The Economy at the End of the World: With Michael Hudson and Ann Pettifor
Date: 7 October 2026
Speakers: Michael Hudson and Ann Pettifor
MICHAEL HUDSON
The topic that we've been assigned is to talk about the bond markets and interest rates. The big development is that there's been a transformation in who owns the government debt, and especially who owns the long-term government debt, where interest rates have been soaring for any treasury bonds of the ten to thirty year length. And especially the thirty year length has been important, because that's the length of traditional home mortgages and also many other mortgages. The whole cost price has gone up. Now, most of the discussion is how the government's going to pay all of the interest on this as if somehow this is going to necessarily mean a drain in paying to whom.
Well, the change in the ownership of U.S. government debt has been very largely to the government itself, to the Federal Reserve, which simply creates the credit for the government in exchange for holding these higher interest bonds and notes and securities. And the Federal Reserve does receive the higher interest rate payment from the government that is reported as a deficit, but then it returns all of its earnings on this to the government. That's part of the deal, the circular flow that it's made.
But I want to talk for a minute about the other investors in government debt who are not investing now and what is causing the whole dynamics to make everything going up. And the big change is that foreign governments are no longer the great source of buying U.S. Treasury bonds and government agency bonds with their foreign monetary reserves. Ever since the U.S. went off gold in 1971, foreign countries found themselves in a quandary now that they couldn't get gold for all these dollars being thrown off. Entirely, by the way, through America's foreign military spending that was responsible for the entire balance of payments deficit.
Now that they are no longer recycling all of these to the government. What are they doing ? Well, instead of buying treasury bonds, they've lost faith in the United States, to make a long story short. They're buying the currencies of other countries that they need for their own trade and investment relations, like China's RMB. And they're even buying gold. And you can see that a lot of this is a reflection of the mistrust they're having in the U.S. government, because even for the gold that they've bought, they're not only buying more gold, because what else are they going to do with the dollar inflows that they have beyond the foreign currencies—Indian rupees and Chinese currencies—that they'll hold. They're asking for their own gold reserves that they've left for decades, often since the 1930s in the United States. They're asking for that to be returned from the safe deposit in the New York Federal Reserve Bank.
ANN PETTIFOR
Just like Charles de Gaulle did in the early 1970s.
MICHAEL HUDSON
Yes, they don't trust the government for paying. And one of the catalysts of this is the problems even of government holdings, of foreign government holdings, of US government debt. The oil war has thrown everything into a crisis. And one of the victims of the oil war has been one of the largest foreign government investors of their national monetary funds in the United States, Saudi Arabia. Well, now that Saudi Arabia has been found much of its export capacity blocked by America's war against Iran and Iran's response in closing off trade through the Gulf exports of oil to the Persian Gulf, and also through the Red Sea as Saudi Arabia has mounted an attack on Yemen and is essentially trying to extend Mohammed bin Salman's control, Saudi control, over the rest of the Near East.
How are they going to finance all of their enormously expensive developments at home—these crazy overdeveloped real estate luxury properties in the middle of a desert ? Well, they wanted to begin covering what they're not able to get in oil exports anymore by selling their government securities. And apparently, it seems that the US Treasury has said, don't sell it. When we told you that a condition of letting you raise all of OPEC's prices, you have to leave your money in the United States. And don't you get it ? We're a roach motel. You can come in, but you can't go out. We're going to continue to pay you interest on your government bonds. But, you know, you can't use the principle. We're having it. We're holding it.
ANN PETTIFOR
Michael, what I'd like us to do is to bring it back, actually, from this international dimension, which you're absolutely right about, the lack of confidence in the dollar, the lack of confidence in the United States, means that there's a lack of confidence in treasury bills, essentially that's happening.
But what I want to do tonight if it's possible is to bring it back to Wall Street and what goes on there and bond traders because at the moment everybody's talking about the panic in the bond market, everyone's talking about bond sell-offs and what a chaotic and horrible thing this is. And I want to argue that blame for that rests with central bankers. And Michael, I'd really like to, with you, go back also to Paul Volcker, and to what happened in the 1970s, if I may. Because this destabilizing, this financial instability, which is partly down to these wars, is also, in my view, down to the neoliberal policies adopted by the central bank governors, by the Federal Reserve, because Kevin Walsh is threatening to raise interest rates.
