.
Mario Draghi, right, with Italian President Sergio Mattarella at the
Quirinal Palace, Feb. 3. (Presidenza della Repubblica, Wikimedia Commons)
Michael: Well, Italy is a very good example to look at. It had strings for a
long time. When you have a country that needs infrastructure, that needs
public, social democratic spending, you need a government to create the
credit. But when Americans and specifically the University of Chicago free
market lobbyists created the European, the Eurozone financial system, their
premise was that governments cannot create money. Only banks can create
money. Only banks owned by the bond holders can create money for the benefit
of their owners and bond holders. So, no European government, first of all,
can run a budget deficit sufficient to cope with the coronavirus or with the
problems that have been plaguing Italy for a decade. They cant create their
money to revive employment, to revive infrastructure, to revive the economy.
The European Central Bank only lends to other central banks.
Its created trillions of euros just to buy stocks and bonds, not to spend
into the economy, not to hire labor, not to build infrastructure, but just
for the holders of the stocks and bonds. The 1 percent or 5 percent of the
population gets richer. The function of the European Central Bank is to
create money, to save the wealthiest 5 percent from losing a single penny on
their stocks and bonds.
And the cost is to impoverish the economy and to basically make the economy
end up looking like Greece, which was sort of the dress rehearsal for how
the Eurozone was going to just essentially reduce Europe to debt dependency,
just like in feudalism everybody had to have access to the land by becoming
a serf.
Well now youre in debt peonage. Its the modern, finance capitals version
of serfdom. And so, in Italy were going to need government spending. Were
going to need to do in our way what Chinas doing in its way and what Russia
is doing in its way. Were going to have some kind of government program.
And we cant have the economy being impoverished just because the University
of Chicago has designed a plan for Europe to prevent the euro ever from
being a rival to the U.S. dollar. If theres no European central bank to
borrow, to pump euros into the world economy, then, only dollars will be
left for central bank reserves. The United States doesnt ever want a rival.
It wants satellites and so thats what its basically turned Europe into.
And I dont see any response outside of Italy for an attempt to say we cant
be a part of this system. Lets withdraw from the euro.
I know that the Greeks, when I was in Greece years ago, we all thought cant
we join with Italy and Portugal and Ireland and say look, the system isnt
working. Everybody else no, no, the Americans will just simply get us out of
office one way or another. And in Italy, of course, if you look at what
happened after World War II, the great threat was Italian communism. You
had the Americans essentially say well, we know the answer to communism,
its fascism and, you saw where they put the money. They essentially did
every dirty trick in the book in order to fight any left- wing group in
Italy, just as they did in Yugoslavia, just as they did in Greece, wiping
out the partisans, all the leading anti-Nazi groups from Greece to Italy to
elsewhere. All of a sudden they were all either assassinated or moved out of
office and replaced by the very people that America had been fighting
against during World War II.
Well, now Italy is finally coming to terms with this and trying to fight
back and youre having whats happening there, between Northern Italy and
Southern Italy. Youre having the same splits occur in other countries.
Pepe: Yeah. Well, Im going to bring up, perhaps an even more extreme case
now Michael, which is the case of Brazil, which at the moment is in the
middle of an absolutely out of this world mix of telenovela and Kabuki
theater that even for most Brazilians is absolutely incomprehensible. Its
like a fragmentation bomb exploding over and over again, a Groundhog Day of
fragmentation bombs.
In fact, its completely crazy. Lula [former President Luiz Inácio Lula da
Silva] is back in the picture as well. We still dont know under which
terms, we still dont know how the guys who run the show, which are the
Brazilian military, are going to deal with him or instrumentalize him, et
cetera.
In 2007, President Luiz Inácio Lula da Silva (Lula) and his wife Marisa
Letícia review troops during the Independence Day military parade. (Ricardo
Stuckert, Agência Brasil, CC BY 3.0. Wikimedia Commons)
I bring up this case because
essentially it has convulsed Brazil
completely and large parts of Latin America. It is a telenovela with one
cliffhanger after another, sometimes in a matter of minutes, but it
encompasses all the basic themes of what really interests the 0.01 percent,
which we can identify for instance as a class war against labor which is
what the system in Brazil, since the coup against Dilma [Former President
Dilma Vana Rousseff] has been waging. A war against mixed economies,
economic sovereignty, which is something that the Masters of the Universe of
the 0.01 percent cannot wage against Russia and China. But that was very
successfully waged against Brazil and implemented in Brazil. In fact, in a
matter of two years, they completely devastated the country in every
possible sense, industrially, sociologically, you name it
And of course, because the main objective is something that you keep
stressing over and over again, unipolar rentier dominance, in fact.
