Michael Hudson WARNS: IMMINENT Economic Catastrophe - War, Oil Crisis & Bond Market Panic

追加: 2026-05-20

[00:00:00]Financial crashes are gold mines for the wealthy company uh uh sectors with money. The the high interest rates are threatening another crash in the real estate market. This time it's not from bank fraud. It's just from the fact that uh the economy is debtstrapped.

[00:00:24]>> Welcome everybody. Thank you so much for joining us. I'm Lyanna Petroa with a new episode of World Affairs in Context.

[00:00:30]Today I have the privilege of welcoming back to the program a renowned American economist Dr. Michael Hudson. Michael is distinguished research professor, prolific author, former Wall Street financial analyst and internationally recognized scholar. Michael is also the author of multiple fascinating books including superimperialism which explores the role of the US dollar and American financial dominance in the global economy, Killing the Host, a critique of financialization and dad-driven capitalism, the destiny of civilization which focuses on the emerging multipolar world order. and J is for junk economics, which dismantles misleading economic narratives, which is precisely what we're about to do in this interview. Michael, thank you so much for joining. I appreciate your time.

[00:01:20]>> Well, it's a good time to be back. Uh today, uh the stock market is uh surprisingly up. Uh the bond market yields are very slightly uh down and there's still sort of a blind spot. So, I want to talk about the stock and the bond market and how irrational they seem to be behaving in the face of what Trump says is going to be a stepped up Iran war. Uh that's going to result in even more blockages of OPEC oil uh to the rest of the world. And that's going to cause uh as I've explained before, it's going to lead to a world depression this year and next. and uh who knows how long it's going to last. I want to say one thing before I begin. Uh I no longer advise people as to how to get rich or what to invest in in the stock or the bond market. Uh if I really told them how to get rich, what do you do? Well, be a criminal. Crime pays. Evade taxes by using offshore banking centers. Uh speculate in uh basic raw materials. by arms makers uh and oil and environmental poll polluters. That's where all of the big money uh is being made and that's what today's wealthiest uh investors are doing and uh it's it's made them very rich while the rest of the economy is idled along. So what I want to do is uh show that there is an alternative and that the present alternative uh is going to make the disaster worse. And I've tried to explain how this is today's financial capitalism, not industrial capitalism anymore, but how the financialized capitalism works. And I realize that my books have sometimes been used as the how to do it guides instead of trying to reverse what is happening. That I can't help but at least I can explain uh what what's happening without making recommendations. So that's the spirit in which I want to comment on today's stock and bond market. the unrealistic short-termism in not understanding what's in store for the world and for the uh oil and energy crisis and for the stock markets. I think that interest rates are rising as if this is somehow going to slow the price inflation that's caused by oil, not by uh too much money creation. And the reality is that this increase in interest rates is going to increase the economy's inability to cope with the breakdown that is already in progress.

[00:04:09]That's the big picture of what I want to talk about today.

[00:04:13]>> This is absolutely fascinating and I've been looking forward to this conversation with you. Several days ago, the latest inflation reading was announced. And as one would expect, and I'm sure that you were expecting to see this, inflation accelerated as a direct result of the United States and Israel's war against Iran. And it is now official looking at the data. Americans are indeed paying the cost of Trump's interventionism.

[00:04:40]The unfolding energy crisis is now pushing prices higher and higher, while the Federal Reserve is now, of course, hinting at the possibility of having to raise interest rates. How did the myth of interest rates rising in response to price inflation even begin?

[00:04:59]Well, it began with the attempt to turn economic theory into a public relations exercise to justify uh banks and the financial sector as playing a productive role in the economy and as if uh the recipients of interest and Rontier class generally is playing a productive uh role by supplying a service actually and uh is making a sacrifice in order to uh uh to make its interest and somehow to create a a kind of parallel universe.

[00:05:36]All trying for a moral uh rationalization of uh why finance needs to control the economy, not governments.

