"What’s causing the inflation crisis? Economist Michael Hudson explains"
With Ben Norton - Moderate Rebels (January 5, 2022)
Ben Norton: This is Ben Norton and I'm joined by friend of the show, one of our favorite guests, Michael Hudson the economist. His reputation precedes him, as many of you probably know, you can to to michael-hudson.com and check out his excellent articles and his books. We had him on a few months ago to talk about the third edition of his book Super Imperialism, the economic strategy of American empire.
And today we're going to talk about the inflation crisis around the world. In the U.S. in 2021 there was inflation around seven percent. And this has led to a lot of discussion about what is causing inflation, why there is inflation. And professor Hudson has pointed out for many years that inflation in the U.S. and other countries is often measured in a very strange way that doesn't include housing prices, and doesn't include what he calls the FIRE sector: Finance, Insurance, and Real Estate. So, today we'll talk about the rising rates of inflation and what corporate media outlets are missing about the story.
But before we begin talking about that, Professor Hudson, another reason I wanted to have you today is to talk about a big story that went viral it was just published today, and it's on the website Wall Street Parade. And it went so viral that the website actually went down because it was being shared so much. But this is an article just published at wallstreetonparade.com. I have it up in the archive just becasue the website is down. And the article is titled: There's a News Blackout on the Fed's Naming of the Banks that got Its Emergency Repo Loans; Some journalists Appear to Be Under Gag Orders. And this is by Pam Martens and Russ Martens, January 3, 2022. I'll just briefly summarize the main point and then I want to get your response because I think this is obviously part of the discussion around the inflation crisis.
So, the Federal Reserve released the names of the banks that had received 4.5 trillion dollars in cumulative loans in the last quarter of 2019 under its emergency repo loan operations for a liqidity crisis that has yet to be credibly explained. So, Professor Hudson, I'll ask you in a second to explain what that liquidity crisis was. And they point out that amoung the borrowers that received -- again -- 4.5 trillion dollars in loans from the Fed ware J. P. Morgan Chase, Goldman Sachs, and City Group. Three of the Wall Street banks that were at the center of the subprime and derivative crisis in 2008 that brought down the U.S. economy. That's blockbuster news, but as of this morning, not one major business media outlet has reported on the details of the Fed's big reveal, and they suspect there are some journalists under gag orders.
And then the other point to add here is that this borrowing was happening in September 2019. And it was actually before the first case of Covid was identified in the United States. They point out that the first Covid case was reported in the U.S. in January, and then the World Health Organization declared its pandemic in March 2020. So this massive borrowing spree of 4.5 thrillion dollars was happening in September. So there's a few things you can respond to, Professor Hudson. Maybe we can start with: (1) Why was the Fed giving trillions of dollars to these large Wall Street Banks? And (2) why was there a liquidity crisis that's unexplained? (3) why did the Fed refuse to release the names of these banks? And (4) was there a financial crisis before Covid that the U.S. government was later able to blame on Covid but it was actually a financial crisis in the making? it seems like.
[4:14] Professor Michael Hudson: "There was actually no liquidy crisis whatsoever. And Pam Martens is very clear about that. She points out the reason the regular newspapers won't report it is that the loans violated every element of the Dodd-Frank laws that were supposed to prevent the Fed from making loans to particular banks that were not part of a liquidity crisis. In her article, she makes very clear by pointing out these three banks: Chase Manhattan, Goldman Sachs -- that used to be a brokerage firm -- and Citybank that the Federal Reserve laws in the Dodd-Frank act explicitly prevent the Fed from making loans to particular banks. It can only make loans if there is a general liquidity crisis. And we know there wasn't at that time because she lists the banks that borrowed money and there were very few of them. There were the big three that she mentions. There was also Nomura that got one third of the loans in that quarter that were taken out. I think that, on balance, the Repo loans were like 20-28 billion and Nomura got 10 billion of them. And Kendra Fitzgerald was also in there.
