The war in Ukraine wasn’t a war against Russia. It was a US war against NATO.
Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His new book, The Destiny of Civilization, will be published by CounterPunch Books next month.
Dialogue works (Nima): We look at this war in Ukraine, it’s been 18 months in this war in Ukraine and Ukraine got devastated by this war. What was the endgame for the U.S. foreign policy in Ukraine?
Michael Hudson: Well, it wasn’t really an endgame so much as a fantasy. The United States actually believed that it would enable Ukraine to drain Russia’s resources. That was the main thing. It had no intention or expectation that Ukraine could actually beat Russia. What it thought was, that if they could get a puppet leader like Zelensky to fight to the last Ukrainian. Every Ukrainian that died would at least absorb one Russian bullet, and that would help deplete Russia’s military capacity.
Obviously, Russia has a lot more bullets than Ukrainians had individuals and the Americans had no understanding of how large Russia’s manufacturing company was. The State Department and military strategists believed the Kool-Aid that they’d been drinking. They believed the fantasy that Russia was just a gas station with atom bombs and that all Russia could do was either drop an atom bomb or else let the Ukrainians march right into Moscow and all the people would get so upset that Russia had lost that they’d overthrow Putin and bring back an American backed Boris Yeltsin and America could then repurchase Russian resources and restore neoliberalism. That was a fantasy, not an endgame. There was no real analysis and there were some analysts, as Ray McGovern has explained so often, that did understand what was happening and they were fired.
They are being told, well, you’re just not the corporate type. You must have some reason to want Russia to win if you don’t think that we can beat it, why are you pro-Russian? We’re going to put in pro Americans, and so all they got was flag wavers and the army generals whose main hope for advancement wasn’t to get another star on the uniform, it was to go on the board of directors of Raytheon and the military industrial complex and have make real money by being on the board. So, the whole way in which the dynamics were centered did not have much to do with the real military situation at all.
Dialogue works (Nima): How does the U.S. see the Yeltsin era? It seems that they are so much in love with Yeltsin, as much as they hate Putin. What’s the difference, in your opinion, between these two figures?
Michael Hudson: That was the lost dream that under Yeltsin Russia backed every ruble that it issued domestically with a US dollar holding. In other words, for every ruble that Russia created for spending within its economy, it had to borrow a U.S. dollar to hold in its reserves and at the beginning, I was told by investors, Wall Street people, that they were charging Russia 100% interest per year to give Russia dollars.
Now, the reality is that Russia didn’t need dollars at all to create its domestic money. It could just print the money and in fact, that’s just what Russian central bank did when it got the dollar, it printed the money anyway. The only difference is that it needlessly borrowed U.S. dollars and permitted the United States to come in and convince the kleptocrats to register the factories, oil reserves, electric utilities, everything in their own name and then to sell out. But they’d already wiped out the Russian savings through the shock therapy. So, the only people that the kleptocrats can sell to after they registered the companies in their own name were American investors, and they sold at such low prices that between 1994 and 1996, Russia was the most profitable stock market in the entire world.
And in fact, I was working with Senator Stevens at one of the brokerage houses and a former student of mine was their economist and she was told she was going to be fired because she didn’t invest in this Russia takeover. And she said, well, she didn’t invest in it because she saw it was all going to collapse in 1997 and that it was a complete fantasy and what she was told was, but you should have invested from 1994 and 1997 in the fantasy and then jumped out before the whole crash came. That was the mentality. The Americans wanted to be able to come in to transfer Russian raw materials, industrial capacity, farmland, natural resources in their own name and remove it from Russia.
It’s a strategy that had worked for third world, global south countries for the last 50 years, and they thought that they could do it in Russia and the problem is that the Russians had no background at all in Marxism. It’s one of the few countries that had no Marxism at all and without Marxism, they didn’t even have classical economics.
They didn’t have Adam Smith or John Stuart Mill or any of the economists who talked about economic rent. They didn’t know what a free lunch was. They really didn’t understand capitalism. They understood sort of the propaganda view that capitalism was about employers exploiting wage earners, but they didn’t understand that finance capitalism was all about rent seeking and natural resource rent and land rent and they didn’t understand that what Russia could have done, as opposed to Yeltsin, was what I had been advocating. When I went back three times and lectured before the Duma and said, look, you have all your housing, you can give your housing to everybody who occupies it. Now, give your all of your real estate to its current occupants freely.
You will have the lowest cost economy in the world by just turning over the real estate to them. You will be an economy without land rent and in the West, America, England, 80% of bank credit of the debt overhead is mortgage rent. Russia was free of all this. It could have got free of it. But the Americans convinced Russia that the way to get rich was America’s, to emulate the neoliberalism that American students are taught in the school. What Russians didn’t realize that the USA gets rich by tricking other countries into adopting neoliberalism and is getting richer off them. Not all of America. They just didn’t understand how capitalism worked.
Dialogue works (Nima): Do you consider the economy of Russia right now as a capitalist, as a socialist?
Michael Hudson: It’s an ad hoc economy. Putin and the people closest to him are sort of directing what to do, but they haven’t built what Russia’s doing into an economic theory or an economic system.
It really is all in Russia’s hands. You can’t call it socialism because so much of Russian production is left in privatized hands. But it’s not finance capitalism because the resource owners, the former kleptocrats have evolved into an intermediate situation where they’re told you can’t just replace all off, you have to invest your money. We’re letting you keep all the wealth as long as you do what a socialist country would have done. And that way we won’t have to socialize your wealth if you do what a socialist country would done done, we can leave you in, let’s say, a post-Soviet. The final stage of Stalinism was kleptocracy. So, it’s a kleptocracy under probably some degree of public direction that is not spelled out in any set of rules at all. So, nobody’s really thought of any label for this system except post Stalinism.