[00:05:47]uh uh governments shouldn't interfere with whatever finance and the large uh masses of monopoly capital and uh stock and bond market and bankers want. So the pretense uh underlying all of this uh uh public relations view of what's happening is that creditors use their interest to buy goods and services. Uh and in other words, if there's an inflation, well then interest rates have to go up so that the bankers and the creditors don't lose their purchasing power over labor. Well, there was a discussion about this already in the middle of the 18th century and critics of debt financing already at that time uh pointed out that uh bond holders spend most of their money in making new loans. They don't buy goods and services and when they do spend uh money into the non-financial economy. It's mainly to buy prestige real estate especially in the financial uh centers and cities and secondly to buy luxury goods. Even back then mo they pointed out most of these luxury goods that the uh wealthy financial class buy are imported from Italy just like today. So that by the 19th century uh you had uh creditors making an even bigger excuse for interest. They they had to fight uh against the rising antipathy towards banks in the United States and socialist reformers and uh they they wanted to say well interest is a compensation for the risk that we're taking. The risk is not only against uh non-payment uh as if we don't have enough collateral to uh cover all this risk, but it's also the loss of purchasing power over goods and services as prices rise. And more to the point, they want what we really want is the purchasing power of our creditor claims over the labor that produces these products. The financial rationalization of interest and financial gains has always been primarily anti- labor and it was developed by the Austrians and others as an political and ideological argument against socialism and you had for instance Austrian economists like Bombac went so far as to claim that interest is a payment for the service of creditors by abstain aining from consuming their income. But uh there's a what he called that time preference. Uh the the savers were individual middle class people and they wanted to consume more later later. So they saved up their wages and profits and earnings to uh have be able to consume more labor. This myth of uh that somehow the financial sector is part of the production and consumption sector. Well, having to pay interest was just depicted as uh the price of impatience. It's a blame the debtor. It's as if wage earners uh were had a choice to ref uh to re refrain from running into debt and because they lacked prudence not because they were squeezed be by their wages not covering uh the cost of living. So this prompted Carl Marx to quip that the Rothschild bankers must be the most abstinent family in Europe uh if that were true.

[00:09:44]And it's as if there was no financial sector, bankers and bond holders acting independently of the economy of production and consumption. And that's the main theme of my books that uh the economy has two sectors. There's a production and consumption uh sector and the distribution facilities and the financial sector is completely apart from that. it acts independently and that's really what runs the stock and b bond markets and I that that's the framework I want to discuss today.

[00:10:20]Thank you so much for walking us through this and we are going to turn to stock uh stocks and bonds and the geopolitical sort of background in just several minutes but Michael would you first walk us through how does raising interest rates actually affect employment and wage growth because I know that your theory is quite different from sort of the mainstream narrative and I would love our viewers to get a better sense of of your perspective on this.

[00:10:49]Well, this is where uh reality clashes with the junk economics that the media are discussing uh right now. Uh the more the most recent 20th century logic was that of Paul Vulker when he increased interest rates to over 20% at the end of the Carter administration in 1980. I don't know if you remember that. Uh but he uh uh he was my boss's boss at Chase Manhattan uh when I worked there in the 1960s. Well, uh Vulkar saw wages rising as a result of the Vietnam War's guns and butter uh fiscal policy and that was called military Keynesianism when uh the aim was to increase uh profits and uh investment and employment. uh well, Vulkar uh wanted to increase unemployment so as to keep wages down and prevent them from rising further.

[00:11:45]And he said if wages are low, prices will be low. So all we have to do is raise interest rates and that will slow investment and employment and uh there will be more unemployment and uh that'll stop the wage inflation. blaming it all on wages, not on uh the the fact that the government was running a huge deficit for Vietnam and was trying to get both uh military spending and a consumer economy at the same time. Well, what Fulkar did was he succeeded in creating a crash as interest rates rose to 20% which is completely uh unsustainable. And uh in in that sense you could say that well interest rates rising slowed uh uh the price inflation because it it uh it crashed the economy.

[00:12:39]It crashed employment. That's what why Ronald Reagan was elected instead of uh Carter being reelected. Well, this obviously is not the aim today in raising interest rates. They're not trying to increase unemployment.

[00:12:55]uh but it's going to be the effect of what they're doing. And this is just the opposite of compensating for risk. Uh raising interest rates because the economy is more risky because it's more inflationary. The raising the interest rates today and we're seeing the the long-term uh interest rates go over uh 4.6 six or 7% for 10-year bonds and over 5% for 30-year uh Treasury bonds. This is uh much higher than it's been uh in the last 17 years. So, this sharply increases uh economic risk uh because what's going to happen with these high interest rates? Well, it stops uh stock market prices uh from uh going up uh for one thing because people are not going to borrow from banks at a high interest rates to speculate in uh buying stocks that probably are not going to rise in price because the oil crisis is uh causing causing them to slow their output and everything. But this whole stock market is going up and down on this wave of rumors of whatever the Trump administration is saying about the likelihood of peace uh restoring a happy uh happy uh faith. So the the theory is that bank the uh if you make it harder for people to borrow from banks at a high rate, banks won't lend money to build new factories and employ more more labor. But that's not what really what fact what banks do at all.