And I argue that, first of all, raising interest rates at a time of financial instability is crazy, right ? When people's mortgage rates are being forced up, when there's a cost of living crisis, when job numbers are falling in the United States, when there's a general sense of insecurity, when consumer sentiment is going down the pan, this is not the moment to worsen the economic conditions by raising rates. And the central banks are hell-bent on doing that. And I want to show that the central banks really have a big, huge responsibility for the kind of instability that occurred in, for example, in the 1970s under Paul Volcker. I want to blame Paul Volcker and the Federal Reserve. No, I want to blame the Federal Reserve, should I say, for the inflation of the 1970s because they deregulated the financial system, they deregulated credit.
That's a huge volume of easy money, deregulated money with interest rates on that money allowed to rise. There was no longer regulation Q, which is like a cap on interest rates. They did away with that. And so you had central banks allowing huge quantities of money to be pumped into the system. And that's what caused the inflation of the 1970s. If you read the Daily Mail here, you'd believe that the inflation of the 1970s was caused by workers and by the fact that workers demanded better wages. Now, the workers were responding to the initiation of inflation by the central banks deregulating, by the financial system, by there being too much money, if you like, chasing too few goods and services.
So we have massive inflation. And then what does Volcker do ? He came in 1979 and there's this raging inflation throughout the United States. And it's harmful. Let's face it, it is really damaging what it's doing more than anything else. It's eroding the value of debt. And the people who own debt, who own the rentiers, the rentiers who lent money, lent money to the government and hold bonds, a bond, and that bond is valued at a certain amount. And with inflation, the relative value of that bond falls. So they hated inflation because it erodes the value of their assets.
Anyway, poor Volcker comes along at this moment and decides to hike up interest rates. And he does it. I mean, at some point in 1981 and 1982, interest rates rose from sixteen percent to twenty percent. It's called nosebleed interest rates. You know, these were incredibly painful rates of interest. And the consequence of it, as the Federal Reserve explains in its history, was a devastating level of unemployment. And the destruction of whole industries, in particular the auto industry, was very badly hurt.
And what's happening, what happened then was never really fixed, of course. And then we had the 2007-9 crisis. And exactly the same happened then. You know, central banks were allowed to squirt money around the world. You know, at any rate, they just didn't care about it. And then when a huge volume of credit became unpayable. And in particular, when they reacted by raising the cost of borrowing and the cost of capital, they raised interest rates. You know, you had this huge bubble of credit, both in 1979, also in 2000 with the dotcom crash and then an even bigger bubble in 2007. And they aim what I call a dagger of very high rates of interest at this bubble and the bubble bursts.
And we're at a point now where something similar is happening. And I want to say this about it, which is that what is the link between what's happening now, what central banks are doing now, and the rise of fascism, the rise of authoritarianism ? There's very strong links. And the links are that central banks are adopting the crazy policy that a central bank can curb inflation that's caused by bottlenecks in the Straits of Hormuz or the war in Russia, which is curtailing the amount of refined diesel and so on, they can deal with that by putting interest rates up here at home, right ? And that's crazy. All that is doing is worsening the situation. You know, people are dealing with high gas prices, high diesel prices. Now their mortgages are going through the roof. So it's a devastating state of affairs.
But what has happened through this period of easy money is that the rich who own assets have watched as money thrown at assets has inflated the value of assets and they just got richer and richer and richer. And the poor ordinary people who do not own assets who do not own their property, who are renting perhaps. Those people live on earned income, whereas the owners of assets, as you've explained, Michael, are living on unearned income, really. But that unearned income, you know, the more you say you have an asset, the more money you throw at that asset, the more money finance that is thrown at that, the greater the volume of finance through assets, the more those assets increase in value. And for those who own assets, they have become unbelievably rich thanks to easy money. Now that is about to be blown out of the water by very high rates of interest.
And my argument is that the bond traders, and this is where I want to tackle your experience, Michael, that the bond traders on Wall Street are trying to cope with the threat that central banks are now issuing. Last night, the governor of the Bank of France turned on the debt markets, turned on the people and said, you know, we're going to put up interest rates. There is going to be austerity and things are going to get worse. And that induced even more panic in the French bond markets.
And so my point is this, that this policy of easy money, which inflates the value of assets, makes the rich far richer and the poor far less rich, utterly impoverished because they don't own assets. That divide is one of the reasons behind the rage, the public rage across the world. It's almost uniform in all continents. So today we see students in France revolting, because they're students, they're not rich, they're still struggling, they're trying to get an education, to get some skills to survive. And thanks to austerity, which of course accompanies this growth in asset value wealth, thanks to austerity, that is causing them to become extraordinarily angry and to revolt, essentially.
