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                           Debtor Nation
           The Hijacking of America’s Economy
                               Some few issues ago, Acres U.S.A. quipped, “Why not dismantle the CIA and have the govern-
                            ment take out one subscription to Harper’s magazine?” Certainly the editors of Harper’s have a
                            track record of calling the international shots that leaves the CIA in the dust.
                               An agency that could not discern that the Soviet Union was being closed down should hand
                            over its trench coats, mini-cameras and spy glasses. One of the reasons Harper’s calls the economic
                            shots so often is Dr. Michael Hudson, the president of an economic service so unique it might well
                            summon Simon Kuznets from the grave. Kuznets often remarked, “They’re using my Economic
                            Indicators for short-term projections. They were designed to forecast the long term.” Hudson’s
                            business card reads, Institute for the Study of Long-Term Economic Trends. He is a Wall Street
                            financial analyst, distinguished research professor at the University of Missouri — Kansas City,
 and the author of books that could reshape economic thought in America and help egalitarian forces change the klepto-
 parasitic financial structure that now holds most Americans in thrall. His 1972 book, Super Imperialism: The Economic
 Strategies of American Empire (updated in 2003), is a critique of how the United States exploited foreign economies
 through the International Monetary Fund and the World Bank. He is also the author of The Myth of Aid and Global
 Fracture: The New International Economic Order. He is presently chief economic advisor to Dennis Kucinich in his
 presidential campaign.
    At the recent American Monetary Institute meeting in Chicago, he laced his economic insight with snippets on human
 foibles: “[A British politician] looked at me, his eyes widened, and he laughed uproariously. He said, We’ve had an intel-
 lectual breakthrough. The poor are honest! They believe that the poorer they are, the more it is a matter of honor to
 pay their debts!”
    In this taped interview, Acres U.S.A. asks the questions, and Hudson’s responses are eye-openers, a threshing for the
 failure of academia to teach economic thought, chastisement for foreign nations that “want to be poor,” and rejection of
 free trade’s haunting fear that labor might rise above subsistence after paying interest and debt.

                                    ACRES U.S.A. Let’s start with subprime                  ACRES U.S.A. That’s for the companies, but
Michael                             lenders, 182 of which have filed bankruptcy,            what will be the impact on all these people
Hudson, Ph.D.                       causing Merrill-Lynch to write off $8 billion,
                                    Citibank for another $11 billion, and others
                                                                                            losing their homes?

                                    reporting rising losses. What happened?                 HUDSON. You’re right that the problem
                                                                                            of people losing their homes is a separate
                                    MICHAEL HUDSON. Subprime lenders                        problem from the survival of junk-mortgage
                                    were selling homes without a credit check,              companies and their Wall Street parents or
                                    inflating prices, and now their managers are            managers and the institutional investors
                                    walking away with golden parachutes. They               who went along. The fact that the mortgage
                                    set up their clients for a scam and acted               companies are being folded means that it is
                                    in unethical ways. My basic judgement is                harder to have recourse against loans that
                                    good riddance — not only to them, but also              were unethical to begin with. The solution
                                    to their parent banks and to the money                  has to be political in character, but so far
                                    managers that bought their debt, knowing                the Democrats in Congress are supporting
                                    full well that these debts would go bad, yet            the creditors, not the people who are losing
                                    not caring, just so they could show higher              their homes. When the Democrats say they
                                    three-month earnings premiums on their                  want to pass a law to bail out homeown-
                                    high-yield “junk” mortgages.                            ers and keep troubled mortgage debtors in
                                                                                            their homes, they mean they want to use