[00:14:40]>> Of course. And you've also argued that uh governments and their central banks may sort of pretend and I don't know if pretend is the right word but they may announce that there are lowering interest rates to spur the economy but the real reason is to reinflate prices for financial securities and real estate which of course benefits the top 1%. Uh would you walk us through how that works in practice? Well, the way to understand that is to see what happened in uh after the Obama administration came into office in 2009. The there was a breakdown uh in the economy and uh the the because of the junk mortgage crisis uh huge bank frauds uh had led to defaults rising on junk mortgage loans.

[00:15:36]uh and uh also the economy was so instable and had become such a casino gambling arena that many large companies like AIG had made wrong guesses is about what direction derivatives were going to go in. I won't describe derivatives.

[00:15:57]there were bets on uh the what interest rates and stock prices and uh loans uh defaults uh were were going to be. And so uh the whole idea was well how do we uh save the banking system? The Federal Reserve and other central banks don't represent the public interest. They represent their customers, the banks.

[00:16:23]And uh they said, well, the banks now are holding collateral for their mortgage loans and for uh other loans that are now below the uh the amount liabilities that they owe to their depositors and to their counterparties.

[00:16:41]So, uh we have to save the banking system. What do we do? Well, Obama said, "Okay, what we're going to do, first of all, we're going to uh I'm going to break all the promises I made. We're going to throw uh the the black and minority victims of junk mortgages under the bus. We're going to uh let the banks foreclose on their property so that we can sell it all uh to the banks. And we're going to lower interest rates so much that we're going to use the Federal Reserve to flood the economy with credit. In other words, we're going to lower the interest rates under the zero interest rate policy that began in 2009 and went on until about 2022 to 0.1%.

[00:17:29]uh and we're going to uh make the banks be able to borrow so inexpensively that they can make a profit by making loans at only 2%. And uh companies uh uh and private capital can now borrow at 2% to buy stocks that are who dividend rates are more than 2% to buy companies that are underpriced and hoping for a capital gain. And when interest rates go down, that means bond prices go up. So if you have a bond yielding uh 5% and the uh interest rate goes down to just a fraction of 1% then the bond price goes way way up. And what Obama did was create the biggest bond market boom in history. uh banks got rich on their bond holdings and uh the bank bond holders and stockholders got rich on their bond and stock holdings. And so the banks uh the stock market went up, the bond market went up, the the banks uh with uh such uh inexpensive borrowing costs lent mortgages at very low interest rates. So you had the private capital companies uh both Blackstone and Black Rockck I think were buying uh real uh the homes that were being sold as Obama foreclosed on uh the groups that had voted for him and uh the there were distress sales that enabled the large capital firms absent to become absentee landlords turning the US economy away from a home ownership economy.

[00:19:12]back into a landlord uh e economy. So the low interest rates caused a hu a huge boom in stock and bond prices because they they move in opposite direction. And this policy uh has to fail in the long term because if you keep the prices for collateral held by banks and other creditors uh from falling in price uh that causes uh a a loss of financialized asset price gains uh that requires the economy uh to take on more and more debt. So yes uh let me say that more clearly. uh the the increase since 2009 the economy wage levels have been pretty stable but there's been enormous growth enormous growth in the wealth of the wealthiest 1% and in fact the 10% all this wealth is stock market wealth and real estate uh prices it it's been inflated on credit so the uh bank lending Because uh the more a bank lends uh the more a borrower can borrow and bid up the price of real estate or stocks and bonds. And uh that a bank lending uh any home or office building or stock or bond is worth whatever a bank will lend against it to people who borrow uh interest hoping to make a capital gain uh that's larger. And that's exactly what happened. But all this wealth uh valuation of wealth, the higher price for real estate already in place and stocks and bonds already uh issued. All all of this uh was financed by debt and the whole economy was loaded down with debt. That's what a zero interest rate policy did. So you rescued the economy from uh and the banks from insolvency by essentially helping the economy borrow its way out of debt. And that uh is what's that's the situation we're in today. today as we're facing a situation that's just as serious as 2009, 2008, just as serious because and all of a sudden you have uh bank loans and real estate that uh is going to have difficulty being refinanced. Uh how is the United can they once again follow a zero interest rate policy to revive and issue yet more debt when the economy has already painted itself into a debt corner?

[00:22:05]>> Exactly. And it does sound that the entire framework that you just described very much resembles a Ponzi scheme, doesn't it?

[00:22:15]>> Well, yes. a Ponzi scheme has to be kept going because you need new entrance into the Ponzi scheme. Uh there's not there's no real there there. Uh there's nothing.

