Yves here. Michael Hudson answers a broad range of questions at a recent event in Hong Kong. He shows how, as he predicted, the US is using the Ukraine war to further subjugate Europe and keep the US on top of a smaller domain. He also discusses banking system risk. While Hudson is correct that commercial mortgage debt is indeed the most prominent hazard, Hudson has some errors in his discussion of the commercial real estate market (private ownership is much more important than REITs, which are less than 10% of the market; leverage in commercial real estate is lower than in residential; no-equity deals, save in distressed takeovers, are vanishingly rare, particularly in very big deals).
And while the world outside the US-EU zone is moving away from the dollar, and can continue to do so with messy bilateral trade, investment flows continue to greatly overshadow trade transactions in foreign exchange trading. Moving to a new system is not only much more difficult than Hudson suggest (I will be posting on that soon), it will also entail diminution of national sovereignity which seems to be in conflict with some of the aims of multipolarity.
Despite those quibble, there’s lots of insight to chew on. Enjoy!
Discussion with Kin Chi Lau, Global University, Hong Kong, June 5, 2023
There’s a big dam on the Dnieper River that supplies all of the water to Crimea and they blow it up. Thousands of homes have been flooded. Naturally, the Ukrainians said the Russians did it. The reason that Crimea was assigned to Ukraine by Khrushchev in the 1960s was because the water and electricity area all came from the dam in the north of Crimea. All of that was blown up and flooded.
When you blow up a dam, imagine that was happening in China and how that would be blown up. That’s what happened. They blew it up. The dam on the Dnieper River that supplies water as well as electricity to Crimea was blown up. I think it wasn’t by a missile, it was launched by a naval mine that was shot, a kind of automatic bomb delivered electronically by a naval torpedo that blew it up. This has caused thousands of homes to have to be abandoned and knocked off the electricity grid.
The Dnieper is now much wider, so it will be harder for Ukraine to attack the Russians. It causes serious electricity and water problems for Crimea. Obviously, they’re trying to provoke Russia to do something violent, so when the NATO meeting occurs this weekend in Vilnius, they may have a full-fledged missile attack on Moscow and St. Petersburg and start World War III. That seems to be the intention.
They realize that the only kind of war that America can win is an atomic war. It doesn’t have troops of its own. It can’t mount an invasion. It can’t take over a country. All it can do is destroy. That’s the American policy.
This is a demonstration to China. What will happen to your dams if you insist in keeping China as one country and not doing as we recommend breaking China into five parts. If you try to keep controlling Xinjiang and other provinces, we’ll just have to blow up the dams and make sure that you’re not one country anymore. This is just like we’re doing in Ukraine for Russia. This seems to be the Western strategy.
In America, they said Russia doesn’t have any red lines. Again and again, Putin has said that this is a red line, that’s a red line, and yet he hasn’t done anything. A number of generals have given speeches this week, saying, “There is no red line for Russia, and we can see there’s no red line for China either. We’re sending our boats into the Straits of China, and China’s letting us send the boats right there. We can do anything we want.”
“We won’t let China come anywhere near the Caribbean, but we can go there. The fact is that China’s a paper tiger and Russia’s a paper tiger. They’re all but saying we’ve won. We can now just mop up and wipe out the enemy with atomic bombs or just take out all of their dams and their basic infrastructure.”
KC: Recently, there has been a lot of hawk talk from the generals in the States. Why do you think these hawkish talks from the generals have come up in the US?
It’s not from the generals. The generals have said that none of this is going to work. The hawkishness is from the politicians, from Biden and basically the neocons. It’s not from the military. The military have said they don’t see any way that Ukraine can win. And Biden and others, the State Department says, “Yes, you’re thinking of winning militarily, but that’s not how to think about it. If we blow up the dam, blow up the infrastructure, all we have to do is atom bomb Moscow and St. Petersburg and they’ll give in. And then China will give in because it’ll see we can do the same thing for it. We can win the whole world this weekend.” That’s the kind of talk you’re having among the neocons with the ‘cookies lady’ and the others, Victoria Nuland. None of this is from the generals.
KC: Do you think because now in the States they have finished the deal among the Republicans and the Democrats on the debt ceiling, they now would be turning more to the Ukraine and Taiwan?
No. I was on Chinese television two weeks ago, you were there. As I explained, this is simply a charade. There was never a debt problem, but it was presented nightly on the news, like a wrestling match between the good guy and the bad guy. And the pretense was that somehow the Congress had to come together and agree to remove the debt ceiling in order for Congress to pay for the programs that the Senate and Congress already had approved.
There was no debt crisis at all. That was simply an excuse to pretend there was one, so that they could cut back social spending in the United States, cut back the social programs for Medicaid and increase the oil pipeline.
