Michael Hudson On Why The US Risks Becoming The Next Greece

time kept going. So even though businesses aren't getting revenue and income, they still have to pay rent, pay back any loans they might have, and pay taxes and things like that. I think you actually wrote about this, uh

when we were just getting started with the coronavirus crisis. Yeah, that was kind of like identified as the early theme, which is like, Okay, even if we can get through this crisis in a expedient manner, which at least in the US, we haven't, you still have this issue of like bills pile up today or next week or the month later, and without revenue, Uh, those bills suddenly become

defaults and potentially bankruptcies. Right, That's exactly right. So a lot of the policy responses we've seen so far have been focused on bridging that gap between economic time and financial time, if you want to call it that, and they've been offering things like tax relief and loan forbearance.

But the question, of course is eventually, you know, people are going to have to pony up the money that they owe, and what happens at that point, especially after they may have injured months, um, possibly even years of economic weakness, right, and less revenue than they would otherwise

have gotten. Yeah, I mean, I think one way to sort of like conceptualize the policy responds, at least in the US, is that to some extent, you have the Federal Reserve having back stopped a fairly significant portion of credit market and done a number of things that actually caused um, sort of credit issuance to boom even in the middle of the crisis, so that companies would have enough liquidity, and then the other side of the coin, so to speak, would be fiscal policy makers and then

the health policy makers trying to sort of get us to that other side so that all these bridge loans that have been taken out can actually be paid for at the other end. Yeah, that's right, And of course, the concern that you hear quite a lot. Is always that one man's or one person's repayment is another person's income. Right, So if you stop the flow of rent, for instance, landlords aren't going to be getting the income that they're

expecting to get. And I know there's probably not a lot of sympathy for landlords at the moment, But the concern is that that ends up impacting the banking system, ends up impacting the flow of credit, which feeds back into the economy in a negative way. So today, instead of talking about debt forbearance, we're going to be focusing on something slightly different, and that is the notion of

debt forgiveness. So not just telling everyone that they can pay their bills or their debts in a few months time, but actually writing them off right. That is not something that we've ever really done much in this country. There was a lot of talk about it um after the Great Financial Crisis, after two thousand and nine, there really wasn't much you hear about it. With student loans, you hear about the idea of like, Okay, this time we

need a wash. But I would say books sort of culturally and politically we're sort of allergic to this idea of just sort of writing them off. Yeah, I think that's exactly right. Okay, without further ado, we're going to get into all of that. We have the perfect guests for this particular topic. We have Michael Hudson. He's the president of the Institution for the Study of Long Term Economic Trends, also a professor of economics at the University

of Missouri, Kansas City. He's also the author of numerous books, including and Forgive Them Their Debts, which is a sort of very long term history and overview of the tension between creditors and borrowers, a really good book. So the perfect person to give us perspective on what's going on right now and how it compares to thousands and thousands of years ago. Professor Hudson, thanks so much for joining us. Well, it's good to be here, Tracy, thanks for having me.

So maybe just to begin, I mean, where do we begin? Um? Can you sort of give us your top level view of how you view the coronavirus crisis and the impact on the economy in terms of creditors versus borrowers, Like where does the power actually you lie at the moment, and where's the biggest pain threshold. Well, both of you who have already in the introduction gone over what the

problem is. And I think it's much easier to understand the logic of debt cancelations right down if you look at what happens if you leave business as usual, What happens if you leave things the way they are right now? Well, I think of restaurants, for instance, restaurants in New York City have been closed or operating at a minimal basis for six months. They've accrued back rents UH and taxes. UH. There's no way that they can reopen and hope to earn the six months rent uh in the next two

or three or maybe four years. UH. And if they did have to pay the rents that have accrued when there are no revenues at all, then they're going to have to go out of business. And there's talk of of rest Bronson, New York City going out of business. You could say the same for Jim's. You've seen the Metropolitan Opera closed down, UH, Carnegie Hall concert stopping. So you're having an interruption in economic activity. And the main effect of debt people think of debt is transferring interest

and money to the creditors. But in this case, we're talking about transferring property to creditors. We're talking about landlords or people who have bought a house in a mortgage. They've lost their job or they're on a part time basis, and UH, they're in danger of defaulting on the mortgage. And there's a danger of the same kind of decline in home ownership today that you had after two thousand