Dialogue works (Nima): In your opinion, is it closer to a socialist economy or a capitalist economy?
Michael Hudson: It’s neither. It is not really a socialist economy at all because it lets the banks make loans for mortgage loans and for businesses. A socialist economy would do what China has done.
They would treat money as a public utility, and money would be in the government’s hands to create the money and the advantage of having money creation and banking in government hands is if there’s an inability to pay or if the debt burden gets so high, the government can simply write down the debt. It’s politically easy to write down the debt as long as the debt is owed to you.
You’re writing down something owed to you. Very hard to write down debt that’s owed to somebody else because then you have an incipient oligarchy. So, Russia is an oligarchy. That’s the way to describe it as an oligarchy. That’s under some pressure from the surviving post-Soviet bureaucracy. If Russia provides public health and free public education, well, that’s all, you know, partly on the way to socialism. But it doesn’t really have a dynamic moving either toward socialist planning or finance capitalism. It doesn’t have a dynamic that’s concentrating all the wealth in the hands of the financial and rent seeking class. So, they haven’t thought of a word for that yet because they haven’t really gone beyond let’s just do ad hoc what we do here, what we do here, and see what emerges there.
An experimentation stage that is not necessarily a bad idea. The question is what are they going to end up doing and how are they going to institutionalize all of these economic rents that are created by oil, by gas, by other natural resources, agricultural rents and real estate rents? They could have done a lot more along those lines, and it’s still a very heavy Frontière socialist economy. How can you have a Frontière socialist economy? It sounds like a hybrid.
Dialogue works (Nima): Why did the US sanctions not bring the Russian economy to its knees?
Michael Hudson: That really wasn’t the purpose of the sanctions. The war in Ukraine wasn’t a war against Russia. It was a war against NATO. The United States had a nightmare and that was that Germany and other European countries were going to see their road to prosperity, to lie with increasing trade and investment with Russia.
The Germans had an ideal that they were going to export their automobiles, their industry, their washing machines, and consumer goods to Russia at a high value-added industrial price and in exchange Russia would get the money to buy these German exports by selling oil and gas at a very low price to Germany. And it was a circular flow of raw materials and industrial goods, and that would make Europe increasingly prosperous. But its prosperity would be shared with Russia and Eurasia along with China and leave the United States behind. And so, the sanctions against Russia were America’s attempt to say, we’re going to make an Iron Curtain, and this iron curtain is to prevent you from making money with Russia. If you’re going to trade, it has to be with us.
So instead of buying Russian natural gas and oil, you will be dependent on American liquefied natural gas and three times the price you will have to spend $5 billion making ports large enough to accept the container ships with the liquefied natural gas. We will have the power to turn off your gas at any point in case you ever wanted to vote socialist. We can get complete control over you. The sanctions against Russia were to draw a rope around Europe to tie it into dependency on the United States economy.
That was the aim. And the effect, of course, was indeed to bring the German industrialization to an end, because without Russian gas and dependent on American gas, Russian industry was simply not competitive with other industries. So, it had lost and the eurozone was brought to its knees because if you look at the balance of payments of Europe, the balance of payments was largely supported by German exports and industrial exports. And one of the reasons that Germany was so interested in joining the Eurozone was without having your currency tied to the French, Italian, Dutch and other economies, the German mark would have gone up just as the Swiss franc has gone up, and that would have priced German exports out of the market. But by being tied to the rest of Europe, you had southern Europe running a balance of payments deficit that was keeping the euro exchange rate low enough so that Germany was not priced out of the market as it ran a big trade and investment surplus. So, the effect was all of a sudden denying Germany from the source of energy and energy is really the source of labor productivity.
Well, that prevented Germany from running a surplus and that means that the European balance of payments was drained in the process and now you’re going to have a weakening European euro and more and more of a problem is going to be coming up. Well, your question really was what’s the effect on Russia? Sanctions against any country have almost always backfire because the effect of sanctions is very much like creating protective tariffs for the country. When America told the Baltics, stop exporting your cheese and your food, your grain crops to Russia, what did Russia do without cheese It didn’t start the debt. It said, okay, we’re going to start our own cheese industry. No, it no longer, in effect, depends on Lithuania and the Baltics for a cheese. The same thing with the Common Agricultural Policy for Europe was always one of the key benefits. And Europe had hoped to be a grain exporter. Well, once there are sanctions on Russia, Russia develops its own agriculture and its own grain.
So, the effect of sanctions was to make Russia independent of the eurozone and increasingly self-reliant. And that certainly strengthened its balance of payments, not losing it. So, Russia has lost the export income from its oil and gas to Europe, but no longer has to pay the import charges of its food and the other product that it was getting before the sanctions because it’s producing these at home. So basically, it’s as if President Biden said, President Putin, we love you, we want to help you. We’re going to help you get rich in Russia the same way we got rich in the United States. We’re going to help you do protective tariffs.
Now, your neoliberal people in Russia don’t tell you that, but you do need protective tariffs and since you won’t enact these yourselves, you’re like what we did in the 19th century, we’ll have sanctions and that will help you develop your own industry. So, you can end up getting rich just the way the United States did, and you’ll be happier and much better and the result is exactly what you’re saying. Russia is now much more independent and stronger and there’s no power that America or Europe have to impose any further sanctions on Russia.
