(BF): Michael Hudson, welcome back.
Michael Hudson (MH): It's good to be back, Bonnie.
BF: Why is President Trump insisting that the
Federal Reserve lower interest rates? I thought they were
already extremely low. And if they did go lower, what effect
would this have?
Interest rates are historically low, and they have been kept low
in order to try to keep providing cheap money for speculators to
buy stocks and bonds to make arbitrage gains.
borrow at a low rate of interest to buy a stock yielding
dividends (and also making capital gains) at a higher rate of
return, or by buying a bond such as corporate junk bonds that
pay higher interest rates, and keep the difference. In short,
low interest rates are a form of financial engineering.
Trump wants interest rates to be low in order to inflate the
housing market and the stock market even more, as if that is an
index of the real economy, not just the financial sector that is
wrapped around the economy of production and consumption.
this domestic concern, Trump imagines that if you keep interest
rates lower than those of Europe, the dollar's exchange rate
will decline. He thinks that this will make U.S. exports more
competitive with foreign products.
Trump is criticizing
the Federal Reserve for not keeping
interest rates even lower than those of Europe.
that if interest rates are low, there will be an outflow of
capital from this country to buy foreign stocks and bonds that
pay a higher interest rate. This financial outflow will lower
the dollar's exchange rate.
He believes that this will increase
the chance of rebuilding America's manufacturing exports.
This is the great neoliberal miscalculation. It also is the
basis for IMF models.
How low interest rates lower the dollar's exchange rate, raising
Trump's guiding idea is that lowering the dollar's value will
lower the cost of labor to employers.
That's what happens when a
currency is devalued. Depreciation doesn't lower costs that have
a common worldwide price.
There's a common price for oil in the
world, a common price of raw materials, and pretty much a common
price for capital and credit.
So the main thing that's devalued
when you push a currency down is the price of labor and its
Workers are squeezed when a currency's exchange rate falls,
because they have to pay more for goods they import. If the
dollar goes down against the Chinese Yen or European currency,
Chinese imports are going to cost more in dollars. So will
That is the logic behind "beggar my neighbor"
How much more foreign imports will cost depends on how far the
dollar goes down.
But even if it plunges by 50 percent, even if
the dollar were to become a junk currency like the Argentinean
or other Latin American currencies, that cannot really increase
American manufacturing exports, because not much American labor
works in factories anymore.
Workers drive cabs and work in the
service industry or for medical insurance companies.
Even if you
give American workers in manufacturing companies all their
clothing and food for nothing, they still can't compete with
foreign countries, because their housing costs are so high,
their medical insurance is so high and their taxes are so high
that they're priced out of world markets.
So it won't help much
if the dollar goes down by 1 percent, 10 percent or even 20
If you don't have factories going and if you don't have
a transportation system, a power supply, and if our public
utilities and infrastructure are being run down, there's nothing
that currency manipulation can do to enable America to quickly
rebuild its manufacturing export industries.
American parent companies have already moved their factories
abroad. They have given up on America.
As long as Trump or his
successors refrain from changing that system - as long as he
gives tax advantages for companies to move abroad - there's
nothing he can do that will restore industry here in the U.S..
International Monetary Fund's junk economics, the
neoliberal patter talk that it's given to Latin America
pretending that if a country just lowers its exchange rate more,
it will be able to lower its wages and living standards, paying
labor less in hard-currency terms until at some point, when its
poverty and austerity get deep enough, it will become more
That hasn't worked for fifty years in Latin America. It hasn't
worked for other countries either, and it never worked in the
American School of Political
Economy developed the Economy of High Wages doctrine. (I review
this in my book on
America's Protectionist Takeoff: 1815-1914.)
They recognized that if you pay labor more, it's more
productive, it can afford a better education and it works
better. That's why high-wage labor can undersell low-wage
Trump is therefore
a century behind the times in
picking up the IMF austerity idea that you can just devalue the
currency and reduce labor's wages and living standards in
international terms to make the economy more profitable and
"work your way out of debt."
What currency depreciation does do when the dollar is devalued
is to enable Wall Street firms to borrow 1% and to buy European
currencies and bonds yielding 3 percent or 4 percent or 5
percent, or stocks yielding even more.
The guiding idea is to do
what Japan did in 1990:
have very low interest rates to increase
what's called the carry trade.