nine when they were the widespread defaults. So the question is radical as it seems to write down the debts. Is even more radical to say, well, let's transfer property at to creditors. Let's close down business family businesses that have been there for many decades. Uh, let's not completely leave the economy and a closed down position. The reason people have canceled debts over the time is to restore economic normalcy. And this has been going on for over

three thousand years, five thousand years. My book, UH, what is much of the UH news right now? Our acts of God by insurance companies. So you can look at the virus as being a kind of act of God. What do you do when something happens from outside the economy is not the fault of the income earner? Is not the fault of the restaurant, it's not the fault of the homeowner who's lost a job. It's just happens

from outside the economy. Well, for thousands of years, not only in Babylonia, but in in Rome, when there was a problem, a disease, a flood, or a drought, the ruler would say, Okay, the taxes don't have to be paid, and in fact, the debts don't have to be paid. Most depths in the past where tax debts, and if they're not paid, the problems really taxes. And here in New York that's especially important. Uh, the transport system has been almost empty for six months. It's run up at

dept of four billion dollars. The city has run up a debt of about six billion dollars. What is going to happen? The mayor has talked about drastically closing city services, laying off municipal labor, raising the transport fares on the subway. Obviously there's going to be a break in the chain of payments. How do you avoid that? Well, there are

a number of ways of avoiding that. One would be for the Federal Reserve to simply create the credit to sustain the system for people who can't pay to transfer income to the restaurants enough to pay the costs of operation, the rents and the labor costs to pay a carry gate hall and the metropolitan opera enough not to go under. The other way is to simply write down the debts, because if you if you don't write down the state and local and public debt in this case, you're going

to have a slash of government services. And the government has said, well, what can we sell off? We're going to have to begin to sell off public header prises like Chicago sold off the parking meters in the streets. We're going to have to sell off parks. Uh, we're gonna turn roads into toll roads. You can see the

problems they're going to occur. You have to look at it as an overall system, and if you don't write down the debts, or if you don't provide the money, uh just print the money to let's the economy tread water what you call time out of time. Then you're going to have a drastic uh change in shrinkage of the overall economy and we'll end up looking like Greece did a few years ago. So what is an example in a history. I mean, you mentioned you you do a lot of work with history, and you mentioned this

idea of debt forgiveness going back five thousand years. What's the what's the sort of relevant period we might look to a specific example where a disease came or some act of God happened in the solution was right off the debts. Well, the Laws of Hammurabi were announced around seventy BC are an example. That's the first uh set of laws that explicitly referred to an act of God,

in this case added the storm God. Amurabi says that if the storm God added floods the fields or canceled the debts floods the fields that causes a drought, then the taxes don't have to be paid and the debts don't have to be paid. In another part of the Laws of Murabi, he said, if there's a disease and the disease prevent people from operating in normal activity, then the depths that they are canceled. Now, the reason he did that was if he did not cancel those depths

of the cultivators. And we're talking about an agricultural economy, low surplus economy. Then you would have the debtors fall into bondage to the creditors, just like you have in the Bible, a debt bondage when you can't pay the debts. And if a debtor ended up owing his labor time to the creditor, then he wouldn't have the opportunity to work on corvet labor, that is public labor to build the castle, the walls, to dig the irrigation ditches. He

wouldn't be able to serve in the army. And if you have the crops to the creditor, and we're talking about thirty three and the third percent interest for prop loans, then he wouldn't be able to pay the taxes. So the Hammurabi would have the palace economy would have not only collapsed, but you would have had the wealthy creditor class emerging from the palace bureaucracy, the local local leaders, and the first thing they would have done once they got power was to overthrow the king, as they did

in Byzantium. UH powerful enough to overthrow the king and take and UH prevent the king from having the power to tax them, and the whole economy would have turned into an oligarchy instead of a steady state system. Now, the idea behind Hammarabi was taken over from the Sumarians UH and their word for these depth cancelations. Think of it as a clean slate. Everything goes back to the way things were before the christ Us. And the word for clean slate in Sumerian was a margie from Amma

the mother. It was the mother condition, meaning it's the original condition. The whole idea is, how do you come out of a crisis, whether it's a doubt, drought, or disease and end up in the kind of way you were before, which you assume to be rough balanced. People produce enough to live and pay their taxes and get by and conduct normal activity. How do you restore the ability of life to get back to normal uh so

that the equivalent would be in modern days. How do you let restaurants reopen without having to say, well, we're just going to go out of business rather than pay all the money that we owe that we end up working for the landlords and uh for the creditors through the city. How do you enable the cities to start their transportation system again at afford at rates that people can afford to pay on the subway or the other transportation. How do you prevent the economy from being permanently wounded?