Well, what happened apparently was that while the Dodd-Frank Act was being re-written by the Congress, Janet Yellen changed the wording around, and she said: 'Well, how do we define a general liquidity crisis?' Well, it doesn't mean what you and I mean by a liquidity crisis, meaning the whole economy is illiquid. She [Janet Yellen] said if five banks need to borrow, then that's a general liquidity crisis. The problem is, [Pam Martens] points out, it's the same big three banks again and again and again and again. And these are not short-term loans. [Pam Martens] points out that they were 14-day loans. They were longer loans. And they were rolled over; not dated; not overnight loans; not day-to-day loans; not even week-to-week loans; but month after month, the Fed was pumping money into J. P. Morgan, and Citibank, and Goldman. But then [Pam Martens] points out -- at least she told me -- that these really weren't Citibank and Chase and Morgan, it was to their trading affiliates.
Now, this is exactly what Dodd-Frank was supposed to prevent. Dodd-Frank was supposed to protect the depository institutions by trying to do a little bit to restore the Glass-Steagall Act that Clinton and the Obama thugs that came into the Obama administration all got rid of. It was supposed to say 'OK, we're not going let banks having their trading facilities, the gambling facilities, on derivatives and just plain bets on the financial markets. We're not supposed to help banks out of these problems at all.
So, I think that the reasons that the newspapers are qoing quiet on this is the Fed broke the law. And it wants to continue breaking the law. And that's why these Wall Street Banks fought so hard to get the current head of the Fed -- Powell -- reappointed. Because they know that he is going to do what Geitner did under the Obama administration. He's loyal to the New York City banks. And he's willing to sacrifice the economy to help the banks because those are the clients of the New York Fed, the big New York banks. That's been the case ever since I was on Wall Street half a year ago.
And Pam [Martens] is trying to expose, you know, how these banks are crooked and, really, what the whole problem was. She points out that the Fed is supposed to make short-term loans. But these are long-term loans. And the banks are not structurally insolvent without them. They would have lost money. The FDIC could have come in and taken them over, and the depositors, the insured depositors would have been OK. Which is just exactly what Sheila Baer, who was head of the Federal Deposit Insurance Corporation wanted to do under Obama when she was blocked by Geitner. She sat with Geitner and Obama and he said: 'I'm backed by the banks. Forget the voters. Banks are my campaign contributors.' And he bailed out the banks and sacrificed -- pushed -- the entire economy into what is now a 12-year recession, basically, that is not improving at all.
[9:16] "So, what's happening now is part of the whole quantitative easing bit that has really been a disaster. And the crisis is the Fed flooding the financial markets with credit in order to increase [inflate] real estate prices, to increase mortgage lending, to enable the banks and the one percent that own the private capital funds, the insurance companies, and the banks to continue making money. And the reason these three banks were bailed out was they made bad bets against, apparently, insurance companies and foreign banks. Apparently, Met Life and Prudential and other insurance companies had made bets as to which way the stock market would go. And they won and Chase lost. Citibank lost. And Goldman Sachs lost. Somebody else must have lost because in September of 2009 when all this was occurring the overnight rate went up to 10 percent. Well, that means that someone had made a really bad bet and was, technically on paper, insolvent and that nobody would lend to them. For 10 percent overnight money, nobody's going to lend to you. Everybody knows that you're insolvent. And that was all hushed up at the time. Not a word of it in the paper.
[10:43] "This is such a touchy subject that if the newspapers and the media would begin to get into the explanation of how all this developed, that would sort of counter the whole Fed's strategy and the whole Democratic party strategy which is to support Wall Street, not the economy at large.
[11:17] Ben Norton: "And Professor Hudson, what you're getting at here is that these banks were engaged in very risky behavior and essentially all of the indications appear to be that they kind of unleashed a financial crisis in late 2019. And then, with the pandemic, they could conveniently blame it on the pandemic. I'm not, obviously, they didn't cause the pandemic. But I'm saying that it was actually in some ways it was actually a savior for them, a lifesaver, because then they could say: "Oh, we didn't cause the financial crash. It was the pandemic. But we actually see signs that in late 2019, before Covid even arrived in the United States, before the first official case of Covid was identified in the United States, there was already a financial crisis, apparently, and the Fed was just trying to cover it up."