Brazil, I would say is the extreme case in the world not only in the Global
South, but in planetary terms of lets say the last frontier of the rentier
economy, when you manage to capture a country that was slowly emerging as a
leader in the Global South, as an economic leader. Dont forget that a few
years ago, Brazil was the sixth-largest economy in the world and on the way
to become the fifth. Now its the 12th and falling down nonstop and
controlled by a mafia that includes not by accident, a Chicago Boy
Pinochetista, Minister Paulo Guedes, who is implementing, in the 21st
century, something that was implemented in Chile in the 70s and 80s. And
they were successful. Apparently, at least so far.
Brazils Economy Minister Paulo Guedes in 2019. (Presidente da República,
Alan Santos)
Brazil is so disorganized as a nation, so shattered, so fragmented and
atomized as a nation that basically it depends on the re-emergence of a
single political leader, in this case, Lula to try to rebuild the nation
from scratch. And even in a position where he cannot control the game he can
interfere in the game, which is what happened, like you know,
when he gave
a larger-than-life press conference, mixed with a re-presentation of himself
as a statesman and said, Look the whole thing is shattered, but there is
some light at the end of the tunnel.
But still he cannot confront the real Masters of the Universe that have
allowed this to happen in the first place. So just to give an example to
many of you who are not familiar with some details of the Brazilian case,
and it involves directly the Obama-Biden scheme or the Obama-Biden larger
operation. When Biden was vice president in 2013, in May 2013, he visited
Brazil for three days and he met with President Dilma.
They discussed very touchy subjects, including the most important one, the
absolutely enormous, pre-salt oil reserves, which obviously, the Americans
wanted to be part of the whole thing, not by accident. You know what
happened one week later? The start of the Brazilian color revolution, in
fact, and this thing kept rolling and rolling and rolling.
Brazils Dilma Rousseff receiving presidential sash from Luiz Inácio Lula da
Silva, Jan. 1, 2011. (Fabio Rodrigues Pozzebom, Agência Brasil, CC BY 3.0
br, Wikimedia Commons)
We got the coup against Dilma in 2016, we got to the Car Wash operation
landing Lula in jail. And we got to the election of [President Jair]
Bolsanaro. And now we are in a place where even if the military controls
this whole process, even if Bolsanaro is becoming bad for business will he
become bad for the rentier class business, for the 0.01 percent in the U.S.
that has all the connections in their new, large neo-colony in the tropics,
which has enormous strategic value, not to mention, unforeseen resources,
wealth resources, right? So, this is an extreme case and I know that you
follow Brazil relatively closely. So, your geo-economic and geopolitical
input on the running telenovela I think would be priceless for all of us.
Michael: Well, this problem goes back 60 years. In 1965, the former
president of Brazil came to New York and we met. He explained to me how the
United States essentially got rid of him because he wasnt representing the
banking class. And he said that they built Brasilia because its apart from
the big industrial cities, they wanted to prevent industry and democracy and
the population from controlling the government.
So, they built Brasilia. He said maybe theyll use it as an atom bomb site.
It certainly doesnt have an economic thing. Well, fast forward, in 1980,
after Mexico defaulted on its foreign debt in 1972, nobody would invest in
Latin America. And by 1990, Brazil was paying 45 percent interest per year
to borrow the dollars to be able to finance its deficit, which is mainly
flight capital by the wealthy. Well, I think Id mentioned before here, I
was hired by Scudder, Stevens and Clark for the Third World bond fund. Forty
five percent: I mean, just imagine that. Thats a fortune every year. No
American would buy it, no European would buy it. Who bought it? The
Brazilians and the Argentineans bought, and I get it, theyre the
government, theyre the central bankers. Theyre the presidents family.
Theyre the 1 percent, theyre the only people that are holding Brazils
dollar debt.
Entrance to the Cathedral of Brasília. (Rodrigo de Almeida Marfan, CC BY-SA
4.0)
So when Brazil pays its foreign dollar debt, its paying to its own 1
percent who are holding, who are saying well, were holding it off shore in
the Dutch West Indies where the fund was located for tax-exempt purposes and
pretending to be American imperialists, but actually being local
imperialists.
Well then, just towards the end of Lulas reign, the Council of Economic
Advisors brought Jamie Galbraith and Randy Wray and me down for a
discussion. How do we, you know, were, were really worried because, Lula
in order to get elected, had to meet with the banks and agree to give them
what they wanted.