And again, the only way to do it is to write down UH say the deaths don't have to be paid. Somebody has to suffer because as Tracy pointed out, that one person's death is another person's claim. And uh, if you don't pay the debt, then some uh saver or the creditor is not going to be paid. And in this case it would be either the landlords are not paid or in special conditions where small small landlords, they'd

lose the property in some way. The banks and the creditors are obliged, obliged to take the loss because they're rich enough to take the loss without disrupting society. If you have the debtors absorb the loss, society is disrupted and torn apart, and the tax systems turn apart. If the creditors lose, well they're not quite as rich as they used to be, but they still get by. That's why Hammurabi did not cancel the business debts debts of

merchants debts that were denominated in silver for trade. None of the silver business steps were canceled. Only the personal debts manly of cultivators on the land were canceled. Same thing in Rome when UH Emperor Hadrian canceled the debts. Roman been UH engaged in fighting with the north, with the Germans. He canceled the debts so that you wouldn't have the army falling into bondage the creditors so it couldn't fight in the army anymore, and UH defend Rome.

Fifty years later Marcus Aurelius did the same thing for the same reason. So almost every economy has in the past, has UH come to the point where it says, well, it's easier to make the creditors absorb the loss than to have the rest of the economy fall into bondage and a transfer property to U endow a creditor class at forecloses, and UH we end up in an economy with a very different shape. Do you really want the

econom made a change and straight that way? So I think there's a general sense out there that debt forgiveness or debt jubilieves are a really leftist policy. And I mean, you just gave us all these great historical examples. Hammurabi wasn't exactly a liberal, right. He set out some pretty tough punishments for for crime, for I think theft. Some thefts were punishable by death. You laid out a really good rational economic reason why he would be interested in

depth forgiveness. But I'm curious why that rationale doesn't seem to resonate in modern day times, especially in the US. As Joe kind of mentioned in the intro, whenever you talk about debt forgiveness in the States, even if it's something like student loans, you seem to get this knee jerk reaction from people who say, well, you know, I paid my student loans, why do you get a free ride? And it feels like once the system is in motion,

it's very hard to change it. Why do you think the attitudes are so different now to I guess what they were in in ancient Samaria. I think because of unfamiliarity, uh with with history and the fact that you meant that, uh, the left in America doesn't discuss debt or finance. I don't think I've had any discussions about finance or debt for business or even monetary policy with the left at all.

I've talked with federal reserve branches. I talked to Wall Street people, I talked to financial people, I talked to a Republican politicians. Nobody on the left has been interested in this. And in fact, in China, where I was a professor for the last few years in Beijing at Peking University, I went over a few years ago along with David Harvey at colleague of mine from Cooney here in New York, and UH, we didn't find any discussion

in China. What are you going to do about the Chinese housing boom that's come up with all of the people borrowing to buy a real estate on credit. And because everything has to be couched in terms of Marxist capital there, because they say that there are Marxist state David Harvey said, well, you know Marks more than Volume one of Capital, which is all about labor and UH, employee employees working for their employers their volumes two and three.

In Capital, Volume three, Mark talks about how debt grows by its own purely mathematical laws which have nothing to do with the economic rate of growth. UH. The financial system is wrapped around UH the economy as a whole and really is independent from capitalism. It existed long before capitalism. Uh, and probably and obviously is existing after capitalism In China, they did not seem very interested in the lend of approach at all. In fact, we could see that it

made them feel very uncomfortable to talk about that. So I think the people who are realizing that something has to be done about that are mainly financial. They're mainly in Wall Street. For years I worked with Chase Manhattan is our balance of payments economists, And it was the banks that saw, well, wait a minute, how much can a third world country afford to pay? How much can such and such an industry afford to pay? The banks know that many sectors can't pay. The rest of the

economy isn't looking at this because there's an assumption. Like you said that, the assumption is that anybody can pay if they just cut back on they're spending enough. But that's not the case. Uh. You mentioned student loans, and certainly many people think, well, I really straight by to pay my student loans. Why would other student loans be forgiven? Well, the answer is simple. If you were able to straight

by and pay your student loans, good for you. You were able to survive most of the people who don't pay their student loans are not paying because they're going to the movies, or they're gambling, or they're consuming more.