[11:58] Professor Michael Hudson: "Well, the problem is that the Fed made sure that it didn't have to release any of this data for two years, on the theory that after two years, nobody can remember what's happening and it doesn't matter anymore. It's yesterday's news. And so the material only just came out now. We're always going to be two years behind. And if you're two years behind, the thieves are going to have plenty of time to cover up what they've done, borrow even more money and it will be too late to do anything. The whole idea is not to make the Fed transparent; to make a wall of secrecy around the Fed so that it can do with its pet banks -- bail out the banks -- that most Americans don't think should have been bailed out by Mr Obama in 2009 and certainly don't think that they could be bailed out now, as long as the depositors and the regular companies in the real economy is kept safe."
[12:58] "But the Fed isn't saving the real economy. It's saving the gamblers."
Ben Norton: ". . .[some stuff about banks owning stock in the Fed . . ."
[14:25] Professor Michael Hudson: ". . . it doesn't matter that they're owners. The ownership isn't all that important for the Fed because the Fed is really a government organization. But the problem is that Wall Street has taken over the government and taken over the Fed. Not through its ownership to have shared to vote as to who's going to be head. The heads are appointed in Washington. They're appointed by Congress. I talked to Pam about that and she said because her site was so overloaded she couldn't get on it to write more last night when it was up. And she has other theories. I thought it was the tail wagging the dog to say that it's about advertizing. The banks don't do that much advertizing. No one is going to kill a whole big story like this for the ads. And so when we talk she said she thinks part of the problem is margin loans. There are all sorts of problems that could have happened there.
[15:24] "The banks have bee, again, operating, if not illegally, then let's say stretching the envelope by pretending that what really are margin loans to help people buy stock are really disguised, or that somehow their lawyers have drawn up these contracts as derivatives contracts. So for a derivative, you can loan 50 percent against instead of just 15 for margin loans. So that the banks have been actually working around the whole spirit of the law to make much larger loans than what they should have. And when the stock market, as you have been watching, back then doing what it is doing today, it is zig-zagging up and down, that's how you make money. Push it up computerized buying, push it down, computerized selling."
[16:15] "... part of it was the banks venturing not only into the derivatives, but into the margin loans. And I don't think the ownership can control management. It's not that Citibank and Chase can say: 'Well, we own the majority stock in the Fed, so we're just going to appoint one of our own guys managers. They don't have to. They'll give money to the Biden administration and Biden will appoint their people. So the Fed is really controlled by the government. And all you have to do is give a campaign contribution to the government and you get whatever you want. And I think Pam would agree with that analysis. So that really should be the emphasis, not the banks, not that the New York Times is after more advertising money from Chase. I think there's more bank advertising on television than there is in the hard newspapers."
"Also, I think, the older reporters that used to know how to read a financial balance sheet, they're all retired or they're not working anymore. Or, if they get too close to embarrassing and write columns like Pam does, all of a sudden they're not working for the same organization anymore. People just don't understand what a Repo is, how it's connected to the money supply -- and it isn't -- how it's connected to quantitative easing. There's just a general economic illiteracy. Because if you get an economics degree in academia, they don't talk about money or debt or credit. None of this appears in your money and banking course. It's all sort of a Mickey Mouse, Walt Disney happy world where nothing like this occurs. And so, how is a reporter going to know how to do the research that Pam goes into year after year, taking apart all these balance sheets and doing all the analysis you have to do to net out what's actually happening in the wave.."
[18:32] "When IBM was fighting an anti-trust suit -- this must have been 50 years ago -- and the government wanted some information from it. IBM thought, well, we have to give the government information. What are we going to do? So it gave two huge storerooms of hard print-out of information that it would have taken five years to go through. Well, that's what the Fed did with these statistics. It gave such a massive information that it was like looking for a needle in a haystack in order to find it. And these newspapers have been run more like profit-making companies. They've cut the costs. They don't have the time to do the research to find the needle in the haystack. And since Pam doesn't work for a newspaper that's under that cost constraint, she knows just what she's looking for and goes right to it."
Ben Norton: "Let's talk about the inflation crisis and if this is related to it. We had you on in early 2020 to talk about the CARES Act and the so-called bailout that was, as you said, basically a multi-trillion dollar giveaway to the financial sector. And I believe that is in addition to the 4.5 trillion in the repo loans that we're talking about."
"[19:59] Professor Michael Hudson: "Yeah. That wasn't the Federal Reserve. That was a Treasury spending. Not the Federal Reserve. They're completely separate."