So we see the uprisings that have come from the extreme right and now from the left, which is a response to the fact that this financial instability, these huge levels of inequality, these are the forces, these are the economic and the financial forces driving the move to fascism, it seems to me. And our central bankers are making it worse, much worse.
And I want to ask this question because, Michael, in my view, the bond markets are not as powerful as everyone pretends they are. They're holding bonds which they've purchased in the past at a low price or at a certain rate of interest. When the central bank changes the rate of interest and issues new bonds, their old bonds suddenly lose value. And so bond traders begin to panic because the yields, I mean, because of the way the bond market works, suddenly these new bonds are going to be worth more than the old bonds that they're holding. So what are they doing ? They're selling those bonds as fast as they can in order to be able to catch up with the new bonds that are going to come up. And it's that sell-off which is triggered by central banks warning of higher rates and issuing of bonds at those higher rates that I think is causing all the tumult in the bond markets today.
And I'm making this point, Michael, because I want to argue the bond markets are not that powerful. It's not the bond markets that are changing. It's not the bond markets that are threatening global stability, in my view. I mean, there's plenty of bad guys in there. I know you could tell us that. What's causing instability is a neoliberal ideology inside central banks that the only way to deal with inflation is to clobber the economy with very high rates of interest and make everybody suffer and then expect them to behave well in the process and it's just appalling economics in my view. But they get away with it because they position themselves as the good guys and the bond traders are the bad guys, as the bond traders that are causing this volatility. And I want to argue that no, it's the central banks that are causing the volatility. What do you think?
MICHAEL HUDSON
You focused on precisely the ideological problem that's at the root of this, and I want to say just a few things to put the dynamics of what you've been describing in perspective. You've just published a wonderful, long Substack article on all of this, and you cite Keynes to the point that the time to raise interest rates is to stop a boom that's turning into a bubble. You don't raise interest rates in a downturn. And yet, as you point out, let's look at what Volcker did in 1979. He carried around with him a sheet of paper always on the wage rates in the construction industry. Because the construction industry is the largest employer. That's really—the real estate sector is the largest non-financial sector in the economy, although it's part of the financial sector, actually. Well, he thought that the solution to any overheating is—you lower labor's living standards.
He was a one-man International Monetary Fund imposing on the United States the same kind of austerity that the International Monetary Fund imposes on debtor countries. He raised interest rates. And remember, he did this for the Carter administration. And Carter was behind him, one hundred percent, because it was apparent at that time in the late 1970s, what was the problem with the dollar under pressure ? Well, it was military spending. And it was also the golden age for American labor, American labor in terms of its purchasing power had the highest living standard, and had a wonderful takeoff from the end of World War II in 1945, through the 1970s. It was to be able to take out mortgages, to buy real estate. It was wonderful.
Carter wanted to stop all that. And he stopped that by encouraging deindustrialization by offshoring American industrial plants, initially to northern Mexico, the Maquiladoras, just south of the Rio Grande. That was part of Carter's policy. And Volcker's idea was, well, if you could just lower America's interest rates and wage levels, that'll make our industry more competitive abroad.
So as you just pointed out, the idea is to lower labor's wages and you do that by creating unemployment. The role of the Fed is to create unemployment when wages go up. It's an anti-labor ideology from the beginning. Well, now let's fast forward to the oil war right now in a depression. And why on earth would the Federal Reserve be raising interest rates ? It's true that there was the whole low interest rate, the zero interest rate policy, ZIRP, that President Obama enacted from 2009 until 2020 in order to just flood the financial markets with money, not the labor markets, not industry, not factories, but the real estate market and the stock and the bond market to create what you pointed out.
All of the increase in fortunes in the United States has been in the upper ten percent, especially the one percent and even more the zero point one percent, not in the forty percent of the American population that doesn't really have any savings and the fifty percent that, you know, is just idling along. So you're absolutely right. There's been this whole financial bubble that has been debt-leveraged, and has been creating wealth.
Well, doesn't the Federal Reserve know that what it's doing is having an effect on destroying the domestic economy ? Well, that's where your analysis and my analysis shifts the focus onto the effect of all this on the private economy. Most of the discussion in the popular press is, oh, the Federal Reserve is raising its interest rates. That means it'll have to pay more interest. Look at the budget deficit. Well, as you and I have discussed, the Federal Reserve is financing the budget deficit with its greenbacks, just like it financed the Civil War.
