I have always held Michael Hudson in the greatest esteem. Not only do I consider him my favorite US economist out there, I also know that he is a kind human being. He manifested this kindness again when he agreed to reply to some very basic questions which a non-economist like myself would ask. I am deeply grateful to Michael for taking the time to reply to them!
The Saker: I suppose that like any system, the economy and financial system in the USA and, more generally, in the West can take some punishment, but there has to be a “point of no return” after which the entire systems comes tumbling down like a house of card. My first question is double: a) what would be this “point of no return” and do you think that we have (or will soon) reach it? b) What would be the signs that this “point of no return” has been reached (or is about to be reached)?
Michael Hudson: The point of no return would arrive when the Federal Reserve and government stop bailing out the bankers and the stock and bond markets and let real “free market” asset prices collapse to reflect the “real” economy’s shrinkage. There would be a sell-off without the Fed’s promise to be the buyer of last resort.
The problem is that the economy can never recover from the Obama Depression (resulting from his refusal to write down the junk-mortgage debts and the other debts to the leading financial institutions) as long as it keeps the present debt overhead on the books. But Sheila Bair’s comment still applies: “It’s all about the bondholders.”
So I don’t expect a soon “point of no return.” But when it finally does occur, it will be sudden – as all crashes are. It may be triggered by a bank or speculator making a bad trade and being unable to pay, as AIG’s London office was unable to do so in 2008.
That said, who would have believed that the stock market would continue to go up while the underlying “real” economy is shrinking drastically. Obviously, there has been a decoupling of the economy’s two sectors: the Financial, Insurance and Real Estate (FIRE) sector from the production-and-consumption economy.
I think that the Fed will let the large insiders sell out (and even make a fortune on selling stocks and bonds short) before they pull the plug. The key is that the collapse of the economy must be managed as a financial gain-seeking opportunity for the big banks and financial speculators.
The Saker: There is a lot of talk about the big corporations out there, but I want to ask you about the “little guy” (like myself and most of our readers): what can we do to prepare for a possible economic and financial collapse? For example, do you consider that our money is safe in US FDIC insured deposits banks? Or there be a “bank holiday” or even a full scale “run on banks” like what happened in Argentina? Should we pull our saving and keep cash? Or even get gold/silver? What do you recommend for the “little guy”?
Michael Hudson: FDIC-insured deposits are safe. They won’t let that go, because that would end the banking system.
There won’t be an Argentina-style run, because its foreign debt is owed in U.S. dollars, which it can’t print. But US debt is owed in its own currency, which the Fed and Treasury can create at will.
The stock market will zig-zag in approximately the current range, until the plunge is permitted to occur. The safest investment is in U.S. Treasury securities. Gold is fine also, but the problem is how to keep it free from theft. Like currency, it can be robbed.
For your small investors, the best aim to protect themselves is to get (and stay) out of debt, secure their home and livelihood from what may be a Third-World type austerity plan, IMF style resulting from state and local bankruptcy. (Avoid buying tax-exempt state and local bonds.)
The Saker: How bad is, in your opinion, the current crisis in financial/economic terms? Some say that this will (or, already is) worse than 2008, 9/11 or even the Great Depression. Do you agree and, if not, why?
Michael Hudson: The current depression is the worst since the 1930s. There will be a new wave of foreclosures, on commercial real estate as well as residential homes. The problem will not be merely junk mortgages, but the loss of income by rent-paying stores and other commercial property and residential housing.
We are at the end of the 75-year upswing that began in 1945 when the war ended with few private-sector debts and abundant savings. Now, the situation has been reversed: a heavy debt overhead, with little savings by most of the population. The growth in the economic surplus is now spent almost entirely on debt service and other financial charges and rentier payments to the FIRE sector. Rentier capitalism has replaced industrial capitalism.
The Saker: a lot of people (and corporations) out there are loosing millions and even billions. But others are making a killing (Amazon?). Who in your opinion benefits most from this crisis and how?