They said, look, we can see that, you know, you have the power to be
elected. We dont want to have to fight you in dirty ways, but will let you
be elected, but youre going to have to do the policies and certainly the
financial policies that we want and Lula made a kind of a devils agreement
with them because he didnt want to be killed and he wanted to do some good
things.
So, he was sort of like a Bernie Sanders-type character. Okay, you have to
go along with a really bad system in order to get something good done,
because Brazil really needs something good done. Well, the fact is that even
the little bit he did the finance couldnt take because one of the
characteristics of financial wealth is its addictive. Its not like
diminishing marginal utility. If you give more food to an employee or to a
worker you know, at the end of the meal, youre satiated, you dont want
much more. If you give enough money you know, OK, they buy a few luxuries
and then, OK, they save it. But if you give more money to a billionaire they
want even more and they grow even more desperate. Its like a
cocaine-addicted person and the Brazilian ruling class wanted it so
desperately that they framed up and controlled the utterly corrupt
judiciary. The judiciary in Brazil is almost as corrupt as it is in New
York City.
Pepe: More, even more.
Michael: They framed them up and they want totalitarian control. And that
sort of is what free market is. Totalitarian control by the financial class.
Thats freedom for the financial class, if the freedom to do what they want
to do to the rest of the economy, thats libertarianism, its a free market,
its Austrian economics.
Its the right wings fight against government, its a fight against any
governments for long enough who resist the financial and real estate
interests. Thats what the free market is. And Brazil is merely the most
devastating example of this because it takes such a racial term there. Not
only does Brazil want to make a fortune, tearing down the Amazon, cutting up
the Amazon, selling the lumber to China, turning the Amazon into soy
production to sell to China. But for that, you have to exterminate the
domestic population, the indigenous population that wants to use the land to
feed itself. So you see the kind of race war and ethnic war that you have,
not to mention the war against the blacks in the Brazilian slums that Lula
tried so much to overcome.
So you have a resumption of the ethnic war there, and on Wall Street, I had
discussions with money managers back in 1990. Well I wonder whether thats
going to be a model for whats happening in the United States with the
ethnic war here.
Essentially, its a tragedy whats happening in Brazil, but its pretty much
what happened in Chile under Pinochet which is why they have the
Pinochetistas and the Chicago boys that you mentioned.
Pepe: Absolutely. Coming back to China, Michael, and the [recent] approval
of the Five-Year Plan, which is not actually the five-year plan. Its
actually three five-year plans in one because they are already planning
2035, which is something absolutely unimaginable anywhere in the West.
Right?
So, its a different strategy of productive investment, of expansion of
social welfare and solidifying social welfare, technological improvements.
I would say by 2025 China would be very close to the same infotech level of
the U.S., which is part of Made in China 2025, which is fantastic. They
stopped talking about it, but they are still implementing it, the
technological drive in all those standard areas that they had codified a few
years ago. And of course, this notion, which I found particularly
fascinating because it is in one sense socialism with some Confucianist
elements, but its also very Taoist: The dual development strategy, which is
inversions and expansion of domestic investment and consumption and
balancing all the time with projects across Eurasia, not only affiliated
with the Belt and Road, with the New Silk Road, but all other projects as
well. So, when you have a leadership that is capable of planning with this
scope, amplitude breadth and reach, and when we compare it to the money
managers in the West, which basically their planning goes, not even
quarterly in many cases, its 24 hours.
So our dichotomy between rentier capitalism, financialization, or whatever
we want to define it, and state planning with the view of social benefit is
even starker in fact, and Im not saying that the Chinese system can be
exported to the rest of the world, but Im sure that, all across the Global
South, when people look at Chinese policies, long-term, how they are
planning, how they are developed and how they are always fine tuning what
they developed and discuss
. As you said in the beginning, this is a frontal
shock of two systems and sooner or later were going to have the bulk of the
Global South including nations which nowadays are still American vassals or
satrapies or puppets or poodles, et cetera.
Theyre going to see which way the wind is blowing. Right?
Michael: Why cant the Chinese system be exported to the West? Thats a good
question
. How would you make American industry able to follow the same
productive path that China did? Well for one thing the biggest element in
workers budget today is housing, 40 percent. There was one way to get rid
of it, get rid of the high housing prices that essentially, or whatever a
bank would lend. And the banks lend essentially the economic rent. Theres a
very simple way to keep housing prices down. You tax the land rent, you use
your tax system, not on taxing labor, that increases the cost of labor, not
increasing capital, that leaves less, industrial capital, but your tax of
the land and the real estate and the banks.