Dialogue works (Nima): When you look at the Europe right now, they’re following everything the US says in Ukraine. Why are the Europeans so much under the thumb of the US foreign policy?
Michael Hudson: The United States has politically interfered in European affairs ever since 1945. I think a decade or two ago I visited Berlin, for instance, and I was taken to a big hill in Berlin when they were cleaning up the bombed-out city in 1945, they took all the refuse, the bricks and the building materials that they’d cleaned out of the bombed-out buildings and then made a big hill. On the top of the big hill, there were U.S. communications, spy offices.
You remember maybe a decade ago, turned out the Americans were listening to Angela Merkel’s phone calls. The Americans were tapping the phones of every leading European politician. Also, the Americans had scoped the National Endowment for Democracy, meaning an endowment for a neoliberal oligarchy were looking for people like Ms. von der Leyen or Annalena Baerbock, and they were looking for people who had the promise of being opportunistic, very clever, and the right to essentially throw their career in line with helping the United States.
So, the United States set up throughout Europe, many non-governmental organizations, and these organizations were basically talent scouts. They were looking for promising entrepreneurial, ambitious, opportunistic businesspeople and politicians, and they would find the people who were most willing to buy the US political Kool-Aid and follow the U.S. and they were pretty much dominating European politics also through the control of the European media. So, the European Union leaders do not represent the European business interests or the economy or the European people they represent basically, I won’t say their employers, but the U.S. foundations and government that have been promoting their careers all these decades.
I’ve been told by U.S. Treasury officials that the U.S. can always get what it wants from Europe, because the fact is the Europeans are probably the most corrupt politicians in the world. I’m sorry, India and Pakistan. Europe outdoes you according to the U.S., Yeah, they sell out cheaper and the U.S. says all we need is envelopes with hundred-dollar bills and we have the policy. So, the European policy is really designed in the United States and put in the hands of the European proconsul. So, the euro was designed as a satellite currency for the U.S. dollar by Robert Mundell at the University of Chicago and it was designed as basically an anti-labor policy, an anti-industrial policy. So, England and continental Europe have both followed the neoliberal finance capitalist model that doesn’t really help Europe, but it locks Europe into a satellite status with the United States.
Dialogue works (Nima): We know that the war in Ukraine has hit Europe so hard. If you were an adviser to the European Union, what would you say to them as a key to get out of these economic problems that they are dealing with right now?
Michael Hudson: I’d say, of course, there is an escape. I think you Germans should all move to Russia and China, leave Europe. Europe is what Donald Rumsfeld, the US head of the military called Old Europe is a dead zone. The euro zone is dead. It cannot be revived without a radical restructuring and it’s not going to restructure. It is on a suicidal trajectory.
All you can do is get out of the sinking ship. There is no way that anything that I would tell them to try to look at why China is growing and you’re not, look at what your industrialists have said of wanting to get rich and employ German labor by exporting to Russia. You’re not doing that. There is no way you can break from the United States, given the corruption of your politicians and the fact that you don’t have an economic theory, an economic doctrine that is an alternative to neoliberalism, and without understanding classical economics, without understanding value and price theory and economic rent and the difference between earned and unearned income, there is no way that you can make an economic policy that actually works. So, you don’t have an economic theory, basically, except that that is leading you into poverty.
Dialogue works (Nima): How do you see the Chinese economy? It seems to me that it’s the miracle of our century. How does it work? Is it a socialist economy, capitalist economy, or a combination of both? How can it be so powerful?
Michael Hudson: Well, I never grew up in a religion, so I don’t believe in miracles. It was partly fortuitous. It certainly was a socialist economy, a state run economy under Mao. The danger was that it would evolve into Stalinism and Soviet bureaucracy and top down what happened was very fortuitous. I remember in the late 1970s I met with Chinese officials and at first, they said, well, we’re really developing think tanks in Shanghai. You know, we’d love you to come over and be there. But then they found out that my background was Marxist because of my family, and they said, well, we’re afraid you can’t come. We don’t want anyone who believes in Marxism because we think Marxists are going to lead us to Stalinism. So, what did they do? They invited Milton Friedman from the University of Chicago, the Arch anti-government economist, to come to Shanghai, and he gave them all the advantages of letting 100 flowers bloom, letting private enterprise, think of things that governments can really plan so that, look, the Chinese are a very creative people, they’re very entrepreneurial, let them create their own.
If they have a good business opportunity, let them create a business, let them get rich by doing it. You can just imagine every kind of new kind enterprise. You need to have a mixed economy. And in fact, every economy since Mesopotamia in the third millennium, B.C., has been a mixed economy. And so the you had under Deng and others saying, okay, we’re going to have a mixed economy, we’re going to let private enterprises spring up and we’re also going to let every city we’re going to let local management go its own way and we’re going to see what works.
That was their way of being pragmatic. They said nobody can plan the entire future unless you go to plan a straitjacket. We don’t want to plan a straitjacket that Stalinism had. Let’s have some market reference point. And the result is they became a mixed economy and that saved them. And what China did was saying we’ll have a mixed economy and permit industrial enterprise rentable patent creation.
You can make money by innovation, but we’re going to keep the commanding heights in the hands of the government. We’re going to create money as a public utility. Education is a public utility available to all as a human right. We’re going to keep the land and credit creation as a public utility, and we’re going to have transportation as public utilities – not turned into monopolies for high prices.
So, they had the best of both worlds, and they’ve been able so far to combine to have this mixed economy running it. And that really is the only way I think that what people talk about the effect of democracy can ever be achieved, democracy without a mixed economy, without a government control of money and basic infrastructure is going to end up very quickly in an oligarchy and a financial oligarchy. And the only way that you can prevent it is to have a government strong enough to regulate the richness and private wealth and ambition.