Ben Norton: "Exactly. So we're talking about over 10 trillion dollars. I mean, between the two. Over 10 trillion dollars that went to the financial sector in the span of less than a year of six months or so from late 2019 to early 2020. Do you think that that is one of the main reasons for inflation. It's a point I want to preface by saying that a point that you often stress, which I think is important to keep in mind is that the way inflation is measured frequently, at least in the United States, is that it doesn't include things like the housing sector and you've pointed out for years that there's been a lot of inflation over the past several years in the FIRE sector and real estate prices are a clear example of that. But that's not considered the Consumer Price Index, so . . ."
[20:58] Professor Michael Hudson: "It actually is incuded but in a very modest way. I've looked at the Fed's statistics on renter's portion of income and mortgage payments as a portion of income. In the last thirty years, there has been zero change according to these statistics. Absolutely flat. So they decided what the percentage was. They haven't changed it at all. The housing index doesn't, the consumer price index doesn't recognize the increase in either rental costs or mortgage costs as housing prices have risen. So they're under reported. But more important, people have had to change what they're eating and what they're buying. But certainly, the money that the Fed gave to individual families under the CARES Act, almost all of that was used to pay down debt because the way the Treasury made the payments was to credit either their credit cards or their bank accounts. And most Americans are overdrawn on their bank accounts or they owe money on their credit cards. And the money went right out of their hands to reduce the volume of debt they had and essentially it was a debt repayment to the bank. That was what happened to most of the CARES Act. It wasn't spent on goods and services so it wasn't inflationary. Just the opposite."
[22:29] "There are a number of reasons why prices have gone up. The big reason is, if you look at the prices that have gone up, they're monopoly prices. The monopolies have been able to charge more because they're monopolies, and because there's less and less competition and because the government is, not really enforcing anti-monopoly legislation. President Biden is trying to increase that now, but it's going to take a little while before the prosecution of monopolies and talk of breakups really includes. Also, there are a lot of bottlenecks in transportation, as you've heard. There are two kinds of bottlenecks. One, you've heard about the Port in Los Angeles over the ships. The shipping costs have tripled from Asia to the United States. The ships are unable to [off]load because the ports are not organized as ports. There are particular companies that own the trucks, other companies the containers, other companies own the ships. And there are no way to reconcile them to get the containers that are offloaded from the ships, once they're emptied out, there's no way to get them back. You have to get them back to particular terminals. It's not designed by anybody who's competently put there."
[23:59] "The one benefit to the whole economy of all this is that it means that there's no chance that the Secretary of Transportation, Mayor Pete [Buttigieg], can ever show his face in public again. But that is sort of a minor gain."
"The other fact is that companies, there's a new management philosophy that's come in about 15 years ago, and that's called 'Just in Time' inventory. In other words, the idea is you want to cut -- the less you spend on inventories -- the more money you have to pay out the dividends to your stockholders. If you don't have to spend money on inventories, then your profit rates go up and you can pay more. And so the companies said, let's operate with almost no inventories at all. That way we'll have a little bit more money to push up the stock price and if you're the CEO, you get your bonus paid on the stock price. Well, the problem is that the purpose of inventories is to prevent zig-zags in prices. When there are shortages, if there's a supply problem, well, you have enough inventories on hand so that you are not going to have a crisis. That's why the United States has a national inventory of oils, fuels, and national reserves of things the government and the economy needs.
[25:22] But Walmart and other stores and distributor retail stores don't operate in the same way for the economy. They're after profits so they didn't have any inventories. So, a little bit of shortage all of a sudden caused a massive scramble to try to get enough goods to sell to people. And so, it's that just-in-time budgeting. And also, of course, there are labor shortages from Covid. People are finally beginning to get almost half the minimum wage. Some people are almost able to earn the minimum wage now, where there is a real labor shortage. In New York City, the transport authority says it's paying its workers an extra 35 thousand dollars, retirees, if they'll sign on for three months to get over the current shortage. So, a little, finally the class war against labor is alleviating because of the crisis. So, those are the real reasons of inflation. It's not a monetary inflation, except for the financial inflation of housing prices and the fact that it has created so many multi-billionaires by the Fed's Quantitative Easing that they've all created by private capital buy-out funds. They're buying up all the housing and outbidding the owner occupants that want to buy housing to take over the housing, turn it into rental housing and charge cut-throat rents to the economy."
