The following is a partial transcript from the July 30, 2020 edition of the “It’s Our Money” podcast titled “It’s a War.”
Walt McRee: Michael Hudson opened this program with a comment about a virtual war that is underway globally between financial interests and institutions and the public’s interest and needs. His bold assertion deserves some further characterization and expansion, which is what we’ll be doing now with a continuation of the conversation that Ellen had with Michael on our last program. Michael’s world renowned as an economist, archaeologist, professor, banking expert makes his claims important if difficult to hear. His comments are no nonsense, tell-it-like-it-is, matter-of-fact-ness that what the world is going through economically is not just some business cycle or coincidental cataclysm caused by a pandemic. We’re actually witnessing an intentional agenda that has been foist upon the people of the world by a financial oligarchy that is enslaved virtually all of us with debt bondage. Debt is the leg iron applied to all citizens and nations where money is privately controlled as a commodity rather than deployed as a public utility. Let’s take a deeper look at this by rejoining Ellen’s conversation with Michael Hudson.
Ellen Brown: You said the debts that have been built up are being used as a warfare tactic. The pandemic crisis has created a battlefield with the rules written by the financial sector. Could you explain that a little bit? I thought that was a very good image.
Michael Hudson: Somebody has to lose. If you’re unemployed and if you’re laid off, you can’t afford to pay the mortgage or pay your rent, then you end up homeless and you default. Essentially the white people are ending up like the blacks and Hispanics under Obama. They’re kicked out of their homes. That’s basically the trade off. There is a war and there’s a war for who is going to get the economic surplus and who is going to end up with all the real estate and all of the wealth and all of the infrastructure? Will it be the wealthy 1% or will it be the public? Will it be the 99% benefiting from publicly-owned infrastructure that provides health and education either freely or at subsidized prices? Or will all of this vast public wealth, the public assets, be privatized, turned over to the financial sector, privatized, financialized, and charging monopoly rents.
It’s very much like the military invasions that took over England and France in the 11th century, except this time it’s not done militarily. It’s done purely financially, legally, and ideologically by trying to convince people that there is no alternative, that this is how the world works. It’s not really how the world has to work. Of course there’s an alternative. But if you believe that there’s no alternative except feudalism, except going back to create a wealthy ruling class lording it over the rest of society, then you’re not going to protest. You’re not going to create a different kind of a government. You’re going to say, well, that’s capitalism and there’s no alternative.
Of course, it’s not capitalism, but finance capitalism turning into neofeudalism. There’s a kind of junk economics that crowds out reality economics. There’s a kind of Orwellian vocabulary that goes with all this to try to trick people into thinking you can’t do anything about it, so just please give up your house, forfeit your property, accept lower wages, and think that this is how nature works and it’s all a natural law. Of course, it isn’t a natural law. It’s a takeover.
Ellen Brown: Now blame it on the plague or just say it’s one of those things that happens every century or so.
Michael Hudson: They’d love to blame it on the plague, even though all that the coronavirus did was it was catalyze the culmination of this debt buildup that was occurring ever since 1945, but especially since 1980.
Ellen Brown: The Federal Reserve bailed out the banks all the way back in September. Congress could have said then, “You guys are bankrupt. We’ll take you over, but the deal is that we’re not just going to pay off your debts and give you back to the private investors. We want you to be a public utility.” Different people had written that the next time this happens, we need to nationalize the banks. We need to put some conditions on bailing them out. But we didn’t get that chance because the Federal Reserve just took it upon itself to backstop the repo market, and then in March, they just flung open their doors and dropped the interest rate to 0.25% for all banks in good standing. Congress didn’t get to argue about this bailout, so I don’t see where we have any leverage to force them into bankruptcy.
Michael Hudson: The problem is that the Federal Reserve and central banks in general are part of the class war. The Federal Reserve should not have been created and needn’t have been created. When it was created in 1913, it was created specifically for Wall Street to take over the Treasury. The Treasury had been doing everything that the Federal Reserve had been doing. It had been managing the money supply. It had been distributing money throughout the country. I’ve written articles on my website on this. Central banks are created to take monetary policy out of the public domain, out of the Treasury, out of electoral politics, and to make it part of unelected politics.
Creating the Federal Reserve is the number one policy of oligarchy. Once you create a central bank that is independent from politics, you’ve essentially moved from democracy to oligarchy. That was the intention of JP Morgan when he and his fellow bankers designed the Federal Reserve specifically to exclude Washington. Washington and the Treasury weren’t even allowed on the Federal Reserve Board as it was first structured. It was Franklin Roosevelt who put the Treasury back on. All of the functions that are performed by the Federal Reserve today and used to be performed by the Treasury should be returned to the Treasury. The Treasury should manage the money supply in the public interest, and credit and loans, and extend credit for purposes that are deemed to be in the public interest, not the Federal Reserve, which is independent and antithetical to the public interest, directly averse to the public interest.
The inherent policy of the Federal Reserve is to create a depression. That is what debt deflation is. As long as you have the Federal Reserve and a privatized banking system, you are mathematically creating the dynamics of exponential debt growth, leading to a permanent debt peonage for the economy — permanent until there’s a change in the system and the system can only be changed from without.