                                     Reprinted from                 January 2008 • Vol. 38, No. 1

these mortgage debtors as passthrough            can’t be held liable? All of this is going to              HUDSON. I’m not sure that the inten-
vehicles to give money to the big finan-         take a long time in the courts.                            tion of the farm lending system was to
cial institutions that contribute to their                                                                  bankrupt farmers, but that was often
political campaigns. If the government           ACRES U.S.A. Is there a remedy for this                    the effect. What they depicted as eco-
pays these bad mortgages to keep insol-          situation?                                                 nomic growth and output and capital
vent mortgagees in their homes, the                                                                         investment in machinery was so heavily
holders of these junk mortgages will not         HUDSON. I’ll describe one solution I                       financed by debt that its carrying charges
have to take a loss; taxpayers will. The         think is a good one. This approach was                     absorbed the increased revenue. The
homeowners who are losing their homes            prevalent in New York State, where I live,                 beneficiary of all this investment turned
are being squeezed both by Democratic            before the American Revolution, and it’s                   out to be the banks and the creditors, not
and Republican politicians, who pretend          a law that is still on the books here — the                the actual producers — the farmers.
that these debts should be paid with all         law of fraudulent conveyance. Around the
the high interest charges, and should be
subsidized by the government. In fact,
the subsidy is going to the holders of
                                                     “Bad management has been built into the
these mortgages, and to the financial
institutions that have bought hundreds
                                                 conflict of interest that goes hand in hand with
of billions of dollars’ worth of these bad
mortgages. If you really want to help            vertical integration of the banks, brokerage
homeowners, you should renegotiate the
mortgage down to something that is               houses, Wall Street and mortgage lenders.”
affordable with their current income.
                                                 time of the Revolution, a lot of New York                  ACRES U.S.A. With the farm crops being
ACRES U.S.A. Down here in southern               farmers borrowed from British lenders                      somewhat up and down, especially when
Missouri we have the historical home             who would come over, make a loan to a                      there were imports involved, the practi-
of Laura Ingalls Wilder, who wrote the           farmer far in excess of the normal abil-                   cal effect in many cases was to take some
Little House on the Prairie books. She was       ity to pay, and then, just before the crop                 5 million family farms out of agriculture
a lender in the agricultural arena, and          was harvested, just before the farmer had                  over a 40-year period.
she said there was no such thing as a bad        liquidity, they would call in the loan, that
loan, only bad loan managers.                    is, demand that it be paid. The farmer                     HUDSON. Much of this is a result of
                                                 couldn’t pay because he hadn’t sold his                    rising farm productivity. The increase in
HUDSON. Bad loan managers were facil-            crop yet or because the loan was too big to                farm productivity has been far in excess
itated by repeal of the Glass-Steagall Act.      begin with, and the British creditor would                 of that in manufacturing, contrary to
Bad management has been built into the           foreclose. To stop this practice, New York                 what most people believe. That means
conflict of interest that goes hand in hand      State passed the law of fraudulent convey-                 more and more output can be produced
with vertical integration of the banks,          ance, which said that if a creditor makes                  with fewer and fewer people because of
brokerage houses, Wall Street and mort-          a loan to a borrower without having any                    the substitution of capital and fertilizer
gage lenders. You find this particularly in      idea how the borrower can repay the loan,                  in place of labor.
Citibank and Countrywide Financial. The          then that loan is nullified. That law is still
October 2007 Columbia Journalism Review          on the books, as I mentioned, and it was                   ACRES U.S.A. In terms of bins and
includes an article, “A Tale of Two Citis,”      often brought up in court in the 1980s,                    bushels, perhaps. In terms of quality,
that describes how Sandy Weill built his         when corporate raiders would load down                     our legacy would be our doubt. But let’s
empire on subprime lending. Much of the          companies with corporate debt. If this law                 move on. We now have a situation in
research was done by Michael Hudson of           were implemented nationwide, it would                      which a great many dollars are going
the Wall Street Journal (not me, a different     apply to subprime borrowers and other                      into foreign climes and then coming
Michael Hudson). In his article “Banking         borrowers who signed loan agreements                       back to us. We’d like to have you explain
on Misery: Citigroup, Wall Street, and           far in excess of what they could pay, once                 to us, how is this working? How did
the Fleecing of the South,” he describes         the teaser interest rates adjusted to much                 we make the transition from a creditor
how the banks found it in their interest to      higher levels.                                             nation to a debtor nation and still con-
have affiliates that wrote mortgages way                                                                    tinue to mount a war that’s costing us 2
beyond the ability of borrowers to pay,          ACRES U.S.A. Isn’t this exactly what                       billion dollars a week?
because they knew they could turn around         the government was doing with its farm
and sell these mortgages to someone else         lending system, literally entrapping                       HUDSON. I’ve described this process
and avoid liability. Nobody knows who            farmers into getting bigger and buying                     in my book Super-Imperialism: The
is liable for the defaults. Is it the current    more machinery in order to feed the                        Economic Strategy of American Empire.
mortgage holder? Is it the mortgage origi-       world so they could close them down                        A new edition came out in 2003 from
nator? Is it the mortgage brokers who are        and bankrupt them?                                         Pluto Press. In 1951 the United States
now going out of business and therefore                                                                     turned from a balance of payment

                                           Reprinted from                   January 2008 • Vol. 38, No. 1

surplus country to a deficit country.          bonds, or they wouldn’t buy these dollars                  the same with China, when they have
This deficit was caused by the war in          — they would let them be sold on the                       their own internal economies they might
Korea. Throughout the 1960s and ’70s           market, and their currency would appre-                    service?
the entire balance of payments defi-           ciate against the dollar. This would have
cit stemmed from U.S. overseas mili-           raised the price of their exports to foreign               HUDSON. Because they don’t seem to
tary spending. The private sector was          countries, causing unemployment in their                   care about their internal economies, except
exactly in balance, and the government         export industries. When they complained                    to go on waging the old class war. That
— apart from military — actually was           about the U.S. payments deficit, the U.S.                  is how mainstream economics is taught
running a balance-of-payment surplus           government said “That’s your problem,                      these days — and why I stopped teaching
on its foreign aid. The deficit stemmed        not ours.” The United States found that                    academic economics for many years. Many
from U.S. military spending. The United        it could run a balance of payments deficit                 people have tried to explain why European
States became a true deficit country after     without ever having to pay for it — and                    central bankers are so idiotic when it
August 1971, when President Nixon took         today, the U.S. Treasury owes $2.5 trillion                comes to this system. One suggestion is the
the country off gold. Once European            to foreign central banks.                                  “Stockholm Syndrome”: When somebody
and Asian countries and their central                                                                     is kidnapped, the victim tends to identify
banks could no longer turn in their            ACRES U.S.A. That’s an astronomical                        with the kidnapper, the victimizer — and
surplus dollars for gold, they had only        debt!                                                      there is an idea in Germany, in England,
one choice, and that was to invest their                                                                  and other countries that no matter what,
international monetary reserves in the         HUDSON. There is no way in which the                       they have to do whatever the U.S. govern-
form of U.S. Treasury bonds. Central           U.S. economy can repay $2.5 trillion.                      ment recommends. It’s a passive mentality.
banks don’t invest in the stock market,        Of this amount, about half is owed to                      But for Europe and Asia to behave in this
they don’t buy real estate, and they don’t     China, and all the while dollars continue                  way violates every theory of how interna-
buy companies — at least not until             to be pumped into the global economy.                      tional relations are supposed to work. In
recently. They buy government securities       In effect, the United States is exporting                  theory, every nation is supposed to act in
because those are the most secure. So the      paper dollars, or paper bonds, and other                   its own self-interest. But in today’s world
United States found that the larger the        countries are exporting goods and ser-                     it seems that only the U.S. government is
balance of payments deficit became, the        vices and selling their corporate stocks                   acting in this way. It is understandable why
more dollars it would pump into foreign        and natural resources in exchange. The                     the United States would love to pay paper
economies. The recipients of these dol-        dollar is getting a free ride from this. As                dollars and get foreign resources for noth-
lars, either exporters or sellers of compa-    far as it is concerned, the debts owed to                  ing. It’s not understandable why foreign
nies, would turn the surplus dollars over      foreign central banks are never going to                   countries go along.
to their central banks in exchange for         be repaid.
domestic currency, and then the central                                                                   ACRES U.S.A. How could these nations
banks had a problem — what do they             ACRES U.S.A. Don’t these nations know                      protect their own economies?
do with these dollars? The only thing          this?
they could do was to buy U.S. Treasury                                                                    HUDSON. Well, Europe could have a
bonds.                                         HUDSON. Yes, but as yet they have no                       dual exchange rate, for instance — one
                                               political response. That would require                     exchange rate for capital account, one for
ACRES U.S.A. That would add up to a            changing how the overall international                     trade account. It could do what the United
lot of bonds.                                  payments system works and also break the                   States did and levy an interest equalization
                                               U.S. economy out of the global orbit, iso-                 charge to equalize interest rates between
HUDSON. Yes, the balance of payments           lating it until it can give a quid pro quo for             Europe and the United States. It could
was so large and pumped so many dollars        what it buys. A change would also require                  put a floating tariff against appreciated
into the hands of foreign central banks,       restructuring European and Asian domes-                    currencies, as the U.S. Congress did in
when they turned around and bought             tic economies to replace dollar-export                     1921 when the German mark was appre-
U.S. Treasury bonds, they bought enough        markets with their own domestic market.                    ciating. Or it could use its dollars to buy
to finance most of the domestic U.S.           So foreign countries could indeed refuse                   out, to nationalize U.S. assets there. This
federal budget deficit. Thus, the balance      to accept more excess dollars, refusing to                 would settle the U.S. payments deficit in
of payments deficit turned out to be the       sell out to Americans, and try to develop                  tangible assets rather than paper dollars.
means of financing the government’s fed-       their internal market. But the German                      But Europe seems to be a continent act-
eral budget deficit. This gave America a       government is so anti-labor that it refuses                ing purely on inertia without seeming to
free ride, and enabled it to make war with     to build the internal market, and the                      care much about the lessons of history, or
other countries’ savings instead of giving     Chinese — like the Germans — continue                      else it simply is acting shamefully, which
up its own gold reserves or ownership of       to produce chiefly for export.                             is why Donald Rumsfeld refers to it so
companies and resources. Foreign coun-                                                                    contemptuously as “Old Europe.” Europe
tries had a narrow choice: either their        ACRES U.S.A. Why did they do this?                         is senile from the vantage point of how
central banks would accept the excess dol-     Why does Germany with its high unem-                       to conduct international diplomacy and
lars and recycle them into U.S. Treasury       ployment rely on this world trade, and                     domestic economic growth. It imagines