So, the Chinese did say, well, you know, you want to make money, you can make money, but once you make $1,000,000,000 or so, that’s pretty much enough. If you like You can look at how they’ve treated Jack Ma. They said, okay, Jack, you’ve created a great business there. You have got enough money. We’re not going to let inequality get so high. We’re going to have progressive taxation and you’re going to be limited in just how much economic rent, technology rent you can get. That’s the only way that you can actually raise living standards and for the economy as a whole and actually have economic growth that does not succumb to debt deflation or to a Frontière economy, they’ve been able to balance it because they have a Communist Party leadership that works pretty much by consensus. Everybody talks about President Xi doing everything but the Central committee, they work very much by consensus and in a pragmatic, ad hoc way, instead of leaving it in the hands of just someone like in Russia.
Dialogue works (Nima): How would the US economic war on China influence its economy and consequently BRICS in the long term? And would China be able to afford it?
Michael Hudson: Well, as the American microchip companies have been pointing out in the Wall Street Journal and elsewhere, an economic war against China is really an economic war against the U.S. economy because for one thing, there goes the US market in China all of a sudden, as the you’ve had intel and the various microchip companies have all said, well, if you have these sanctions against our import to China, there goes our market.
How are we going to get the money to invest in new factories? And no research and development if we can’t make the profit off the Chinese market, it’s just not going to work. And in fact, once you impose a sanction against the Chinese microchips, what does China do? It says, okay, you know, we were willing to rely on the United States for microchips that helps link our economies. We want a peaceful relationship with the American economy. But once you’re using sanctions as an export weapon, saying that you’ll try to disrupt our economy by not providing something that we need in our production chains, then we’re going to have to do it ourselves. So now what America’s done, it’s lost the microchip market in China.
Everything that it has sanctioned against China, it has lost permanently and irreversibly to China, because once another country has been sanctioned by the United States or Europe and it has to create its own industry and any industry, and you can’t really prevent other countries from applying a new technology once you develop this, they’re not going to say, ‘Oh, now we’re going to go back and I’m sorry, we’re going to fire everybody but and closed down all the factories we’ve made so we can depend on you once again, that’s gone’.
America has lost this forever. So, the victim of America’s war on China has been the US economy itself. And that’s why it’s in what looks like a terminal downward spiral. It’s designed as policy. America’s policy is a downward spiral. It began under President Clinton as an anti-labor policy. Let’s say we need to reduce American wages, to increase profits. Let’s hire low priced Chinese labor. And this has led to a reaction and it’s led to now we’re sanctioning China. The whole American foreign policy has been anti-labor anti, industrial, and it’s been a form of finance capitalism that is the antithesis of industrial capitalism, which naturally was evolving into a mixed economy and socialism. And it’s reversed all of this.
So actually, there is nothing that America can do to really hurt China. But China can say, all right, well, now that we can’t import chips, another sanctioned product from you, we don’t need to earn dollars by exporting. So, we’re going to stop exporting rare earth materials. We’re going to stop exporting our own chips and telephones. You know, now we’re going to go our way. You go your way. China is able to go its own way because it has a mixed economy. America is not! It doesn’t have any plans for going its own way because the idea of making money in industry is simply to buy an industry, close it down and turn the factory into gentrified housing. That’s not a plan that is sustainable in a growing world economy.
Dialogue works (Nima): What would be the best element to be considered for the economy of a country? When we compare China and the U.S., when you compare their GDP, the US is greater than China, when you look at the GDP at PPP China is greater. The same thing is happening for the comparison between Russia and Germany, considering GDP at PPP, Russia is better than Germany. Which one is better to evaluate to assess a country, traditional GDP or GDP at PPP?
Michael Hudson: There is only one group of professions in the entire world that pays attention to GDP as a measure of strength. That’s economists and it’s completely worthless. So, I could ask you, what do you think GDP is? What do you think it measures?
Dialogue works (Nima): It’s all the things that a country produces in one year.
Michael Hudson: Ha! Well, the trick word there is production. For instance, suppose that right now a lot of Americans are unable to pay their credit card debt and their use their debt on automobiles, arrears are going up and they are in addition to the 19% annual credit card interest rate, they now are paying 30% penalty rates. Credit card companies make more money on penalties and interest. Are these penalties part of GDP? When people default and have to pay more?
Dialogue works (Nima): No!
Michael Hudson: Well, you’re being reasonable. Yes, I can see you’re not an economist. Good for you. They are part of the US GDP. They’re called providing financial services. Do you think if you have your own house and the value of your house goes up and people have to pay more in rent, you’re just sitting there and it’s the same house. But you say, if I rented this out, I’d have to pay more rent for my house than I’m getting, is that GDP?
Dialogue works (Nima): No!
Michael Hudson: Oh, you’re being reasonable. Again, you’re not an economist that’s counted. That’s 7% of American GDP. The increasing rental value of owner-occupied housing. The GDP is designed by political lobbyists in the United States. They consider interest charges as GDP; they consider rent as GDP. I’m sure you’ve heard me say before that when the head of Goldman Sachs, Lloyd Blankfein, was talking to Congress, he said, you know, the Goldman Sachs partners are the most productive workers in the world. Look at how much money we pay them, for their bonuses. Well, you remember Goldman Sachs has made a huge amount, $3 billion on fraudulent loans to Malaysia. Goldman Sachs adds financial overhead to the cost of doing business. That’s considered GDP and productivity. They’re the essence of post classical economics, namely what we’re taught today in the economics classes for neoliberalism, there is no distinction between earned income and unearned income. They consider rent a free lunch as being a product, rent, that John Stuart Mill said landlords make in their sleep, is counted as part of GDP.