Michael Hudson: Financial and political insiders will benefit from the crisis, along with monopolists. The rest of the economy will lose – but the quickest fortunes often are made in a crisis. As Adam Smith noted, profits often are highest in countries going fastest to ruin. But this time it is not profits that are the key to fortunes, but “capital gains” from bank-inflated asset prices.
In a nutshell, the financial game has been rigged by political insiders and their financial backers. Their time frame is short-run.
Jeff Bezos and Elon Musk among the biggest billionaire profiteers of the COVID-19 pandemic
Brief but power-packed with sound judgment.
A SITREP of the US economy, a virtual elevator whose cables are about to snap, plunging the society into a crash.
Yes, sound judgement has been shown in the article. Even so, the article is a little bit more optimistic than what other analysts have expressed. According to one analyst, the US Government is even preparing the introduction of a new dollar once the current one crashes.
How would a new dollar be any different than the present one?
The new dollar will be digital, meaning any purchase you make will be available to .gov and their cronies.
Thats not quite it at all, the new dollar would come w/strings attached, a different, better education system where peoples cost of living drops over time, they pay less taxes b/c the gvt is more efficient. Health care costs are reasonable, people must prove they are capable of affording and raising kids, these are just a few of the strings that would accompany a new financial system.
Crypto would be a long ways off as everything would have to pass the test of time first before gaining access to the monetary system or even the economic one for that matter.
Providing of course there is a national government as we now know it. It is no secrete the government derives it power from force. It can afford to hire people who will kill to enforce the rules for now. But that may come to an end and smaller movements could easily tear a chunk out of the terminally ill giant. What happens if say the west coast is finding it easier to operate among themselves rather than being under whoever is in the white house. Who is going to stop them from leaving and forming their own nation? The politics are very polarizing there is a lot of hate from both mythical sides. But in fact there is only one side that being those with obscene amounts of money. People are catching on to the propaganda and will reject it completely if it cannot put bacon on the table. That day is fast approaching where those that can get the most done with the least are going to be leaders. Those people are not found in Washington DC but on a more regional level. So stocks and bonds do matter one must consider what they will be worth if the nation no longer exists. What we use for exchange is not does not solve the question of how to create production and rebuild the middle class.
“The new dollar will be digital, meaning any purchase you make will be available to .gov and their cronies.”
The new dollar will be ‘Electronic’ meaning no one can ever know how many are in circulation!
Everybody’s phone will look exactly alike, yet one man’s phone wight buy him a coffee and a doughnut, while the other man’s phone will allow him to live in a Luxury Hotel for ever, this is how it has always been, the new system, if it comes, will have a major difference, both phones and their owners can be shut off at the will of someone else, think of the control those who control the Phones/money will have over of the people who use them!
I do not own a cell phone, nor will I ever, that said, there are far worse things than death.
Honestly, my recommendation is to start ‘aiming for even swap’, immediately. Right $!@#/\% now, basically.
Everybody, lower their weapons, cool off a bit…
Then, start trying to be reasonable.
Someone please correct me if I’m wrong, but the way I understand it, FDIC and NCUA
protect account holder deposits from bank failure (i.e., bankruptcy). The new Bail In law passed last year allows banks to confiscate (“bail in”) those deposits to satisfy liabilities which the banks can’t satisfy, thus avoiding (or postponing) bankruptcy and the bank therefore has not “failed” (yet) and the deposits will not be covered by the FDIC/NCUA insurance. After the bail in occurs, the depositor no longer has any deposits to insure, and the bank can fail any time thereafter without triggering any depositor liabilities against FDIC/NCUA. I hope I am wrong about this. Help!
The bail-in legislation was passed about 7 years ago, making it legal to seize savings accounts in excess of a certain amount (something like $10,000, I don’t recall exact amount).
That’s the way I understand it too. Account holder deposits have always been highly coveted, and they won’t receive any special consideration whatsoever. They’ll be stolen – “bailed in,” if you will – just before the final collapse and the eventual roll out of the new digital currency, by invitation to a select few only. No more hiding cash under the mattress or any such foolish notions allowed.
If the “government” in DC takes people’s bank accounts, they will see the second burning down of Washington.
The American populace is on a razor’s edge over Second Amendment and First Amendment threats ongoing.