They're paying because they really don't have the money to do what you did to to scrape and pay, especially minorities, so have gone to junk colleges, the sort of private colleges that say they're going to get them a job and manual labor some kind of technology that really doesn't work. There are many people stuck with loans that they're unable to pay. And if they do pay, it suppose that all the people student loans now actually have to pay

the student loans. If they then they're not going to have enough money to take out a mortgage to buy a home of their own uh and form a family. UH. They're going to have to live with their parents. UH. They get married, what are the children going to move in with the wife? And kids going to move in with their parents? The having to pay the student loan crowds out the ability to go to mortgage loan to

take out other loans you need. And then of course you have the medical UH debt that is probably the maiden source of bankruptcy for many many people, you get sick, you go into the hospital, or even if you get tested, you're you're broke. And if the Federal Reserve is direct when it said that half the Americans cannot raise four hundred dollars in an emergency, and it costs uh that

much just to have a COVID test. UH, And it costs maybe two thousand dollars or more if you go in and just to go and be admitted to a hospital. You can imagine the devastation that this causes to people that UH, not paying a debt is not a matter

of choice. It's a matter of the money, isn't there Michael, I want to go back to something you said, which is just that you know, you could look at the current situation in which all these different entities, whether it's restaurants, whether it's museums, whether it's the New York City Transit Authority, UM, they all owe a lot of money. And there are

sort of two different paths we could take. We could cancel all the debt or or some level of it canceled debt, or you have the government print a lot of money and UM sort of allow people just give it to people to make them whole. And you also said they're going to sort of back to the ancient times that UM, a lot of the debt that was in fact canceled was tax debt, so public debt essentially that the cost of the debt cancelation would essentially be

on the public sector balance sheet. And so I'm curious whether functionally speaking, you know, talking about debt cancelation in terms of ripping it up sounds pretty radical. Talking about massive fiscal aid UM so that all these different entities could pay their bills during the crisis sounds a little less radical. But I'm curious if functionally they're kind of

the same thing. This idea that what UM sort of in the ancient days was putting the you know, having the public balance sheet be the bearer of the losses. It's more translatable to aggressive fiscal expansion as opposed to pure debt ripping up per se. That happens very well. Uh. China is able to cope with this quite well because it's a monetary policy. It's central bank is part of the government. Uh. There are many companies in China for the last ten years are longer that have not been

able to pay the debt. What do you do when a a industrial company can't pay the debt. Well, in UH, in the West, if a company can't pay a debt, it goes bankrupt and it's sold to the highest bidder, and it could be a foreign buyer, and UH it closes down and the workers are unemployed. But what the Bank of China does. The government simply keeps creating the credit and UH lending the bank the money that the corporation that's the debt or the money now here that

the company would be called a zombie corporation. But China will just keep lending it the money. And then because it creates the money, it'll write it, write it off. It's easy to cancel the debts when the debts you're canceling or owe to yourself. Honorabi could cancel the debts because most of the debts ultimately were over to the palace. He didn't have to deal with a independent financial class that said, wait a minute, we're going to lose if

you cancel the debts. We're going to overthrow you if you tried to do that. He was canceling debts to themselves. The Roman emperors were canceling debts owed to themselves, not to the wealthy Romans now in China is canceling it will because China's government provides the credit. It premises that finance and banking should be a public utility. It should not be privatized. And the advantage of having a banking is a public utility, or like operating the Federal Reserve

here is a public utility. Is you can create the money. You can lend to keep a restaurant afloat, or a museum afloat, or a city UH and state afloat, and then you can simply wipe out the debt and you're only canceling the debt to yourself. You're not threatening to take it away from any banker or a bond holder or a stockholder. So by making finance a public utility, or at least making the credit emergency credit public utility, UH, you create the credit and then you say, okay, we've

provided you the credit. And when we provide your credit in a shutdown, this is not inflationary. I think Germany is paying its labor of the normal wage income. The Federal Reserve could create enough credit to keep most employees have lost the jobs able to break even. Most restaurants and most renters who are unable to do business, they will owe a debt to the Federal Reserve that will

continue to keep them afloat. And then when the crisis is over and the vaccine is in and life goes back to normal, the federals say, Okay, we've provided the credit. Now we can just wipe it out and life can go back to normal. The idea is to restore the status quote on ANTI. The idea is to make the economy is workable as it was before the crisis, since we were touching on fiscal stimulus as as one way to keeping the economy afloat and making sure that there

are jobs available for people. I'm Joe is going to make fun of me for doing this, but I'm just gonna go out, go ahead and ask you, what do you think about m MT Modern monetary theory. It feels