Interest payments to holders of bonds (who make money in their sleep) or credit card companies are also part of GDP. If you don’t distinguish between rent and overhead and between earned and unearned income, then it’s like having a parasite on your back or a tumor and you think the tumor is part of the body. There is no distinction.
So, one of the things that I would hope that China, Russia and the BRICS countries do is redefine what real income and product is. And to do that, they’d really have to go back to the 19th century. That was the whole essence of free market economics and classical economics and the 19th century. And all of that’s been excluded by the kind of blind spot that the economics profession has in the United States. That’s why I keep joking with my Chinese friends. Why on earth would you send Chinese students to America to study economics, or they’re taught to try to do to you what economists have done to the United States. It doesn’t make sense!
Dialogue works (Nima): How do you see the G7 countries with all these difficulties that you’ve mentioned that the European countries are dealing with, how do you see their economy in ten years?
Michael Hudson: You have to put this in the context of what is happening in the world, and the world is dividing into two camps. On the other hand, I think the European Union head, Josep Borrell, put it, it’s the garden of the 1 billion white people, Europe and English speakers, and it’s the jungle of the rest of the global majority, of the rest of the world besides the golden billion. You have the Europe and the United States shrinking and steadily going downhill and you have the only growth occurring in the BRICS plus countries that are just now in the process of taking shape and the process of deciding how do we go our own way. What they’re doing really is picking up the train of history which abruptly ended in World War One.
After World War One was a big change, where the whole Western world took really a wrong detour. And they’re going back to that and saying, Oh, we’re going to have the natural evolution of industrial capitalism and America, England and Germany and the early 20th century was towards increasing socialism. Everybody was talking about socialism. And then World War One ended all that because of the Russian Revolution, largely. Now they’re realizing socialism is not what happened under Stalin in Russia. That was its own sui generis, as they say. But now we’re going to do socialism in a much more balanced way that will include the new Russia. And we’re going to resume the whole development. And this development is not going to include the United States and Europe, who can only try to play a disruptive interference function and the rest of the world doesn’t need American interference.
Well, the other part of the environment, of course, is global warming that is increasing and you’re going to have rising sea level, you’re going to have drought, you’re going to have all sorts of agricultural problems. You’re going to have environmental problems. Also, the fact that the United States has only one policy variable that it has, and that’s atomic warfare, it doesn’t have an army. It’s not going to be able to ever have recruit soldiers to occupy a country. The only thing that the United States has to offer the world is refraining from bombing it. And that all it can do is let the rest of the world say, we’ve got to be separate from you. You know, we’re not going to attack you. We don’t want to take you over.
We really just want nothing to do with you. Goodbye, Europe. You see President Putin and Secretary Lavrov saying this in one speech after another for the last Putin had felt betrayed, sort of. He felt that, you know, we really had a hope that the logical thing to do would have been for Russia and Europe to join together for mutual gain. But the problem in economic thinking, especially in Marxist thinking, is you think that everybody’s going to act in their self-interest. And that’s not happening. As you pointed out with your first question, Europe has not acted in its self-interest, and you cannot say that America is acting in its own self-interest. It’s acting in the self-interest of a very small minority of the 1%, basically not the 99% and the 1% when it takes control of government planning and transfers, planning from public agencies into Wall Street in the financial centers, its timeframe is short term, hit and run. Take the money and run.
We can all go and live in New Zealand in a bomb shelter if it gets too hot in the world or we move to the equator, which is going to be less affected by global warming than the tropics are going to be affected. So, you’re really having a split. And the whole context for the Group of seven will basically be an American satellite and they’ll just be left behind while the rest of the world goes its own way and you think logically that if the Group of Seven were to act in their self-interest, they join Eurasia, they join the whole world doing social development in a more mutually beneficial way. But that would require an intellectual revolution almost on the level of a religious revolution.
Dialogue works (Nima): You’re talking about this kind of partnership between East and the West. We have the G-20. Why does the G20 not function? What’s the problem with G20, in your opinion?
Michael Hudson: Because the world is dividing into two halves and one half won’t deal. The garden is unwilling to work with countries that are part of the jungle. In other words, the world has a choice, socialism or barbarism. Most of the G7 is the barbarism lobby, the rest of the world is the socialism group, and you can’t have barbarism and socialism together. It’s either or. Of course, they weren’t. Can’t work together. There are alternative views of how economies and society should evolve. Not there can’t be a compromise between life and death. Either you’re alive and living or you’re dying.
Dialogue works (Nima): How do you see the BRICS expansion policy regarding these new members Iran, Saudi Arabia, UAE, Egypt, Argentina, Ethiopia? Are we going to see some sort of new partnerships in the future with these countries that don’t necessarily agree with each other on each and every issue but still can work in harmony?
Michael Hudson: Well, they don’t have to agree with each other. We’re not talking about a single world government that they’re all going to send members to a parliament. Obviously, that has not worked very well for the European community. But what they have in common is how do you restructure international trade, international investment and international debt and credit along different lines than those which the United States designed in 1945 as a means of breaking up the British Empire and absorbing the British Empire into the American empire and designing a world that dependent on U.S. credit and U.S. investment and U.S. technological monopoly.
