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US Economy – Surprisingly Resilient or Potemkin Village?
It looks very bad. It never really recovered from the Obama depression that begun in 2009 when the banks were bailed out and all of the debts were kept on the book. The debt has been growing very rapidly because of the Federal Reserve’s 14 years of zero interest rates that flooded the economy with money, which means debt, to try to prop up the stock market and the real estate market. The debt has grown much higher than it was way back in 2008, when you had the junk mortgage crisis. The arrears and defaults are rising for student loans, for automobile loans, for credit card loans. Commercial property is not only defaulting, but large companies are simply walking away from their office buildings. Many banks are in the same position that Silicon Valley Bank was in. There’s almost a negative equity because the mortgage holdings and their long-term bond holdings market value has gone way down below what they owe their depositors. As long as depositors don’t take their money out, banks don’t have to report how much they’ve lost and how much their acquisition price of mortgages and stocks exceeds the actual market price today. But Americans are pulling their money out of banks because banks don’t pay very much interest. When you have the government paying 4 to 5% on your money, why would you leave your money in banks that are paying maybe 0.2%? But as banks try to prevent the withdrawals, they’re raising the rates they pay depositors and all of a sudden their earnings are way down. So the economy is being squeezed financially. So, I just want to try and clarify this for our readers. In 2008, you had the big housing bubble explode. Based on what you’re telling me right now, this time around, we have multiple bubbles and multiple industries starting to come apart at the seams right now. Yes, that’s one way to put it. There’s not the fraud that there was in 2008. That was really a bank fraud crisis, which is why they called it ‘junk mortgages’ and why they coined new terms for the English language like ‘NINJA’, meaning ‘no income, no job, no assets’. We all know that the government can pay its bills. And we know that for home mortgages, the real estate prices have gone way up, that’s squeezing labor, and that they can pay the banks. But the problem is that with the interest rates all of a sudden going way up, the higher the interest rate is, the lower the market value of an asset, a bond or a stock or a real estate mortgage is. What you’re having now is just mismanagement by the Federal Reserve. I guess that really does beg the question because as I mentioned in my first question, the Biden administration says that the US economy is showing incredible resilience. They say that, “Look at the job numbers. We are creating so many new employment opportunities. We’re bringing jobs back to America.” What do you think they’re getting wrong? Why aren’t things as good as they say they are? ![]() I want to touch a bit more on an idea that you mentioned that a lot of the jobs that are being created are in sectors like the military industrial complex, which are not necessarily the most economically productive sectors. Could you elaborate on that idea? Where are we seeing the job growth and to what extent are these sectors conducive to long-term economic growth and development? It’s hard to see exactly what the composition of the labor force [is] right now, but it’s not in industry and manufacturing. America’s already moved its manufacturing and industrial base off offshore. So, yes, some of them are in military. And what the military industrial complex produces is campaign contributions for the congressmen who are supporting the NATO’s war in the Ukraine and the China Sea, but there’s not really much activity of the kind that made America strong in the early 20th century. It’s not really industrial activity. There is a construction uptick. I’d say it’s construction and public entertainment, restaurants, contact with people, the sectors that were closed down during COVID. How is that possible since Biden has touted reshoring as one of the central platforms of his presidency? He says, “We’re going to bring jobs back to America. We’re going to be manufacturing semiconductors, microchips and other strategically important technologies here at home.” Isn’t that supposed to be happening right now? You can’t just go out on the street and hire people to make microchips. I think there’s a new factory being made for them that cost over $10 billion. And that factory by a Taiwanese microchip company is going to take quite a few years to make. There’s no way that America can become an industrial power again. There is no way that it can restore its industry unless it writes down the enormous amount of debt and housing prices and medical insurance that the American wage earner asked to make. Just imagine this. If you were to give wage earners everything they buy at the stores for nothing, give them all the food, all the clothing, all of the transportation, everything they need. They still couldn’t compete with foreign workers because they have to pay so much money on debt service, on housing, which takes between 30 and 40% of their income. They have to have medical care. That’s 18% of America’s GDP, higher than any other country. So the money that is paid to the financial, insurance and real estate sector in America is so large that there’s no way that America can be competitive with