[26:55] Ben Norton: "Yeah. It's pretty interesting, Professor Hudson, because if you listen to Fox News or a lot of right-wing analysis, they say that the problem behind the inflation is that the Biden administration is just spending so much money and he's a socialist and he's funding all these programs and Build Back Better, and it's hilarious because, meanwhile, his own party won't even approve the watered-down version of Build Back Better which is like every few weeks there's a trillion dollars less and then less spending and less spending. So, I mean it's pretty funny considering that his own party is preventing social spending and then Republicans are claiming that he's doing all this social spending which is creating inflation."
I want to point out a graph and analysis that was done by this really good analyist named Steven Semler. He's got a good substack where he focuses on the military-Industrial-Complex, and he did this study here caled 'Biden over-delivered on military spending and under-delivered on social spending.' and here this graph really visualizes the disparity where Biden pledged when he campaigned 700 billion dollars for human and physical infrastructure and has only delivered 55 billion dollars, a tiny fraction. And he campaigned pledging 741 billion dollars for the Pentagon and just delivered a 778 billion military budget."
So, I mean, well, the right-wing is freaking out and claiming that Biden is a socialist spending all this money in social programs when in fact that money is going toward increasing the military budget and not going to social programs. I don't know if you wanted to comment on that."
[28:44] Professor Michael Hudson: "Sure. I think that Schumer has a great influence over the Republican party. And I think Schumer and Pelosi meet with their counterparts, the Republicans, and say: 'Please call us socialists. You know we're not going to disagree with you.' Because they know that 85 percent of Americans like the word socialism. And the more the Republicans call them socialists, that helps them solidify the base that loves -- that really wants -- socialism so that the Democratic party can throw cold water on it and prevent socialism. It's a great scam."
"But, actually, of course, Biden hasn't spent money into the economy. Spending money into the FIRE sector -- the Finance, Insurance, and Real Estate sector -- isn't spending money. It's spending money into the overhead that's preventing the economy from growing. Just the opposite.
"And to be fair to Biden, he hasn't followed through on any of his other campaign promisesm, either. He hasn't cut back student debt like he promised. He hasn't raised the minimum wage like he promised. So it would be unfair to single out just the infrastructure. He has universally repudiated every campaign promise that he made because his clientele are the campaign contributors, not the voters."
[30:10] Ben Norton: ". . ."
". . ."
[31:20] Professor Michael Hudson:"Quantitative Easing is a significant factor because it has been a huge subsidy to the financial sector. It's a bad term. What quantity is easing? Not the money supply. Because all this is occurring on the Fed's balance sheet. It is letting banks pledge their junk mortgages, their bonds, and their stocks in exchange for federal reserve deposits that they can use to increase their lending base. And the official original reason in 2009 was the Fed said: 'We've got to have higher housing prices. Americans are only spending maybe 35 percent of their income on rent and housing. We've got to increase that to 43 percent. So if we can lower the interest rates people can take out larger and larger mortgages and there will be a huge flood of lending into the mortgage market and Americans will have to pay more for their housing. And that will make the banks richer, the insurance companies richer and our clients, the financial sector, richer.
So Quantitative Easing was designed to increase the price of housing to Americans, to create a huge stock market boom, and to make the banks that had lost so much money through their junk mortgage lending and just plain fraudulent loans, as Bill Black has pointed out at the University of Missouri at Kansas City, that they said we've got to have the banks make back the trillions of dollars they've lost and so we're going to have Quantitative Easing to give them enough money to gamble with so that they can make money at the expense of the public at large and the pension funds and other people.
"The whole Quantitative Easing was part of the war of the financial sector against the economy at large. And it just provides a lot of credit. If you have interest rates at 0.1 percent, then you can buy stocks that are yielding 5 percent or 7 percent or 10 percent. Or you can borrow at 0.1 percent and buy a junk bond. And junk bond rates went down from about 15 percent down to maybe 5 percent today. It's all an arbitrage gamble. People are borrowing low from the Feds and from the banks that borrow from the Fed to essentially buy higher-yielding securities. And this is what has pushed up the stock market."