We all have an interest in having a kind of trade patterns and investment pattern and infrastructure development that helps us grow together. So instead of one country, benefiting is a zero-sum game, which is the US European neoliberal model. How do we have mutual gain? Well, you’re going to have to create an alternative to the World Bank, an alternative to the IMF that provides credit without insisting on anti-labor austerity.
You’re going to have an alternative to the international Criminal Court and really an alternative to the United Nations that doesn’t let the US, and its satellites have veto power to prevent any kind of international policy. So, you’re really having a global fracture. You’re going to have two worlds. You’re going to have the garden essentially turning into a jungle and you kind of have what the Europeans call the jungle, turning into the garden.
Dialogue works (Nima): Iran, Saudi Arabia, UAE, these are main producers of energy, of oil together with Russia. How would BRICS benefit from these countries. We have two giants in the room, China and India.
Michael Hudson: Well, it looks like India is not joining this. The United States has convinced India to forego the gains that it could make with China and the rest of Eurasia. And it’s like India has been convinced that it would be best if you could move India off the coast of Rhode Island, along with England and since India so often admired England, let India destroy itself as England has destroyed itself to emulate the English, commit economic suicide and become a satellite. Don’t be part of the Belt and Road Initiative. Try to make an alternative belt and road. And the result will be that India is left out. So, the United States is focusing on trying to pry India away from the rest of Eurasia. And the result will be that the whole Eurasian continent just sort of leaves the southern extent behind unless India changes its political philosophy and that dependance on the United States and the wholesale bribery and corruption that is so rife in India.
The question is, can India overcome its corruption and its political rottenness? And it’s doubtful that it can. So the question is that the deal with Saudi Arabia is, well, right now Saudi. You’ve been the deal that America has told you since 1974 was you can charge as much money as you want for your oil, but all of your export proceeds for your oil, you will have to recycle for the United States. You can spend it on buying American industry. You can spend it on your own industry. You have to buy US Treasury securities to fund our military spending to surround you so that we can conquer you and take you over. If you ever tried to be independent, if you don’t lend your money to the United States, we would consider that an act of war. Now, I’ve sat in on State Department meetings at the White House where it was put in just such blunt terms as that to Saudi Arabia.
Now, what’s the point of Saudi Arabia exporting its oil simply to build up a financial claim on the United States that the United States can wipe out, just like it confiscated $300 billion of Russia’s foreign reserves, it can confiscate Saudi Arabia’s foreign reserves. If Saudi Arabia instead would make arrangements with China, Eurasia, Central Asia, Islamic countries of Central Asia, that they would take an equity position in helping build up these economies. And again, it would be a mutual growth. There would be a complementarity of economies. And so that would leave Saudi Arabia in a much stronger position and in fact, if it does not break away from the United States, then the United States is going to try to continue to split Saudi Arabia away from Iran and away from the other near Eastern countries.
But on this Saturday, you’re having the ayatollah from Iran visiting Saudi Arabia, and you’re now having Saudi Arabia, the Arab countries, Iran, overcoming all of the splits within Islam to say the important thing is that we preserve the Near East as an economic unit, and we defend ourselves from the joint European and American, the NATO attack. NATO has declared war on us and on the entire world. We have to realize that there is a war on. We have to withdraw from this. The solution isn’t to fight. We’re not going to militarily fight them. We can’t grab any of their financial holdings because they hold our financial holdings. All we can do is say goodbye. We’re going our own way. And that’s basically what’s happening. Of course, they will benefit much more by having real interconnections with Eurasia than having very tenuous, breakable financial connections with the US government. It’s not someone you want as a economic partner.
Dialogue works (Nima): What’s the importance of this Belt and Road initiative? How would it benefit the countries involved in this project?
Michael Hudson: Well, the United States has essentially pursued an economically divide and conquer other countries and made all of their trade and investment geared toward what the United States wants without competing with the United States, without displacing U.S. exports, and without producing for themselves what they were dependent on the United States for it. The Belt and Road Initiative starts with a transportation initiative so that countries can be mutually dependent on each other and with transportation and infrastructure put in place, they can then develop their own complementary investment of what to produce industrially, agriculturally in terms of natural resources, water, they can all decide how to make a mutually beneficial, increasingly prosperous economy. Instead of dealing with the NAITO economy, whose objective is to impoverish them in its own interests. Do these members want to be part of a zero-sum economy where NATO’s gain is their loss or a mutually beneficial economy? That’s really what their choice is.
Dialogue works (Nima): How do you see the relations of these countries within BRICS? Do they need a new reserve currency or something else would be much better for them?
Michael Hudson: The word BRICS currency has been misunderstood. In order to have a common currency you’d have to have money created by a government, and that means you’d have to have one single government. There’s obviously not going to be one single government of all these different countries. The BRICS currency is not going to be anything like the dollar, anything like the euro. There’s not going to be a BRICS currency. What there will be, will be a BRICS central bank, in the central bank will be coordinating balance of payments, credit and debt among governments.
Essentially it will be what John Maynard Keynes tried to promote in 1944 at the original Bretton Woods conference. The BRICS bank can create its own fiat currency. It will be funded in the first entrance by currency swaps. Every country that joins it will provide part of its own currency to the bank and the bank will have the power not only to relend these currencies to deficit countries that are not able to pay for their own imports at the time, but it can create their own fiat currency. This fiat currency isn’t the kind of currency that you can spend at the grocery store or spend on buying an apartment. It’s a currency to denominate foreign intergovernmental credit and debt.