Take their money and they won’t bother with pitchforks and rope.
They’ll wipe out the Capital.
Five million trucks and tractors and SUVs will mobilize spontaneously.
The special forces and paratroopers assigned to save the asses of the ass-clowns in DC won’t be able to kill enough fellow citizens to stop what will march against the “government”.
Make people desperate and they will rebel with ferocity.
With respect Larch, I’m a longtime follower & admirer of your posts, but I find the notion of serious resistance to tyranny in the USA hard to swallow. Just today I was out in my community (Tempe AZ) and witnessed an American citizenry transformed almost overnight into an nation of terrified zombies wearing diapers on their faces! Why? Simon Says! All this the result of entrainment (TV, hypnosis), intense unrelenting propaganda (30 second “public service” ads on YouTube, breathless TV news reporting, etc) and peer pressure; guided by Bill Gates, Dr. Fauci and God knows what other slithering evil monsters behind the curtain. Very few people seem to notice that anything is wrong.
It turns out that people who would confront soldiers and even tanks, gun in hand, are terrified of an invisible enemy that could be anywhere and that, instead of leaving you bleeding to death in the street, threatens gradually to suffocate you.
Governments and corporations were very quick to notice the potential advantages to them.
Why fill the streets with armed men in black uniforms, when you can just tell everyone that if they dare step outside they will die?
To a degree, citizens are even scared of being sent to hospital – where they are also likely to die.
Btw, Mr monte george, Have you provided for the promenades, walk loafing arounds and office presences of yourself and your wife and kids to the streets and open air?
Have you proudly done that in a show of freedom — and without any mask diapers in their/your faces — just to prove whole free, ridden from Fauci’s and TV propaganda who tell everyone to better stay home?
After all history demonstrates civil disobedience can be a virtue.
I hope you give consequence to your philosophies accordingly, with a practical application your household & familiar circles otherwise they are ‘nt worth a trump’s fart.
Sadly, agree, Mr. George. Really, really difficult to see how the proles revolt. They are just too isolated and cowed and disorganized. Who really is going to go up against militarized police? Just don’t see it.
I agree with you 100% – there is no courage left in the US – and a brave person is next to impossible to find. There will be no revolution – people are far too fearful of everything and everyone – completely divided and conquered. And there is very little love and caring among Americans. Very little mercy – just watch them pass by the homeless drug addicts sleeping on sidewalks – nobody even notices them.
I have never seen a more cowardly nation than Americans. By far the biggest cowards and generally they know very little and have no confidence (they do have a lot of mania which sometimes gets confused for confidence or happiness).
This is a far more likely outcome
”Take their money and they won’t bother with pitchforks and rope.
They’ll wipe out the Capital.”
Nope. They will rage all right, but the 1% knows how to make use of the shitstorm: Point finger at whomever is causing trouble to them, such as Russia, China, Syria, and Iran. To Pindos, imperialist lawlessness, violence, and reaction will look a lot more appealing than to stir up problems with their own superiors, believe me.
As the man said “do you wish to die on your feet or live on your knees” that’s the question that begs to be answered.!!!
“Nope. They will rage all right, but the 1% knows how to make use of the shitstorm: Point finger at whomever is causing trouble to them, such as Russia, China, Syria, and Iran. To Pindos, imperialist lawlessness, violence, and reaction will look a lot more appealing than to stir up problems with their own superiors, believe me.”
Yes, the average American will regurgitate every propaganda lie or smear that the American Empire spews against its enemies … all in order to avoid looking in the mirror at the morally bankrupt nature of American society and its way of life.
THIS is the reason why the American Oligarchy is so brazen in giving itself trillion dollar bailouts like the Goebbelsian-named CARES Act or similar capitalist bailouts.
The American Oligarchy knows damn well that the USA is in reality a nation of well-trained parrots–who masquerade as a nation of “rugged individualists.”
Like everything about the United Snakes, this very idea of American individualism itself is fake to the core.
I agree with Monte George Jr. and Nussiminen.
Americans like to think of themselves and dynamic and “take charge,” but it is not true.