Well, suppose you were to lower the price of housing in America from 40
percent to 10 percent like China has, and this is the big element in the
cost structure difference. Well, if all of a sudden people only had to pay
10 percent of their income for housing, then all the banks would go under
because 80 percent of the bank loans are mortgage loans.
The whole idea is that the purpose of housing is to force how many buyers
and renters go into debt to the banks so that the banks end up with all of
the lend rent that the landlord class used to get. This is whats preventing
America from being like China. What if America would try to develop a
high-speed railroad like China?
Well, then you need the right of way. Youd need to have the railroads go in
a straight line.
They need a right of way and it doesnt have a right of
way because that conflicts with private property and most of the right of
way is a very expensive real estate.
So, you cant have high-speed rail in the United States, like in China.
Suppose you would have a low-cost education. Well then, you get rid of the
whole means of siphoning off labors income to pay for education loans. You
could go, suppose you had private healthcare and prevent Americans from
getting sick like they do in China and Thailand, where you are.
High speed electric train arrives at a Shanghai rail station. (Wikimedia)
Well, then the health insurance companies and the pharmaceutical companies
wouldnt be able to make their rent. So you could not have America adopt a
China type industrial program without what would be really a revolution
against the legacy of the monopoly of private banking, of finance and all of
the fortunes that have been built up financially really in the last 40 years
since 1980.
Pepe: So, whats going to happen in the, lets say, short to mid-term in the
U.S.? Michael, we are seeing the corrosion of the whole system, not only
externally in terms of foreign policy and the end of the free lunch, but
internally with those 70-million-plus deplorables being literally canceled
from public debate, the impoverishment of the middle classes, with over 50
million people in America who are practically becoming literally poor. And
obviously the American dream ended a few decades ago, maybe, but now theres
not even a glimpse of it, that there could be a renewal of the American
dream. So we have a larval civil war situation, degrading on a daily basis.
Whats the end game in fact? And what exactly does Wall Street, the American
ruling class the guys who have those lunches at the Harvard club what do
they ultimately want?
Michael: Well, what you call a disaster for the economy, isnt it a bonanza
for the 1 percent? This is a victory of finance. You look at it as a
collapse of industrial capitalism. I look at it as the victory of rentier
finance capitalism. Youre having probably 10 million Americans that are
going to be thrown out of their apartments and their homes in June when the
moratorium on rents and mortgages ends. Youre going to have a vast increase
in the homeless population. That will probably represent an increase in
people who use the subways. Where else are they going to live? And all of
this, theres an immense amount of private capital firms that have all been
created in the last year of just wealth accumulations and theyre saying
there are going to be such great opportunities to pick up real estate at
bargain prices, all of this for the commercial real estate, thats broken,
all the buildings and the restaurants that have to be sold because they
cant meet their mortgage payments and their rents, all the houses that are
going to be under, private capital can come in and do what was done after
the Obama evictions.
We can do what Blackstone did. We can buy them all out for pennies on the
dollar. So, for them, theyre looking at their own 20-year plan. And their
20-year plan is to grab everything!
Michael Hudson is an American economist professor of economics at the
university of Missouri Kansas City and a researcher at the Levy Economics
Institute at Bard College. Hes a former Wall Street analyst political
consultant commentator and journalist. He identifies himself as a classical
economist. Michael is the author of J is for Junk Economics, Killing the
Host, The Bubble and Beyond, Super Imperialism: The Economic Strategy of
American Empire, Trade Development and Foreign Debtand The Myth of Aid,
among others. His books have been published translated into Japanese,
Chinese, German, Spanish and Russian.
Pepe Escobar, born in Brazil, is a correspondent and editor-at-large at Asia
Times and columnist for Consortium News and Strategic Culture in Moscow.
Since the mid-1980s hes lived and worked as a foreign correspondent in
London, Paris, Milan, Los Angeles, Singapore, Bangkok. He has extensively
covered Pakistan, Afghanistan and Central Asia to China, Iran, Iraq and the
wider Middle East. Pepe is the author of Globalistan How the Globalized
World is Dissolving into Liquid War; Red Zone Blues: A Snapshot of Baghdad
during the Surge. He was contributing editor to The Empire and The Crescent
and Tutto in Vendita in Italy. His last two books are Empire of Chaos and
2030. Pepe is also associated with the Paris-based European Academy of
Geopolitics. When not on the road he lives between Paris and Bangkok.