[00:22:27]It's uh but you have a pretense, a claim that it's going to make money, but in you pay out very high dividends uh to and capital gains to the investors uh as if you're somehow making a lot of money.

[00:22:42]Well, where do you get this money to pay the investors if there's really no b generation of profits? Well, you keep hyping up the Ponzi scheme and you hope that new investors there's a sucker born every minute as PT Barnum said. You hope to get more and more suckers coming in and you use their contributions to pay the high dividends to the early investors in the Ponzi scheme. And it keeps going but ultimately uh the uh the the debts uh nominal debts to the uh depositors or the participants in the scheme get so high that uh there's uh no more money for pro being provided by new investors and the whole scheme fails.

[00:23:31]Well, the economy is like that today.

[00:23:34]the uh the uh real estate sector, the banking sector, uh the stock uh stock companies have all borrowed to pay the interest uh rates that are falling due.

[00:23:48]and as they they've borrowed money to buy real estate or stocks. Uh and how are they going to um be able to pay uh the banks as uh the stock prices go down and the dividends uh and and rent uh uh rents are squeezed by the higher costs of real estate. Not only mortgage costs but the rising insurance cost. Well, the banks uh can't afford to let them default. So, the bank said, "We'll lend you the money to pay, and we'll lend you the money to pay, and uh we'll keep lending more and more money, and you'll bid up the prices of the real estate and uh stocks, and we'll say, well, our collateral is worth it. We're lending solid uh loan against real estate's already there and against uh stocks, and look, everything's going up." So, uh, we have, uh, we're not in negative equity at all, but all of this rise in equity values that backs their liabilities is is, uh, all financed by debt. And if there's uh, no way that uh, borrowers can go to the bank and say, "Well, lend me more money to pay you uh, the uh, the interest and the debt service we owe." Well, then what's going to happen is the they default. Uh the bank said, "We can't afford you loan money because uh uh we you don't have any prospects for paying." Well, that's a situation that we're in today. Right now, with interest rates, uh 30-year mortgages, as I said, they're over 5% the if the bond mark Treasury uh uh securities are over 5%. So mortgage rates are up near 7%. Well, it's almost impossible at uh interest rates what they are today, mortgage rates for uh new buyers to or new sellers to be able to sell their homes. Suppose you have to move. Suppose you can't afford the home anymore. We'll let you put the home on the market so that you can pay the bank what you owe it and hopefully come out with a capital gain. But all of a sudden the homeowners uh and you could say the same for the stockholders uh are saying are realizing well there's no market for uh real estate at the prices that I paid just a few years ago because I borrowed and the carrying charge for my house is pretty low because I had a low interest mortgage. But now that uh new buyers are going to have to take out a higher yielding mortgage, uh they're going there the cost of carrying uh this mortgage month after month is beyond their ability because wages aren't going up.

[00:26:48]The economy is not expanding. The economy is shrinking. Bad weather is coming. Uh the risks are up. uh our insurance home insurance costs uh are rising and our local taxes are rising.

[00:27:01]So uh the the high interest rates are threatening another crash in the real estate market. This time it's not from bank fraud. It's just from the fact that uh the economy is debtstrapped.

[00:27:15]>> You mentioned the Treasury Department having to borrow more. Well, recently the Treasury Department announced that it would need to borrow more money than previously expected. And in turn, that statement sort of reinforces fears that Washington's fiscal position is deteriorating rapidly. It really is. And I think it's out out in the open for everybody to see now. But the risk of lending to a government that's already running massive deficits from one year to the next with rising interest expenses means that investors around the world are going to demand higher and higher returns. They're going to want higher yields. So how significant is the growing US national debt in pushing borrowing costs higher across the US economy?

[00:28:06]Well, that fear that the government cannot pay because it's running a a budget deficit is total junk economics.

[00:28:14]That's the uh the fallacy that thinking that the government balance sheet is like a private household. The government's not a private household. If all of a sudden you uh have to spend more money than you're earning, you can't go to the grocery store and uh buy groceries and tell the uh cash out uh uh person, "Well, I don't have enough money to pay. Let me write you an IOU and uh you can just uh maybe pay your uh whoever is supplying your vegetables with the IUS money." That's just crazy.