By cutting off the social programs, once they agreed to that, the very next day, the Republican Senator from Maine, Susan Collins, said, “Now that everything has changed in the last 12 hours, now that there’s a war in Ukraine and Europe has used up all of its arms, we have to very sharply increase military spending by maybe 20 or 30 percent, a few trillion. So we’ve got to cut back the remaining programs in the United States. “
They’ve already cut back all money to fight COVID and to fight disease. All of that was emptied out as part of the deal, but none of that had to be done. It’s like a kind of sitcom or a television show where they make it appear as if a problem that has to be solved that isn’t a problem to begin with, that never was a problem. Isn’t that what I said when I was on television in China last week, didn’t they include that explanation?
KC: Yes, you said that and actually you were very correct when you talked about the student loans and all these cutbacks on the social welfare. Could you also briefly say what is happening now after the so-called resolution of the debt ceiling crisis? What are they actually trying to push forth?
Since there was no crisis and therefore nothing has happened, it’s just absolutely nothing. The only difference is they have approved the oil pipeline that the environmentalists fought. Biden has said America no longer has an environmental policy. The fuel of the future is oil and we’re controlling it, so America will not in practice be part of any environmental cleanup. We are not going to fight COVID. We’re just going to stop reporting the data.
These are things that were already happening. Nothing is particularly new at all. Congress is going to assign a huge amount to the military-industrial complex to produce arms to sell to Europe. America will pressure the European countries to buy American arms that will support the dollar very strongly against the euro.
The general view is that the euro is going to plunge. Now that Germany’s economy and German industry is pretty much wiped out, that was the main support for the euro’s exchange rate. Europe itself seems to be moving into a chronic recession or depression and a weakening currency.
Ashley: Last week, it was reported that Germany has already entered a recession, which is no surprise, given what’s been happening. So it’ll just intensify. Is that your expectation? It’ll just get worse for Germany and the rest of Europe.
Well, that was the intention. People keep thinking that America has been fighting Russia in the Ukraine. A few years ago, the American planners realized that there was no way that they can keep up with Eurasia’s development. How can they maintain American living standards a little longer while we’re not a manufacturing country anymore? The answer is, at least we can control Europe and make Europe into a colony, just as Europe made Africa and Latin America into colonies. The effect of this war has been America against Germany and Europe.
Russia has been the beneficiary so far. The sanctions have forced it to become much more self-sufficient, not only in food but in manufactures. Apparently, there is a flood of foreign investment into Russia to begin making the consumer goods and industrial products that were imported from Europe before. Russia is a beneficiary.
But if you look at who benefits and who suffers, you realize that it was not hard to see at the very beginning of the Ukraine war what was happening. In fact, I wrote from the very beginning that the objective was to subordinate Germany and Europe to the United States. That’s why the gas pipeline was blown up. That’s why America attacked Germany. But of course, Germany couldn’t say, “Well, we’re a NATO country, we’re attacked by America,” because NATO is America.
So there’s really nothing that Europe can do. It doesn’t have any political parties that really are for European independence in any way, as long as they all imagine that the threat is a Russian invasion – as if Russia had any interest at all in repeating the control over Eastern Europe or Central Europe. And the United States doesn’t accept that it’s de-industrialized.
Ashley: A question about the situation in the US. Another thing that I’ve just read recently, and I know that you’re preparing an article about it, but with interest rates going up in the United States, I’ve also seen a report, I can’t remember which paper it was in, that the commercial property sector looks like it might be the next sector that’s going to be in trouble in the United States. Could you explain how that sector’s come to be?
Commercial property is bought very heavily on mortgage with very low down payment by very large companies. And now that the average occupancy rate of buildings is down to 60%, in some cases 50% in some cities, the rent is not generating enough money to cover the mortgage payments. So large private capital companies that have invested in real estate – they’re called Real Estate Investment Trusts (REITs) in the United States – are simply walking away from the commercial buildings.
One of the largest companies walked away from $800 million of property last week, and another company the month before walked away from half a billion dollars. So we’re seeing just a huge abandonment of commercial buildings, and they’re essentially being turned into luxury apartments. Commercial buildings are being gentrified. Now that more and more staff is working from home and avoiding transportation, there’s no use for the office space.
There’s no reason for companies to renew the leases, and many of the leases are coming due this year. But also many of the mortgages on commercial property, unlike home mortgages, they’re not 30-year mortgages, they’re shorter-term mortgages and they’re being reset at the higher interest rates now that are again making buildings run in deficit.
So if you’re a commercial property owner and you’ve borrowed money, you put down $1 and borrowed half a billion dollars, you can do that in the United States. And it’s really not your money, it’s borrowed money that bought it. As long as the rents are not sufficient to pay the carrying charges, the mortgage and the local taxes, and water and sewer fees, then you just walk away from the building. So there’s a wholesale abandonment of commercial property here.
That means that bank balance sheets are going down, for two reasons. Number one, if the bank has a mortgage at a low interest rate, now that interest rates are high, the market price of this mortgage has fallen to 70% or more. The whole country is looking like Silicon Valley Bank. The mortgage portfolio and government bonds are all falling in market price, to less than the deposits that the banks owe.