ANN PETTIFOR
And also, Michael, the deficit is a reflection of the weakness of the economy as well. It goes up when the economy goes down. It goes down when the economy improves. So it's not as a result of excessive spending, as we can see in France. They haven't been spending.
MICHAEL HUDSON
Well, what it's doing is worsening exactly what you're talking about. Not only is it a reflection, but raising it worsens it. Let's look at what's happening in the real estate market, for instance, right now. As the interest rates on a thirty-year mortgage goes up, this raises the mortgage rates for everything that banks are willing to lend. Why would they lend ? Now it's over seven percent for mortgages. Well, there's one market that's particularly in trouble, and that's the commercial mortgage-backed securities market, because a lot of fortunes have been made by companies like Blackstone and all these private capital companies that have been coming up and buying not only the housing that American families cannot afford to be home or own anymore, but commercial properties.
Well, you could make a lot of money by borrowing at low interest rates and lending out at higher interest rates for a long time, or like five percent. Well, you borrow at one or two percent, lend at five. Pure arbitrage. But right now, all of a sudden, the leases on commercial real estate are falling due. I'm going to just focus on Los Angeles and Hollywood right now because of the sale of Paramount Pictures. People think, well, there's going to be a move of the film business out of Hollywood. Hollywood is a huge leaser of office space. Netflix, for instance, has long-term leases that are expiring this December. Now, the banks have offloaded from themselves all of their mortgage loans they've made. They've sold to these private arbitrage firms, the mortgage-backed securities.
And all of a sudden, they're saying, all right, now the debts that you've borrowed to carry all this commercial real estate you bought are rising. You're going to have to pay now seven and a half percent. Well, Blackstone has said, well, wait a minute, we're not making enough money. We're earning five percent on our old mortgages. Now, all of a sudden, not only are you going to raise our interest rates that we pay you for seven percent, but the leases are expiring. And ever since COVID, we've had a sharp decline in office occupancy. And now it looks like a lot of Los Angeles real estate is not paying rent at all, or if we do rent it out, we're not going to get any of the money we've had before.
So I'm not sure we can afford to pay you. So what are the banks going to do ? Are they going to say, well, okay, just pay us the interest due ? Well, the arbitrageurs are saying, well, the interest you want us to pay you is higher than our income. Let's just sell these properties. So all of a sudden, you're having the prospect of a decline in the assets that you've just pointed out that all these wealthy people, financial billionaires and companies have been buying, all of a sudden, you're having the effect of the rising interest rates that end the whole free lunch that the financial and real estate sectors enjoyed ever since Obama's 2009. The whole world is moving into a depression that makes it as a result of the oil war and the rising prices. The rising oil prices have increased the price of fertilizer that's led American farmers to say, we can't afford to plant new crops at the high fertilizer prices and the high diesel prices to run our harvesting equipment. So, you know, defaults on mortgages are rising. That turned the western states of the United States against the Republicans, realizing that Trump's crazy war against Iran—is it worth fighting against Iran to drive much of American farming underwater and force it to sell at distressed prices?
ANN PETTIFOR
So what we're learning is that it's the collapse of asset prices. It's the collapse of wealth of the very rich that actually causes the major crisis. Because they own these assets and against them they've borrowed huge sums of money. And suddenly the assets are falling in value and they've got to repay these large sums of money. This sounds like partly what you're talking about, and so as a result there's going to be a sort of fire sale of properties in Los Angeles, is that what you're saying Michael ? There was an article in the Wall Street Journal yesterday in which a woman wrote it's a wonderful thing if you have all these people being evicted from their homes and the houses being bankrupted and so on. That means there'll be more homes. That'll rebalance the market. I just thought, do you know what it's doing to people's lives, individual people ? And those individual people who lose their homes, who lose their jobs, who lose their incomes, while the rich are sitting on all the gains they made through the period of the bubble expanding, that's where we see that finally this huge imbalance between the rich and poor again to move to what will be quite dangerous levels of upheaval it seems to me.