The carry trade is borrowing at a
low interest rate and buying bonds yielding a higher rate,
making an arbitrage gain on the interest-rate differential.
Trump is creating an arbitrage opportunity for Wall Street
He pretends that this is pro-labor and can rebuild
manufacturing. But it only helps hollow out the U.S. economy,
sending money to other countries to build them up instead of
investing in ourselves.
So the effect of what Trump's doing is
the opposite of what he says he's doing.
BF: Exactly. What is the point of driving investment into
foreign countries, away from the United States?
MH: If you're an investor, you can make more money
by dismantling the U.S. economy. You can borrow at 1 percent and
buy a bond or a stock that yields 3 or 4 percent.
arbitrage. It's a financial free lunch.
The effect of this free
lunch, as you say, is to build up foreign economies or at least
their financial markets while undercutting your own.
cosmopolitan, not patriotic. It doesn't really care where it
makes money. Finance goes wherever the rate of return is
That's the dynamic that has been de-industrializing the
United States over the past forty years.
BF: From what you're saying, it sounds like Donald
Trump's policies are leading to doing to the United States what
the IMF and World Bank have traditionally done to foreign
MH: That's what happens when you devalue. The
financial sector will see that interest rates are going down, so
the dollar's exchange rate also will decline.
move their money (or will borrow) into Euros, gold or Japanese
yen or Swiss francs whose exchange rate is expected to rise. So
you're offering a financial arbitrage and capital gain for
investors who speculate in foreign currencies.
hollowing out the economy here, and squeezing real wage levels
and living standards.
Why devaluation will not help re-industrialize the U.S. economy
BF: Do you think that Donald Trump understands what
MH: I don't think he understands. I think he has an
oversimplified view of how the world works. He thinks that if we
devalue the dollar, we can undersell China and Europe.
can only undersell them if you have car-making factories
If you don't have a factory, you're not going to be
able to undersell foreign carmakers no matter how low the dollar
goes. And if you don't have a set of computer manufacturing
factories and local suppliers already in the United States,
you're not going to have production capacity able to undersell
Most of all, you need public infrastructure and
affordable housing, education and health care. So Trump's view
is a fantasy.
It's like saying,
"If we had some ham, we could
have some ham and eggs, if we had some eggs."
It leaves the
causes of America's de-industrialization out of account.
If we had unemployed car makers, computer makers and other
manufacturers here - factories that were idle in an economy that
was pretty competitive - then devaluation might make some sense.
But Americans are not just a bit uncompetitive.
costs in America are so high, the medical and health-insurance
costs, the taxes and wage withholding on labor and prices for
basic infrastructure that there's no way that we can compete
with foreign countries simply by currency manipulation.
Since 1980 the U.S. economy has been made very high-cost. Yet
there also has been a huge squeeze on labor, by raising the
prices it has to pay for basic needs. Even if wages go up,
people can't afford to live as well as they did thirty years
A radical restructuring is needed in order to restore a
full-employment industrial economy.
You need de-privatization,
you have to break up monopolies, you need the kind of economy
and economic reform that America had under Franklin Roosevelt in
I don't see that happening.
BF: Do you think that
Donald Trump was installed as
U.S. president to oversee the bankruptcy of the United States
and dismantling the U.S. Empire?
MH: Nobody installed him; he installed himself. I
don't think most people expected him to win.
If you look at the
odds that professional bookies and oddsmakers gave from the time
he announced his candidacy, most people thought that sleepy
Bush would get the nomination, and that Bush then would lose to
So there were indeed attempts an attempt to install
Hillary or Bush. But nobody tried to install Trump. He made an
end run around them, by straight talk, humor and celebrityhood.
He didn't have advisors that he would listen to, because he's
always been a one-man show...
And he doesn't really know what he's
He knows how to cheat people, victimize
suppliers, and how to make money in real estate simply by not
paying suppliers, and by borrowing from banks and not paying
But he has no idea that you can't run an economy this way.
Being a real estate mafioso isn't the same thing as running a
Trump has no idea and I don't think anyone knows
how to control him, except maybe Fox News...
Wall Street vs. the "real" economy
- Which turns out to be more
BF: What is going on with the ruling class in the
United States? Does anybody in its ranks know how to run an
MH: The problem is that running an economy to help
the people and raise living standards, and even to lower the
cost of living and doing business, means not running it to help
If someone knows how to run an economy, the
financial sector wants to keep them out of any public office.