Ellen Brown: I was thinking about the war analogy. If we really were at war and the federal government said, “Stop everything you’re doing and start making weapons and we’ll pay for it.” Then we paid the people the same amount that they were making at their jobs, we would not consider that inflationary. Of course, they’re making weapons that are just going to blow up. They’re not creating food or any kind of consumer goods that people need. Like Roosevelt said about digging ditches and and filling them back up, it doesn’t matter what you put the workers to work on. The idea is to get money into the real economy and that that is what stimulates the economy. It’s not inflationary till you run out of supplies. Since we have this lockdown, which is forced by the federal government, it seems to me that the government is responsible for paying all the damages for forcing that on the people.
Michael Hudson: Philosophically, you could say that. But the role of the banking system is not to put money into the hands of the population, it’s to put debt into the hands of the population and extract interest and fees. Credit card companies make more money from penalty fees than they make in interest. That’s because the interest rate is something like maybe 11%, officially, but then the penalty fees are 29%. Much more money is made by driving the economy bankrupt than is made by a thriving economy, at least for the financial sector and for the banks. The financial sector makes most of its money by bankrupting the economy. That’s the dynamics and that’s what economic model building should be all about. But the economic models that are used in the mainstream leave debt out of account and it’s as if the whole economy works on barter. Talking about debt today is like talking about sex 100 years ago: it’s more repressed than anything Freud talked about.
Ellen Brown: Anything except talking about vaccines. It seems like we’re sort of stuck. Like you said, they don’t want to save the economy. They want to exploit the economy. They’re perfectly happy to have it be going the way it is because it’s an opportunity to snatch up all the real assets like they do every time we have a boom and bust cycle. We really are at war in the sense that we really have to use all our weapons. Of course, our argument at the Public Banking Institute is that we should set up public banks and then we can use those facilities that the Federal Reserve has set up for banks. Now that any bank in good standing can borrow for free, does that mean you don’t really need deposits, that you can cover your liquidity just by going right to the Federal Reserve? They got rid of the reserve requirement and they’re going easy on the capital requirement. They say, “Capital is for an emergency,” and this is an emergency.
Michael Hudson: Yes, banks don’t need deposits at all. That’s the essence of Modern Monetary Theory. There’s a popular impression that banks lend out money that people have saved up, but that’s not what they do at all. Remember what I spoke about earlier here. If you go into a bank and want to take out a mortgage or to buy stocks and bonds, or if you want to borrow a billion dollars to raid a company and fire the workers, the bank will simply create the money and lend to you. The bank doesn’t say, “We have to wait for somebody to save that money to lend to you.” They just create it electronically. It’s not dropped out of helicopters. It’s created electronically on computers. [Banks say], “We’ll create the money and the asset and the liability. Our asset is your IOU. Our liability is to your bank account that now you can spend the billion dollars to take over a company, fire the workers, re-open the company in Vietnam or China and import goods to unemploy and undersell American industry.” That’s why we’re deindustrialized. De-industrialization is the byproduct of financialization and privatization. If you financialize and you privatize, you cannot industrialize because you’ll become so high cost by having to pay debt service in the FIRE sector that you can’t afford to compete with countries that have not committed financial suicide in the way that the United States and England have done.
Ellen Brown: Wow, that’s a very good point.
The banks are always running into liquidity crises, as they say, because they’re pretending to lend the deposits, but they don’t really have their deposits. If the depositors come for their money and the borrowers come at the same time, they’ve got to scramble around to get the money. They used to borrow from each other and then they quit because they didn’t trust each other and because the Fed started paying interest on excess reserves, so what was the point — they were already making money just by leaving it at the Fed. Then they started borrowing at the repo market and then that collapsed for liquidity reasons. It’s always this liquidity thing. Am I right that the Fed has now just made liquidity free?
Michael Hudson: Yes. The Fed is, in effect, the depositor and has made up the gap. If the banks need money, the Fed creates it.
Ellen Brown: So that’s something we need to capitalize on by forming from our own banks.
Michael Hudson: Yes. If the Fed can do it to finance the 1% getting enormously rich, why can’t it create a similar wealth for the 99%? Why can’t it create industrialization instead of deindustrialization? Why can’t it create infrastructure instead of just buying out existing infrastructure and charging more money for transportation and railroads and subways that are falling apart? Why can’t an economy be run more rationally? Or in other words, why is China pulling ahead and we’re not?
Ellen Brown: Totally agree. Do you have any closing words to wrap up with?
Michael Hudson: The question is whether we really have a debt problem or whether it’s a quandary. A problem has a solution, a quandary doesn’t have a solution. I don’t see any solution that can be done within the given electoral system on the given political system. If the political system is now run by the donor class, and if the Republicans and Democrats are merging and Biden says, “I’m going to work across the aisle just like Obama did, we’re going to get rid of Social Security, we’re going to throw the elderly out in the street, we’re going to evict the people who vote for us, and we’re going to support the kind of racist policies that we’ve been supporting ever since Clinton,” then you can imagine what kind of society we’re going to have.
When similar policies like this were done in Greece or in Latvia, the Latvians emigrated, the Greeks emigrated, or they committed suicide. Lifespans shortened. But where will the Americans go? Will they be willing to die quietly, to commit suicide? There’s nowhere they can go. They don’t speak foreign languages. Where will the Americans emigrate to when there are no jobs and they’ve lost their houses?
Ellen Brown: They’ll going to Mexico.
Michael Hudson: Well, they better learn Spanish.
Ellen Brown: I’ve been speaking with Michael Hudson, who has written over two dozen books including Killing the Host and … and Forgive Them Their Debts.