[00:28:49]The the government can always print the money. And when I say the government can print the money, that means the central bank can do it. The Federal Reserve uh can simply create uh electronic money on its balance sheet and the government uh essentially uh runs a deficit. the Federal Reserve gives it an electronic credit on its balance sheet and the Federal Reserve ends up holding uh more and more uh a increasingly large portion of the Federal debt that's running uh run up. So the government just owes it to itself. It doesn't have to borrow the money from the market because the Federal Reserve can create it freely just for the cost of electricity running its uh its computers. So there's this this pretense that somehow uh finance is part of the real economy just like a household budget. That's part of the junk economics that pe that economists are taught in school. And that's why economists are not the people who are running most of these uh investment funds and the stock market funds. There are people who uh have uh been free of an economic education and they they can go to business schools and they learn how to debt leverage and uh uh how to uh save on taxes and how to how to make themselves tax exempt. But uh that it's it it's just silly. So the the Federal Reserve's response uh to 2008, not only did they uh they funded the uh government debt by uh printing the electronic money, but uh they lent as I said to the banks all the way down to 0.1% but they paid the banks something like 2% I forget the actual rate on deposits.

[00:30:46]So the banks could borrow at less than 1% uh just take the money they borrow, leave it on deposit at the Federal Reserve and get free money. This was a special law that the Obama administration administered. He said, "We I've got to reward my campaign contributors uh with uh uh a free lunch uh and uh a way to make billions of dollars easily. This is what we'll do.

[00:31:14]uh give them free money to borrow, let them invest it at the Fed, just leave it on deposit, and they'll make enough money to earn their way out of the financial fraud, and then if they don't go under, we won't have to prosecute any of the crooks uh that ran these uh the the mortgage fraud. I mean, this was uh the travesty of uh the Obama administration. And so rather than letting uh the uh banks and their depositors lose money, uh they he uh essentially said, "Well, we can load the whole economy down with debt to um to make hundreds of make trillions of dollars for the stock and bond holders.

[00:31:58]Uh sacrifice the economy." But after all, who do I represent? Who does the Democratic party represent? my campaign contributors, of course. So, that's what he did. So, the result was, I said, was an enormous uh bond market boom and but a K-shaped economy, a the financial and real estate sectors uh and the wealth of the one to 10% of the population went way up. The rest of the economy was squeezed increasingly because it had to pay uh debt service on more and more of the debt that it was running up.

[00:32:37]Mortgage debt, credit card debt, student loan debt, uh auto debt, uh all of this uh debt service uh was squeezing its ability. And the result is that the the consumer market in the United States really hasn't been expanding. And one result is that last year in 2025, half of all of the increase in consumer spending in the United States was by the wealthiest 10% of the population. In other words, the billionaires were buying uh luxury uh handbags. Again, a lot of Italian fashions just like in the 18th century. Uh they're buying uh Botox facelifts. that's uh very popular. They were uh the luxury spending was way up but not spending on basic needs uh groceries and uh transportation and gas and oil. So uh the this K-shaped economy is a result of running the economy in order to uh pre increase the wealth of the finance, insurance and real estate sector, the fire sector at the expense of the economies uh at large. And this is what's called financial engineering uh not industrial engineering. uh and that uh that was what had uh sort of engineered the whole post208 recovery and uh it's left the economy very debt leveraging debt leveraged and uh the this means that it has hardly any room to begin raising interest rates again especially to distress levels and especially if the break in uh the international oil trade causes is companies to have to stop production because they can't get oil to uh fuel uh their uh their production process. the the farmers uh are reported now in the Wall Street Journal to have been cutting back their uh their planting uh in this season because they can't afford the high fertilizer that's made out of natural gas uh which has gone way up in price because America's uh exporting it all to replace Russian gas to Europe uh and to Asia. uh they can't afford uh to the gasoline to power the tractors. They can't buy the tractors. The tractor prices are way up because the big tractor companies are uh American companies have moved a lot of production facilities into Europe. And what do you make tractors out of? You make them out of steel and aluminum. And uh Trump has imposed uh high 50% tariffs on the steel and aluminum in these imported tractors uh for that farmers need. The tractor prices are way up. So the price of used tractors has gone way up as farmers try to avoid having to pay the new high prices. Trump's tariffs have also played a big role in bankrupting the US economy. All because he said if we can raise money by tariffs and make uh the wage earners pay falling on and farmers pay and industry pay then I can cut uh then I can cut uh taxes for the wealthiest uh 1% my constituency of billionaires. So uh Trump has created he's tied the economy in an even tighter knot than Obama did. That's the problem that we're uh having today. and uh uh pla companies are not even getting the oil to make plastics that need NAFTA. Uh they're worried about who's going to get the plastic bags uh that you need to uh put so many things in and to wrap the food at the supermarkets. You know, who's who's going to uh construction is going to be failed back.