And it seems to me there's a lot of politicians that don't understand what's going on really. It's hard to know how to react. I mean, for me, the first thing I would do would be to rein in central bankers, because part of the ghastly legacy of poor folk and not just the destruction of our swathes of American industry and of lives in the 1980, but also the whole concept of independent central banks, that technocrats are not accountable, that they don't stand for election. We can't get rid of them. And they're chosen by, for example, Trump has chosen Kevin Walsh. We've no say in that. And so now we're being governed and our economy is being governed by people who themselves are extraordinarily wealthy and who care nothing for the majority. So that has to change. The whole question of independence of central banks, in my view, has to come to an end. And central banks have to become more accountable and there has to be closer coordination between the treasury and the central bank. And it's this idea of separation of those two powers.
MICHAEL HUDSON
This is such an important point that I want to emphasize it. What does independence mean ? It means that central bank policy is not subject to what the government wants or elected politicians want or Congress wants. It means that the United States was unique in 1930 by making central banks responsive only to their own commercial bank customers. They're commercial banks who are the customers of the central bank and the commercial banks clients in real estate and monopolies primarily and not in industry itself. It's the job of the stock market maybe to fund initial private offerings that fund actual capital investment, but not central banks. Well, before that, all the other central banks of the world were founded basically in conjunction with the Treasuries. They were founded to hold government debt and to finance government war debts. That's what the Bank of England was all about, all the ones. But in the United States, people lose track of the thought that the United States, from the Revolutionary War all down through the nineteenth century, had a populist mistrust of commercial bankers. Not only did the southern slave owner states oppose commercial banking because they didn't want it to finance industry, where you'd have an urban population bidding up the price of grain to feed the slaves, you had the population as a whole say, you know, we don't trust the commercial banks because look at how they've behaved and how we've been exploited by banks for years.
And so the government, the Treasury, said hard money—bullionist. They didn't want to fund, create money at all. And they insisted that the largest source of Treasury budget government funding was the tariffs. All this had to be paid in coinage, not a check, they wouldn't accept paper money, only coinage. And that absorbed all the silver and gold in the country, preventing commercial banks from having enough money to make loans. And so the commercial banks argued, wait a minute, the economy needs paper credit to grow, and the government is so anti-bank that you're not letting industry be funded so let's give it to the banks they'll provide industrial credit. Well that was the founding myth of independent central banks as if they would help the economy against the government's inability to understand paper currency.
And it really was despite the fact that the United States had created its own paper money, the Continentals, to finance the Revolutionary War. And again, the Greenbacks and the Civil War, the Treasury never had the idea that it now has of just creating money. You don't need to create money by borrowing, you can create it. All the European governments discovered this in World War I. They didn't borrow the money, they all printed money because there was more money than anyone could afford to lend them. So this is what's happening in the United States with the Federal Reserve creating credit, but for the financial sector, not to help the economy at large.
ANN PETTIFOR
Yeah. I've just read this book, 1873 by Liaquat Ahamed. It's a fabulous book. The first ever globalization. I mean, this was the beginning of globalization and this was the first global financial crisis, 1873, which started in Vienna, drifted across the United States, came back to Europe and eventually.
MICHAEL HUDSON
So it actually started in Europe, as a result of the railroad bubble funded by the German reparations that they had charged France.
ANN PETTIFOR
That's right. From the French war, absolutely. So the point was you had the equivalent of AI then was the railways. But what was so striking to me about the story was that this was a financial crisis in the usual way that there was lots of cheating and lying about the credit and so on and so forth. But between 1873 and 1900 and nearly until the First World War, we had this incredibly reactionary gold standard system. And we had Americans saying, look, you're saying there's not enough money in the economy for me. Can we please have silver ? Can we use silver as well as gold ? Because they were saying you can only print as much money as you have gold in the bank. And nobody ever knew how much gold there was in the bank.
MICHAEL HUDSON
Remember, the 1873 act in the United States demonetized silver, and Germany, after it got the reparations from France, adopted the gold standard from Britain, and the United States and all other countries adopted the gold standard right after, between 1871 and 1873.
ANN PETTIFOR
But the point I want to make, Michael, is that they then endured forty years of austerity, essentially, because they starved the nations, the Europeans and the Americans, of money for anything, really. And there was a huge rebellion against it. And what it culminates in is the First World War. And those kinds of imbalances and that power exercised by the city of London at the time and also by the European elites and the American elites enabled them to inflict austerity on the masses while they accumulated wealth and assets and so on. But that led to war.
