Updated: Aug. 25, 2015
with Michael Hudson
Writer, Dandelion Salad
August 25, 2015
TheRealNews on Aug 24, 2015
Michael Hudson, the author of Killing the Host: How Financial Parasites and Debt Destroy Global Economy, says the stock market crash on Monday has very little to do with China and all to do with shortermism and buybacks of corporations inflating their own stocks.
Updated: Aug. 25, 2015
“Casino Capitalism”: Economist Michael Hudson on What’s Behind the Stock Market’s Rollercoaster Ride
Democracy Now! on Aug 25, 2015
DemocracyNow.org – Black Monday is how economists are describing Monday’s market turmoil, which saw stock prices tumble across the globe, from China to Europe to the United States. China’s stock indices fell over 8 percent on Monday and another 7 percent today. On Wall Street, the Dow Jones Industrial Average initially fell a record 1,100 points before closing down nearly 600 points. The decline also caused oil prices to plunge to their lowest levels in almost six years. To make sense of what’s really behind the fluctuations in the market, we are joined by economist Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst and author of the book, “Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.”
AMY GOODMAN: “Black Monday.” That’s how economists are describing yesterday’s market turmoil, which saw stock prices tumble across the globe, from China to Europe to the United States. China’s stock indexes fell over 8 percent Monday and another 7 percent today. On Wall Street, the Dow Jones Industrial Average initially fell a record 1,100 points before closing down nearly 600 points. The decline also caused oil prices to plunge to their lowest levels in almost six years.
Joining us now to try to make sense of what’s really behind the fluctuations in the market is economist Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst and distinguished research professor of economics at the University of Missouri, Kansas City. His latest book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
MICHAEL HUDSON: Welcome to Democracy Now! It’s great to have you with us.
Thanks for having me again.
AMY GOODMAN: Professor Hudson, talk about what happened in China and what happened here in the United States.
MICHAEL HUDSON: Well, what happened in China doesn’t have very much to do at all with what happened in the United States. Wall Street would love to blame China, and the Obama administration would love to blame China, and Europe would love to blame China. But most of the Chinese stocks went down because small Chinese investors were borrowing from, let’s say, the equivalent of payday loan lenders to buy stocks. There was a lot of small speculation in Chinese stocks pushing it up. But this was an internal Chinese phenomenon. And China, as a whole, doesn’t really have the problems.
The real problem is that we’re still in the aftermath of when the bubble burst in 2008, that all of the growth in the economy has only been in the financial sector, in the monopolies—only for the 1 percent. And it’s as if there are two economies, and the 99 percent has not grown. And so, the American economy is still in a debt deflation. So the real problem is, stocks have doubled in price since 2008, and the economy, for most people, certainly who listen to your show, hasn’t grown at all.
So, finally, the stocks were inflated really by the central bank, by the Fed, creating an enormous amount of money, $4.5 trillion, essentially, to drop over Wall Street to buy bonds that have pushed the yields down so high—so low, to about 0.1 percent for government bonds, that pension funds and investors say, “How can we make money?” So they buy stocks. And they borrowed at 1 percent to buy up stocks that yield maybe 4 percent. But who are the largest people who buy the stocks? They’re the companies themselves that have done stock buybacks. They’re the managers of the companies that have used their earnings, essentially, to push up stock prices so they get more bonuses. Ninety precent of all the earnings of the biggest companies in America in the last five years have gone for stock buybacks and dividends. It’s not being invested. It’s not building new factories. It’s not employing more people.
So, the real problem is that we’re in a nonrecovery in America, and Europe is in an absolute class war of austerity. That’s what the eurozone is, an austerity zone. So that’s not growing. And that’s really what’s happening. And all that you saw on Monday was just sort of like a shift, tectonic shift, is people realizing, “Well, the game is up, it’s time to get out.” And once a few people want to get out, everybody sees the game’s up.
AMY GOODMAN: And China?
MICHAEL HUDSON: In China, it’s largely small borrowers who borrowed from intermediate lenders, that have borrowed from the big banks. So a lot of individuals in China that tried to get rich fast by riding the stock market all of a sudden find out that they have a lot of debt to intermediate, you know, non-bank lenders, insiders, people who banks will lend to. It’s like the British banks lending to real estate speculators to lend out to homebuyers. So this is essentially the attempt to get rich by riding the stock market in China went way overboard. Chinese stocks are still above what they were at the beginning of the year. This is not a crisis. This is not very much. It’s just that the artificial increase in the market has now ended some of the artificial push-up. And it’s still artificial, and it will still go down some more.
AMY GOODMAN: I’m surprised you say that what happened in China and what happened in the United States are not related.