If the banks seize personal accounts, Americans will simply roll over and accept it.
Think about it. In the past forty years unions have been destroyed, the standard of living for most Americans has plummeted, working hours have gotten longer, the bill of rights has been (de facto) repealed, police can murder citizens and confiscate their assets with no accountability, dissenting voices get deplatformed and so on and son on.
What have Americans done in response?
”Americans like to think of themselves and dynamic and ’take charge’, but it is not true.
If the banks seize personal accounts, Americans will simply roll over and accept it.”
Absolutely correct, and it serves to vividly illustrate my verdict:
Better still: If the banks seize personal accounts in the US on the pretext of fighting the malfeasance of country X and that the customers thus shafted should sue country X for due compensation, the Pindos will go masturbating to the point of insanity!
They’ve done nothing in public, but in private the wheels of justice are turning like a sour stomach.
And once those private stomachs puke out the last supper, after thinking the fat lady has sung, the band has played its final waltz, and their big black paycheck can soon be collateralized and collected upon. The public will once and for all see the naked system walk out the door rather than face the face and consequences of their past actions.
Supposedly all US bank deposits are insured up to $250,000.00. Therefore if the US Treasury sequestered everything above that amount, 90% of the public would approve.
90% of the Pindos would be vehemently against the sequestration, condemning the latter as ”unconstitutional” and/or ”communism”. How can I be so sure of that? Easy: The owners of the Corporate Media all fall into the >250k income bracket. They will let their fellow Pindos know what to think about it in no uncertain terms.
I am not sure that is true anymore. I was an attorney before I retired. I cannot say for certain that what you say is no longer true since I never researched it. But I did hear that legislation was enacted which pledged bank deposits as security for derivatives issued by the banks.
Again, I never researched it so I am not positive about that. But I did hear something about congressional legislation pledging bank deposits as security for derivative bets. If that is so, the $250,000 insurance is only good if the banks fail for reasons other than the fact that there are too many derivatives “called in” for payment. On the other hand if banks fail due to the fact that too many derivative bets are called in, there is no insurance.
There is so much money currently subject to derivative bets that calling them all in for payment would not only place obligations on the issuers that would exceed the assets of the entire banking system, they would exceed the fair market value of every single asset on the entire planet.
That is the type of speculation going on in the financial system.
Banks can seize your deposits and compensate you buy giving you shares in the bank. In that situation you do not get the benefit of the $250,000 insurance. You get the stock shares.
This was part of the so-called “reform” bill passed after the 2008 collapse.
This really does not help retirees since the stock would probably be worth nothing after a financial collapse. By the time the bank stock acquired value (if ever) it would be too late.
This is what happened in Crete during the banking crisis there. Depositors lost their money and were issued stock certificates. It also happened in the Great Depression in the United States in the 1930’s.
I heard about this law you mention about 5 years or more ago.
I think what you describe happened in Cyprus not Crete
People with more than $250,000 have multiple accounts, each insured separately.
Private property has been at risk in the US since the inception. It can be taken by governments (Local,State or Federal) for fair market value. And confiscation of banked funds is every day taken by the IRS. The federal judges will rule for the Federal government if it means correcting a collapsing financial system.
As for the gutless public. It only takes a small percentage (take a look at the armed protestors in Michigan and similarly in Virginia recently) to create an armed rebellion. Pockets of these guys (man of whom have served in the military) are in many states.
Again, a person who has nothing more to lose is a very dangerous person.
It’s easy to dump on the sheeple. Most will never do anything about their enslavement.
I’m talking about the Extremis historical moment.
Like pandemics, they are rare but they happen. And in America, they happen with some regularity.
The difference next time is how widespread and how large the numbers. It won’t be a few dozen like Waco.
There are regional causes that will ignite.The Western resentment of Federal ownership of so much land.
The Southern resentment of suppression of the history of the Confederacy. And most everywhere, the erosion of Second Amendment rights by the leftist control of state governments.
Complicating it are sentiments of secession from the Federal system, and the likelihood that the Mexican Cartel with 150,000 foot soldiers, could easily breech the border and take part of Arizona, part of So Cal and part of Texas.