[00:36:50]You have uh fluid, all sorts of uh oil fluids, oil for the uh that you need for the cars, for the lubricants are being cut back. You're going to have a break in the chain of payments and that means companies are going to have to cut back their production and that means cutting back employment and that means unemployment which is going to increase the uh the deficits here and in other countries and uh cause an even more lopsided uh economy where uh that is being crushed under the debt burden because when you're unemployed or when you have to pay higher cost of living How are you going to meet the debts that you have? Not only if you're an individual, but if you're a company, how if you're a company cutting production, h how are you going to pay the debts falling due? If you're a real estate company, cost of heating uh houses, cost of electricity is going way up. H how how are you going uh to pay it? The there's a total mess in the making. And yet the stock market in is going up. And before we turn to the stock market, because I know our viewers have many questions about the stock market doing well while the rest of the economy is weakening. But we before we turn to that, I would love to briefly focus on the bond market because I know that's that's that's been a focal point for the past several weeks. There's been a selloff and um bond yields have increased as you mentioned in the beginning of the interview. How do today's bond market conditions actually compare with past periods such as the maybe the 1970s inflation crisis or the early 1980s or even the post 2008 financial system? If you had to compare them and sort of uh point out the differences and similarities and how this one is different now, what would stand out to you the most?

[00:38:49]>> Well, good question. As I pointed out, the 1970s inflation crisis was the guns and the Vietnam war caused it. The guns and butter economy. Uh the econ uh America's foreign military spending accounted for the entire balance of payments deficit uh of of the country.

[00:39:11]It it absorbed uh an enormous amount of capital investment uh and uh uh employment. So employment was up. The Vietnam War in the 1970s were the golden age for American labor. That's when its uh wages and its living standards went up. Uh and Vulker said, "I represent the banking class." Uh labor is our enemy as it's always been the enemy of bankers.

[00:39:39]in the 19th century, in the early 19th century, uh we believe that the lower the wages are, the more money can be squeezed out as profits to pay dividends and by stock buyback programs. And my constituency uh is essentially uh the bankers uh and the enemy's labor. So, I'm going to bring about a depression that'll teach labor to try that'll break the unionization movement. Uh it it means that there won't be jobs and uh companies are labor is going to be desperate for getting work and workers are going to uh work for lower wages and that's what we want. Lower wages mean higher profits. Higher profits mean more investment in bank loans for my constituency. So but but today we don't have a an over what he called an overheating economy of too high employment. We're having unemployment going up. We're having underemployment uh uh happening. We're not having a wage inflation. We're having wages being squeezed tighter and tighter. Uh and that is what is forcing wage earners to uh run into credit card debt and defaulting on credit card debt to uh they're being squeezed by uh the they now have to pay uh the enormous uh student loan debt that they've taken under every form of debt, mortgage debt, auto auto debt. Uh they're they're all rising in default rates. Uh so it's a completely different situation from the 1970s. And yet the rhetoric and the s sort of junk economics that the stock and bond market and media promote is the same. Not realizing that we're now in a tighter corner than uh we were in the 1970s when uh the government was able to say all right we're going to cut back our military spending. We're going to rebalance the budget. Uh we're going to cut taxes and do all that. uh is not possible to cut taxes anymore uh than Trump has already done without there being a political revolution here.

[00:41:55]>> Could the current bond market uh condition or situation could it eventually force Washington into uh fiscal austerity or uh as you said major spending cuts would likely be impossible. So what is the alternative here?

[00:42:12]Washington's not going to cut spending except they're it's going to do what uh West Germany and Europe is doing. It's going to say, "Well, uh we have to uh we've used up so many arms in the uh Iran war. It's already cost uh two or three bit trillion dollars. We can't afford to fight war uh to maintain uh the American Empire and have social spending. We're going to ha I'm afraid we can't we're going to have to roll back social security. Can't pay it.

[00:42:45]We're going to have to roll back social spending. Can't pay it. We're going to have to slash government like uh Mr. Musk has said. We're going to slash re uh uh grants for research and development. We're going to slash supports for the universities. We're going to slash social spending. And we're just going to hit the economy real hard. We're now a military economy. For forget any social service economy. You voted Republican. You voted Democrat. Uh we're all together. We both agree. Cut back social spending. Uh private sell off the uh the post office for money.

[00:43:21]Let it be privatized. Sell off whatever the government has uh parks or uh oil uh reserves or natural resources. uh just uh shift our spending to military spending and to payment to the financial sector uh so that we can pay the interest rates on the debts that I Donald Trump have run up by my uh tax cuts that uh Congress went along with uh Republicans and Democrats. Uh so now that you've uh cut the taxes on the rich, uh you're going to have to lower your living standards 10% 20% you're going to have to go bankrupt. you voted for me that you voted for tax cuts. Now pay the price. Has to be paid by somebody. It'll be paid by you, the uh the majority of the population, what used to be called the middle class.