High finance is short-term, not long-term. It plays the
hit-and-run game, not the much harder task of creating a
framework for tangible economic growth.
You can do one of two things: You can help labor or you can help
Wall Street. If running the economy means helping labor and
improving living standards by giving better medical care, this
is going to be at the expense of the financial sector and
short-term corporate profits.
So the last thing you want to do
is have somebody run the economy for its own prosperity instead
of for Wall Street's purpose.
At issue is who's going to do the planning. Will it be elected
public officials in the government, or Wall Street? Wall
Street's public relations office is the University of Chicago.
It claims that a free market is one where rich Wall Street
investors and the financial class run an economy.
But if you let
people vote and democratically elect governments to regulate,
that's called "interference" in a free market.
This is the fight
that Trump has against China. He wants to tell it to let the
banks run China and have a free market. He says that China has
grown rich over the last fifty years by unfair means, with
government help and public enterprise.
In effect, he wants
Chinese to be as threatened and insecure as American workers.
They should get rid of their public transportation. They should
get rid of their subsidies. They should let a lot of their
companies go bankrupt so that Americans can buy them. They
should have the same kind of free market that has wrecked the US
China doesn't want that kind of a free market, of course. It
does have a market economy. It is actually much like the United
States was in its 19th-century industrial takeoff, with strong
U.S. changing monetary strategy, from payments-surplus to
BF: In your seminal work from 1972, Super
Imperialism: The Economic Strategy of American Empire, you
"Whereas US domination of the world economy stemmed from
1920 through 1960 from its creditor position, its control since
the 1960s has stemmed from is debtor position.
Not only have the
tables been turned, but US diplomats have found that their
leverage as the world's major debtor economy is fully as strong
as that which formerly had reflected its net creditor position."
This sounds counter-intuitive.
Could you break it down? Let's
start with 1920 through 1960. How was the United States able to
dominate the world economy from its creditor position?
MH: The U.S. creditor position really began after
World War I, based on the money it lent to the Allies before it
joined the war.
When the war ended, U.S. diplomats told England
and France to pay us for the arms they had bought early on. But
in the past, for centuries, the victors usually forgave all the
debts among each other once a war was over.
For the first time,
America insisted that the Allies pay for the military support it
had sold them before joining them.
The European Allies were pretty devastated by the war, and they
turned to Germany and insisted on reparations that quickly
bankrupted Germany. German bankrupted its economy trying to pay
England and France, which simply sent it on to pay the United
Their balance of payments was in deficit, and their
currencies were going down. American investors saw an
opportunity to buy up their industry. Gold was the measure of
power, the backing for domestic money and credit and hence
America was much more productive, not having suffered war damage
here. Between the end of World War II and 1950 when the Korean
War broke out, America accumulated over 75 percent of the
world's monetary gold.
The United States had heavy agricultural
exports, growing industrial exports, and enough money to buy up
the leading industries of Europe and Latin America and other
But beginning in 1950 with the Korean War, the U.S. balance of
payments moved into deficit for the first time. It got even
worse when President Eisenhower decided that America had to
support French colonialism in Southeast Asia, in French
Indochina - Vietnam and Laos.
By the time the Vietnam War
escalated in the 1960s, the dollar was running large
balance-of-payments deficits. Every week on Wall Street we would
watch the gold supply go down, losing gold to countries that
weren't at war, like France and Germany.
They were cashing in
the excess dollars that were being spent by the U.S. military.
By the 1960s it became clear that America was on a trajectory to
run out of gold within a decade because of this overseas war
It finally did, by August 1971 when President Nixon stopped
selling bold on the London exchange and the price was allowed to
soar far above $35 an ounce.
The U.S. balance-of-payments was
still running a deep deficit because of the fighting in
Southeast Asia and elsewhere, creating a permanent
balance-of-payments deficit. The private sector was just in
balance during the 1950s and 1960s.
The entire deficit was
When America went off gold, people began to wonder what was
going to happen. Many predicted an economic doomsday. It was
losing its ability to rule the world through gold.
But what I
realized (and was the first to publish) was that if countries no
longer could buy and hold gold in their international reserves,
what were they going to hold?