This is not a problem as long as the depositors leave their money in the banks. But depositors are pulling their money out of the banks that are not paying very much for deposits, and are putting them into government bonds that now are paying 5% or so, instead of the 1% that you have in banks. Some banks in America, even in New York City, are getting desperate and are saying, we’re going to pay 5%. But the depositors realize that if they’re suddenly paying such a high rate and they’re not getting income, it must be that they’re in trouble and we better move our money out. If we have more than $250,000, which is federally insured by the Federal Deposit Insurance Corporation, we better move our money out. It’s not safe. And so there’s a feeling that the banks are not very safe, given the Fed’s decision that they want to raise interest rates to strengthen the dollar.
So the dollar is going up, the euro is going down, other currencies are going down. That’s creating a wave of defaults in Global South debts. If there’s a default on foreign debt, that’s going to hurt the banks and bondholders also. So all of a sudden this debt that has been built up since 2009, for the last 14 years, all of this is suddenly blocking any kind of recovery at all.
Now that the Congress has cut back social spending, you’re having the homelessness problem rise, you’re having the poverty problem rise, you’re forcing dependent mothers who’ve been living on food stamps, you’re taking away their ability to get food stamps, and they’re being forced to beg in the street. They’ve taken away the Medicaid coverage for medical care, so that if people get COVID, they’re not able to protect themselves and will be infecting other people. The wastewater reports in America show a rising degree of COVID, and yet they’re not reporting any statistics anymore at the Centre for Disease Control. So nobody has any way really of following what’s happening, but it just looks as if a disaster is blooming. So of course, they have to fight in Ukraine. Otherwise, people would begin to look at what’s happening in the United States.
Ashley: Are the American people following the Ukraine war?
Yes, every day. They’re told that Ukraine is winning day after day. It’s killing more Russians, the Ukrainians are very brave, and Ukraine is just winning, and NATO’s policy has worked by giving them the super weapons that are defeating Russia, which is really just a gas station with atom bombs. That’s repeated again and again. After they have the Ukrainians beating the Russians on television, they have the American warships in China saying that China can’t do anything at all against the United States and that we’re number one.
So that’s quite prominent. The rhetoric against China is prominent in the US media at the moment as well.
Yes, especially over the computer chips, Nvidia, what’s going to happen to it, the pressure on South Korea not to use any nickel that comes from China, which I think refines 80% of nickel. If it has any nickel component instead of American-made nickel, it’s not going to get the tax favoritism that is given to American firms. There have been a whole set of special tariffs against Russian and Chinese-made raw materials, or anything else that’s Chinese that essentially is trying to force Europe and Taiwan and South Korea to relocate their chip production and electronic production to the United States instead of in their own countries.
What do you think of the satellites and countries like Australia? Is it going to work? The America’s strategy?
It all depends on how other countries react. As long as America has been using its non-governmental organizations, its charities, its overseas subsidies to promote politicians who are favorable to the United States, the politicians will follow US policies. The United States has talent scouts all over Europe and Asia that look for promising graduates in their 20s who are very opportunistic and yet have a seemingly wide political appeal. They nurture them and they give them financial support from the American foundations, and bring them to America for training and gradually groom them to be prime ministers or politicians or military leaders or political administrators who are pro-American.
They’ve been doing this for the last 75 years since World War II ended. You have a managerial class in Europe and apparently much of Asia that has already been protected by the United States that has their wealth tied to support from the United States and property in the United States or in the US economy. So the political leadership of Europe is very different from the popular perceptions of what Europe needs. Europe and much of Asia is being run according to what benefits the United States, not what benefits their own domestic populations. And of course, that’s what gets America so upset about Russia and China: They’re actually trying to run their economies to support their own living standards, their own population and their own military power instead of subordinating their interests to US interests.
Ashley: They’ve all become colonies, really, a lot of these satellites. And it’s been like that really for a long time, I think.
Well, they’ve become colonies, not officially of America but of the international organizations that America controls. Colonies of the International Monetary Fund, colonies of the World Bank, colonies of the International Criminal Court with pro-American judges. They’re colonies of what seem to be international organizations, but actually are US-centered and US-controlled international organizations. It’s not explicitly American. It’s just that America has veto power in every one of these organizations and controls their finances.
Ashely: And then also, I think it’s the case not only for Europe but certainly for Australia, is that our military has become so integrated with the US military and the intelligence has become so integrated with the US intelligence and reliant on America for the armaments and for fixing them and maintaining them, that we can’t operate militarily without the United States. So that’s the military dimension. I imagine it’s like that in Europe as well as Korea and Japan.