other countries. So, what the Biden administration is trying to do is saying, “Well, okay, I understand that we can’t compete on prices. I understand that our labor cannot compete with foreign labor anywhere near it, but if we can militarily tell everybody not to go China, Russia, India, Asia and other countries what they need to make wafers, chips, and information technology, then they’ll have to buy everything here from high cost. We can charge monopoly prices and our prices will be so high that we can basically impoverish the rest of the world by controlling everything that they really need to work. We can control their energy, we can control their oil, we can control their computers by sanctions against China, Russia, Iran, Venezuela, any country that does not agree to let us control their economy and buy control of it.” Any country that doesn’t agree to let America produce all of the monopoly goods that are most profitable, will be treated like we’ve treated Ukraine.” You know, this is fascinating because when we generally talk about sanctions, we think of them first and foremost as geopolitical pulls of pressure. That the United States uses sanctions as an alternative to military force. But what I’m hearing from you is that for the United States sanctions has not only become a political tool, but an economic necessity as well. Well, that’s what the sanctions are. They’re intended to be an economic tool of coercion. Sanctions are a form of coercion, saying, “If you can depend on us for your food, for your oil, and we can turn off your oil, then you’ll be freezing in the dark. If we can block food to you, then you can’t afford to eat. If we can get you high enough and debt to us that all of your export surplus has to go to paying the money that the IMF and the World Bank and other foreigners have lent you, then you’re totally dependent on [us].” And that’s what America’s strategy is — to make other countries dependent on it so that they don’t have a choice. For America, a free market is to take away the economic freedom of every other country and make that freedom completely dependent on the US. The United States wants to have the freedom to tell other countries what to buy, what to produce, what to import, what not to export. It’s a one sided asymmetrical freedom, and it has nothing to do with the ‘free market’ part of talk that you hear out of the speechwriters for Mr. Biden. I mean, that’s the goal, right? But, I’m recording this from Moscow, Russia, and since the start of the Ukraine conflict, I’ve had an opportunity to travel to several different cities across Russia. I have to admit, I’m pretty surprised by how little life has changed in Russia as a result of sanctions. I had an opportunity to talk to business people in different industries and they’re also pretty surprised at how quickly Russian economy has adapted to sanctions. So I guess from your point of view, are sanctions still the effective tool that it once was or has it lost its edge?
You provided a really in-depth analysis of Russia, but could you elaborate a little bit more on China? What do you think has been the effect of Trump’s trade war and more recently, Biden’s various tax restrictions against the Chinese economy. Will this hurt Beijing or actually empower Beijing? Well, China has a great benefit that the Western countries don’t — it treats money as a public utility. Its banking is a state bank, not a private banking system. In America, the private banks lend money to the financial sector to make money in the stock market, in the bond market by buying stocks and bonds already issued, and in the real estate market by buying homes and commercial real estate that’s been built long ago. Banks in the West do not lend money to build factories or machinery. They don’t lend money to set up business. They leave that to the stock market, basically, but not the banks. China uses its Bank of China, its government central bank, to actually spend money and provide credit to the real economy, to build new real estate, to finance new industrial producers, new manufacturing facilities. That’s the great advantage of China. To the extent that America tries to produce sanctions on China, the effect will be the same as producing sanctions on any other country. They’ll force the country being sanctioned to replace imports with its domestic production to do import substitution. You can be sure that that’s what China is doing right now, especially with the information technology that America is concentrating its sanctions on. If you look at the number of patents that are made in information technology, China’s way ahead of every other country in this. They’re producing an enormous educated engineering class that is not being produced in the United States or the West. If you are a leading student and you want to make money in the West, you’ll go into finance. And finance has the effect of destroying industry, not helping it. Whereas China is sending its graduates into engineering and the computer technology and the science primarily not into making money by financial maneuvering and getting the rest of the economy into debt to yourself. Michael, I want to return to the issue of the US debt, because a debt ceiling deal was recently adopted after weeks of very tense negotiations. There were fears of a default. Everyone was panicking, but now it seems like things have calmed down. Do you expect the debt ceiling deal to help stabilize the American economy or will it only make things worse in the long-run?