[00:44:12]>> There's no free lunch, right? And that that's just proof of it. Um let's turn to the stock market. Um what impact do rising long-term interest rates actually have on the US stock market? I think there's so many misconceptions and I would love for you to to kind of walk us through the the the basic concepts here and and explain how the rise in interest rates actually impact the US stock market and everybody's 401k and and investment accounts and everything in between.

[00:44:42]Well, this uh the most stocks are not uh bought up by the savings of uh the work uh the workers through their uh pension funds uh or through their own personal savings. It's borrowed money. Most stocks are bought up by uh institutional investors. They borrow from banks. Uh this was uh what we dis what was shown in the 1980s the junk bond takeover movements. uh investment banks uh starting with Drexel Burnernham in particular uh would borrow uh raise money from uh potential bond holders and investments you know at uh a relatively uh high interest saying we're going to make a killing by by buying out companies so invest in our uh corporate rating companies and will borrow cheap will b will buy up companies corporate rating. That's what the junk market was all about. Uh uh you had interlopers uh financial companies buying industrial companies taking them over and then slashing production costs uh de-industrializing the economy cutting any long-term uh research and development or capital investment in order to make money very quickly. pay out in dividends. Uh and so in the last few years, few decade over a decade uh over 90% of uh industrial companies uh earnings, cash flow, profits and uh other uh non uh taxexempt uh income has been used for dividend payouts and uh stock buybacks. The whole purpose of investing in stocks isn't simply to borrow at a low price and buy stocks paying a higher dividend. But that's most of the borrowing. Uh but to uh buy buy companies and then break them up uh if you buy buy hospitals and say how do you make money by a hospital that is hardly breaking even? Well, the hospital will sell off its real estate to a separate company uh and uh lease it um lease it back from the company. So the the hospital will take on all of a sudden have to pay a huge rental charge for the land under it and the the the building of the hospital that is now owned by a separate real estate company.

[00:47:30]uh but the uh the corporate raiders of the hospital will use the money that this parallel company has uh used to buy the uh the real estate and pay it out as dividends to themselves. It's all de-industrialization.

[00:47:49]So essentially the stock market has becoming become no longer a way of raising money for capital investment to employ labor. It's uh raising money to break to take over companies, break them up and de-industrialize them uh and leave them in bankrupt shells. That's happened again and again and again. Uh Sears Robbuk, uh Toys R Us that uh private capitals bought out in in the smash and grabb uh way. And that's called enchitification.

[00:48:27]new words added to the English language to describe uh this whole process. So most stocks are bought with borrowed money. Uh and of course there's there's always been the pension fund investments, but the pension funds have lent money to the private investment companies to do this to financialize uh companies. So the industrial sector has been financialized and that's what I meant when I said we've moved from industrial capitalism to finance capitalism.

[00:49:01]>> It it's interesting because the long-term uh interest rate on 30-year Treasury has hit 5% and that's sort of that threshold where everybody seems to uh start noticing the the interest rates once it hovers above 5%. And then the 10-year note, I think, is at 4.6% or so. And it's, you know, if this is temporary, then there's a good argument to be made that, well, this is just sort of transitory, using Powell's favorite word, but it it it's not in this case.

[00:49:39]So then the question becomes, how long can the US economy actually sustain long-term interest rates like these? and and what what do you expect moving forward as a result of this?

[00:49:52]>> Well, I discussed this whole problem in my book, Killing the Host. And uh I mentioned there's something called the rule of 72. Any rate of interest is a doubling time. And you want to think, well, how long does it take uh a debt uh to double? Well, you divide uh the interest rate 72. it works out to 14 14 years. At 5% your debt is going to double in 14 years. Well, imagine what this is going to do to uh the the federal debt to the uh real estate debt to the personal debt in the economy. If you have the debt doubling, uh if you're having trouble carrying today's debt overhead, how on earth can you uh inif next 15 years pay twice as much debt?

[00:50:48]Well, the only way of doing that is for the economy to grow more rapidly than debt. But that's not what happens over over history. Economies always grow less rapidly than the growth of debt because the growth of debt is exponential. It's purely mathematical uh and a rising uh doubling time. But economies grow in the form of an S-curve. They taper off. And one reason they taper off is because the debt burden becomes heavier and heavier. And that is what slows down the economy until there's a crash. And the crash usually wipes out the debt. Well, that didn't happen in 2008 and 2009. By not wiping out the debt, the Obama administration kept the debt on the book. It didn't let the economy free itself from debt. Uh and so it's maintained it all. And uh the uh it's this is unsate of growth in further debt is unsustainable in an economy that is already debtstrapped.