What concerns Turkey and Saudi Arabia is their dependence on military weaponry. They’re dependent on repairs of armaments and replacement parts, because things are always wearing out on tanks or airplanes. If the Americans cut you off and you go your own way, even if you have a lot of American arms, you don’t have the replacement parts or repairs. You’ll have to begin cutting up one of your airplanes to get the replacement parts to fix in an airplane that needs it.
So there’s now a reaction against buying US arms, because they realize they can all be cut off and that as long as the arms last, you’re dependent on the United States to maintain them. And so they’re looking for a more secure means of supply. And that takes quite a while to really develop alternative arms.
The Ukraine war is a kind of testing ground for US missiles and arms against Russian arms. You can see that the Patriot missiles that America has provided Ukraine with have been shot down. The anti-missile protection that America has provided Ukraine has not worked. The Russians have been able to blow up the ostensible protection. So it turns out that these arms were really just like luxury goods. They’re like wine that is meant to be traded and sold but not actually to be drunk. Because if you drink this precious 50-year-old wine, you realize it turned into vinegar and doesn’t taste that good anymore.
The arms are not meant to actually be used in combat. They’re to be used in parades and used as trophies to show “Look at all the tanks and the airplanes we have.” But if you try to fight with them, it doesn’t work so well. That’s what is got the Americans so upset that they’ve told the Ukrainians to bomb the dams and just destroy infrastructure with the underwater torpedo bombs. That’s the only way in which America can fight. It has means of destruction, but not fighting human beings and not defending.
So Europe is pretty much undefended right now – without arms of its own. They’ve been used up in Ukraine. And America has said, “Well, Europe, you’ve got to cut back your social spending and do what America’s done. Use your budgets to buy American arms to restock for all the airplanes and the tanks and the missiles and the ammunition that you’ve been sending to Ukraine. That’s going to be 4%, 5% of your GDP. It’s all going to be paid to America.”
“We realize that your euro is paying for this. It’s going to go down in value. But when the euro goes down in value, what’s really going to lose? Your wages are going to go down because labor is now going to have to pay much more money for what it imports from the Global South for its raw materials, from China for its consumer goods.”
So you’re going to have a chronic depression spreading throughout Europe that nobody in Europe is able to see how they can get out of. Certainly the European industry says, “We’re not going to get inexpensive Russian gas anymore. We have a choice. Either we move to America that has low price gas, or we move to Russia and China, or Iran or one of these other countries. Where are they going to move to?” Because Europe is a dead zone now. America has won the Ukrainian war against Western Europe.
KC: These allies of the U.S., they are not learning from the post-World War I lessons of being the actual main enemies of the U.S.
I think they have learned from it and said, “We lost in the aftermath of World War I with the Inter-Ally debts. We’re going to lose again. We’d better move out of Europe and move to America. Europe’s dead. We’ve got to leave. We can’t go through the 1920s and 30s again.” That’s what they’ve learned: to surrender.
KC: With Europe going down, what is now going to happen about de-dollarization?
Europe is not going to de-dollarize. De-dollarization isn’t simply a move out of the dollar. It’s a restructuring of the trade structure. Trade is going to be more and more among the Eurasian countries and between Eurasia and the Global South, Africa and South America. You’re having trade that is going to be financed by currency swaps with each other, just as Saudi Arabia and China hold each other’s currencies for their trade in oil and manufactures. You’re going to have this kind of arrangement with African countries and with countries like Brazil.
The problem to be solved is that some countries are going to run deficits, especially deficits with China for manufacturers and with Russia for raw materials. How are they going to finance these deficits?
The first thing to replace the dollar with is going to be gold. All of Eurasia is building up its gold reserves and running down its dollar reserves. It’s spending its dollars as it has to for things that you do buy with dollars – raw materials and others. But it’s not replacing these dollar reserves. It’s using their income to buy gold.
They’re trying to create an alternative to the International Monetary Fund. They call this the BRICS Bank, but it’s going to be more than a BRICS Bank. It’s going to be able to create its own paper gold, its own version of special drawing rights, its own idea of what John Maynard Keynes called Bancor in 1944. It’ll be a kind of credit that will be extended by surplus countries to deficit countries to enable them to run deficits until such time as China and other countries build up their infrastructure, build up their economies to become self-sufficient and part of this new Eurasian trading and currency zone. It’ll be a trading, currency, military organization.
You’re going to have the whole world reoriented in a way that avoids the US and European economy. The US and Europe economy will become one unit, along with Australia and New Zealand as the English-speaking parts of the world. The rest of the world is going to be going to go its own way. The world will be dividing into these two different parts with different philosophies. The West is going to be a financialized zone, where the central planning is concentrated in Wall Street. Who’s going to get the credit, and for what? How are we going to allocate money and credit?
Eurasia and the rest of the world is going to be increasingly industrial-socialist. The way in which the world was evolving just before World War I and then stopped for the West. Asia is going to pick up this ideal of industrial capitalism evolving into socialism, treating money as a public utility in the hands of the government, not in the hands of a private 1%. You’re having military policy protecting the whole region, a kind of Eurasian counterpart to NATO to protect against the US military bases.