[34:02] "[Inflation] is not going up because the economy is getting better. It's going up because the Fed has been inflating. The Fed's aim is inflation. But it doesn't want to inflate the economy's real prices. It wants to inflate stock and bond and real estate prices for the One Percent. So, esentially, this is part of the war of the One Percent against the 99 percent. They've got almost all the growth in wealth since the pandemic began. There has been about a trillion dollars in growth in the private world. All of this wealth that's been created has been basically taken by the One Percent who have made it financially, through financial capital gains: rising prices for their stocks, bonds, and real estate. Not by the economy at large.
The economy at large, the 99 percent, have had to go further and further into debt during the pandemic. And once the moratorium on rents and mortgage payments expires in a month or so, there is going to be a huge wave of evictions, not only of renters, but homeowners who couldn't afford to make their mortgage payments and there is going to be just a huge explosion. The Fed's job in an election year is always to hel re-elect the President. Whether it's a Republican president or a Democratic president doesn't matter because they're basically the same party. But it's always to re-elect the sitting president. And so the Fed is not going to raise interest rates this year because once the Fed raises interest rates, then people are not going to borrow to buy stocks and bonds anymore. If they can't make an arbitrage -- a speculative gain -- by borrowing at 1 percent to buy a stock yielding 5 percent, they'll sell the stock. And if they sell the stock, it will go down. And at a certain point, the Fed is running a Pump and Dump operation. And we're going to get from the Pump stage -- Quantitative Easing -- to the Dump stage, when the insiders will say: 'OK. Time to raise interest rates, Fed. Let's raise them now.' They'll sell out and the market will plunge and people will say: 'Nobody could have forseen it."
Ben Norton: . . ." What's their excuse?"
[37:48] Professor Michael Hudson: "They don't have an excuse. They have a pretense. They have a cover story. And the cover story is trickle-down economics. If we can make -- we've just made -- billions, trillions of dollars fpr the One Percent, it's all going to trickle down. None of this has been spent into the economy. And they say: 'We don't have to spend it into the economy. The Treasury doesn't need Biden's Build Back Better plan. All we need is to make more stock market gains and say, the ten percent of the population that owns most of the stocks, now they'll have more money to buy more Andy Warhol etchings and rare art and expensive wines and things like that. And it will all trickle down. That's not really an excuse. It's so unrealistic, a parallel universe talking. But that's the cover story. And it's backed by everything that economics students are taught when they get that economics degree in the university. So, who is to puncture their balloon and say, wait a minute, here's what's really happening? Well, you have your show. You have Pam Martens. You have a couple of other sites. The economy is living in a dream world. And propaganda is the name of the game."
[39:07] Ben Norton: "Professor Hudson, let's see if we can switch topics a bit here. I want to talk about an issue that we frequently address with you. I think it's very important. and that is de-dollarization. This is an interesting article that was just published in Nikkei Asia, which is a Japanese website focused on business. And they had this article just published December 29th: 'Central Banks Accelerate shift from dollar to gold worldwide.' They say holdings reose to a 31-syear high in 2021. Let me summarize a few of the main points here. They say central banks around the world are increasing the gold they hold in foreign exchange reserves, bringing the total to a 31-year high in 2021 . And they have built up their gold reserves by more than 4,500 tons over the past decade. As of this September, this past September in 2021, the reserves totalled 36,000 tons. The largest since 1990 and up 15 percent from a decade earlier. So, why do you think central banks are shifting to gold?"
[40:16] Professor Michael Hudson: "They're protecting themselves against U.S. political aggression. The big story last year was, if a country keeps its reserves in U.S. dollars, that means they're holding U.S. Treasury Securities. The U.S. Treasury can simply say, 'We're not going to pay you. Even when a country like Venezuela tried to protect itself by holding its money in gold, where is it going to hold it? It held it at the Bank of England. And the Bank of England said, well, we've just been told by the White House that they've elected a new president of Venezuela, Mr [Juan] Guaido, and we don't recognize the President that the Venezuelans elected because Venezuela's not a part of the U.S. orbit. So they grabbed all of Venezuela's gold and gave it to the fascist opposition: to the ultra right winger that the Americans say 'We're going to recognize an opposition leader. We're going to pick him out of thin air, and take all the money away from Venezuela.'"