                                         Reprinted from                   January 2008 • Vol. 38, No. 1

that it is getting a benefit by exporting      normal conditions the debts would be                      rate bubble out of view of the domestic
goods to American buyers rather than           written down.                                             tax authorities. As Exxon’s treasurer once
providing for its own population.                                                                        explained to me, the oil companies will
                                               ACRES U.S.A. Are you familiar with Joe                    sell the crude oil they produce in the
ACRES U.S.A. Why this disregard for            Stiglitz?                                                 OPEC countries and other suppliers to
their own internal economies?                                                                            their shipping affiliates in Panama or
                                               HUDSON. Yes.                                              other “just pretend” countries at so low
HUDSON. The only reason I can think                                                                      a price that they don’t have to report any
of is that the one thing central bankers       ACRES U.S.A. What’s your assessment                       net income to the tax collectors in OPEC.
feel passionate about is class warfare.        of his book?                                              The shipping companies registered in
They are trained as financial planners                                                                   Panama will then turn around and sell
to hate labor so much that they will           HUDSON. He’s done some good expo-                         this crude oil to their refineries in Europe
give everything to America for free if         sés. He is still largely a neoclassical econ-             or island quasi-nations such as Trinidad
it will hurt their own labor force. That       omist, but now he’s begun to see the                      at so high a price that there is no room for
anti-labor ideology is a precondition          light, and his new books have been help-                  these “downstream” operations to make
for getting a job at the central bank in       ful in exposing the system that he was                    any money. So all the profit is taken in
today’s world.                                 once a part of.                                           Panama, Liberia or other tax-avoidance
                                                                                                         centers that don’t impose any income tax.
ACRES U.S.A. But we give that whole            ACRES U.S.A. But basically is he cor-
system an assist because of this pseudo-       rect in describing disciplines for these                  ACRES U.S.A. How did this come
religious mantra about free internation-       various nations and the United States in                  about?
al trade and the World Bank and the            effect bullying them?
International Monetary Fund.                                                                             HUDSON. During the Vietnam War,
                                               HUDSON. Yes.                                              Robert McNamara at the Defense
HUDSON. The United States has always                                                                     Department went to Chase Manhattan
been the most protectionist nation in the      ACRES U.S.A. Can you explain to us                        and other banks and said that he wanted
world. That’s how it built up its industry,    why we entered Panama? What was that                      to attract more foreign funds to the dol-
by protectionism. It’s how it built up its     all about?                                                lar so as to stabilize the war-induced
agriculture, by protectionism. However                                                                   balance-of-payments deficit. He and the
absurd much of its agricultural protec-        HUDSON. There are a number of coun-                       banks calculated that the most liquid
tionism may appear, the fact is that it has    tries that are in the character of anti-                  industry in the world was the drug
achieved the largest productivity of any       countries — Panama is not really a                        and crime industry — the Mafia, the
industry in world history over the last        country. A country has its own cur-                       Colombian drug cartel, etc. — and
hundred years. America has always put          rency, and its own foreign policy, and its                of course the dictators that America
its own interests above those of foreign       own tax system. But America wanted to                     was keeping in power to fight the class
interests. This is natural. What is unnat-     incorporate Panama to control the canal                   war throughout Latin America, Africa
ural is that other countries don’t act in      as a choke-hold on world commerce. It                     and the rest of the Third World. At
a symmetrical way to protect their own         wanted to own the toll booth on the sea-                  that time, however, their money was
economic interests. They don’t confront        way, so to speak. There was an attempt to                 going largely into numbered Swiss bank
the degree to which the IMF and World          keep control of the Panama Canal away                     accounts, pushing up that country’s cur-
Bank promote foreign dependence on             from then-President Noriega, and there                    rency. So Chase and other banks set
U.S. food exports and Treasury IOUs.           was the belief that he was not a depend-                  up branches throughout the Caribbean
                                               able American puppet.                                     and other island quasi-nations to attract
ACRES U.S.A. We don’t think the farm-                                                                    this money. The Cayman Islands, for
ers feel that they’re being protected very     ACRES U.S.A. Just that simple?                            instance, had declared independence
well, though, because after having put                                                                   from Britain, but then renounced it and
the land into a few strong hands, most of      HUDSON. Yes. They called it national                      joined the empire once again so that it
the big operations are really technically      security.                                                 could act as a money laundering center.
bankrupt and are getting subsidies, so                                                                   The U.S. banks that established branches
the subsidy can in turn pay the bank for       ACRES U.S.A. Why is Panama so impor-                      in these countries found an inexpensive
the loan that kept them going last year.       tant to international oil and banking?                    source of deposits, and also a way of
                                                                                                         helping their customers avoid taxation
HUDSON. If that is the case, then the          HUDSON. The oil industry doesn’t                          by arranging dummy companies locally
U.S. government is treating farmers just       want to pay taxes. It created Panama                      — “a veil of tiers,” it was called at the
like it wants to treat subprime debtors        and Liberia as anti-countries where oil                   time. But the big picture was clear every
— the real beneficiaries are the credi-        companies could incorporate their inter-                  three months from the U.S. Treasury
tors, not the debtors. Under historically      national shipping. This is called “flags of               Bulletin and the Federal Reserve Bulletin,
                                               convenience,” meaning in effect a corpo-                  which reported the deposits recycled