There was only one asset that they
could hold: U.S. Government securities, that is, Treasury bonds.
A Treasury bond is a loan to the US Treasury. When a foreign
central bank buys a bond, it finances the domestic U.S. budget
deficit. So the balance of payments deficit ends up financing
the domestic budget deficit.
The result is a circular flow of military spending recycled by
foreign central banks. After 1971 the United States continued to
spend abroad militarily, and in 1974 the OPEC countries
quadrupled the price of oil. At that time the United States told
Saudi Arabia that it could charge whatever it wanted for its
oil, but it had to recycle all its net dollar earnings.
Saudis were not to buy gold. The Saudis were told that it would
be an act of war if they didn't recycle into the American
economy the dollars they received for their oil exports.
were encouraged to buy U.S. Treasury bonds but, could also buy
other U.S. bonds and stocks to help push up the stock and bond
markets here while supporting the dollar.
The United States kept its own gold stock, while wanting the
rest of the world to hold its savings in the form of loans to
the United States. So the dollar didn't go down.
that were receiving dollars simply recycled them to buy U.S.
What would have happened if they wouldn't have done this? Let's
say you're Germany, France or Japan. If you don't recycle your
dollar receipts back to the U.S. economy, your currency is going
to go up. Dollar inflows from export sales are being converted
into your currency, increasing its exchange rate.
But by buying
U.S. bonds or stocks, bid the price of dollars back up against
your own currency.
So, when the United States runs a balance-of-payments deficit
under conditions where other countries keep their foreign
reserves in dollars, the effect is for other countries to keep
their currencies' exchange rates stable - mainly by lending to
the U.S. government.
That gives the United States a free ride.
It can encircle the world with military bases, and the dollars
that this costs are returned to the United States.
Imagine writing IOUs when you go out to spend at a store or
restaurant - but your IOUs are never going to be collected!
store might say,
"We have an IOU from Bonnie Faulkner. Let's
keep it as our savings. Instead of putting it in the bank or
asking for payment in real money, we're just going to keep
collecting these IOUs from Bonnie Faulkner."
such IOUs and trade credit "receivables."
Now, suppose you went
on a spending spree and gave the store a billion dollars' worth
of your IOUs. There's no way that you could pay off this billion
In that case the stores receiving these IOUs would say,
"Well, we really don't want to foreclose on Bonnie, because we
know that she can't pay. We'd lose the value of receivables on
the asset side of our balance sheet - all these IOUs that we've
That's essentially what foreign countries are saying about their
buildup of dollars.
The U.S. position is, in effect, that we are
not going to repay any foreign country the dollar debt we owe
As Treasury Secretary John Connolly said,
dollars, but your problem."
Other countries have to pay us or
else we'll bomb them.
The military dimension to this arrangement
is the U.S. position that it would be an act of war if other
countries don't keep spending their export earnings on loans or
U.S. stocks and bonds.
That's what makes the United States the "exceptional country."
The value of our currency is based on other countries' savings.
The money they save has to be held in the form of dollars or
securities that we're never going to repay, even if we could.
This is a huge free ride. You'd think that Donald Trump would
want to keep it going. But he claims that China is manipulating
its currency by recycling its dollars into loans to the U.S.
What does he mean by that? China is earning a lot of
dollars by exports its goods to the United States.
What does it
do with these dollars? It tried to do what America did with
Europe and South America: It tried to buy American companies.
But the United States blocked it from doing this, on specious
national security grounds.
The government claims that our
national security would be threatened if China would buy a chain
of filling stations, as it wanted to do in California.
United States thus has a double standard, claiming that it is
threatened if China buys any company, but insisting on its right
to buy out the commanding heights of foreign economies with its
electronic dollar credit.
That leaves China with only one option:
It can buy U.S. Treasury
bonds, lending its export earnings to the U.S. Treasury.
Trump is now driving other countries out of the dollar orbit
China now realizes that the U.S. Treasury isn't going to repay.
Even if it wanted to recycle its export earnings into Treasury
bonds or U.S. stocks and bonds or real estate, Donald Trump now
is saying that he doesn't want China to support the dollar's
exchange rate (and keep its own exchange rate down) by buying
We're telling China not to do what we've told other
countries to do for the past forty years: to buy U.S.