You know, it’s quite interesting because I’m old enough to remember Obama-Biden back in 2008-2012, and they were talking about that, “we as Democrats support a redistribution of wealth. And at the time, it was assumed that this redistribution of wealth would be from upper income to lower income brackets. But now it seems that the redistribution of wealth is going the other way around, taking from the poor to give to the rich. That’s what politics is all about in America. You can look at the donors. If you look at the donor class, who are the donors? The donors are the wealthy, the beneficiaries of government policy. But if we take a look at the national debt, for example, the US federal government budget deficit hit $1.1 trillion in the first half of this fiscal year. The Congressional Budget Office predicts that this problem is only going to get worse over the next decade as interest rates go up. I guess this begs the question: how sustainable is the US federal deficit and how much longer can the US keep up the seemingly unlimited spending that we’ve become accustomed to? To an infinite amount as long as the debt is in its own currency, and as long as you print the currency, you can print however much you want. You’ll never default because you can just create the credit. That’s what the Federal Reserve did with its zero interest rate policy. It distorts the economy, and the economy can shrink and be torn apart, but the government can always pay its debt by simply printing the money. The problem that is tearing the American economy apart is not the government debt — it’s the private debt that is leading to a default. When you default on your debt, you forfeit you property to the creditors. So, what you’re seeing now is a large scale transfer of property, a transfer of real estate, a transfer of cars that people had bought, but couldn’t keep up the payments on, a transfer of income from the 90% to the 10%. That’s private debt. That’s where the real problem is. And as long as the television programs can keep talking about the government debt, not the private debt, people are somehow not going to see that the problem that is tearing their own personal life apart is actually the problem that’s tearing the whole American economy apart. So would you say that the government debt is not a problem and that Americans shouldn’t really worry about that? That’s right. It’s all just a made up. When they talk about cutting back the government debt, what they mean is cutting back social services. They would like to do what Biden and Obama wanted to do after 2009. They want to cut back Social Security. They want to privatize it as if that will somehow solve the problem. They want to cut back medical care. They want to cut back most social programs so that the money that the government does spend will be exclusively to support the financial sector, the military sector, the insurance sector, and the real estate sector. That’s where the property owning classes, the ‘rentier economy’, the rent recipients who make money from stocks and bonds and real estate and monopolies. The government will help the top 1% at the cost of the 99%, but it need to pretend that it’s forced to do this because there’s a government deficit. The only government spending they really want to cut back of the spending on the 90%. They want to cut back Social Security, Medicare, local social spending, support for local cities and states. Everything that made America more democratic and strong in the past. But how much longer can the US just keep printing money in order to service this government deficits? Is this really sustainable indefinitely? Well, what usually stops a situation like that is a political revolution. The answer is it’s sustainable until people fight back, until there is a revolution. But as long as you have a political system where you have only two parties that are really the same party, and as long as you have the Democrats as the only alternative to the Republican Party, it can go on indefinitely because people will not have a political alternative to vote for. There is no alternative. You’re going to have elections bouncing back and forth, from Republicans to Democrats to back. And yet neither of them are an alternative to the whole financialization of the economy that’s been taking place really since World War Two and especially since the 1980s. So, America is ending up looking like England under Margaret Thatcher and even worse, Labor Party that followed her. And why is financialization of the economy a bad thing? I’m in Russia but I was born and raised in the United States. I remember all my teachers at school were telling us students — and we asked them, “Why are all these factories going to China? Isn’t that a bad thing? Isn’t that bad for the US economically in the long-run?” And they told us, “No, you’re too young. You don’t understand. They’re taking that blue collar jobs while we’re getting to more advanced white collar jobs in finance and technology.” What’s the problem with that sort of model? Why can’t the United States just have an economy that’s built mostly on white collar professionals and offices?