                                         Reprinted from                  January 2008 • Vol. 38, No. 1

from these tax-avoidance branches to          — and also provide an object lesson for                   to “privatize” the Russian economy —
the head offices in New York and other        other countries that might seek economic                  meaning give it to themselves for abso-
money-center cities. Criminal money           independence from the United States.                      lutely nothing. The idea was the same
thus became a mainstay of the U.S. bal-                                                                 as what had happened in Chile, where
ance of payments, along with the grain        ACRES U.S.A. Where did the Pinochetistas                  the backers of the military junta would
exports that in turn required foreign         come in?                                                  start a bank, the government would
food dependency on the United States.                                                                   put its deposits in the private bank, and
                                              HUDSON. The idea in the Democratic                        they would then put domestic firms up
ACRES U.S.A. Was it “national security”       Party under Bob Rubin, Secretary of the                   for auction. The banks would use the
when Allende was deposed in Chile?            Treasury under Bill Clinton, was to do in                 government deposits to write a check to
                                              Russia and other countries basically what                 the government for the company being
HUDSON. No. That was pure ideol-              they did in Chile. Chile served as the dress              privatized. The government would take
ogy. Kissinger said that if the Chileans      rehearsal for the big neoliberal ripoffs of               the check and redeposit it in the bank.
were stupid enough to vote into power         the 1980s and ’90s. The architect of the                  So, in effect, it was a cost-free takeover
someone who was not pro-U.S., then            murders in Chile was a University of                      of private enterprise.
they deserved to be overthrown. The           Chicago professor — Arnold Harberger,
University of Chicago economists came         who had married a Chilean wife and                        ACRES U.S.A. And it was limited to the
in and said that there’s only one way         went down to advise the Pinochet dicta-                   inner circle of the communists, presum-
to make a free market and that is to          torship. He was so successful in destroy-                 ably?
close down every economic department          ing socialism and democracy in Chile
in the country except for the Catholic        and then privatizing the public domain                    HUDSON. Yes. The inner circle were
University in Santiago (which had a tie       in the largest asset grab since the enclo-                largely old communist youth league
with Chicago), and to either drive into       sure movements of Britain, they wanted                    graduates, and criminal insiders got in.
exile, torture, or murder everyone who        to bring him to Harvard and make him                      It was a process of giving away Russia’s
had a different idea than the ideas we        the head of the Harvard Institute for                     public domain for nothing to political
espoused. So the free market was intro-       International Development. The stu-                       insiders, much like America gave away
duced at gunpoint. The economy was            dents at Harvard, much to their credit,                   the lands of the West to the Railroad
privatized at gunpoint, given away to the     protested. They accused Harberger of                      Barons in the mid-19th century and
junta’s insiders. This became the dress       sitting in his hotel fingering the profes-                made the railroads the nation’s largest
rehearsal for George W. Bush’s attempt        sors to be murdered by the Pinochet                       landlord.
to privatize U.S. Social Security, pre-       regime — professors who disagreed with
tending that it was a success instead of      Harberger’s approach. That’s a sure way                   ACRES U.S.A. And this is what brought
the national disaster it was. Nearly every    of imposing your approach on academia                     on the Mexican standoff, the standoff
privatized social security fund in Chile      — you just kill everyone who doesn’t                      between Putin and that oligarch . . .
was wiped out by the end of the 1970s as      believe in your ideas! The upshot was
companies running their “labor capital-       that Harberger was not given the job                      HUDSON. Mikhail Khodorkovsky.
ism” savings simply looted the pension        — Harvard gave it to someone who was
funds and turned them over to the banks       less well-known, much less notorious,                     ACRES U.S.A. Right — he imprisoned
that were part of the grupo conglomer-        Jeffrey Sachs. At that time people did                    him. Was that a sort of running up the
ates that supported the military junta.       not know how Sachs had destroyed the                      flag to tell the rest of them what was
                                              Yugoslav economy with his austerity plan                  going to happen?
ACRES U.S.A. Who was pointing the             and shock treatment under the IMF rule,
guns that enabled this scheme?                so Sachs became head of the HIID and                      HUDSON. Khodorkovsky not only had
                                              went to Russia and essentially repeated                   been the most notorious tax evader in
HUDSON. It was an international assas-        the Chilean experience there, without the                 Russia, but having privatized Russian
sination force mobilized out of Chile by      bloodshed but with millions of people                     oil, he was then about to turn around
Kissinger to murder people in Argentina       dying of poverty, alcoholism, drug addic-                 and sell his company to Exxon so that
and the rest of Latin America, and in the     tion and general loss of the will to live.                he could take the money out of the
United States itself. There was no real                                                                 country in much the same way that
American national security involved at        ACRES U.S.A. And the Pinochetistas?                       Berezovsky and other Russian oligarchs
all. In fact, over the broader timeframe                                                                had done. This would have essentially
you can see Latin America, Brazil, Chile,     HUDSON. The Russian criminals                             sold out Russia’s natural resources to
Venezuela all turning away in abhorrence      who became oligarchs or kleptocrats                       its major Cold War enemy, the United
against the murderous policies pursued        created what they called the Union of                     States. Russia would have been economi-
by the United States. An entire generation    Right Forces — in other words, a unit-                    cally destroyed had Khodorkovsky gone
of professors and social commentators         ed right-wing party, and they explic-                     through with it. Khodorkovsky also
was killed or driven abroad. The inten-       itly called themselves the Pinochetistas.                 announced that he was going to run for
tion was to make dictatorship irreversible    They admired Pinochet. They wanted                        president and be the main funder of the