Trump accuses countries of artificial currency
manipulation if they keep their foreign reserves in dollars.
he's telling them, and specifically China, to get rid of their
dollar holdings, not to buy dollars with their export earnings
So China is buying gold.
Russia also is buying gold and much of
the world is now in the process of reverting to the
gold-exchange standard (meaning that gold is used to settle
international payments imbalances, but is not connected to
domestic money creation).
Countries realize that there's a great
advantage of the gold-exchange standard:
There's only a limited
amount of gold in the world's central banks.
This means that any
country that wages war is going to run such a large
balance-of-payments deficit that it's going to lose its gold
So reviving the role of gold may prevent any country,
including the United States, from going to war and suffering a
The irony is that Trump is breaking up America's financial free
ride - its policy of monetary imperialism - by telling counties
to stop recycling their dollar inflows.
They've got to
de-dollarize their economies.
The effect is to make these economies independent of the United
Trump already has announced that we won't hire Chinese
in our IT sectors or let Chinese study subjects at university
that might enable them to rival us. So our economies are going
In effect, Trump has said that if we can't win in a trade deal,
if we can't make other countries lose and become more dependent
on U.S. suppliers and monopoly pricing, then we're not going to
sign an agreement.
This stance is driving not only China but
Russia and even Europe and other countries all out of the U.S.
The end result is going to be that the United States is
going to be isolated, without being able to manufacture like it
used to do. It's dismantled its manufacturing.
So how will it
Some population figures were released a week ago showing the
middle of America is emptying out. The population is moving from
the Midwestern and mountain states to the East and the West
coasts and the Gulf Coast.
So Trump's policies are accelerating
the de-industrialization of the United States without doing
anything to put new productive powers in place, and not even
wanting other countries to invest here.
The German car companies
see Trump putting tariffs on the imported steel they need to
build cars in the United States.
It built them here to get
around America's tariff barriers against German and other
automobiles. But now Trump is not even letting them import the
parts that they need to assemble these cars in the non-unionized
plants they've built in the South.
What can they do? Perhaps they'll propose a trade with General
Motors and Chrysler. The Europeans will get the factories that
American companies own in Europe, and give them their American
factories in exchange.
This kind of split is occurring without any attempt to make
American labor more competitive by lowering its cost of housing,
or the price of its health insurance and medical care, or its
transportation costs or the infrastructure costs.
So America is
being left high and dry as a high-priced economy in a
nationalistic world, while running a huge balance-of-payments
deficit to support its military spending all over the globe.
BF: So it sounds like when the United States went
off the gold standard, the dollar basically replaced gold as the
main asset in which foreign governments could hold their assets.
Now you're saying that when there was no more gold standard, if
foreign economies didn't buy U.S. Treasuries, the price of their
currency would rise and make them uncompetitive.
Imagine if Americans would have to pay more
and more dollars to buy German cars.
There's going to be a
larger demand for German currency, the Euro, whose exchange rate
would rise. That was happening throughout the 1960s and 1970s,
before the Euro.
The only way that Germany could keep down the
value of its mark was to buy something that cost dollars.
didn't buy American exports, because America already was making
and exporting less and less, except for food - and Germany can
only eat so much wheat and soybeans. So the only thing that
Germany could buy that was priced in dollars were U.S. Treasury
That kept the German mark from rising even more rapidly,
and kept the balance of payments in balance.
Japan had a similar problem. The Japanese tried to buy U.S. real
estate, but they didn't have any idea of what made real estate
They lost a reported billion dollars on buying
Rockefeller Center, not realizing that the building was separate
from the land value, and the land was owned by Columbia
University. The building itself was running at a deficit. Most
of the rental value paid was to the owner of the land's groundrent.
The Japanese had no idea of how American real estate
Euro is only a satellite currency of the U.S. dollar
Some Americans worried that the Euro might become a rival to the
After all, Europe is not de-industrializing. It is
moving forward and producing better cars, airplanes and other
So the United States persuaded foreign politicians to
cripple the Euro by making it an austerity currency, creating so
few government bonds that there's no Euro vehicle large enough
for foreign countries to keep their foreign reserves in.
United States can create more and more dollar debt by running a
budget deficit. We can follow Keynesian policies by running a
deficit to employ more labor.