You’re having trade dovetail. Production and consumption is going to dovetail among countries in a way that is going to be balanced as other countries develop their own ability to feed themselves, to provide their basic needs. They’ll treat health care as a public right, as a public utility and human right. They’ll treat housing as a public right and food as a public right. They’re not going to be people starving in the street or on the subways as we see in New York when they don’t have jobs. Everybody will be protected instead of polarizing.
What you expect will be standards rising in Eurasia and the Global South. Production will be rising, productivity will be rising. Labor will become healthier, better fed, better educated in these regions. And the opposite will be occurring in the United States. It will polarize more. The cities here are pretty much going broke, especially as commercial property is being abandoned. The tax base of cities is going down and they’re having to cut back spending on transportation because people are now working from home instead of taking the subway or trains or buses into the cities. You’re having a whole economic restructuring, both in Asia and in the United States, but this restructuring is going in opposite directions.
KC: Michael, you very beautifully presented a projected possibility for Eurasia to develop. What would be your advice or your warning about the kind of relationships among the different countries with different resources and developing levels? What would you warn against a certain replication of the kind of hegemonic relationships within this Eurasian bloc?
You begin by realizing that these countries are different from each other. Because they’re different, the problem in putting together a BRICS bank or any international organization is who is going to be in control. The Americans have always insisted that they will not join any organization in which they don’t have veto power. Beginning with the United Nations and then the Americas vote in the International Monetary Fund and World Bank, they can veto anything, according to the rules that set up these organizations. In Eurasia they have to realize that countries are very different. That’s going to make it politically difficult to decide when we allocate these credits to cover their trade and balance-of-payments deficits. Who’s going to get how much credit? Is there a limit to it?
How are we going to enable countries to pay? If one country is going to run a sustained surplus, like China, and other countries are deficits, how do we prevent the debtor countries from ending up like they ended up today, owing dollar debts in Latin America and other countries? How do we create a financial system that’s not going to use finance as the new form of economic warfare to gain control of government? How are we going to make it politically run for the benefit of the real economy of production and consumption, instead of for the benefit of the financial investors who are in charge of buying up and privatizing these means of production?
America and Europe are going to be privatizing more and more of the public domain, just as Margaret Thatcher began in England. America and Europe will end up like England after Margaret Thatcher and the Labour Party when Tony Blair went even further. How do you avoid privatization? By guaranteeing certain economic rights to everybody. How do you guarantee health care, housing, and food?
All this requires an economic ideology, a doctrine. You can’t just do it ad hoc. In the beginning, you do it ad hoc. You make it up as you go along, you see what’s the line of least resistance, what is easiest to do. But at some point there has to be a discussion of what is socialism today. Maybe you don’t want to call it socialism. Whatever you call it, it could be Eurasia with Eurasian characteristics. You have to have some basic bill of rights and a constitutional guide, not like the American Constitution that is set in stone, never to be changed, but a constitution that will be continually upgraded, continually modified, moving forward.
How do you create a flexible institutional structure that can evolve going forward, to meet the increasing and the changing requirements of societies that are trying to industrialize, that are trying to cope with environmental problems like global warming and extreme weather? How are you going to cope with new diseases? How are you going to confront the United States and keep it out of your region? How is Eurasia going to have its version of the Monroe Doctrine saying, Eurasia for the Eurasians.
There’s no need for the North Americans to be anywhere near Asia. You can have your own continent and you can destroy it all you want, but stay off our territory, just like we’re staying off your territory.
It’s like the split that you had in religion 1000 years ago. But instead of a split in religion, you’re having a split in economic philosophy, a split in the decision of what’s worth doing and what are the priorities. How are we going to set priorities that are going to prevent the kind of depression and economic degeneration that is happening in the United States?
We do want to learn from the United States, but we don’t want to learn how to become like the United States. We want to learn how to avoid the problems that have occurred in the United States. So you use the United States and Europe as an object lesson for what you want to avoid. The question is, how do you create a group of international organizations that are free from the economic polarization, privatization and financialization that have destroyed the American and European economies.
KC: So you would characterize that as ‘socialism with Eurasian characteristics’?
Yes, or the ‘future’. You could just say the ‘future with Eurasian characteristics’. It doesn’t matter what you call it, but it’s going to be a mixed economy. Many people have the idea that socialism means the government does all the planning. That’s not really what socialism is. Of course, there will be a mixed economy. Of course there will be private enterprise. Of course there will be individual ownership, but it will be subject to social constraints so that the fortunes that are made by some private individual will not be obtained at the expense of the rest of society. There will be limits and regulations to make private gains achieved in a way that creates social and economic gains in the process, not at the expense of the economy and society.