MICHAEL HUDSON: They are related in a way, but the U.S. funds have not invested very much in the Chinese stocks. Most of the China fund stocks are in HSBC, which lends to China—the bank. The break first happened in China, but the break itself was within China. And this showed investors—this is a symptom—that what happened in China is going to happen in Europe, and it’s going to happen in the United States.
AMY GOODMAN: Talk about China as the world’s second largest economy, and what you think would be the healthiest relationship between China and the United States.
MICHAEL HUDSON: Well, the economy is not the stock market. China’s economy had to accumulate a large amount of foreign reserves just to withstand the kind of American financial war that brought the Asia crisis of 1997. So China acted defensively. It exported a lot, developed huge international reserves to make itself independent of the West. And now it’s in the middle of shifting away from an export economy to begin to produce for its own people. I mean, why should Chinese workers spend all their lives making goods for Wal-Mart to sell in the United States and Europe? Why don’t they make goods for themselves to raise their own standard of living? That was what China’s doing, and that means that China doesn’t have to export more, and there’s really nowhere to export to, if Europe isn’t growing and the U.S. consumers aren’t spending. Obviously, the attempt is to make China itself grow. But the Chinese took the money; instead of consumer goods, they bought stocks.
AMY GOODMAN: As markets in China plunged Monday, former U.S. treasury secretary and president emeritus of Harvard University, Larry Summers, tweeted this dire prediction: “As in August 1997, 1998, 2007 and 2008 we could be in the [early] stage of a very serious situation.” Is he overstating what’s going on?
MICHAEL HUDSON: The question is: What does he mean by “situation”? When he says “situation,” he means his constituency, the 1 percent. He doesn’t mean the economy as a whole, the 99 percent. He’s been wrong on almost everything that he’s called. What he’s calling for now is: You have to cut taxes on the 1 percent more; you have to give the 1 percent more money, and it will all trickle down. This is part of his patter talk, trying to support his usual right-wing position. But you have to be very careful when you listen to Larry Summers.
AMY GOODMAN: Michael Hudson, your book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Explain what you mean.
MICHAEL HUDSON: Well, most people think of parasites as sort of just taking, taking money from the economy, and the 1 percent is sort of sucking up all the income from the 99 percent. But in nature, what parasites do, they don’t simply take. In order to take, they have to take over the brain of the host. And economists have a word, “host economy.” It’s for a foreign country that lets American investors in. Smart parasites help the host grow. But the parasite, first of all, has to make the host believe that the intruder is actually part of the body, to be nurtured and taken care of. And that’s what’s happened in national income accounting in America and in other countries. The newspapers and the media—not your show, but most of the media—treat the financial sector as if that’s really the economy, and when the stock market goes up, the economy is going up. But the economy isn’t going up at all.
And the financial sector somehow depicts itself as the brains of the economy, and it would like to replace government. What Larry Summers said is what—governments have to pay their debts by privatizing more, essentially, by doing what Margaret Thatcher did in England. That’s his solution to the crisis: All the governments have to do is balance the budget, sell everything to Wall Street on credit, and we won’t have any more problem. And that’s basically—the financial sector is almost at war, not only against labor, as most of the socialists talk about, but against governments and against industry. It’s cannibalizing industry. So now most of the corporations in America are using their income not to do what industrial capitalism did a century ago, not to build more factories and employ more people and make more profits; they’re just using it, as I said, to push it to pay dividends and to buy back their shares and to somehow manipulate the financial sector in the stock prices, not the economy as a whole. So there’s been a divergence between the real economy and what I call the—economists call the FIRE sector—finance, insurance and real estate. And they’re going in separate directions.
AMY GOODMAN: You are—you have been an adviser to the Syriza party in Greece. You’re a friend of the former finance minister, Yanis Varoufakis. Can you talk about what’s happening there now and what that bodes for the economy, not only in Greece, but in Europe, maybe even here?
MICHAEL HUDSON: Well, the story begins, actually, about four years ago, when Greece had a very large foreign debt, taken on basically by the military government and what followed. And it was obvious that as soon as the PASOK, the socialist party, came in, they said, “Look, the debt’s much larger than we thought. We can’t pay it.” And they were going to write it down. The IMF looked in and said, “Greece can’t pay the debts. We’ve got to write them down.” The board looked in, said they can’t pay the debts. But then the European central banks came in and said, “Look, our job as central bankers is to support the banks. Greece owes the debt to the, essentially, French banks and German banks, and we’ve got to support them.” So, despite the fact that the IMF was pushing for a debt write-down four years ago—the head of the IMF at that time, Dominique Strauss-Kahn, wanted to run for president of France, and he was told by French President Sarkozy, “Well, wait a minute, if French banks hold most of Greek debts, you can’t, at the IMF, say that we’re going to write down the debts.” So they didn’t. And meanwhile, the eurozone said, “We won’t let you, the IMF, be part of our program, the troika, if you don’t pretend that Greece can pay the debt.”