There is a lot of security issues the US could face if the right tinder is ignited by the DC fascists.
How many AFV’s and attack helicopters can the cartels field? F-16’s?
“Make people desperate and they will rebel with ferocity.” Absolutely true. What makes it unbelievable for many people is that humans, as any animals, will choose flight over fight 100% of time, when the stakes are really high – like lives of us or our children and grandchildren. Where I come from, we had a civil war, a nasty one. Yet, on all sides people tried to eschew draft at any price.
When situation is really bad, there is a portion of people that has no choice – they are the ones that fight, just because there is no other option. If anybody tells you anything different, honor, patriotism – it is all propaganda. Dmitry Orlov mentioned in his first book about collapse of then USSR that they were lucky because the environment was in fair shape. This means – there were places to run, or use to your advantage. Whoever was able to emigrate legally, they did so, next wave was semi legal or illegal work in foreign countries, mainly Western Europe. Every day since the war is a bit worse than the previous one, but people’s threshold for acceptable suffering goes down, and somehow nobody has taken pitchforks, or better, AK 47 they brought from war. Now, 25 years later, the western world is crumbling. We, who fled wars and deprivations, we can see that when it goes south here, there is no where to go. We are not at the bottom yet, there is more fat to live on before bones are bare.
If really supply chains break and starvation becomes real, well, smart people will steal and kill for food and necessities. 1%, will initially be safe. But next 2-5% will become targets. In short time, sovereign states will fall apart, and the peaces will be various sizes and powers, ruled by warlords and local thugs. The strong ones may then organize and go after 1%, or, more likely,conquer the weaker ones, and generate their own 1%. Mere mortals like us, we will behave like a flock of sparrows when a cat ambushes them – in general chaos some (majority) will be more lucky than others, learn to play by new rules, and somehow survive long enough to prepare offspring to survive one more day.
Larch is right, but I understand how others cannot believe. That kind of denial is actually healthy, people still have hope. The fact that I agree with Larch, and from personal experience can confirm what he says does not make me happier or better prepared for what may come.
Come what may, the flock of sparrows will survive as a flock. A few individuals or families, even nations will perish, the rest – we’ll adapt to the new reality. That is evolution.
For the average person with their money in a bank, what can they do right now to prevent the bank from stealing it in the future? Withdrawal the money and then deposit it where? Are there any safe banks that won’t likely “bail in” your money?
Keep a minimum amount just to keep the account open and usable. Hold you cash yourself.
All banks that are federally insured will be subject to any bail in action.
Research if credit unions are part of the plan. They are insured by NCUA, not FDIC.
The trigger for this is under Dodd-Frank law. It is failure of the bank that then uses accounts to handle the bankruptcy.
Here is some info.
This is why all we have left are to big to fail big banks, so instead of triggering a bail in, we trigger a bail out of the big banks, who then hold the citizens accountable to the debt they have accrued, taking and holding real estate, cars, anything and everything that is liquid until they decide to bring it to auction at the highest price possible.
I would like to think its similar to big oil holding onto oil until they no longer can and whamo a big and sudden discount, but since there is never a storage problem with bank assets, they can afford to wait it out until their price is met, unlike oil.
I keep a minimal balance in bank checking accounts just to pay bills.
I had been holding excess cash in treasury backed money market accounts. They paid much higher interest and had less risk. But now the interest on the “treasury backed money market accounts” has dropped virtually to zero. And when you consider real inflation (not the made up inflation rate coming out of Washington) these accounts actually lose about five to seven per cent a year in value.
To make matters worse, the US is now debauching the currency “big time.” So holding treasuries is an invitation to huge devaluation-based losses.
I really don’t know what to do at this point.
Stock up on food, soon you wont want a return on your money, you’ll settle for a return of your money.
Of course the details may vary across national boundaries, however in general, following the 2007-9 global financial crisis, various banking law/regulations were quietly changed in many domains such that you do not have ‘savings’ in a bank account to which they pay interest and re-loan at higher interest etc — i.e., the ‘3-6-3’ rule … borrow at 3%; loan at 6%; and be on the golf course by 3pm.