And what I worry about as we reflect on the parallels between 1873 and today is that this is where we're heading as well. Don't you think, Michael ? And that's also what's so terrifying is that we're sitting, you know, I don't think politicians are aware of how dangerous a moment this is in our history. And if they are, they're certainly not showing any preparedness, not to mention the climate crisis and how that's coming. I mean, here in Britain, Michael, this is different from where perhaps you are. But here in Britain, I have this, you know, we have a new prime minister and he's very promising. He's inspiring. He's wanting to reject forty years of Thatcherism. And that's all good. The fact that he's even conceptualizing it in that way to me is enormously encouraging. But in his speech to his party conference, he said the word climate once in a very offhand way. So he doesn't understand that this crisis is looming. And he also seems to me not to be aware of the dangers of war, because this is not going to be a small war, because we already have the United States engaged in all kinds of a mess in Venezuela, in the Middle East. And then there's Russia and Ukraine. So the parallels between what happened in 1873, that period post that crisis and that era of austerity and what it led to struck me as just so much of a parallel of what we're going through today.
MICHAEL HUDSON
Well, then America's whole settlement of World War One imposed austerity by insisting on the inter-ally debts, leading the allies to insist on German reparations. That led to two things, not only to austerity and hyperinflation from Germany to France, but also all this money was paid to the United States and it inflated the U.S. stock market, just as the German reparations from France had inflated the German market, leading to the Railway bubbles, railway crashes from Austria to the United States and other countries.
But at least at that time, within two years, from 1929 to 1931, they realized, all right, the debts can't be paid without keeping all of Europe in a chronic depression. We have a moratorium on all these foreign debts, the dollar debts. Well, after World War II, the United States said, all right, we're not going to impose reparations this time, but we're going to insist on free trade and on breaking up the British Empire and the French Empire and all these European empires will be part of our own empire under free trade. We need pro-creditor rules because we're the creditor and you're not. And again, you had Keynes support an alternative solution saying you don't want to repay the whole post-war growth in debt that's going to be an overhead for the economy as a whole. And if the population and governments have to pay debt service to a financial class, where is the money going to come to buy the products of industry and agriculture that labor produces?
Well, that is the whole problem of finance capitalism that we're facing today. And the oil war is increasing this squeeze—resulting totally from the disrupted supply of oil, not because of rising wages, not because of labor, but simply because of the oil war caused by the United States wanting to declare war on Russia, Venezuela, and Iran to control the world's oil trade as a choke point to be able to turn off the power and fertilizer for any countries that don't join the American war against Russia and China.
ANN PETTIFOR
It doesn't make sense to me, Michael, because America is self-sufficient in oil. I mean, presumably, is she self-sufficient in diesel ? (Michael: Right.) I mean, it seems to me, why, when you've already got the stuff, do you need to go and invade the rest of the world to get more stuff?
MICHAEL HUDSON
Well, fortunately, Europe is the fifty-first state, and Trump has just got Europe to release its oil reserves, diesel to sell to the United States now. And let's look at Europe now. It's under these artificially low prices for diesel that are caused by releasing all of these domestic U.S. and now European diesel reserves. When all of these releases of the national petroleum reserves are sold off, the price of diesel is going to at least double. Well, imagine what this is going to do for your continent, Europe. And for England, they're going to have to replace this diesel at double the prices, an enormous subsidy for the United States. And Trump says, well, we're just going to starve you and we're going to hurt you and cause chaos if you don't subsidize the United States.
So look at how Europe has imposed a depression on itself by supporting Trump and having its leaders like from Merz in Germany, to Macron in France, to your British revolving door of the prime minister. Look at how the leaders are not representing European interests but joining the United States fighting labor.
ANN PETTIFOR
I'd like to just move on to what we can do about this, Michael, because I get a lot of criticism of the fact that I can analyze what's actually going on fairly clearly. But so what ? What do we do about it ? And I think one of the things that I don't stress enough, but I want to stress more, is that we have to understand that it's a whole system in the same way as the climate, and the ecosystem is a whole system and you can't break it down into the British weather and the American weather. That's not, you know, there's a whole, and we've got to address the whole system. We find it really hard to think of all this finance and politics and power and exploitation and extraction of assets from labor and the land. We find that all very confusing and hard to think about. It's easier to think about if you understand we have a total financial system, based on the notion that there should be no friction whatsoever to the movement of capital. No matter what happens, every border has to be open for capital flows. And it's that system which, in my view, is at the heart of this crisis. And until we start thinking systematically about transformation, instead of thinking about, well, you know, this is the crisis today, this is the problem today, this is the thing we're facing today, this is labor versus capital.