                                        Reprinted from                  January 2008 • Vol. 38, No. 1

right-wing Pinochetista party there. It       oped. They didn’t realize that the United                the Clinton and Bush administrations,
actually was called “The Party of Right       States didn’t want rivals or even part-                  pushing Europe and Asia into a com-
Forces.” So of course Putin threw him in      ners; it wanted client states and depen-                 mon group. The one buffer area between
jail, quite rightly.                          dencies. The neoliberal plan was already                 them, now being turned into a boundary,
                                              outlined clearly before the Soviet Union                 is western Europe. It looks like Europe
ACRES U.S.A. This was de facto seizure        broke up. The Houston report explained                   may be following a suicidal statecraft that
of the government by the oligarchs and        that it was necessary to wipe out every-                 is going to lead to Russia shipping its gas
the big business.                             body’s savings, which it called the “sav-                and oil to China and the rest of Asia, leav-
                                              ings overhang,” in order to stop infla-                  ing Europe to freeze in the dark.
HUDSON. They were the government.             tion, in this case referring to inflation
It would have been the large kleptocrats,     of stock market prices for the industries                ACRES U.S.A. And all this is happen-
which would have been the most cen-           being privatized. The idea, then, was first              ing while our dollar is sinking and the
tralized oligarchy in the world. It should    of all to wipe out everybody’s savings                   Chinese are funding a war for us by buy-
be noted that an identical phenomenon         in hyperinflation, and then, when the                    ing our paper.
happened in almost every former Soviet        economy had zero purchasing power, to
Republic. They all had fake voucher plans     privatize the entire economy. Now, if you                HUDSON. That’s right.
for the workers that were worthless. They     sell off all of the government assets in an
all had giveaways of resources and land       economy without any domestic savings                     ACRES U.S.A. Should the Chinese stop
to Komsomol political insiders. Latvia        available, obviously the only people who                 buying our paper, what would happen?
Lithuania, Kazakhstan, Turkmenistan,          can buy them are foreigners — except
the Ukraine, they all had very similar        for what the government gives away to                    HUDSON. We wouldn’t be able to make
experiences — all promoted by the U.S.        its insiders, who will get it basically for              war in Iraq or anywhere else, for starters.
Treasury and the World Bank that said         free, or maybe for one cent on the dollar.
this was the way to get rich. There were      If they sell it for two cents on the dollar              ACRES U.S.A. Which brings up the
other, much better plans promoted there,      to Americans or other foreign investors,                 question, how long will the world put up
including plans by the groups of people       they’ll become billionaires. Meanwhile,                  with the United States dollar as a reserve
that I worked with. But the World Bank        for an investment of a billion dollars,                  currency under Bretton Woods?
and right-wing think tanks would send         America would get a hundred billion
people behind us offering huge bribes to      dollars’ worth of assets and gain control                HUDSON. You can never tell how long
local mayors and to local officials not to    of Russia’s raw materials, agriculture,                  something will go until somebody push-
tax the land, not to keep the land and the    land, real estate and manufacturing.                     es back. I speak frequently with foreign
natural resources in the public domain.                                                                political leaders and there is no sign at
The number one objective of the U.S.          ACRES U.S.A. This goes quite a ways                      all of their pushing back, certainly not
government was to destroy Russian agri-       beyond R.H. Tawney’s statement that                      in the former countries of the Soviet
culture to make sure there was no fund-       people always seek to have perpetual                     Union. Even in the popular press there
ing for agricultural machinery or seeds       revenue independent of a further expen-                  is very little talk of pushing back. So the
— to make Russia dependent on food            diture of energy. There’s a little power                 answer is, from America’s point of view,
imports from the United States. Other         play involved, too, is there not?                        you just keep pushing whatever you
sectors came under fire, too, especially                                                               want until there is a counter-reaction. I
manufacturing. The U.S. idea was to           HUDSON. That’s correct. America has                      guess you could call this Newton’s Third
dismantle post-Soviet industry on the         broken almost every treaty it made with                  Law of political motion — every action
grounds that a country whose industry         Russia, starting with its promise that if                has an equal and opposite reaction. But
was dismantled would not be able to           it dissolved the Soviet Union, the United                America hasn’t seen any reaction yet, so
support a military complex.                   States would not push NATO up into                       it’s going to keep on pushing without
                                              the countries that were being separated                  limit until countries devise some way of
ACRES U.S.A. Was this the scheme dur-         from Russia. The United States almost                    calling a halt to America’s free lunch.
ing the Cold War?                             immediately broke that promise, as Putin
                                              pointed out recently. The United States                  ACRES U.S.A. Why these wars?
HUDSON. No, the plan was put forth in         promised a mutual atomic disarmament
1990 in Houston, in a meeting convened        and has now done just the opposite.                      HUDSON. There’s a crude rationale. We
by the World Bank and the International       Russia is now being driven into an alli-                 want to show that when any country
Monetary Fund and other international         ance with China and possibly with India                  doesn’t do what we want, they get wiped
agencies for Russia. The Communist            in what’s called the Shanghai Cooperation                out. We want to control oil, we want to
leadership of Gorbachev and others was        Organization. Thus, the nightmare                        put military and shipping bases every-
so dispirited that it imagined the United     of Robert McNamara and other U.S.                        where. Basically, these wars support the
States and other countries would help it      officials in the 1960s, the thought of a                 idea that all the resources of the world
develop — presumably in the same way          Russian/Chinese coalition, has now been                  should be under effective American con-
that the United States itself had devel-      realized by the underhanded dealings of                  trol. Anyone who wants to withdraw from