So Greece was left with a huge debt. It was pushed into depression. The GDP fell worse than it did in the 1930s. Finally, the Syriza party came in, in January, and Varoufakis and Tsipras thought, “Well, then, OK, we can explain to the finance ministers of Europe that you can’t expect to push Greece into a depression, push more austerity, and somehow austerity will enable us to repay the debt. That’s crazy.” And he thought that he could reason with them. And the Europeans, who he was reasoning with, the central bankers, said, “We’re not here to talk about economics. We’re lawyers. We’re here to collect money. It doesn’t matter that you’re going to go into a depression. It doesn’t matter that you’re going to have to have another 20 percent of your population emigrate. We’re only here to collect the payments. And if you don’t pay, then we’re going to pull the plug.”
And they pulled the plug on the Greek banks a few months ago and said, “We’re not going to accept any of the bank transfers, payments with Greek banks here. So, if you’re exporting and you want credit for export, you’re not going to give it to you. We’re going to treat Greece like America treated Cuba and America treated North Korea. You’re going to be the North Korea of Europe if you don’t succumb, surrender and pay.” And that’s why Tsipras said, “Oh, my—we don’t want to bring an absolute, you know, total breakdown, because that would bring the right wing to power.” Varoufakis said, well, he agrees that there’s no alternative but to sort of surrender for the present and try to join hands with Italy, Spain and Portugal, but he wasn’t going to be the administrator of the depression. So you had the referendum, and the Greeks now say, “Well, no matter what, we’re not going to pay.” And the eurozone says, “Then we’re going to just wreck you, or smash and grab.”
AMY GOODMAN: I want to ask you very quickly about presidential politics, about two of the Republican presidential candidates, Jeb Bush and John Kasich. Both worked for Lehman Brothers, Kasich after he ran for—after he was a congressman; Jeb Bush, according to The Wall Street Journal, Bush signed on with Lehman after leaving the Florida Governor’s Mansion, making it clear he wanted to work as a hands-on investment banker. I believe he made something like $14 million working for Lehman and then Barclays.
MICHAEL HUDSON: Well, almost—both parties are basically run by Wall Street. The Democratic Party, ever since Bill Clinton, was run by Robert Rubin. And all of the secretaries of the treasury, the officials, have basically come from Goldman Sachs, especially Tim Geithner. One of the problems in Greece, by the way, was that Obama and Geithner, coming from the Rubin group, met at the Group of Eight meetings and told—were told, basically, Greece, “You have to pay, because the American banks have made so many big bets on Greek bonds that if Greece doesn’t repay”—this is back in 2011—”then the American banks will go under, and if we go under, we’re going to pull Europe down.” So, the American banks basically—we’re talking about Wall Street investment firms. They don’t—they’re called investment bankers, but they don’t invest. They gamble. And we’re really much more in casino capitalism than finance capitalism.
So you have Wall Street people basically running politics, whether they’re the actual politicians—Obama didn’t work on Wall Street, but he worked with the real estate families. No matter who the president is, they’re going to appoint Treasury heads and Fed, Federal Reserve, heads from Wall Street. Wall Street has a veto power on all the major Cabinet positions, and so, essentially, the economy is being run by the financial sector for the financial sector. That’s the problem with politics in America today.
AMY GOODMAN: Michael Hudson, thank you very much for being with us, president of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst, distinguished research professor of economics at the University of Missouri, Kansas City. His latest book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
Michael Hudson is a former Wall Street economist. 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) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. His book summarizing his economic theories, The Bubble and Beyond, is now available. His latest book is Finance Capitalism and Its Discontents. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. He can be reached via his website, email@example.com.
from the archives:
Welcome to the World of Extreme and Destructive Global Dependencies by Ralph Nader (#TPP)
Trumping the Federal Debt Without Playing the Default Card by Ellen Brown
Richard Wolff: Is China’s Bubble About To Burst? Look Out US!
Richard D. Wolff: The Coming Crash and The Recession That Never Ended
Market turmoil by Michael Roberts
Pingback: Apple’s CEO Tim Cook — Serf Labor, Overpriced iPhones, and Wasted Burning Profits by Ralph Nader – Dandelion Salad
Pingback: Destructive Stock Buybacks—That You Pay For by Ralph Nader – Dandelion Salad
Pingback: Michael Hudson: Corporations Are Taking The Money and Running – Dandelion Salad
Pingback: Vanishing the People’s Wealth to Make the Bosses Richer by Ralph Nader | Dandelion Salad
Pingback: The Looting Class and its Hoarded Gold by Danny Katch | Dandelion Salad
Michael Hudson talking on Democracy Now. Max Keiser talking to Mike Papantonio. Looks like somebody’s trying to take Wall Street dynasties down some big notches. Interesting. No David, you’re not the only one, but we can only imagine how many share the state you describe. Probably near everyone, everywhere. Some attribute the “Catch 22-ishness” to positive change, especially the resistance to positive change exerted by those who don’t want to see or experience it – one could call them the non-philosophers, or service to self people.