You know, that doesn't tackle the system. And I'm just so concerned for us to get that across because enabling people to think about it. Because one of the only ways we can address these crises and we can begin to subordinate finance to the interests of society is by coordinating. Because as long as capital mobility exists and money can just dive across the borders and do as it pleases, it is impossible for individual countries to bring about change. We need to talk to each other and coordinate and collaborate. Now, that's absolutely impossible under Trump.
But the concept is that we need to work together to solve the whole system. And I'm just really keen that we should begin to understand that in order to sort of begin. I mean, we see it beginning to happen where some middle income countries are talking about working together and collaborating and the question is what are they collaborating over, and what are they going to change, and it doesn't seem to me they're going to change very much, they just want to keep the show going in the way it was going before. But we do need international collaboration. We do need international solidarity in order to deal with these myriad crises that are blowing up and we can only do it by changing the system.
That's why my blog is called System Change. I want us to always be thinking at that level. It's hard and it's not easy to solve those problems. But the first way in which to address the crisis of the system is to insist on the management of capital flows and on the management of credit creation. What we've lived through these last thirty, forty years is the removal of all constraints over the creation. This is like opening up a great spigot and spewing out huge quantities of money and not caring where the hell it goes and what it's for and using that spigot to enrich the one percent and at the same time to create massive instability—political instability but also financial instability and naturally inequality and so on.
MICHAEL HUDSON
Okay, who is going to take the lead in this system change?
ANN PETTIFOR
Well, that is the question, Michael. Do we see leaders anywhere in the world that are capable of thinking along these lines ? What about the Chinese ? Do you think the Chinese are thinking like this ? Tell me what you think, because I don't know what's happening in China.
MICHAEL HUDSON
Well, one of the things that strikes me is the absolute inability of the BRICS members in other countries to imagine even such a change, because changing the system requires an alternative philosophy to the International Monetary Fund. And it's austerity plans that told countries to, well, pay for your higher oil prices by lowering your wage, depreciating your currency, which just lowers the exchange rate of your labor for other countries.
You have the British countries saying, well, we want more of a vote in the EU, and the International Monetary Fund. So we can be a part of this anti-labor policy since a lot of us are run by military dictatorships and America's client oligarchies anyway. So BRICS cannot play a role. The only role can really be played by countries that have a critical mass able to resist American retaliation against any attempt to do what you and I are advocating to change the system.
Well, who are these countries ? It means China, Russia, and potentially Iran as a supplier of oil. China is a supplier of foreign exchange. And on the promise that we're going to use our Belt and Road Initiative and other foreign spending not to finance foreign dependency, trade dependency like the World Bank and IMF have done, but foreign self-sufficiency by actually making loans that will enable recipient economies to increase the output. That's what we call win-win. Instead of America, we win and you lose, you have to pay your debts by selling off your raw materials and mineral resources to us.
It has to be left to China's almost ad hoc reinvention of the wheel that you and I are talking about, which is really what classical political economy was advocating when industrial capitalism was still a progressive movement seemingly evolving into socialism. So that said, it's not going to come from the BRICS or anywhere other than the countries that I've mentioned, and they can now let other countries join.
Well, right now you have key swing countries like Turkey and India trying to play both the U.S. and the other sides. And it's really an either-or. And we're really talking about a whole new institutional framework for international trade and most of all financing, investment, and how to handle the balance of payments and trade imbalances among countries that are a natural part of the international economy. How do you do that without imposing austerity and pro-creditor rules that the United States has been enforcing on the world since World War I?
ANN PETTIFOR
So we're looking forward to elections in the United States in November. Are you optimistic, Michael, about what's happening there?