                                        Reprinted from                 January 2008 • Vol. 38, No. 1

the agenda is subject to assassination,        ACRES U.S.A. In some of your works                        then pledged the rent to the banks to
sanctions, withholding of oil, even attack.    you’ve suggested that land is probably 75                 carry their interest charges. There was no
                                               to 80 percent of the real wealth.                         understanding in either George himself
ACRES U.S.A. In other words, those                                                                       or the Georgist movement of that mech-
737 military bases around the world are        HUDSON. That’s correct.                                   anism, which is why his closest followers
intimidating the world to that extent?                                                                   such as Michael Flurscheim and writers
                                               ACRES U.S.A. Is it the land or is it the                  such as Gustavus Myers, who wrote the
HUDSON. I don’t think they’re worried          production from the land?                                 History of the Great American Fortunes,
militarily, because to militarily conquer                                                                broke from him. George even expelled
a country you actually have to invade it.      HUDSON. It’s the land itself, defined to                  Father McGlynn from his movement, on
You can bomb a country easily enough           include land-like subsoil resources, and                  the grounds that the Catholic Church
from the air and the sea, but America          for that matter the frequencies on the                    was communist. So George turned into
has no manpower to invade or control           broadcasting spectrum. But basically the                  an early McCarthyite, Joe McCarthy,
a country from within. In that sense it’s      land — as site value and “choke point”                    that is.
what Mao Zedong called a paper tiger.          in cities as well as agricultural soil in the
                                               countryside. Even as the Roman Empire                     ACRES U.S.A. You mentioned Thorstein
ACRES U.S.A. We can’t even handle an           sank into feudalism and self-sufficient                   Veblen.
occupation, can we?                            landed estates, available wealth was put
                                               into land as the major means of control.                  HUDSON. Veblen wrote a wonderful
HUDSON. That’s correct. So no coun-            For instance, the value of New York City                  book in 1923 called Absentee Ownership
try feels militarily intimidated, because      real estate is larger than the value of all               and Business Enterprise in Recent Times.
American troops are tied up in a lost          the industrial plant and equipment in                     He said that if you want to understand
cause in Iraq and Afghanistan. It’s a fail-    the United States. Land as the pure area                  a small town you should look at every
ure of wealth. No one is even thinking of      is itself valuable.                                       town in America like a real estate pro-
an alternative.                                                                                          motion project, with the idea that most
                                               ACRES U.S.A. Does that deliver you                        of the mayor’s campaigns and the politics
ACRES U.S.A. Doesn’t that in effect say        right into the camps of Henry George?                     were done by local real estate developers.
that war is obsolete? The atomic bomb                                                                    The aim of civic boosters and publicists
is obsolete?                                   HUDSON. Well, this is basically classical                 is to promote land values so that they
                                               economics. I’d prefer to say Thorstein                    can turn around and sell their land and
HUDSON. Yes, because countries with            Veblen and Simon Patten rather than                       property at a capital gain, meaning a
an atomic bomb are musclebound                 Henry George. George talked about                         land-price gain. You could say that this is
— they can’t use it. The atomic bomb           rural land, he didn’t talk about urban                    true not only of small towns in Veblen’s
couldn’t win the Korean War for the            land, and he had little clear concept of                  day, but also of large cities such as New
Americans, it couldn’t win the Vietnam         economic rent because he was a jour-                      York. The largest contributors to cam-
War, and it can’t win the oil war in the       nalist, not an economist. The move-                       paigns today in every city and even at the
Near East. There’s nothing that America        ment of his followers is not an academic                  national level are the real estate interests
can do with its atomic weapons.                movement, it basically lobbies for the                    with the financial interests behind them.
                                               construction industry and wants to shift                  Thus, the banks know that a campaign
ACRES U.S.A. So it’s a matter of will at       taxes off the large high-rise buildings                   for lower property taxes, ostensibly to
this point.                                    and utilities and onto labor’s low-rise                   help the homeowners — or farmers,
                                               residential housing. That is not what                     for that matter — actually means that
HUDSON. Yes. Not only will, but imagi-         Henry George himself put forth. Most                      everything the tax collector relinquishes
nation, too. American government agen-         people think of Henry George as the                       becomes available for outside buyers to
cies such as the National Endowment for        author of Progress and Poverty, which                     pledge to the bankers for the money to
Democracy are financing so many pro-           was a wonderful book that he published                    buy into this property. The lower the
American writers and academics around          in 1879. But after he ran for Mayor of                    property taxes are, the more net eco-
the world that they’ve crowded out any         New York in 1886, he was bitten by the                    nomic rent can be pledged to the banker
discussion of an alternative international     political bug and moved from the left                     and capitalized into a larger mortgage
diplomacy that would provide monetary          wing of the spectrum to the right wing.                   loan. When the government cuts the
equity and quid pro quo in international       He started his own newspaper and party                    property tax, then, it doesn’t actually
finance and international trade. Countries     and became a sectarian. By the 1890s he                   lower the cost of doing business for real
are not even thinking about protecting         had alienated most of his followers by                    estate owners or homeowners. It merely
their own industries, except for Venezuela     refusing to talk about monetary issues                    replaces the tax with an interest payment
and a few countries like that.                 and debt and interest. He had no concept                  to the bank. The problem is that now
                                               of how rent was used for paying interest                  that the cities or counties don’t receive
                                               once outside buyers came in, borrowed                     the property tax, they have to shift to
                                               from the banks to buy property, and                       an income tax or sales tax. I described