Michael, I want to talk to you about the US dollar, because over the past year we see more and more countries start to trade with alternative currency in the trade settlements. And we are also seeing ever greater talk about establishing a BRICS currency or some other alternative as a competitor to the US dollar. What is your assessment of the current state of the US dollar? What’s going on here? Why are so many countries looking for options to dump the dollar?
You provided a very in-depth, comprehensive look of how dollarization is happening and why it’s happening. But I want to play devil’s advocate for a moment, because the argument that you hear from mainstream economists like Paul Krugman in The New York Times and other mainstream outlets is that although there is some incentive for countries to move away from the dollar, there isn’t really a viable alternative at the moment, and that the countries of BRICS that, although they may have a common interest in forming a BRICS currency, an alternative to the dollar, these economies are to different too varied in order to be able to join forces and form their own alternative currency. What do you say to that? How serious are the obstacles to de-dollarization? Can they be overcome? Well, let’s look at what happened with Colonel Gaddafi, the head of Libya. Gaddafi said we want a gold based currency for Africa. And so instead of holding dollars, he bought gold. So NATO bombed the country to smithereens, caught Colonel Gaddafi, tortured him to death and grabbed the gold from the central bank and nobody knows where it disappeared to. But it seems to have disappeared into the State Department to play dirty tricks throughout the world. So Krugman advocates militarily forcing and destroying any country that wants an alternative to the dollar. He’s a hawk and basically says, “do it by force”. And in his notorious article in The New York Times, he said, “Well, everybody is so used to dealing the dollar, they can’t find an alternative.” Well, almost everybody with a broader mind can find an alternative. But if you can have the other central bankers think in the tunnel vision that Mr. Krugman was educated in and share this tunnel vision to say there is no alternative to the dollar, then they’re not going to think of how to make an alternative to the dollar. Well, most of my books are all about how to make an alternative to the dollar and the interviews that I’m doing, and my colleagues and I are spending our full time writing. We write for the Valdai Club in Russia. I write for the Chinese Academy of Social Sciences. We’re writing for other countries to help create an alternative to the dollar because we don’t want to see the world militarized in the way that the US is militarizing it. We want to see a resumption of the economic potential that the world seemed to have leading up to World War One before the whole economy got derailed a century ago. So, de-dollarization is possible. It’s mainly a question of political will. Whether the countries interested in the process are willing to undertake the necessary policy changes in order to make it a reality. This is exactly right. And this is why the United States spends so much money on non-governmental organizations and think tanks in Europe, Russia, China, the Near East, all to try to prevent, to say it’s impossible to have an alternative to the US dollar. It’s impossible to change the world. Let’s just keep doing what we’re doing now and to promote people who are very loyal to the United States, like the politicians who are in charge of Europe, von der Leyen, to promote ‘IMF thinking’ where, if countries can’t repay their foreign debt, they have to impose austerity and lower their wage levels and devalue the currency, meaning the price of that their labor exchange’s for. The United States is about to do to itself what it’s been doing through the IMF to third world countries and Global South countries. It’s going to devalue the dollar, going down. And when the dollar goes down in price against the other currencies that are not waging war and spending their money abroad, then it’ll take more and more dollars to buy the imported consumer goods that you’re now buying from China or other Asian countries. You’re going to have the prices going way, way up in the United States without wages going up, and you’re going to have a wage squeeze, and that’s going to lead to even more debt defaults than you’re having now. So the result of lowering income for the United States when people already are spending almost all their income just to break even, just to meet their basic needs. Well, what you’re going to have is more defaults and a forfeiture of property and the degree of economic polarization in the United States, the inequality of wealth and income is going to widen even more than the amazing degree that it’s widened since the 2009. Does the Biden administration really have any instruments at its disposal other than direct military intervention to try and stop the process of de-dollarization? No, that’s all that America has now. It’s muscle-bound because for years America has put all of its money into atomic war. So America can’t reintroduce a draft and have an army invading another country because you’d have student protests like you had in the Vietnam War. So all that America really has to fight with militarily is atom bombs. Unless it can get other countries to commit suicide, like the Ukrainians are doing after the American coup d’etat of 2015. But it looks like it’s going to have difficulty having other countries follow Ukraine. And I don’t see the Taiwanese doing this, only the Japanese might be willing to do this.