like it's maybe one version of what you're saying. And I know, um, I guess you would have worked with Stephanie Kelton when she was at the University of Missouri Kansas City with you, what do you think about that policy and how much difference or daylight is there between MMT and its policy recommendations and the kind of depth forgiveness that you are discussing and advocating. Well, I was one of the developers of m m T uh in the late nine things seventies, UH, and Stephanie was our

department chairman there. We were all brought to Kansas City together in order to popularize m m D and Stephanie and I have gone around the world together giving lectures on it. She usually gives the introductory lecture about how running a deficit uh pumps money into the economy, and then I follow up with a second and the economy needs to be pumped up or el will have austerity. And then I give the lecture to say, well, the

economy is really two sectors. There's the financial sector finance, insurance, and real estate, the property sector on the one hand, and then there's the production and consumption sector on the other. Now, most MMT people talk about the government printing money into the regular economy of production and consumption people who work

and produce things. But you've just seen uh. The main practitioner of m m T, of course is Donald Trump, and uh he just did uh the enormous uh ten trillion U MMT example, but he didn't put He only put two trillion of that into the economy. The rest of the money went into the stock market, in the bond market. So the question is who are you going

to run m m T four. Are you going to run it, uh in just in order to pump up the stock and bond prices and real estate prices and to keep the death system in place, or are you going to pump it into the economy and let the economy survive. Something has to give either the either the economy loses or the financial sector loses. And that really is UH the debate an m m T. Mr Trump didn't call what he was doing MMT, but it's exactly what mm T is. Creating the government just simply creating

the credit. That's what quantitative easing is. Uh. That was all m MT, but it was MMT going into the stock market. And most of us in Kansas City are trying to upgrade prosperity for the economy as a whole, for labor and industry and agriculture, not simply high asset prices.

So something you brought up and I thought it was interesting the way you framed it in comparison with China, and then what you identified right there, you know, thinking about MMT as a political project, or think about your own work, of course as a political project, how much can you ide defy it as essentially what you said of no longer having the financial sector be this sort of third entity out there. You have the sort of

productive capacity of the economy, you have the government. And in China, as you described it, the sort of there isn't much daylight between the financial sector and the government, whereas in the US the financial sector is its own distinct set of private interests that's distinct from the government and distinct distinct from actual productive capacity. So how much is in your view the solution essentially collapsing the financial sector so that it's just it can no longer represent

its own interests distinct from everything else. Well, what are its interests? I think you can say that a lot of the problems that America's UH been in slowing them for the last ten years, really slowing down since two thousand nine, has been financialization. And the problem is that the financial sector UH the and create credit for the reasons that m m T would, The financial sector creates

credit against assets against collateral. Eight of bank loans are for real estate, and so as the credit standards have been loosened for real estate, banks will lend more and more and more money against any given UH piece of real estate. And the effect of financialization has been to increase to inflate real estate prices. Banks will lend money against stocks and bonds and UH they'll learn money to finance corporate takeovers. And they also lend money, of course

for education. And just as a house is worth whatever a bank will lend against it for the new buyer, and education is going to be worth whatever a bank is going to lend to a student to buy an education. And as banks have made loans of government guarantees with no risk, they've made loans without taking into account the aility to pay. When I went into Wall Street sixty years ago, the first question any banker would ask is can the borrower pay well? Right now, that's not asked anymore.

Now that the f h A is guaranteeing mortgages and the student loan are guaranteed, banks don't have to worry about repayment. So they're just creating as much credit as they can without reference to the ability to pay. The government isn't looking at the ability to pay the f h A. Now, let's mortgages be UH extended up to the point where they absorbent of the borrower's income to

pay the mortgage that will be guaranteed. Will imagine if the government if you're paying forty three if your income to pay your mortgage, you're paying taxes maybe a ten, or you're paying health insurance, you're paying f I, your Social Security. Withholding, there's been less and less and less income available to spend on goods services because more and more American income is being used to pay the financial sector and its associated real estate and UH insurance sector.

So as more money is paid to the financial sector, is debts grow. Same thing for corporations. As corporations have to pay more money to the bondholders UH and dividends and the banks, there's less and less for new capital investment in the economy's drinking, largely because there's been a diversion of income away from the real economy, the production and consumption economy, to the financial sector. So the financial sector in the United States, let's face it, has become dysfunctional.