                                         Reprinted from                  January 2008 • Vol. 38, No. 1

most of this in an article in Harper’s with     his clients. He’s a special pleader, so to                a bookkeeping fiction. We say that the
about 12 charts in May 2006.                    speak. Greenspan proved his ability to be                 Social Security system has been holding
                                                a special pleader against labor as head of                U.S. Treasury securities, but the Treasury
ACRES U.S.A. We have suggested tongue-          the Greenspan Commission in 1982 for                      is no more going to repay the Social
in-cheek that they ought to disband the         Social Security — to shift the taxes off the              Security holdings than it is going to repay
CIA and replace it with one subscription        wealthy and onto the bottom 90 percent                    the foreign central bank dollar holdings.
to Harper’s.                                    of the population, people who earned less
                                                than $40,000 a year. He passed the litmus                 ACRES U.S.A. But at the same time it is
HUDSON. That would certainly save               test, so it was appropriate to make him                   enlarging the tax burden of the lower-
a lot of money and probably get better          head of the Fed. You don’t want someone                   income people from 30 percent to maybe
results!                                        brilliant as head of the Fed. You want                    45 percent.
                                                somebody who’s not going to surprise
ACRES U.S.A. Some months back, a                you, who’s just going to mutter the usual                 HUDSON. That’s correct. That is exactly
presidential aspirant, John McCain, said        truisms. In Greenspan’s case this was the                 correct. They pretend it’s a user fee,
that if Alan Greenspan died, we’d have          Ayn Rand free market patter that charac-                  but it used to be paid out of general
to put dark glasses on him and send             terized his entire tenure.                                tax revenues — progressive taxes that
him into battle like the legend of El Cid.                                                                fell mainly on the wealthiest tax brack-
When El Cid died, they put a rod down           ACRES U.S.A. Hasn’t that been pret-                       ets. Meanwhile, what Greenspan calls
his back and put him in the saddle for the      ty much the situation since about the                     “wealth creation” is his euphemism for
battle against the Moors. In other words,       Korean War, to shift the taxes from the                   debt creation.
McCain is saying that here was a man so         high-income people down to the lesser-
brilliant and so important that we really       income people?                                            ACRES U.S.A. We now have a politi-
can’t get along without him. I’d like to                                                                  cal campaign going on. What’s your
have your assessment of this oracle.            HUDSON. Yes. They pretend that the                        assessment? First of all, what we hear
                                                aim is to promote saving, but it doesn’t do               out in the countryside is that nobody is
HUDSON. The reason Greenspan was                this at all. What it does do is shift the use             really very happy with the candidates on
put in the Federal Reserve was because          of savings away from financing tangible,                  either side, except you might hear some
he was neither brilliant nor important.         capital formation in the form of means of                 favorable talk about Dennis Kucinich
I’ll give you a few anecdotes. I used to        production and toward lending out new                     and Ron Paul. What are we going to do,
work at Chase Manhattan Bank, and far           credit to the bottom 90 percent of the                    replace Bush with Hillary and have, in
above me was Paul Volcker. In the 1970s         population. Although gross savings today,                 effect, the same public policy?
I had to visit the White House for one          the Keynesian rate of overall savings to
reason or another, and met with a mem-          income, is as high as ever, what happens                  HUDSON. In every national election,
ber of the Council of Economic Advisers,        is that 100 percent of these savings are                  a smaller and smaller percentage of the
who said “Michael, you’ve worked with           lent out by the wealthiest 10 percent and                 voting population has turned up, and
Paul Volcker, you’ve been at meetings           the financial institutions to the bottom 90               this will probably continue. It looks like
with him, what is he like?” I said, “Well,      percent. Thus, one person’s savings now                   the Democratic Party is basically run
at meetings Volcker would be the person         takes the form of another person’s debt.                  by the Clintonites, who call themselves
who would say, ‘Mr. X says this and Mr. B       This is basic balance-sheet accounting.                   Democratic. It looks like an awful choice
says this,’ and he would always be able to      You have the assets on the left-hand side                 is looming. I’m the chief economic advis-
restate everybody’s position without ever       of the balance sheet and the liabilities on               er to Dennis Kucinich, and I would not
committing himself, always being the man        the right, and the liabilities are the debts              work for any other Democratic politi-
in the middle.” And the politician said,        plus what’s left over. The bottom line, net               cian except him. I’m doing this not so
“That’s the man we want.” Sure enough, a        worth, is on the right-hand side. Right                   much because I expect him to get the
few weeks later, Volcker was appointed as       now, there is almost no net worth for the                 Democratic presidential nomination, but
Chairman of the Federal Reserve. When           U.S. economy being built up; it’s all new                 because the campaign will give visibility
Greenspan was appointed, his role was           debt. When you add in America’s run-                      to the policies he’s promoting, and will
basically that of a designer of the rhetoric    up of foreign debt, you actually have a                   continue to promote as a congressman
of anti-labor policy. Remember, I said that     negative savings rate. Debts are now rising               from Cleveland. From my point of view,
the role of the central banker is to repre-     even more than savings.                                   this will be an educational campaign. I
sent the commercial banking interests, the                                                                cannot imagine who these people are who
financial sector, against labor. Greenspan      ACRES U.S.A. What happens to the                          are allegedly supporting Hillary Clinton.
was known as a political hack, but he           Social Security savings that people are                   When you look back, if one is really
was a political hack who was a specialist       allegedly making?                                         against the war, you’d almost prefer a
in advertising rhetoric for his clients. He                                                               continued Republican administration to
was very much like an expert witness in         HUDSON. A few months ago President                        a Democratic administration because the
legal cases. An expert witness will try to      Bush quite accurately said there really isn’t             Republicans, the Bush administration, are
frame the issue in a way that will favor        any money in Social Security. It’s only                   held in such contempt and distrust by