But the Eurozone refuses to let
countries run a budget deficit of more than 3 percent of its
GDP. Now running more than 3 percent of their GDP. That level is
very marginal compared to the United States.
And if you're
trying not to run any deficit at all - and even if you keep it
less than 3% - then you're imposing austerity on your country,
keeping your employment down.
You're stifling your internal
market, cutting your throat by being unable to create a real
rival to the dollar.
That's why Donald Rumsfeld called Europe a
dead zone, and why the only alternatives for a rival currency
are the Chinese Yuan.
They're moving into a gold-based currency
area along with Russia, Iran and other members of the
European Union not allowing European
countries within the Eurozone to not run deficits more than 3
percent was basically cutting their own throat.
Why would they
do such a thing?
MH: Because the heads of the Central Bank are
fighting a class war.
They look at themselves as financial
generals in the economic fight against labor, to hurt the
working class, lower wages and help their political
constituency, the wealthy investing class.
Europe always has had
a more vicious class war than the United States does. It's never
really emerged from its aristocratic post-feudal system.
central bankers and universities follow the University of
Chicago free-market school, saying that the way to get rich is
to make your labor poorer, and to create a government where
labor doesn't have a voice.
That's Europe's economic philosophy,
and it's why Europe has not matched the growth that China and
other countries are experiencing.
BF: So it sounds like then the United States has
been able to dominate the world economy since 1971 from a debtor
MH: When it was losing gold, from 1950 to 1971, that
wasn't dominating; that was losing America's gold supply to
France, Germany, Japan and other countries.
Only when it stopped
the gold-exchange standard and left countries with no
alternative for their international savings but to buy U.S.
Treasury bonds or other securities was it able to pay for its
military spending without losing its power.
Since 1971, world diplomacy has essentially been backed by
American military power. It's not a free market. Military power
keeps countries in a financial strait jacket in which the United
States can run into debt without having to repay it.
countries that run payments deficits are not allowed to expand
their economies, either to rival the United States or even to
improve living standards for their labor force.
outside the U.S. orbit - China, and in principle Russia and some
other countries in Asia - are able to increase their living
standards and capital investment and technology by being free of
this globalized financial class war.
BF: In Super Imperialism you write that,
to create a New International Economic Order collapsed by the
end of the 1970s."
Are you saying that other countries simply
gave up and acquiesced to American monetary imperialism?
MH: I'm told that there was wholesale bribery.
Officials in the Reagan administration told me that they just
paid off foreign officials to support the U.S. position, not a
New International Economic Order.
U.S. agencies maneuvered
within the party politics of European and Near Eastern countries
to promote pro-American officials and sideline those who did not
agree to act as U.S. satellites.
A lot of money was involved in
So the United States has corrupted democratic politics throughout
Europe and the Near East, and much of Asia. That has succeeded
in sterilizing foreign independence in the United States.
Meanwhile, Thatcher's and Reagan's neoliberal ideas were
promoted instead of the kind of mixed economy that Roosevelt and
social democracy had been pressing for fifty years.
Who will plan economies
- Financial managers, or democratic
BF: If there were pressures to create a New
International Economic Order in the 1970s, what was this new
order looking to achieve?
MH: Other countries wanted to do for their economies
what the United States has long done for its own economy:
their governments' deficit spending to build up their
infrastructure, raise living standards, create housing and
promote progressive taxation that would prevent a rentier class,
a landlord and financial class from taking over economic
In the financial field, they wanted governments to
create their own money, to promote their own development, just
like the United States does.
The role of neoliberalism was the
it was to promote the financial and real estate sector
and monopolies to take economic management away from government.
So the real question from the 1980s on was about who would be
the basic planning center of society.
Would it be the financial
the banks and bondholders, whose interest is really
One Percent that own most of the banks' bonds and stocks?
it going to be governments trying to subsidize the economy to
help the 99 Percent grow and prosper?
That was the social
democratic view opposed by Thatcherism and Reaganism.
The international drive to de-dollarize
BF: Was this pressure that blocked a
International Economic Order brought on by the United States
going off the gold-exchange standard?
MH: No. It was a reaction against the U.S. policy of
siphoning off the commanding heights of foreign economies.
United States wants to control their raw-materials exports,
especially their oil and gas. It wants to control their
financial system, so that all of their economic gains will go to
foreign investors, mainly U.S. investors.