[00:52:00]>> And there is one elephant in the room that I would love to quickly touch upon.

[00:52:04]I know this is sort of a a topic on its own that's very very involved, but let's talk about private equity bubble because obviously rising long-term interest rates have a direct impact on uh the refinancing potential and uh debt defaults and you've sort of alluded to it earlier in this conversation, but with respect to private equity firms, what are the consequences then? because there is I think it's a trillion multi-t trillion dollar bubble at this point. So it is very concerning to even imagine the situation where long-term interest rates are rising and the debt comes due.

[00:52:45]Well, the private equity companies borrow you raised money from investors, pension funds and other mainly institutional investors uh to uh do their uh corporate rating and uh smash and grab uh to make profits by uh cutting cutting employment uh working laying off labor uh not replacing uh workers who've retired. uh cutting back on profitable businesses and then selling off parts and parts just to pay higher dividend to the investors. But right now the uh with the economy slow shutting down in many areas or slowing down because of energy the companies are not able to make further corporate rating and uh the the parasite has already drained the host of what it uh uh the revenue that it has. And so the private equity companies uh say well how are we going to pay the investors? A lot of the investors see what I've just described and they said, "Well, you know, it looks to me like uh the boom is over. Uh I want to can you uh cash in our shares? We want to sell. Will you give us the money? You know, we've made enough money. Thanks. But now uh uh give us we want to withdraw our deposits."

[00:54:10]Well, uh the the private equity company says, "I'm sorry. We've frozen withdrawals. if uh you try to withdraw your money, we will have to sell all of the sell some of the assets that we've bought, some of the companies that we've bought. And of course, we've already crippled them. Uh we've injured them, we've left them uh u on their way to being corporate shells like Sears and to Toys R Us. And uh we'd have to take a huge loss. And if we took took a loss, we'd have to report our net worth as negative. And that would panic even more of our uh depositors and investors uh to sell and then we'd be bankrupt. So uh there all of a sudden the investors are locked in to the uh private equity. So the runners of the private equity said let's pay ourselves a special dividend and a and bonuses for a big hurry. Let's just let everything collapse. And that's what they're doing.

[00:55:12]And the losers are the the investors and uh pension funds that thought this was a new magical way of making money instead of just post-industrializing and in shitifying the economy.

[00:55:25]>> So with everything that you've just described, what are the prospects for today's US and foreign economies in the face of the oil crisis? because we know that there is no diplomatic solution um that we are aware of at this point in the USIsrael war against Iran and Iran is of course capable and willing to inflict enormous economic costs in the event of an attack on its territory. So the energy crisis I think it would be fair to say the energy crisis is going to get worse. How is that going to affect the US and foreign economies coupled with the things that you just described in today's conversation?

[00:56:08]>> There will be a lot of debt defaults.

[00:56:10]And when there's a debt default, properties transferred from debtors to creditors. Uh homeowners are going to lose their uh homes to the banker, the mortgage bankers. uh companies are going to have to uh uh lose the company to their own bankers and and bond holders and creditors. So uh you're going to have uh much more of a concentration of property. Uh financial crashes are gold mines for the wealthy company uh uh uh sectors with money. Uh the the United States will probably go through something like the Asian financial crisis of uh 1998 uh when the Asian countries uh were in a squeeze and the currencies crashed except for Malaysia that imposed capital controls instead of free markets and uh pre saved itself from a crash. the other Korea, Japan, Singapore, uh other uh countries crashed and uh foreign uh capital investors came in and uh grabbed up uh companies in distress at bargain prices. So that's what uh the United States is going to look like except uh it'll be the uh wealthiest 1% that has access to bank credit uh and the bankers and the financial sector that ends up with more and more property that used to be owned by the popular the non-financial economy at large.

[00:57:50]>> Professor Hudson, thank you so much for being so incredibly generous today with your time and for joining us. It's always an honor to host you and the conversation has been incredibly educational and uh thought-provoking and I would love to have you back again to continue the conversation. And to our viewers, please give Michael a follow on Patreon. Support his work. I I'm I'm a I'm a big fan. And also check out his books which I will link in the description below. Uh check them out, purchase them, read them. You will not be disappointed. Michael, thank you so much for your time today.

[00:58:26]>> Well, it's a good time to have this discussion.