[41:26] "Countries all over, from Russia to China, to the Third World, think that the United States is going to just grab our money, any time at all. The Dollar is hot potato because, basically, it looks like the U.S. is prepping for war over the Ukraine. It's prepping for war with Russia. It's prepping for war with China. It has declared war on almost the entire world that does not agree to follow the policies that the State Department and the military dictate to it. So, other countries are just scared, absolutely scared of what the United States is doing. Of course they're getting rid of dollars. The United States said, well, you know, if we don't like what Russia does, we're going to cut off the banking contact with the Swift interbank money transfer system. So if you do hold your money in dollars, you can't get it."
[42:21] "The classic example is with Iran right when the Shah was overthrown. Iran's bank was Chase Manhattan bank, which I was working for as a balance of payments analyst. Iran had foreign debt that it paid promptly every three months. So it sent a note to the bank, please pay our bondholders and Chase got a note from the State Department saying 'Don't do what Iran wants. Don't pay. So Chase just sat on the money. It didn't pay the bondholders. The U.S. government and the IMF declared Iran in default of paying even thouh it had all the money to pay the bondholders. And all of a sudden they said, now Iran owes the entire balance that's due, on the theory that if you miss one payment, then you default. And we're going to make Iran do what the Fed didn't make Chase Manhattan, Citibank, and Goldman-Sachs do. If they couldn't pay and transfer, they weren't pushed into bankruptcy. So, by holding your money in a U.S. bank, the U.S. bank does whatever the government tells it to. And it can drive any country bankrupt at any point. If other countries pass a tariff against the U.S. goods that the U.S. doesn't like, it can just, essentially, not pay them on whatever they hold in the United States, whether they hold reserves in American banks, or whether they hold reserves in the Treasury or the Fed, the United States can just grab their money. And so the United States has broke every rule in the financial book, and it's a renegade. It's a pirate. And other countries are freeing themselves from piracy by saying the dollar is a hot potato. There's no way that we can believe them. You can't make a contract with the American government, ever since the native Americans tried to make land contracts, you know, in the 19th century.
"The United States doesn't pay any attention to the contract signed, and as President Putin says, it's not agreement capable. So how can you make a financial arrangement whose banks and State Department and financial department are not agreement capable? They're bailing out."
"What's the alternative? Well, the only alternative is to hold each others' currencies and to do something that for the last 2,000 years the world has liked gold and silver and so they're putting their money into gold because it's an asset that doesn't have a liability behind it. It's an asset that if you're holding it, not England, not the New York Fed. The German government has told the New York Fed, 'Send us back the gold that we have on deposit there for safekeeping. It's not safe keeping anymore. Planeload after planeload of gold is being flown back to Germany from the U.S. Because even Germany, satellite as it is, is afraid that the United States may not like something Germany does -- like if Germany imports gas from Russia -- will America just grab all this gold and so you can't have it anymore. We're fining you. The United States has become lawless. And so of course you can't trust it. It's like a wildcat bank in the 19th century."
[45:53] Ben Norton: " [about Russia and China developing independent financial structures so as to gain freedom from U.S. dollar] . . . "
[47:00] Ben Norton: . . . Russian President said that the U.S. would regret using its currency as a sanctions weapon. And he pointed out that Russia's oil companies are trying to stop using the currency. And the country's finance minister, Anton Silvanov said that Russia would completely divest its dollar assets in the national welfare fund. And he said -- this is a huge quote -- 'We have decided to get out of dollar assets completely. Replacing investments in dollars with an increase in Euros and gold.' ..."
[48:37] Professor Michael Hudson: "Think of it more as President Trump followed by President Biden forcing Russia and China to de-dollarize by threatening, explicitly, and that was made, I think, a month ago, again, of cutting them off from Swift, the interbank transfer system. It's officially run out of Brussels, right at NATO headquarters. And the idea is, when you write a check to somebody, they put it in their bank, all that goes through the Swift system. This Swift system covers, basically, the whole world. It's a computerized system so that banks can transfer money to England or to Russia or to China. Or Russia and China can send money back and forth. The problem they had is if Trump and his Secretary, again and again, have threatened to cut Russia off from Swift. The U.S. government kept saying 'We can create a crisis with you. We don't have to bomb you. We don't have to beat you militarily. We can just paralyze your financial system by cutting you off from Swift.' So what they've done is say, 'OK. I guess we had better create our own financial clearing system and bank clearing system well enough so that if you close us down, we'll have another parallel system ready to go. It's as if you're all using Mastercard and you want to shift to Visa. And you say, OK, just in case the Mastercard decides it doesn't like us, we're going to use a Visa account to transfer money.