                                          Reprinted from                  January 2008 • Vol. 38, No. 1

foreign governments that there is no way        you want to get voted in, you say, “I’m                  ACRES U.S.A. That’s probably why so
another Republican President would be           against it,” and then once you are in                    many people are dropping out of the
able to push the belligerent policy that        office you say, “Well, of course, this is a              voting booth.
is pursued by the Clinton Democrats.            just war and this is to protect American
Can you imagine if Gore and Lieberman           security,” just like Wilson did in World                 HUDSON. Yes. If the choices are between
had been elected, how much worse the            War I. I look at Obama as sort of a mod-                 “Yes, please,” and “Yes, thank you,” what’s
situation in the Near East would be with        ern Woodrow Wilson, and I can’t under-                   the point of voting?
Lieberman instead of Cheney, awful as           stand anything that he’s really come out
Cheney is? Not only that, but Gore would        in favor of. It’s just bland rhetoric.                      Dr. Michael Hudson is chief economic advi-
have been finishing his second term, and                                                                 sor to the Kucinich for President campaign. He
you would now have Lieberman, who is if         ACRES U.S.A. Isn’t that also the case                    also is president of the Institute for the Study
anything to the military right of Cheney        with Hillary?                                            of Long-Term Economic Trends (ISLET), a Wall
himself, as the presidential candidate. The                                                              Street financial analyst, Distinguished Research
                                                                                                         Professor of Economics at the University of
world would be in a state of disaster.          HUDSON. No. She’s quite explicitly on                    Missouri, Kansas City and author of Super-
Hillary is part of the group that promoted      the right. Like her husband, she’s a Wall                Imperialism: The Economic Strategy of American
Gore and Lieberman. I can’t imagine most        Street Republican in Democratic cloth-                   Empire (1972; revised 2003) and of The Myth
people who oppose the war being will-           ing.                                                     of Aid (1971). For more information, visit www.
ing to vote for Hillary or any right-wing                                                      
counterpart on the Republican ticket. It’s      ACRES U.S.A. Yes, she’s talking against
an awful choice.                                the war, but her rhetoric is hedged.

ACRES U.S.A. At the American Monetary           HUDSON. I don’t hear her talking against
Institute meeting, you made the remark,         the war. I thought that John Edwards
if we remember correctly, that the              did a wonderful job in the last debate
Republicans would really like to have           of condemning her for supporting the
something to the effect of Bush continue        Lieberman Resolution. She’s against the
as President, but since that can’t be, their    war in Iraq because she wants to invade
next choice is Hillary.                         and bomb Iran. This is crazy. It would
                                                threaten World War III. In supporting
HUDSON. You certainly can see that              the Lieberman Resolution against Iran,
                                                                                                                Acres U.S.A. is the national journal
in the pattern of campaign contribu-            she has put herself to the right of some
                                                                                                               of sustainable agriculture, standing
tions. The major contributors to Bush in        Republicans when it comes to military
                                                                                                            virtually alone with a real track record —
the last two elections are now Hillary’s        hawkishness.
                                                                                                            over 35 years of continuous publication.
main contributors. So you can see whose
                                                                                                             Eash issue is packed full of information
pocket she’s in. Basically what we’re see-      ACRES U.S.A. And the campaign?
                                                                                                            eco-consultants regularly charge top dol-
ing here is a privatization of the political
                                                                                                             lar for. You’ll be kept up-to-date on all
process. Politics has been put up for sale      HUDSON. It’s like Harold Wilson, the
                                                                                                              of the news that affects agriculture —
to the campaign contributors. You can           British Labour prime minister, is report-
                                                                                                           regulations, discoveries, research updates,
look at Hillary and the others, and then        ed to have said, “What’s the point of
                                                                                                              organic certification issues, and more.
look at their contributors, and you’ll          having a constituency if you can’t sell
see what people expect their policies to        it out?” Well, Hillary can say the same                              To subscribe, call
be. You also can look at the advisers.
Obama’s adviser is the brother of Rahm
                                                thing about the Democratic Party con-
                                                stituency. Whenever a Democrat runs
                                                                                                            (toll-free in the U.S. & Canada)
Emanuel, the head of the Democratic             for president, you have to ask them
National Committee who refused to back          where and when they’re going to go                          512-892-4400 / fax 512-892-4448
anti-war Democrats in the last election,        to war, because almost every war in                         P.O. Box 91299 / Austin, TX 78709
and was only willing to give Democratic         American history, until Bush’s Near East                 
Party funding to the pro-war democrats.         war, has been led by a Democrat. Hillary                      Or subscribe online at:
I consider Obama as pro-war as Hillary.         has already told us her answer. She’ll go
If you’re going to support the war but          to war with Iran.                                    

                                          Reprinted from                 January 2008 • Vol. 38, No. 1