MICHAEL HUDSON
Well, that's the same party, basically. Trump is continuing the Biden policy, one hundred percent. There's no change in policy, just in the extremism of it. So the Democrats are just as much pro-Zionist. And the Democratic policy is we need to control the world's oil supply in order to maintain our dominance. And we're not going to have American armies fight there. We will need two armies, the Israeli army to fight in the Near East, along with the Saudi Wahhabi terrorists in Syria. And between the two terrorist countries, then we can prevent the Near East becoming independent and joining the rest of the world's new alternative, the United States. And we're also backing the terrorist economy of Ukraine so it can attack Russia's oil production. So we can somehow use a combination of Ukraine, Israel and Syria to prevent any oil being produced outside of the U.S. control as a choke point of the world economy. That's my basic world view. How can other countries stop this terrorism, without realizing the United States has destroyed the whole United Nations charter. They're supposed to be national sovereignty. Countries are supposed to be able to sell their exports, oil and food, to anyone. The United States says first of all you can only sell it to countries that we agree with; secondly you have to price all of your exports in U.S. dollars; third you have to keep all of the net balance of payments earnings from your exports in lending to the United States. You have to make the United States the tribute collector of all the rest of the world. Well, the rest of the world can say, well, gee, that's the opposite of the UN Charter. It's against waging a terrorist war. It's against the laws of war that prevent bombing civilians and focusing on civilians, against attacking a country without a declaration of war, against regime change.
Well, the problem is The United Nations does not have an army, and the United States and its European satellites have veto power. You almost have to create a new United Nations moving out of New York City in order to do this, and other countries simply seem unable to talk about what you and I are talking about today. It seems that cognitive dissonance gives them a headache.
ANN PETTIFOR
Yeah, but all these contradictions, again, you know, they're piling up, aren't they ? I mean, you're right about diesel. We have a very big crisis here in Britain because, of course, diesel fuels our agriculture as well as so much of our manufacturing industry. Our spare supplies are amongst the lowest in Europe and the rest of the world. So we're really quite vulnerable on that. And you're quite right that when it runs out, the Americans are going to push up the prices. But these contradictions are growing, you know, there's turbulence in the bond markets. There's the fact that there's war in the background. There's this crazy man in charge of the American presidency. And then there's this oil crisis and there's this inability of Europeans to understand what's going on and to take any leadership.
So it does feel to me as if everything is boiling up. I don't want to leave people too depressed after they listen to this session, Michael. But I think what I always say is that the more we understand what's going on, the more the possibility of growing a new philosophy and a new way of thinking about things in order to grow the new institutions and the new relationships that we need to build to restore stability. But you can't start if you can't grasp what's really going on in the first place. What's valuable about the way we're able to talk to each other now with the internet and so on is that that understanding can grow. Don't you agree with me or are you pessimistic as well?
MICHAEL HUDSON
Well, and then what you've described is a pre-revolutionary situation. And what's lacking is a doctrine. What's the platform of the revolution ? And that's what you and I and our colleagues are trying to work out. What exactly will be the platform that will be what the revolution is all about?
MICHAEL HUDSON
Yeah, it's a hard task. It's a really tough task. But in the meantime, we have a lot to worry about. But we want people to participate, to understand what's going on, to get involved and to help build this new way of thinking, this new understanding of the system in order to transform the system. And that's the only thing that I can hope for at the moment.
And then the second thing we have to do is be prepared for what's coming, basically. It's really, really important, both in terms of the climate, but also in terms of the financial system, you know, that it may close down. I know people that are starting to set aside cash, to stockpile cash, as well as water, as well as tinned beans, you know. I think we need to be prepared because our governments are...I mean, it always reminds me of the period, Michael, before the Second World War here in Britain, when actually people were in denial about the rise of fascism. You know, they didn't want to think about it. They'd just emerged from World War I, you know, thirty years earlier, and they did not want to think about anything else. They just wanted to carry on as if life was going to be good. And so they were not prepared and they were not willing to kind of get everyone together to face the reality of the rise of fascism. And I think we're very much in the same position today, that we're not seeing these instabilities in financial markets, this injustice in the huge inequality that exists, this injustice of the huge volumes, quantities of wealth that have been created by easy money and unregulated money. These are the things that are actually creating the conditions for a massive upheaval. And we've got to be prepared for it.
MICHAEL HUDSON
Well, what you and I are doing to help prepare is introducing the role of history in all of this. All of this has happened before. These issues were the focus of much thinking in the nineteenth and early twentieth century. And you don't have to reinvent the wheel. There's a whole background, and you and I have, for four decades now, been trying to provide all of this background for people to say, it doesn't have to be this way. There has been an alternative all around, all along. And here's our alternative. And we're trying to spell it out.
ANN PETTIFOR
Absolutely. On that note, thank you very much, Michael. It's always great to talk to you.
MICHAEL HUDSON
I enjoy our discussions a lot.
ANN PETTIFOR
Take care. Cheers.
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