You need to coordinate the private and public sectors. Instead of like in America and Europe, where the private sector’s objective is to take over the government to privatize and sell off the public domain. You have a one-dimensional economy, privatized and financialized. Asia will do very much like what China has been doing: a mixed economy. The government’s role is to provide services and goods that otherwise would be monopolies. You don’t want monopolized. You don’t want a rent-seeking class. You don’t want a class that makes income and wealth without actually working and providing any economic product. That’s what a rentier society is. That’s what a rent-seeking society is. That’s what a landlord society was in Europe until the 19th century, and what a financial gain-seeking society is in the 20th century today in North America.
You want to avoid economic rent-seeking, real estate rent-seeking, and monopoly rent-seeking. Those sectors of finance, land tenure, and research and development, public health, belong in the public domain, not privatized. Or else you end up looking like England became after Margaret Thatcher privatized the social housing and drove London’s population out of London because it couldn’t afford the privatized council housing that was bought up and financialized. You look at what happened in London and Thatcher. Why dsn’t neoliberal economics work?
You have to have an alternative to say there is an alternative to neoliberal economics. We can see that we’ve been inventing the alternative without really having a blueprint for how to do it. But now that we’ve seen what is beginning to work, certainly in China, we can develop a kind of basic model for an alternative to what’s happening in the financialized and privatized West.
TY: Michael, when do you think these BRICS institutions are going to be robust enough to at least make what you’re saying a reality?
There’s no way of knowing. I’m not a part of the implementation process, and being 84 years old and avoiding COVID, all I can do is make commentary from where I am in New York. I can explain what went wrong in the West, what went wrong in the United States and Europe since World War I. I can write about how the problems that are happening today are very similar to what happened in the 19th century. I can explain classical economics, classical value theory with the idea of rent is unearned income, predatory income. The classical objective of a free market is to make markets free from economic rent, free from land rent, free from monopoly rent, and free from financial overhead. These objectives of the 19th century classical economists, Adam Smith, John Stuart Mill, and Marx should be the guide for what’s happening.
In order to do that, you have to have a knowledge of economic history. That’s what I’ve been writing. I’ve just published my book on why Greece and Rome fell as a result of their debt crisis and concentration of land ownership and real estate in the hands of a creditor class. All of this that’s happening has happened again and again in world history. The best way to create an alternative in a timely fashion is to familiarize yourself with ancient European history, with 19th century history, and with the fight for a more democratic economy in the West that failed.
You want to prevent it from failing in the way it did before. That requires setting up your own curriculum. I don’t know if you’ll call it economics or if you call it something like “how the world works,” but you certainly don’t want your economic planners to be educated in the United States, where they say that the way to get an economy rich is to let Wall Street and the financial centers do the planning and concentrate wealth in the hands of financial billionaires. That’s the message of American economic theory, and you want to avoid that.
You’re really going to need your own body of economic theory and a body of economic statistics to describe what is happening in your economy. You’re going to need an alternative to the kind of National Income and Product Accounts. The Gross National Product statistics in America make no distinction between earned and unearned income, no distinction between production and overhead. They think that the more overhead you have, that’s the contribution to economic output. Since there’s so much waste and overhead in the United States, it appears to be having a GDP that’s much higher than other countries. But this takes the form of armaments, waste, financial and rent charges that are not really a part of output or production at all. They’re a burden on production and a subtrahend from national income, not in addition to it. You have to have to reconceptualize your economic national accounts in order to reflect this reality and so that you can trace what’s actually happening in the various countries that join this new Eurasian community.
TY: Thank you, Michael. That was very good. There’s something you said earlier that’s, of course, very telling. This is the fact that the United States has, through its various organizations, basically captured the knowledge sphere, captured the knowledge domain where it sponsors a lot of young and promising intellectuals and politicians from the Global South. That’s another problem I suppose we have to overcome because they subsequently transplant those same knowledge institutions back in their home countries. Never mind about locals going overseas to obtain PhDs or education from the West. So this is another very practical kind of challenge that we face.
It’s sort of like talent scouts for traitors, searching out opportunistic individuals that are willing to throw their lot in with the United States in order to get income from United States non-governmental organizations, foundations and think tanks, and gradually learn the party line to represent. They’ll realize they need to have US backing to get ahead, even to the point of becoming president or politicians, as a result of all the money that’s put into buying traitors. When Victoria Nuland said in 2015, we’ve spent $5 billion in Ukraine gaining control of the kleptocrats and the politicians to make sure that they serve American policies.
If $5 billion is in Ukraine alone, you can imagine how much is in China, India, other Asian countries, all to sort of buy control there. Not to mention the prestige that having an American university degree has, even though the American universities are all trying to teach you how not to develop instead of how to develop, even though they’re teaching you that the way to develop is to privatize and to let the financiers and the bankers take over your economy and run the economy for the bankers, not for the population at large. Well, if you’re sponsored and bought up by America, given money to study that in the university, that’s how you’re going to think. The problem is how are Eurasian countries going to develop an educational system and public media and ideology and moral values that put the population first, not the 1% of bankers first.