It wants to turn other
economies into service economies to the United States, and to
make them into a kind of super-NATO military alliance that will
oppose any country that does not want to be part of the
U.S.-centered unilateral global order.
BF: How does today's monetary imperialism - super
imperialism - differ from the imperialism of the past?
MH: It's a higher stage of imperialism.
imperialism was colonialism. You would come in and use military
power to install a client ruling class. But each country would
have its own currency.
What has made imperialism "super" is that
America doesn't have to colonize another country. It doesn't
have to invade a country or actually go to war with it.
needs is to have the country invest its savings, its export
earnings in loans to the United States Government.
the United States to keep its interest rates low and enable
American investors to borrow from American banks at a low rate
to buy up foreign industry and agriculture that's yielding 10
percent, 15 percent or more.
So American investors realize that
despite the balance-of-payments deficit, they can borrow back
these dollars at such a low rate from foreign countries - paying
only 1 percent to 3 percent on the Treasury bonds they hold - while pumping dollars into foreign economies by buying up their
industry and agriculture and infrastructure and public
utilities, making large capital gains.
The hope is that and
soon, we'll earn our way out of debt by this free ride
Imperialism is getting something for nothing. It is a strategy
to obtain other countries' surplus without playing a productive
role, but by creating an extractive
imperialist power obliges other countries to pay tribute.
course, America doesn't come right out and tell other countries,
"You have to pay us tribute," like Roman emperors told the
provinces they governed.
U.S. diplomats simply insist that other
countries invest their balance-of-payments inflows and official
central-bank savings in US dollars, especially U.S. Treasury
This Treasury-bill standard turns the global monetary and
financial system into a tributary system.
That is what pays the costs of U.S. military spending, including
its 800 military bases throughout the world, and its foreign
legion of Isis, Al Qaeda fighters and "color revolutions" to
destabilize countries that don't adhere to the dollar-centered
global economic system.
BF: You write:
"Today it would be necessary for
Europe and Asia to design an artificial, politically created
alternative to the dollar as an international store of value.
This promises to become the crux of international political
tensions for the next generation."
How does the world break out
of this double-standard dollar domination?
MH: It's already coming about. And Trump is a great
catalyst speeding departing guests.
reducing their dollar holdings.
They don't want to hold American
Treasury bonds, because if America goes to war with them, it
will do to them what it did to Iran. It will just keep all the
money, not pay back the investment China has kept in U.S. banks
and the Treasury.
So they're getting rid of the dollars that
they hold. They're buying gold, and are moving as quickly as
they can to be independent of any reliance on U.S. exports.
are building up their military, so that if the United States
tries to threaten them, they can defend themselves.
The world is
BF: What are foreign countries like China and
Russia using to buy gold? Are they buying it with dollars?
MH: Yes. They earn dollars or Euros from what
This money goes into the central bank of
China, because Chinese exporters want domestic Yuan to pay their
own workers and suppliers. So they go to the Bank of China and
they exchange their dollars for Yuan.
Bank of China, the
central bank, then decides what to do with this foreign
They may go into the open market and buy gold.
they may spend it in foreign countries, on the
Belt and Road
Initiative to build a railway and steamship infrastructure and
port development to help China's exporters integrate their
economy with others and ultimately with Europe, replacing the
United States as customer and supplier.
States as a dying economy...
BF: Can the Chinese build up their Belt and Road
infrastructure projects with dollars?
MH: No, they are getting rid of dollars.
already are receiving such a large surplus each year that they
only use the dollars to buy gold or some goods, such as Boeing
airplanes, but mostly food and raw materials.
When China buys
iron from Australia, for instance, they sell dollars from their
foreign-exchange reserves and buy Australian currency to pay
Australians for the iron ore that they import.
They use dollars
to pay other countries that are still part of the dollar area
and still willing to keep adding these dollars to their official
monetary reserves instead of holding gold.
BF: Well, it is kind of surprising, Michael, that
countries haven't started doing this a lot sooner.
MH: There has been political pressure not to
withdraw from the dollar-debt system. If countries act
independently, they risk being overthrown.
It takes a strong
government to resist American interference and dirty tricks to
put its own country first instead of following the U.S. advisors
and agents who pay them to serve the U.S. economy rather than
their own, or to resist brainwashing by University of Chicago's
BF: How far along is the dollar's demise as the
world's reserve currency?