"50:15] "So they've created their own alternative, ready to go. It costs a lot of money to develop a huge computerized payment system, but since Russia, China, Iran and the whole Asian grouping decided, well, wait a minute. Most of our payments are among ourselves. If China is paying Thailand or South Korea, or Russia, buying and selling with them, why does it need to do it in U.S. dollars and have a reserve that's lent to the U.S. Treasury to essentially use the dollars to spend abroad and finance all of its military encirclement of all these various areas. So they said if any dollars we hold that's a loan to the U.S. Treasury. And the loan enables a dollar to be spent on militarily encircling us, so [Americans] say, if you're breaking away from the dollar, we're going to use our military bases that we spent your dollars on to bomb you.
[51:16] "They are breaking free of the whole dollar system>. That's the premise of my book Super Imperialism that we've discussed before on this show. They're decoupling from the U.S. economy as much as they can. In any case, they say, 'Look. the U.S. economy is going down quickly. Both parties, democrats and republicans, are in agreement that the economy has to shrink by about 20 percent in order to pay all the debts that the 99 percent owe to the 1 Percent. So the U.S. economy is not going to be a very good market for us anymore. We don't need it. It doesn't need us. Let North America go its way, we'll go our way, and that's exactly what's happening in the world. There is a global fracture."
[52:04] Ben Norton: ""
. . .
[55:08] Professor Michael Hudson: "Well, it's pretty late now because they've been talking about it for so many years that Russia and China have had a chance to put in their own system. Johnson's Russia List is a list of all the big articles in Russia every day. And if you've been following that, Russia has already said, well, yeah, it'll be an interruption for awhile. It's not going to be like a nuclear bomb. It'll be more like a stink bomb. So they're going to drop a stink bomb on Russia, but that's not the most serious thing in the whole world. So, Russia and China by now have had enough opportunity to protect themselves from this. But from what you said earlier, never ever quote anything that Stoltenberg says. His job -- I won't even use the word -- but the Americans already have troops in Ukraine. They're special operations forces. They're in Ukraine. The U.S. has already hired, I guess, what used to be called Blackwater troops, some mercenaries. They put them in Ukraine. So, the U.S. is fighting on the side of the Ukrainian Nazis against Russia."
[56:17] "Russia said two weeks ago that the U.S. special forces were planning a false flag chemical attack, and it said the city and the time, and said if you do that, you know, we're just gonna come in and bomb. And so, Russia found out about it and it stopped the false flag attack. But the U.S. has forces there. They thought that somehow they could provoke Russia into actually invading. I will guarantee you. I'm willing to lose my reputation if Russia actually invades Ukraine. It would be crazy. It doesn't have the money to do it. It doesn't have the troops. And who needs Ukraine? Russia has no need for Ukraine. It's a basket case. It has the lowest living standards in Europe. And it's on every U.S. government, international report, it's the most corrupt country in Europe. Nothing can be done to help it. Russia doesn't have to attack it. If somebody is committing suicide, you don't stop it.
[57:22] "Russia did say that if there is a military attack on the Donbass, we are going to respond with missiles. And the missiles will not necessarily be linked to Ukraine. We may bomb, for instance, Romania where NATO has missile launchers. And Russia has made it clear that you're not gonna go anymore with these salami tactics of moving NATO in bit by bit. As far as Russia is concerned, when America puts special forces and troops there; when America gives Ukraine offensive weapons, as the Biden administration does, that is backing Ukraine, absorbing it into NATO informally. Whether it signs a contract or not, it's working for it as a satellite, basically, of the State Department."
[58:09] "And so, Russia says, look we're going to go back to the sponsors. We're not going to just hit the troops that hit Donbsss. We're going to hit their staging areas. And the staging areas may be to the west of Ukraine." That's the message you should have. Russia won't fight Ukraine. It'll fight anywhere from Romania to Poland to Germany."
[58:32] Ben Norton: "A few more questions here, Professor..."