One of the advantages of Keynes’s currency swap was ‘how do you prevent one country from ending up with all of export gains and other countries falling behind’? Well, obviously, he had in mind, how do you prevent the United States from ending up with all of the money and England ending up losing everything? Well, the answer, Cain said, was, if there is an imbalance, then the payments surplus country will exceed its quota and its balance will be wiped out and the negative balance of the debtor countries will be wiped out. The whole idea of international reserves isn’t a good thing. Reserves represent the accumulated balance of payments deficits, and imbalance in the world economy.
A perfectly balanced economy wouldn’t have any international reserves because all trade would be in balance. And to the extent that international reserves grow, that means that other countries, debtor countries, are indebted to the country that hold the most reserves and the result has been to favor the United States and give American investors control over the debtor countries. The result has been to leave the global South countries and many of the BRICS countries with enormous dollar debt and this dollar debt is a form of financial colonialism. And this colonialism has been a disaster for these countries. There’s no way in which other global South countries and many BRICS countries can have the money for their governments to invest in their own infrastructure and at the same time paying this legacy of dollar colonialism that is a result of misguided economic development, misinformed economic development and essentially a distorted economic development that is favored uniquely the United States, part of the split of the global fracture the world into the socialist versus the barbarian economies is you wipe out the dollar debt.
Well, all of that was done back in 1931 when the inter allied debt, a German reparation, was a drone so high that they were threatening they’d already begun to push the world into depression and the countries together said ‘Rather than put ourselves into depression, let’s cancel the debts that ultimately we owed the United States’. Germany owed reparations to allies England and France and others so that England and France could pay the United States for the arms debts, the entire allied debts that they bought before America’s entry into World War One.
My book, Super Imperialism, describes this whole period. The whole idea is that you want to avoid that whole kind of system. It is time for a new 1931 moratorium on debt. But this moratorium would be permanent. We’ll say the debt is a result of a bad policy or repudiating the debt, just like Russia did in 1917 that they break with the NATO countries has to be just that strong and that will certainly make or break. The United States is going to try to grab the resources of these countries. But these countries can say we are sovereign governments. Sovereign governments don’t have to pay their debts. Sovereign government under the international law, we can do whatever we want. That’s our international law. If you don’t like the system, you go your way. We’re having our own way with our own international court and our own declaration of Independence. That’s going to be something like the United Nations Charter. But without all of the poison pills that the United States put into the charter.
Dialogue works (Nima): When we look at these countries, the new members of the BRICS, we look at Iran, Saudi Arabia, UAE the most important countries in the Middle East source of energy. Egypt is one of the biggest countries in Africa. Argentina, here in South America, we have Argentina is the second biggest country. But among them we see Ethiopia. what is the importance of Ethiopia? What was the reason for accepting Ethiopia in BRICS?
Michael Hudson: Well, for one thing, you want to be ecumenical. If you’re saying we’re creating a new world order, you want to make that new world order open to everybody who wants to join it and have a single order. Also, you don’t want to leave Ethiopia out and force Ethiopia to turn to the United States and have the United States have a military base right in Ethiopia where it can threaten all of the surrounding world. You have to save these economies from dependance on the United States and on the United States military. And you have to free your entire geographic region from American military bases so America can no longer basically bomb you if you don’t follow American policy. The United States can always have ballistic missiles, but there’s no reason for it to blow up the world, except that’s a Christian philosophy. There’s a lot of American congressmen want to blow up the world because they say Jesus will come. He’ll send all of the Jewish population to hell, and he’ll save all of us Christians and the rest of the world can all go to hell. But apart from the born-again Christians and Congress, there’s no real lobbyist wanting to blow up the world and start evolution all over again.
Dialogue works (Nima): It seems that those who control the monetary system create money “out of thin air”… in the form of debt. No productivity needed. In contrast, the debtors are obliged to repay the debt with interest and must do so with money generated out of actual productivity.
Can we characterize this system, where the masters, unburdened by any required productivity, control the money, and the debtors essentially work for the masters, as a system of “Debt Slavery”?
Michael Hudson: Well, modern monetary theory that was taught at the University of Missouri at Kansas City, where my colleagues and I were promoting it for a few decades, shows that governments can create all the money that they need to spend into the economy. And if the government does not create the money that the economy needs to invest and to finance its infrastructure and private investment, then banks will create the money. But if banks create the money, when you go into a bank and you say, I want a loan, the banker doesn’t say, well, let me see if we have any money to lend you is a look. I’ll write on the computer; here’s a loan and I’ve created a deposit for you, and you’ll sign this IOU. So, you have an asset, the deposit, and you have a debt. What do you owe us with interest that’s computed on a computer. Now, there’s no reason the government can’t do exactly what commercial banks do and simply create this money that way.
That’s why neoliberalism says the government should not create it. You have to leave it to the financial class to create. And that way we can without any effort of our own, we have the monopoly to simply create credit. It’s almost as if we could create land or oil resources by just pressing a computer key. And so obviously you don’t want to create too much credit, but you don’t want to create credit that simply is used to lend to buyers of houses to bid up the price of housing and real estate. You don’t want to create credit to lend to corporate raiders who will take over a company and essentially drive it bankrupt by taking the money and paying themselves a dividend, leaving a debt-ridden corpse or zombie company in its weight. Money is basically a public utility. It’s just like land. It’s created the land of their freely and nature provides land freely. Nature has provided oil and gas and minerals freely, and our society has enabled governments to create credit freely. So, anything that is freely created should be in the public hands is national patrimony. That was the essence of classical economics in the 19th century.