Thanks for the Keiser RT nod Jerry, what a horrendous depth of cynicism there is in the US establishment. All empires fall, the cracks are really beginning to show.
Mint Press just posted an article about the growing potential rift between Europe and the USA. There is a lot of pressure on the EU about TTIP now. Massive resistance to fracking in the UK. Strong anti-nuclear campaigning. Colossal concern about criminal migrant atrocities….you must have heard about the latest tragedies. Israel is losing ground, its PR front is disintegrating as Iran finds its feet. So next on the agenda is the much awaited green papal address to the UN. Anybody’s guess what’s ahead….how the Arab monarchies negotiate their way out of the ISIL apocalypse perhaps?
While the alleged 19 hijackers of 9/11 had their photographs plastered on the world’s media for months, how many photos of dead ISIS fighters have made the front page of the New York Times or became the first photos seen on the 6:00 nightly news? How many reports has anyone seen about successful termination of ISIS financial sources, the names of officials and banks, vendors selling essential supplies to ISIS, names of people buying ISIS oil, etc., or even reports, successful or not, of actual efforts to shut down ISIS non-militarily? After more than a year since the emergence of ISIS it seems as if the mercenary force is invisible from all corporate media outlets.Apparently Raqqah, Syria is ISIS’ “capital”, yet has the “coalition” laid a finger on ISIS in Raqqah?
Guess it’s best to keep faith that truth is breaking through and because of that positive phenomenon conditions around the world should have a good chance of improving. Came across a 60-minute news program at “Telesur English” channel on YouTube – “Dossier” – which you or others may find interesting David. The last two episodes include 30-minute speeches by Venezuela’s Maduro on the tense situation with neighboring Columbia. Revealing. Take care, David.
You’ve got plenty of company, David. Michael Hudson was on Democracy Now! this morning and really “spilled the beans” on the “debt crisis in Greece,” the Troika, and much more.
Your short post is prophetic in and of itself about the current state of affairs on planet Earth, and unfortunately, at least in the foreseeable future, what lies ahead in their unconscionable quest for more money and more power by the world’s ruling-elite.
Been very busy the past few weeks and will try and catch up (do we really ever?) on reading the D.S. articles AND the comments.
Stay safe and be as serene as you can be in these bizarre times we dwell in.
Great to see you back, Frank.
Just added the video interview and transcript of the Democracy Now! program to the post.
Thanks, Lo. Sometimes it seems like 24 hours in a day is not enough to try and get things done. Glad you added the DN program.
Thanks for recommending it. I hadn’t gone to Youtube when you commented so hadn’t seen it yet.
Immediately following the Hudson piece, is an incredible interview with Hubert Sauper on his film about the land grab in S Sudan “We Come as Friends” ~ jaw dropping….he describes this amazing film as a study of the pathology of colonialism, simply brilliant work.
While driving around yesterday, I was listening to to the DN program then watched the program on Free Speech TV in the afternoon. Sauper was so funny describing the airplane and all, & then putting on airline captain’s uniforms with his buddy, but did explain, to a certain extent, the pathology of colonialism. Yes, simply brilliant work. Hubert Sauper reminds me of John Pilger. Both men are soft-spoken but what they say and produce on film is a non-edible form of nourishment for TRUTH SEEKERS to feast on. Blessed art thou!
Thanks Frank, I assumed you must have been up to something….it’s really challenging to keep abreast of things now that we are so connected all over the world.
Thanks for sharing the above ~ I strongly recommend the latest Hedges post on state violence, penetrating and powerful.
You’re welcome, David. I’m doing a lot of personal writing and editing a book for a cousin of mine.
Here’s the direct link to the interview by Hedges: https://dandelionsalad.wordpress.com/2015/08/25/chris-hedges-state-violence-and-counter-violence/.
I’m sure I can’t be the only one who really struggles to understand these Byzantine complexities!
Seems like it’s truly a gigantic global scam, systemic institutionalised fraud on a massively “exclusive” totalitarian scale.
It makes me wonder what it means now to be any kind of a genuine philosopher or a rational human being, in this destructive consumer nightmare of vanished common sense and bewildering never-never-ostrich-affliction of mutual self-deceit…