Rather, as I understand it, now a depositor (saver) makes an unsecured loan to the bank (you are a creditor, the bank a debtor) and the bank can then default on the loan if needed etc. Subtle but fundamental. They win, we lose and the ‘government’ only takes the hit after the mugs have been mugged. Some smaller amounts may have some type of government insurance etc for the ‘mom and pop’ voter scale.
I believe the deposit becomes the capital reserve of the bank which becomes their “security” for the “money”
or really credit they create.
This reserve they are requred to hold was recently reduced to zero.
I guess this means all deposits are already being utilised.
Long term ready but not much of in terms of commenting. I would pay very close attention to Ripple (the company) and XRP the digital asset. Look closely at heir alignment with larger multinationals and regulatory bodies worldwide.
“With a bank bail-in, the bank uses the money of its unsecured creditors, including depositors and bondholders, to restructure their capital so it can stay afloat. In effect, the bank is allowed to convert its debt into equity for the purpose of increasing its capital requirements. A bank can undergo a bail-in quickly through a resolution proceeding, which provides immediate relief to the bank. The obvious risk to bank depositors is the possibility of losing a portion of their deposits. However, depositors have the protection of the Federal Deposit Insurance Corporation (FDIC), insuring each bank account for up to $250,000. Banks are required to use only those deposits in excess of the $250,000 protection.”
I guess, who has more then 250k on account is not safe for amount above 250k.
Well nothing is for sure look at pension rights the so called vested pension, one stroke of the pen and it was gone, shifted on the ledger from column A to B.Now if hyper-inflation should sit in just what would those savings be worth,the money you worked did without and saved would be worth little to nothing including your 401K ,when thieves roam the land and controls the government nothing is safe.!!!
I always look forward to what Hudson has to say. He’s one of the few economists, along with Dean Baker, that seem to know what they’re talking about (not that I understand much about it).
It would be nice to have a follow up with him with questions from the peanut gallery here, such as:
1) Exactly what does he mean by “pulling the plug”? Just a crashed stock market, or something up to a complete economic collapse (and what would that mean exactly, hyperinflation, or deflation, or …)?
2) But if the latter, would T-bills and even FDIC insured deposits really be safe?
3) Why would the banks need to cause a collapse at all, if they can continue to just print themselves out of it, as they are doing. I guess the answer is that one cannot continue to do that forever? But as long as the USD is the world reserve currency, why not?
Personally, I have what little savings I have in gold/silver, and I’m not worried about theft where I live. But I keep expecting it to rise, but it seems apparent that the powers-that-be won’t let it. Can they continue to stop it by selling paper short into the market?
For more detail on Dr. Hudson’s views, I suggest looking up his appearances on “Keiser Report”. He is indeed the best out there.
I try to read everything he writes, and have some of his books, but prefer to read than listen so don’t tune into the Report much. Thanks.
I’m just guessing here because we are in uncharted territory.
Pulling the plug would mean they can no longer throw money at the problem faster than the money inflates. Meaning if they are seen to be printing, investors flee and they must print more. I somehow doubt that this will happen to the USD. There are many other currencies which are culturally less stable.
Tbills are about as safe as any financial instrument. If they stop paying interest investors will flee a d fast. Furthermore they’ll have difficulty running government at all levels.
Banks do not want collapse because they will also collapse. Banks don’t want to lend to unemployed people though so their individual incentive structure is perverse. Meaning what benefits a bank individually is what will collapse banks collectively.
Personally, I think what the wealthy buy will go up in price and what the poor buy will drop. I’m guessing property will eventually rise because inflation eventually will. Once the cheap oil and the unemployment crisis settles the economy will be awash with fresh “printed” currency. Short term pain for most though. In theory this would mean debt against an asset would be lucrative if the debt rate is fixed. Like the 70s when Nixon printed his way out. Long beads and big hair. : )
Again, I’m only guessing.
Buy Van Gogh’s, Picasso’s and Rembrandt’s would be my advice.
And bury some gold under your tennis court (they never look there).
Exactly what does he mean by “pulling the plug”?