From Adam Smith onward. So, that was the original idea of a free market, and the idea is, well, what is unfree is that now these are the creditor countries, America and to some extent Europe have made countries unfree. And if you have to spend all of your economic surplus by turning it over to the creditor, you end up in the position that Haiti was in after it got independence.
France said, but you have to spend the rest of eternity paying us for your independence. And you can never be rich. The price of your independence is to become the poorest country in Latin America. That is wrong. Haiti shouldn’t have to pay this debt. Same thing with Greece. Greece achieved its independence from Turkey. They had a civil war in 1824, but it needed to borrow money. So, Greece went to the Ricardo companies, Ricardo Brothers that made the loans to Greece at such heavy interest rates that Greece went bankrupt again and again and again throughout the 19th century and couldn’t grow.
You want to use Haiti and Greece is what you want to avoid is a future of the third world. You don’t want Latin America, Africa and Asian countries to end up looking like Argentina or other debt strapped countries. And you don’t have to. You can free yourself from debt and follow the Chinese model, which was actually the classical model.
That’s what everybody expected industrial capitalism to evolve into, into money creation and credit becoming a public utility. You’ll pick up where the world went off course in World War One, and that’s the the path to freedom.
Dialogue works (Nima): So, it is a debt of slavery!
Michael Hudson: Yes, It’s essentially a debt cancellation. That’s what Germany did with the economic miracle in 1947 and 1948.
Germany cancels the allies, cancel all of Germany’s internal debt except for what the employers owed to their employees, you know, for the last month or so. And everybody was allowed to keep a thousand marks or thousand dollars’ worth of marks in a bank account for basic spending and the reason they canceled it was the debts were to the Nazis and you didn’t want the Nazis to emerge from World War Two saying, okay, we lost the war, but we have all the money and ways to control Germany still. Well, if you’re breaking away from the US Cold War and the US again, it again says we’re in a war. Biden says we’re a war against China. We’re going against Russia. We’re in a war against everybody. Well, if you’re in a war, then you don’t pay your war opponent. You say, okay, we’re at War, goodbye, we’re not going to fight you. We’re just going to walk away. We don’t have to go to war. You can go to war with each other like you. Americans have gone to war with Europe, fight each other.
Dialogue works (Nima): As an economist, when you look at Janet Yellen talking about the U.S. economy is doing great, we can afford two wars, the war in Ukraine and the conflict in Israel. How do you see her statements?
Michael Hudson: Here’s a trick question again. What is the U.S. for Janet Yellen? The U.S. is the wealthiest 1% and what she says is the 1% doing great. If you look at GDP, who’s got all the growth, the national income since the Obama depression began in 2008, all the growth in wealth has been the 1%, not the 99% for Janet Yellen and the 1%. It’s been great. It’s good to be the king, but for the 99%, it’s been hell. But that’s not her department. She’s the Treasury secretary of the Treasury. She’s acting on behalf of the 1% against the 99%. She’s acting as a public enemy. That’s her job. That’s what she’s good at. And of course, she wants to go to war with the world. She said, if you want to get a society that’s one for the 99% instead of the 1%, you are our enemy and we’re going to go to war against you. To the last Ukrainian, to the last Israeli, to the last Taiwanese fighting yourselves. We will stir you up. That’s my economic philosophy. That’s what I, Janet Yellen, say. Well, to hell with her.
Dialogue works (Nima): The reason behind these endless wars we are witnessing in Iraq, Afghanistan, Libya, Syria, Ukraine, now in Israel, an ongoing conflict on and on. Is that related to military industrial, as Ray McGovern calls it, MICIMATT (Military Industrial Congressional Intelligence Media Tink Tank)?
Michael Hudson: They are just exactly word for word. What President Biden said the other day before Congress. He said, yes, we can afford the war in Ukraine and Israel because the arms that they’re using employ American labor is that if you want to be employed, if you want your living standards go up, you have to make the arms to kill other people. You will get rich and be able to afford to pay rising rents and afford to pay your credit cards and afford to pay for your automobile loans by producing arms that we can tell other countries fight to.
The last Ukrainian fight to the last Israeli as the war spreads, fight to the last Taiwanese. If we can convince Taiwan to go to war with China ….. that’s exactly what you don’t need A Ray McGovern, who I have a great admiration for, to say it because he’s considered to be a critic. Just look at what President Biden said. His argument is just exactly that we’re at war for the military because that’s the all that we can produce now. We can’t compete industrially. We can’t compete in technology. The one thing we can compete with is we can sell arms to have you people fight each other instead of joining together and, making an alternative to the kind of world that we have planned for you.
Dialogue works (Nima): Just before wrapping up this session. One more question about Africa. What’s going on in Africa? It seems that China and Russia are playing an important role in Africa. On the other hand, we have these G7 countries, especially the U.S. and France. How do you see this battle in Africa, are the Africans go to the direction of Russia and China or they finally stay with the U.S. and its allies?
Michael Hudson: Well, you’ve seen them just kick France out of Central Africa. The whole French territories are going the way of Algeria now. So, they’ve already got rid of that. I’ve met quite a few African leaders and many of them, quite frankly, are very opportunistic. But following their own opportunism, they’ve got everything they can from the United States, Europe.
There’s nothing more that they can get. What they can get from China, Russia and the BRICS plus is getting free all of the debt that they owe the United States and the European colonial powers. They can free themselves from the old powers and start all over again. Whether they will do so in a corrupt way or in a non-corrupt way is beyond my ability to know. I have not been very successful in dealing with African businessmen, but who knows? They the only option that they really have is to realize that their ties to the NATO countries are over and now they can sort of join the whole anti-colonial march out of the colonial epoch.
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