[Pen-l] Michael Hudson interview

[Louis Proyect <lnp3@xxxxxxxxx>]

Counterpunch, August 29, 2008
An Interview with Michael Hudson
How the Chicago Boys Wrecked the Economy

By MIKE WHITNEY

Michael Hudson is a former Wall Street economist specializing in the 
balance of payments and real estate at the Chase Manhattan Bank (now 
JP Morgan Chase & Co.), Arthur Anderson, and later at the Hudson 
Institute (no relation). In 1990 he helped established the world's 
first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was 
Dennis Kucinich's Chief Economic Advisor in the recent Democratic 
primary presidential campaign, and has advised the U.S., Canadian, 
Mexican and Latvian governments, as well as the United Nations 
Institute for Training and Research (UNITAR). A Distinguished 
Research Professor at University of Missouri, Kansas City (UMKC), he 
is the author of many books, including Super Imperialism: The 
Economic Strategy of American Empire (new ed., Pluto Press, 2002

Mike Whitney: The United States current account deficit is roughly 
$700 billion. That is enough "borrowed" capital to pay the yearly 
$120 billion cost of the war in Iraq, the entire $450 billion 
Pentagon budget, and Bush's tax cuts for the rich. Why does the rest 
of the world keep financing America's militarism via the current 
account deficit or is it just the unavoidable consequence of currency 
deregulation, "dollar hegemony" and globalization?

Michael Hudson: As I explained in Super Imperialism, central banks in 
other countries buy dollars not because they think dollar assets are 
a "good buy," but because if they did NOT recycle their trade 
surpluses and U.S. buyout spending and military spending by buying 
U.S. Treasury, Fannie Mae and other bonds, their currencies would 
rise against the dollar. This would price their exporters out of 
dollarized world markets. So the United States can spend money and 
get a free ride.

The solution is (1) capital controls to block further dollar 
receipts, (2) floating tariffs against imports from dollarized 
economies, (3) buyouts of U.S. investments in dollar-recipient 
countries (so that Europe and Asia would use their central bank 
dollars to buy out U.S. private investments at book value), (4) 
subsidized exports to dollarized economies with depreciating 
currency, and similar responses that the United States would adopt if 
it were in the position of a payments-surplus country. In other 
words, Europe and Asia would treat the United States as its 
Washington Consensus boys treat Third World debtors: buy out their 
raw materials and other industries, their export plantations, and 
their governments.

MW:Economist Henry Liu said in his article "Dollar hegemony enables 
the US to own indirectly but essentially the entire global economy by 
requiring its wealth to be denominated in fiat dollars that the US 
can print at will with little in the way of monetary 
penalties.....World trade is now a game in which the US produces fiat 
dollars of uncertain exchange value and zero intrinsic value, and the 
rest of the world produces goods and services that fiat dollars can 
buy at "market prices" quoted in dollars." Is Liu overstating the 
case or have the Federal Reserve and western banking elites really 
figured out how to maintain imperial control over the global economy 
simply by ensuring that most energy, commodities, and manufactured 
goods are denominated in dollars? If that's the case, then it would 
seem that the actual "face-value" of the dollar does not matter as 
much as long as it continues to be used in the purchase of 
commodities. Is this right?

Michael Hudson: Henry Liu and I have been discussing this for many 
years now. We are in full agreement. The paragraph you quote is quite 
right. His Asia Times articles provide a running analysis of dollar hegemony.

MW:What is the relationship between stagnant wages for workers and 
the current credit crisis? If workers wages had kept up with the rate 
of production, isn't it less likely that we would be in the jam we 
are today? And, if that is true, than shouldn't we be more focused on 
re-unionizing the labor force instead looking for solutions from the 
pathetic Democratic Party?

Michael Hudson: The credit crisis derives from "the magic of compound 
interest," that is, the tendency of debts to keep on doubling and 
redoubling. Every rate of interest is a doubling time. No "real" 
economy's production and economic surplus can keep up with this 
tendency of debt to grow faster. So the financial crisis would have 
occurred regardless of wage levels.

Quite simply, the price of home ownership tends to absorb all the 
disposable personal income of the homebuyer. So if wages would have 
risen more rapidly, the price of housing would simply have risen 
faster as employees pledged more take-home pay to carry larger 
mortgages. Stagnant wages merely helped keep down the price of houses 
to merely stratospheric levels, not ionospheric ones.

As for labor unions, they haven't been any help at all in solving the 
housing crisis. In Germany where I am right now, unions have 
sponsored co-ops, as they used to do in New York City, at low 
membership costs. So housing costs only absorb about 20% of German 
family budgets, compared to twice that for the United States. Imagine 
what could be done if pension funds had put their money into housing 
for their contributors, instead of into the stock market to buy and 
bid up prices for the stocks that CEOs and other insiders were selling.

full: http://www.counterpunch.com/whitney08292008.html

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