The Federal Reserve has been “injecting” (giving away) huge amounts of cash into the economy since way before the current crisis. At some point, that has to stop, probably because it stops working. When the Fed stops giving away cash, they’re “pulling the plug.”
A short but important article from Dr. Hudson.
The author’s salient point for me was:
” For your small investors, the best aim to protect themselves is to get (and stay) out of debt, secure their home and livelihood from what may be a Third-World type austerity plan, …”
I stress to my children and grandchildren that debt is the great enslaver if too much money is borrowed compared to one’s ability to repay. Save cash whenever possible, even if it’s 10 dollars a week not only as an emergency reserve for yourself but to help others as well.
This is one of the reasons why the Saker’s Vineyard needs to continue despite the difficult economic times put upon the curator. We all have been affected by this invisible bug that is destroying what little wealth we in the community have to keep our hopes alive and for truths to be heard.
“Hereby perceive we the love of God, because he laid down his life for us:
and we ought to lay down our lives for the brethren.
But whoso hath this world’s good, and seeth his brother have need, and
shutteth up his bowels of compassion from him, how dwelleth the love of
God in him?
My little children, let us not love in word, neither in tongue; but in deed
and in truth”. (1 John 3:16-18 KJV 1611)
“(Charity is) for those in need, who, in Allah’s cause are restricted (from travel), and cannot move about in the land, seeking (For trade or work): the ignorant man thinks, because of their modesty, that they are free from want. Thou shalt know them by their (Unfailing) mark: They beg not importunately from all the sundry. And whatever of good ye give, be assured Allah knoweth it well.” (Al-Baqarah:274 Holy Quran)
Michael Hudson stated:
I am amazed to find that Michael Hudson is even more cynical than I am.
Then again, he is probably right.
That’s been unofficial policy for quite some time now anyway. I’d just add – this is partly in response top the bail in discussion above – that any financial measure(s) subject to “the law” can be changed in the blink of an eye (not to our advantage) during any “crisis,” so I never find “current law says this” arguments persuasive in the least. The law is what the PTB says it is at any given point in time, period. If the last twenty years have taught us anything, it’s that.
Apologies. Hit the post button too soon.
I love reading this stuff because the cause is so apparent yet the solution, unlimited money printing combined with zero or negative interest rates, doesn’t work. If it was such a success, why can’t it ever be taken away or normalized? Why are they doing the same exact thing in GFC 2?
Here’s the thing; once you start pumping digitally counterfeited dollars directly into the markets, you can never stop without a massive asset collapse. It really is that simply to understand.
How can you continue to put your full faith and credit in something now collapsed twice in the last twelve years from the very shenanigans that didn’t work the first time? Emergency measures have become the entire economy.
The very fact we are discussing a monetary collapse and FDIC insurance tells me concerns over the monetary debauchery entailed for the last 90 years of plundering, looting and debasement is coming to the forefront.
Once more; the USD only had value in the first place because people trusted that debts would be paid and the fed would exercise discipline in its creation. So much for that trained and habitual “belief” in the “value” of the USD because it is now evaporating; where’s the value now?
Having never lived through a currency collapse most realize something is wrong but scour articles like this for any sense of direction. Here Hudson excels. Thank you Saker!
The Feds ability to discipline is nearing an end, once the middle and bottom rats realize the that the game has actually been a fraud ponzi, they will either jump ship to save their reputation or go all in tard to save their supposed day.
But either way once the Feds credibility is lost here at home, there will be no safe place to hide.
World reserve currency status enforced at the point of a gun/missile is the only thing keeping the whole scheme afloat. It can’t and won’t last forever, but it can last long enough to buy up the rights to everything worth owning. After that it will be “orderly collapsed” as Michael says and a new digital world currency will be rolled out. That’s the plan anyway. It appears that only Russia and China stand in the way of that, but in truth, we can’t even be sure of that at this point.
Actually you can be sure of that. The US China trade talks collapsed in January. The first round agreement settled nothing and China refused to budge. China inputs to the US economy dropped off a cliff and here we sit. The lockdown will continue until the Chinese relent, the nukes get launched, or we all start to starve and the USA collapses.