KC: So the question is, your comments on Yellen’s talk at the Johns Hopkins University have been made into videos and have been screened on air. And many Chinese audience had commented that Yellen’s strategy, economic strategy on China is just daydreaming because we do not need to mind what she’s saying because the US trade amount is only 10% of China’s trade. So there is nothing good for the US sanctions on China that would benefit the US. And the European allies would definitely not listen to the US strategies and sanction China because that will hurt Europe’s own interests. So for example, Macron said that Europe should get rid of America’s control and show goodwill to China. And then after he said that, he got the big contracts on Airbus from China. So this shows that the US allies are not really listening to the US. So how would you respond to such views?
When Macron says that Europe should be independent of the United States, he’s being a demagogue. He says what voters want to hear. And the voters of Europe do want to be independent of the United States. But Macron does not want to be independent of the United States. Macron knows that he’s supported by the United States. His interests are not those of the voters. His interest is to get elected, despite having interest the opposite of the voters. He’s not to be trusted. He’s purely a demagogue trying to pretend to be in favor of Europe so that he can use his position as president to double cross Europe and support the United States as much as he can. He’s simply an opportunist, not a principled position.
I guess you could say that of any politician. But Macron from the very beginning, by pretending to be a socialist, is actually a neoliberal financialist and is in the pocket of the United States. So instead of looking at what they say, look at what they’re doing.
I think this is why China in the last few weeks has said, “We’re not talking to the American military.” What’s the point of China talking to military generals who simply lie and make up things? China says, “You say one thing, you’re doing another.” That was a big speech of one of China’s foreign ministry people two days ago. And they’re quite right.
The Americans say what they think the world wants to believe, but they’re doing something else. So you might as well just look at what the Americans are doing, especially at the terrorism that they’re doing in the Ukraine. That is an example of what they could do in China, just as they did it to Libya and to Iraq and Syria. You look at the way that they are treating other countries, the way that even they’ve treated their number one ally, Germany, by attacking its oil and gas and fertilizer imports and other imports from Russia and strangling Germany’s economy.
As Kissinger said, it’s dangerous to be an enemy of the United States, but it is fatal to be its friends. You really don’t want to be too friendly with the United States, as Mr. Macron is, or to believe what pro-American politicians are saying. You want to look at what they’re doing. And sometimes they’re so self-confident in what they’re doing. You want to look at what Victoria Nuland is saying. She comes right out and says, we’re willing just to kill anyone who disagrees with us. We’re willing to do what America did to Salvador Allende in Chile when we put in Pinochet. We’re willing to back a coup d’etat in Ukraine. We’re telling them to kill the Russian speakers. We’re really willing to destroy the world.
And then you have the Christians in America saying, you know, blowing up the world with atomic warfare isn’t that bad a thing, because when you blow up the world, Jesus will come. And he will send the Americans up to heaven and all the foreigners down to hell, meaning the Christians up to heaven and all the non-believers to hell. And the non-believers are those who do not believe that economies should be run by the banks, basically.
This is the kind of death wish you’re hearing from the United States. It’s why the American military is a little hesitant compared to the State Department when it comes to what they’re going to do militarily. But again and again, when the State Department and politicians, the Secretary of State Blinken says, “Russia does not really have any red lines. If they had a red line, they would have done something by now. We can do whatever we want because we’re America.” This is the same policy that can be used against China or any other country.
Jade: Michael, I have a question about the de-dollarization. And now we have some discussion about the RMB pegging. How it pegged to natural resources?
I think that when there’s a talk of linking the new artificial money to be used among governments, how are you going to price this New Special Drawing Right? It seems fair to price it in terms of the value of natural resources, because right now that’s what the Global South is producing. And you want to price it in a way that you’re going to provide enough credit to the natural resource exporters so that they can broaden their economy – not simply end up with a hole in the ground when their natural resources are gone, but to actually use their natural-resource exports to replace them with industrial means of production, with agricultural means of production, with commercial means of production.
How do you actually enable them to use their raw materials exports that they will get the credits for and securitized to be able to exchange for help in creating a kind of industrial economy that you have most obviously in China, but also in other countries that have gone beyond being natural resource producers and want to end up with an economy that is ongoing and self-sustaining instead of emptying out into a hole in the ground?
I don’t know how to elaborate it more, but that’s as far as it can go right now. The broad outlines are that you want these countries to become balanced overall economies. You don’t want them to be monocultures. Monocultures were misshapen the way they are because of World Bank support only for raw materials export sectors, not for them to feed themselves with their own grain, not for them to produce their own consumer goods, but to become trade dependent on the United States for food and consumer goods.