MH: It's already slowing.
Trump is doing everything
he can to accelerate it, by threatening that if foreign
countries continue to recycle their export earnings into dollars
(raising the dollar's exchange rate), we'll accuse them of
manipulating their currency.
So he would like to end it all by
the end of his second term in 2024.
BF: What would the United States look like if the
dollar is no longer the world's reserve currency?
MH: If it continues to let Wall Street do the
economic planning, the economy will look like that of Argentina.
BF: And what does Argentina look like?
MH: A narrow oligarchy at the top, keeping labor at
the bottom, taking away labor's rights to unionize - an economy
whose financial and military sectors have won the class war.
BF: China, with its Belt and Road infrastructure
project, is now buying gold on the open market, as are a number
of other countries.
Has the Western banking system penetrated
China? And if so, how would you characterize China's banking
MH: There's an attempt by the United States to
In the recent trade agreements China did permit
U.S. banks to create their own credit. I'm not sure that this is
going to really take off, now that Trump is accelerating the
But basically, in America you have private banks
extending credit to corporations. In China you have the
government banks extending the loans. That saves China from
having a financial crisis in the way that the United States
About 12 percent of American companies are said to be zombie
companies. They're already insolvent, not able to make a profit
after paying their heavy debt service.
But banks are still
giving them enough credit to stay in business, so they won't
have to go bankrupt and create a crisis.
China doesn't have that
problem, because when Chinese industry and factories are not
able to pay, the public Bank of China can simply forgive the
Its choice is clear:
Either it can let companies go
bankrupt and be sold at a low price to some buyer, mainly an
American; or, it can wipe the bad debts off the books.
If China had been crazy enough to have student loans and leave
its graduates impoverished instead of providing free
universities, China's central bank could simply write off the
No investors would lose, because the banks are
owned by the government.
Its position is,
"If you're a factory,
we don't want you to have to close down and unemploy your labor.
We'll just write down the debt.
And if your employees are having
a really hard time, we'll just write down their debts, so that
they can spend their money on goods and services to help expand
our internal market."
America's banks are owned by the stockholders and bondholders,
who would never let Chase Manhattan or Citibank or Wells Fargo
just forgive their various categories of loans.
public banking is so much more efficient from an economy-wide
level than private banks.
It's why banking should be a public
utility, not privatized.
BF: Can you explain further how writing down debts
is good for the economy?
MH: Well, think of the alternative to writing down
If you don't write down America's student debts, the
graduates are going to have to pay so much of the student debt
service (now to the government) that they're not going to have
enough money to be able to buy a house, they won't have enough
money to get married, they won't have enough money to buy goods
It means that most people who can buy houses, are
graduates with trust funds, students whose parents are rich
enough that they didn't have to take out a student loan to pay
for their children's education.
These hereditary families are
rich enough to buy them their own apartment.
That's why the American economy is polarizing between people who
inherit enough money to be able to have their own housing and
budgets free of student loans and other debts, compared to
families that are debt strapped and running deeper into debt and
without much savings.
This financial bifurcation is making us
neoliberal economic theory sees this as a
competitive advantage. For them, and for employers, poverty is
not a problem to be solved; it is the solution to their own aim
BF: So is this whole privatization scheme,
particularly the privatization of the banking system and
privatizing a lot of infrastructure what's bankrupting the
MH: Yes, just as it's bankrupted England and other
countries that followed Thatcherism or the neo-liberal
philosophy since about 1980.
BF: Michael Hudson, thank you again.
MH: It's always a pleasure to have these
BF: I've been speaking with Dr. Michael Hudson.
Today's show has been:
De-Dollarizing the American Financial
Dr. Hudson is a financial economist and historian.
President of the Institute for the Study of Long-Term Economic
a Wall Street Financial Analyst
Research Professor of Economics at the University of Missouri,
His 1972 book,
Super Imperialism - The Economic
Strategy of American Empire, the subject of today's broadcast,
is posted in PDF format on his website at michael-hudson.com.
is also author of Trade, Development and Foreign Debt, which is
the academic sister volume to Super Imperialism. Dr. Hudson acts
as an economic advisor to governments worldwide on finance and
Visit his website at
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