And I think almost every financial manager that I know realizes that the sector is become dysfunctional, and they're saying, this is a hell of a way to make a living. Uh. I'm going to play by the rules of the game, but I would be nice if the rules of the game were for me to be a banker and I was actually helping the economy instead of just diverting income

from the economy into the banking system. So somehow the financial system has to be restructured so it can cope with a coronavirus, chroma or act of God like we're having now and be able to restore normalcy. And I think the only way to do it UH would be UH. China has shown the most successful way of doing it.

There was hardly any interruption of activity there. There's a very quick recovery, and it's because of the way that China has structured financial sector under public direction instead of leaving it to individual banks for clothes, take over real estate, grad factories and UH create UH make the economy look like Greece. UM. I have a related question, but I think when when most people think about m MT and policy prescriptions, they think about things like a job scare

and tee or maybe a green new deal. But you just mentioned this idea of Trump as an m m T or himself spending lots of money, but maybe spending it in the wrong way. How useful is an economic theory that can lead to such different policy outcomes. The important thing about m m T is you realize that money doesn't Governments don't have to borrow to spend money. Governments can create the money. Uh. They don't have to borrow from a bank or a bond holder to lend out.

They can. The effect of borrowing from a bond holder uh and and creating money is identical. If a central bank will print the money to spend them to the economy. It's no more inflationary than borrowing from a bondholder because the bond holder do what a bank does. Simply take decide, okay, I'm not going to spend money on other financial assets. A bond holder is not going to up back consumption spending in order to lend money to the government. Definitely.

An m m T S point is that government money creation is no more inflationary than borrowing, and you don't have to borrow and pay interest to an independent financial sector where you're limited to what bond holders will let you do. You can simply print the money, and by printing it you save the amount of taxes that have to go to paying interest. You would save h the amount of taxes that have to go to advertise and

pay down the debt. UH. Certainly for states and local governments here it would be the probably the only way the states and local governments can avoid drastic downsizing is government lending to them, not going to private bond holders.

Because in New York, UH, if New York State borrows from private bond holders, the bond holders will say, well, you'll have to balance the budget by selling off proper or cutting back public services, less transportation, and with less transportation, people are just going to begin moving out of out of New York. It'll become not as livable as it

used to be. So uh that that's the main thing that m MT says that there are two ways of creating of financing governments printing it borrowing, and the effect on inflation is identical. I want to ask you, I want to go back to this situation in China again

real quickly. We actually uh several months ago, we actually talked to our Bloomberg, one of our economists here at Bloomberg Tom Orlick, who is a new book, Uh, China The Bubble That Never Pops, And we talked about some of this, which is that due to the structure of finance in China, um that all of this sort of the debt bubble is about to explode fearst they're misguided,

there's sort of based on a misunderstanding. Nonetheless, I'm curious what you see as the costs of a system like that that because some critics would look at it and say, okay, yes, you could certainly keep companies a lot. I've indefinitely, but what about corruption? What about productivity? What about the sort of what in the West we might say as well, what about the disciplining effect of the market by having by not allowing you know, companies to roll over their debts? Uh?

And definitely do you see costs associated with the Chinese system whereby okay, uh, debts and bankruptcies aren't as much of an issue necessarily or systemic, But what are but in terms of um, you know, keeping all these companies alive with sort of ongoing access to credit. Well, I think the recent weeks newspapers have shown there's just as much corruption in the United States. Uh financial system, Uh, as there is in China. I mean, look at the Deutsche Bank and look at all the banks that have

been uh uh involved, Um there are. Ten years ago, corruption was a very serious problem in China, and UH when I had lecture there to students, there was you could see the idealism I hadn't in any other country, an idea that they can really they'll graduate, they'll go into government, They're going to clean up corruption. Uh. And really they felt it was their country and they had a chance of actually shaping the economy because it was

something entirely new. Well, the problem ten years later that we can see is a cleaning up corruption does entail a lot of government oversight into the economy. And uh some of the cost of cleaning up corruption is a very heavily regulated economy. They're trying to get rid of corruption now and that's there. Uh from what I what I'm told by Chinese businessmen, it seems to be working uh quite well, certainly compared to what it was before. But getting back to the other question, UH, what is

the cost? Begin by what the benefit? The benefit is When there's an economic downturn like a coronavirus. The company did not go out of business layoff its employees to be sold to foreign buyers. It was the economy was able to maintain stability. So the cost really is UH money is cost free if the government creates it. Borrowing is not cost free, but money creating has cost free as long as it's not inflationary. And China does not

create money in an inflationary way. It creates money simply to stabilize UH employment in a way that has not caused any more inflation there than it would here. If New York City in New York State received money creation to just continue up, continue operation, that wouldn't inflate prices at all. In fact, what we're in now is that deflation. If we don't write down the debts, then the debt

service is going to cause a deflation of prices. That's the real problem today, not inflation, but deflation, as people can can't afford to buy goods and services and have to cut back their family budget and by less and less to UH employ fewer and fewer people producing and selling goods and services, fewer restaurants in business, and and so on. So if if you look ahead to the future.