You want to make the rest of the world independent from North America and from Europe, its colony, so that America and Europe can no longer threaten you with sanctions, can no longer destabilize your economy by simply not selling you food and you’ll starve to death. Countries can produce their own food, just like when the United States sanctioned Russia, and Russia ended up being able to produce its own food, cheese, wine and other agricultural production. And you want to make sure that the sanctions to disrupt economies will have no effect on the Eurasian economies, but will only affect Europe, which is the part of the world that America is trying to lock into dependency as earlier it locked in Latin America to dependency.
The hard thing will be how to get Latin America to become part of the world’s growth instead of breaking away from American financial imperialism. At some point these countries are going to have to stop paying their dollar debt. They’ll have to say that the debt that we owe foreign bondholders was a predatory debt, a bad debt by an occupation government. We are not going to pay the World Bank. We’re not going to pay the IMF and we’re not going to pay bondholders. We’re now part of a different world. We’ve left the dollar world into what is the new world of the 21st century.
KC: I think Michael you made a very important point just now, that is in this new bloc, maybe which is what we call the BRICS bloc or the Eurasian bloc, the relationships among the different countries should be different, that they would not be repeating just the status quo of one providing just raw materials and natural resources and others taking advantage. So I think that also has to tie in with some of what Samir Amin was proposing about delinking that each country would set its own agenda for development, for industrialization and not be subject to the logic or the rules of those hegemonic powers in the world division of labour. So just now what you are saying is proposing a different type of relationships and a different paradigm of development. So could you elaborate this a little bit more? I think this is very important what you were just saying, that this is not just building a bloc counter to the US Europe bloc, but actually repeating the same kind of logic.
The problem is that the bureaucracies and the administrative departments of governments throughout Latin America, Africa and Asia have been trained not only in the United States, but as part of an economic doctrine, a neoliberal theory that’s been promoted by the World Bank, the International Monetary Fund and the United States school system and the people who award the Nobel Prize for Chicago School financialized neoliberal thinking. You need to have a bureaucracy that is trained in realizing that there is an alternative way of development. What you don’t want is for Eurasia and the global majority simply to say we’re going to be independent of America and Europe, but we’re going to be just like America and Europe. We’re going to try to do it better.
We’ll not be financialized like America and Europe, but we’ll be all by ourselves, not for the U.S. That would be a disaster because you would then in Asia and the global majority would end up just like the United States and Europe have ended up, without industry, economically polarized with a few billionaires at the top of your economy, lording it over the impoverished debt-ridden economy at large.
So what you need is a whole administrative structure, an organization of government agencies and bureaucracies that are aiming to create a very different kind of society than you have in the United States and Europe. It’s not simply de-dollarlization, being just like America and Europe but using your own currency. It’s being a new civilization, a new kind of civilization that’s different from the detour that Western civilization has taken.
That’s why I wrote my Collapse of Antiquity history, to show how Western civilization 2000 years ago took a different turn from what’s happened in Asia and the rest of the world. You want to realize that the West has taken a detour and you want to go back to a development that has a strong enough government, not a palace but something like a government party that will be in charge of structuring markets so that the whole economy benefits.
You want to make sure that everybody can support their basic needs without running into debt. If somebody has to run into debt to get medical care, to feed themselves, to get housing, as they do in the United States, then they’re going to end up as a dependent class and lose their liberty. You want to create an alternative kind of society – not just a different economy, but a different society where people will not lose their liberty. It will be a public right to have public health, the ability to have housing of your own, to have an education of your own without running into debt.
A lifetime of debt occurs in the United States where running into a lifetime of debt means that you have to take a job, no matter how little it pays and end up basically working in the financial version of debt dependency and feudalism. The West has sunk back into a kind of feudalism, financialized feudalism, neo-feudalism. You want an economy that doesn’t have a feudal rentier society, and you do this by preventing families and companies from getting rich by rent-seeking, getting rich without producing anything, but simply by exploitative means.
You want to make economic statistics that distinguish predatory exploitation from actually making a profit. You don’t want to consider what an absentee landlord gets is adding to the national product, because that’s really just siphoning off income from the renters away. You want everyone to be able to have their own property, ultimately without running into debt.
The best way to do that, instead of financing property with mortgage credit, you need a tax on rent-yielding resources. You need a land tax, a monopoly tax, a natural-resource tax and a financial tax. The tax system is absolutely critical to creating a really ‘free market’ such as the classical economists sought to create. It’s the opposite of the kind of free market that the United States and Europe talk about – that is a market free for Wall Street to do whatever it wants with the rest of the economy, free for monopolists to charge whatever they want, free for creditors to foreclose on the property of their debtors. You have a whole different concept of what a free market is, a different concept of what freedom is, a different concept of what human rights are and natural rights, and a different concept of what should be public infrastructure.
All of this is a different way of thinking about how the world evolves, and you need to develop that alternative and to share it so that other countries can realize, ‘yes, there is an alternative to the America’s bank-run economy’. This is the outline of an alternative and our governments are going to create administrative agencies and regulating principles that promote overall welfare, not simply financial welfare. The real economy, not the financial claims on the real economy.