Well, I’ve just written a whole book about how this occurred in ancient Roman Greece, The Collapse of Antiquity. You had the oligarchy reduced the rest of the population into debt, and as a result, the Roman citizens lost their land to the creditors, and the land was all concentrated in the hands of a creditor class. They got poorer and poorer and ended up in the Dark Ages. That’s the result. There were five centuries of attempted revolution in classical Greece and classical Rome and my book outlines how the common demand of the people in Roman Greece was number one, cancel the debts and free the bondservants, the people who have to work off the debts forever to their creditors, and redistribute the land. Everybody should have a right to housing. Housing should be a basic need and the means of self-support. Well, in antiquity, housing meant your own land where you could feed yourself, grow your own crops, and become self-sufficient. The revolution failed and when a revolution fails, you have the Dark Ages. That’s what made Western civilization different from everything that went before. Throughout the whole rest of the Near East and Asia, there were regular debt cancellations, but these were not oligarchies. You had the Near East and Asia run, essentially, there was always a king or someone like a king, and his role was to prevent an oligarchy from developing. Because if an oligarchy developed, then instead of labor being able to fight in the army to defend itself, they’d be working on the land of the oligarch. And instead of paying taxes on the grain that they would produce and sell when the harvest was end, they would pay debt service and the state wouldn’t have any tax money anymore, any revenue. If the labor were owned of the oligarchy, they wouldn’t be available to build public infrastructure, to build roads and irrigation dikes and walls and palaces and temples. So what you’re seeing today have been happening for thousands of years, and there are plenty of examples throughout history of where other countries have done just what the United States has done. If they didn’t have a debt cancellation and, it usually takes a revolution, if the revolution fails, there is a dark age. You know, ancient Rome was temporarily saved by Julius Caesar and Augustus Caesar. Do you see an ‘American Caesar’ on the horizon who could potentially take control, rid the country of oligarchs, and give it a chance of second life? Well, Caesar was assassinated because the Senate said, “We’re worried he is going to cancel the debts.” Rome had just had a whole fight against the advocates of debt cancellation, the Catiline conspiracy. Catiline had mounted a force to try to fight Rome and they were all murdered and Cicero had killed them illegally, for which reason Cicero himself was banned from Rome. But throughout history, the creditors, people who do not work for a living, who are simply inherit their money or have their money by exploiting people, are willing to fight and die for this right to fight for other people. But people actually produce the wealth. The victims are much less willing to fight militarily or by violence. And the first thing that creditors, the ruling class, do is to have a monopoly of violence. You had assassinations every single century in Rome. The advocates of debt cancellation and redistribution of land were assassinated. That’s what you seem to be facing in the United States, just as the United States has been assassinating foreign leaders for the last 75 years. African leaders, Latin American leaders, Pinochet, the man coming in and assassinating Allende. The same thing happened in Africa. Same thing has happened throughout the Near East with Gadhafi. As long as you have America saying, “We know the secret to economic stability, it’s assassinating everybody who disagrees with us and who wants independence from the United States.” As long as other countries said, “Yes, that’s what democracy is, we’re for the United States,” then they’re committing suicide and then their leaders will be killed again and again and again. That’s how the world economy is keeping equilibrium today. It’s an equilibrium trying to subject the entire world to the Dark age into which Roman Empire itself declined.
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