And you know, if you recognize that there may be some desirable aspects of Chinese style command economy as you're describing, or at least one where the government has a little bit more influence over the financial industry. Do you see the US becoming more like the Chinese system? Or alternatively, do you see China becoming more like the U S system because of global competition. I'd be curious to get your views if you had to choose China. China certainly

is not going to privatize banking. It is absolutely drawing the line. It is not going to let banking be private because credit is the main public utility. UH An economy is basically plan there was credit system, Who's going to supply the credit? UH America is turning into a centrally planned economy, not planned by Washington, but planned by Wall Street, just like UH European countries are planned by

their financial sector. And the problem is who's going to do the planning and what is their planning going to be for. Is it going to be to make the economy grow or is it going to get rich off the economy by shrinking the economy? UH that the whole question I don't see the United States getting more like China, despite uh MMTV used modestly. I I see the United States getting more like Greece. Uh in England, austerity, more and more austerity, a slow crash, a slow debt deflation.

And uh, that's what I've outlined in my book Killing the Host. I described debt deflation, which was discussed in the nineteen thirties when it was actually happening and when people had to pay their debts and couldn't have had to buy goods and services. What happened in the Great Depression is happening to get again today, but it's happening

in slow motion. It's interesting the Grease comparison, because I remember the Grease comparisons like in eleven and people would say, oh, the U. S has all this national debt, we're becoming like Greece. But you're using it in a different way, not that uh, we're piling on all this debt, but that we're unwilling to spend and going into this sort of forced austerity mode. And of course we might see it here in New York City. Without further aid, I'm

gonna ask you a bigger question, you know. On episode after episode, interview after interview that Tracy and I do on this podcast, this sort of idea that like we've had this like forty year run in a way of the existing model seems to come up, and it comes up when we talked to economists, we recently talked to Paul McCulley a few others, this idea that really over those at last forty years, we've crystallized this idea of

the sort of financialized, asset driven economy. And I'm curious whether you um sort of see the same day as roughly forty years ago, either some turning point or some great acceleration towards now. And I'm curious also it's like, is coronavirus is this crisis a turning point for that or is it just in your view, just going to sort of keep accelerating on the existing trajectory. Well Night certainly was a turning point. You had Margaret Thatcher in

England and Ronald Reagan in the United States. The whole tax system was shifted to favor real estate UH and the financial system, not the real economy. And then you had the shift of American corporate employment to wait low wage countries in Asia so yes, nineteen eighty was the turning point, and all of the trends made that from World War two UH to nine eight for more and

more prosperity for labor were suddenly reversed. In retrospect, the nineteen seventies looked like a golden age now, but since nineteen eighty, real wages haven't really gone up very much. Death has gone way way up. So you've had a depth driven economy that leverage to economy. You had the corporate takeover UH and corporate rating movement again in the nineteen eighties. UH. You had the as interest rates came

down from my former boss that chased both workers. In nineteen eighty, you've had You had the greatest bond market boom in history, bond prices sword, stock market sword. You had. You created huge financial wealth without creating actual industrial and consumer wealth. So you had a shift of the beneficiaries of the system from labor and business to UH, finance, the Wall Street, the real estate sector, and the insurance sector.

So the whole economy changed nineteen eighty, and it's changed in a way that has left us now depth and the economy's run up as much dead as it can it can't really push up anymore, although the Federal Reserve can certainly keep pushing up the stock market, but it is not pushing up the economy the way it's going, and so I don't see the economy as recovering. The coronavirus is simply leftist idling at a low level, and I don't see any way of getting out of the

level as long as we have to pay the debt legacy. Uh, the arrears that have all mounted up and are just a burden on families, on businesses, uh, and on states and localities. They can't carry it. And UH it's crunch time. And unless you alleviate the depth problem, you're going to be in a slow new depression. It's always a good podcast when you can go from Hammurabi to Mark Margaret Thatcher. I think all right, Professor Hudson, thank you so much

for joining us. I really enjoyed that conversation. Thank you. Yeah, that was great to be here for having so Joe, that was a wide ranging conversation, it was, and you know, of course it did touch on a lot of themes that we've discussed lately. But a I liked um. I liked his sort of obviously historical perspective, that's a big

part of what he's known for. But I thought the comparisons to the sort of Chinese model were pretty interesting, and it's sort of helped me crystallize, like, sort of what are some of the tensions here, perhaps about going at things in a different way, whether it's through much more um fiscal fiscal authorities, central realization of credit and spending, sort of a sort of useful, useful current counterpoint I think,

to how things work out. Yeah, and it actually reminded me quite a bit of the episode we recorded with Victor Schutz a few months Definitely, I think he made similar points about what works in the Chinese model and this idea of the US perhaps moving closer to it.

There is another thing that I was thinking about, which is Professor Hudson's point about when something like this happens in the economy, you know, an act of God, as you put it, you know there's going to be pain, and the policy prescription is basically all about finding who can bear that pain most efficiently, or who can bear

it with minimum disruption to the economy. And you know, as he put it, it's usually the creditors they have lots of money, they can do this, or they could be back stopped by the government, which has the balance sheet to endure the pain. Yeah, I mean it's right exactly. I mean it's almost like you could say that initially in the crisis, that sort of March and April consensus is like, nobody should have to endure the pain, right,

that this was like a true act of God. It was extraordinary, and we're going to get things back to normal. No one should be permanently put out of work, no one should have to lose their businesses. And we actually did a lot of spending that was on a scale and sort of monot say generosity, but maybe generosity is

the word that was sort of unparalleled throughout history. I mean, the fact that Unemployment Insurance um I was supposed to basically be a complete replacement for the medium worker, fact that we had no strings attached, almost paral protection program,

money for small businesses and so forth. But you know, we did lose that appetite pretty quickly, and it's like, okay, even though the fact that public health authorities failed to contain the virus or people's behavior failed to a few months later is like, right, you're kind of out of luck. Get back to work, find a job. Do we have to do? It's like we didn't that that appetude really

did not last very long in this country. Yeah. Well, I mean not just that, but a lot of the forbearance programs that were either past or the ones that were discussed, like the payroll tax cut, all of those

are still predicated on people eventually paying that money back. So, for instance, in the housing market, I think most of the forbearance programs are renewed every three months, So you can kind of see this wall of forbearance maturities coming every three months, and at some point you get the sense that they're not going to be rolled over, and you know, all of a sudden, the bills are going to come do again, and you're probably going to have

a rerun of the economic pain that we experienced in March.

The other thing to think about, it's not something that we really went into, but you know, there's a lot of like talk about the future of X, the future of cities, the future of offices, the future of working from home, the future of e commerce and stuff like that, and you know, all that's important, but there is a sort of sinister way to think about that, which is because remember, you know, something that Professor Hudson said is like, you know, the idea is like to just go back

to the previous state. And I forget the word he cited, um, but it's like, no, the purpose of a forgiveness and a blank slate is just just go back to the pre the pre normal. And if you're sort of preoccupied with thinking about the future of X and how will coronavirus change everything, which there were like tons of articles about for the last six months, it almost like provides a pretext in a way for not doing the clean slate.

In other words, it's like, well, we can't just go back to the old normal and we can't just wipe everything out because everything is going to change post coronavirus, and maybe something's will change. But you can sort of see how that rhetoric becomes a sort of excuse for

not making everyone whole. I feel like there's a tension there because on the one hand, someone like Michael Hudson is very clear that the existing system is flawed, But on the other hand, the whole point of the debt relief, as you put it, is that blank slate to go back to where we were before. So there's a tension between wanting to fix the system and using a big moment of change to do so, and doing maybe what might be most economically expedient and just going back to

the system as it was before. Yeah, no, no easy, no easy. Uh. Answers to resolving that and that always sort of is the challenge post to sort of crisis policy makers of how do you fix the system and repair system at the same time, they're kind of it's kind of different at the same time. Yeah, under immense time pressure as well. Well, this is why we aren't policymakers. So we just talked about it, all right, Uh, shall we leave it there? Let's leave it there. This has

been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Chill I Send though You can follow me on Twitter at the Stalwart. Follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of a podcast, Francesca Levie at Francesco Today, and check out all of our podcasts under the handle at podcasts. Thanks for listening,