FED invincible….$dollar invincible….FIRE invincible…bankers invincible….Wall Street invincible….Empire invincible….bond market invincible
resistance is futile…accept your fate….do not rebel….despair….we’re doomed…..hoard teepee
“the best aim to protect themselves is to get (and stay) out of debt,”
All US dollars are created as debt by private banks, so that for the few to be rich, the majority of other people must be in debt to them, directly or indirectly. As the rich become richer, everyone else becomes more and indebted to them via mortgages, student loans and credit card debt.
Comment of the day! So true! and if you have more than 250 kilo in one account, open new account in another brand bank. Where I live, Sweden, cash is not really an option, banks here get slightly suspiciousif you want a $ 1000 in cash, and if you try to put IN more than $3500 , you must be able to document origin of the loot. Sweden is almost cashless.
Gold has been an option, but that was years ago :) and you will need a safe too!
Fractional reserve lending, whereby private banks create money out of thin air as compound interest bearing debt needs to end. The right of money creation needs to be returned to the US Treasury.
The treasury is in bed with the Fed, and both are sleeping in the same room as the congress, the system is totally corrupted and trying everything to stay afloat.
The good news is that god left this country plenty of money, so the country has plenty of money, what it doesn’t have is plenty of common sense, so until the two find a way to meet, there is no solution to either the fiscal crisis, or the ability of the gvt to simply print their way out of the mess they have created and distribute the funds to whomever they feel needs to be saved.
The privately owned federal reserve “prints” money as a data entry on its computer, and the US Treasury has to BORROW this digital money to the tune of $23 trillion while paying $738 billion per year in interest charges.
Therein lies the difference: the banks get richer while the average American gets poorer.
More money needs to be directed towards the people in serious financial difficulty having lost their jobs due to the coronavirus lockdown, not Wall Street. A universal basic income created debt free by the US Treasury would fulfill this function without involving the Federal Reserve and its member banks.
The treasury still has to go to the congress for approval of its needs, occasionally the congress does fight for main street, but not in a significant way. B/c all this hyperinflation only leads to higher prices making that basic income moore insignificant as each day passes. Once the two institutions make an agreement they use the Fed as the banking entity to complete the transaction.
Still a three way juggling act that would make a clown embarrassed at the skill needed to turn a buck.
Wasn’t the idea that the gargantuan lawsuit against China would allow Pindos and some of their vassals to live happily ever after? Any updates on that issue?
Thank you Saker and Michael Hudson for bringing us this enlightened analysis.
Something has stood out at me, and is sticking in my craw, “… The safest investment is in U.S. Treasury securities. …”.
How can that be?
I believe I must be missing something?!
When the collapse comes, and it seems whether it is coming is not really at issue here, as it is a question only of time; so when the collapse comes, is it not unstoppable that the tsunami will make the entire U.S. dollar fiat finance system completely collapse, and thereby make the federal government utterly insolvent and completely unable to buy it’s quadrillions of outstanding debt, and amongst that, all those treasury securities?!
Yes, the debt is owed in U.S. dollars, but with the apocalyptic (electronic) printing of fiat currency, what will it be worth in terms of buying power, when everybody knows?!
Bitcoin is now all but certainly more durable as a medium term store of money, compared to the US and all sub-ordinated empire ‘currency’ systems.
As our civilization collapses (now, before our eyes wide open), it is only natural that we revert to centuries tested stores of wealth, with all of their constraints, in comparison to a functioning monetary system.
Are we not right at that time of systemic collapse?
The US dollar-based fiat ponzi scheme is in its death-throws; negative interest rates, negative dollar value for a barrel of oil?
We are in the new Kaftka economic era, where things are just not behaving according to any traditional economic theory (notwithstanding that ‘economics’ has never behaved according to the ideological social mythology adopted by the ruling class).
I should seek clarification on at what point we can rely on government service viability, and the most likely extent of the ‘expected‘ ‘ economic collapse‘?
(i.e. do you really think the sinking will stop before all US government agencies are insolvent and the federal government effectively will not redeem Treasury Securities?)
When, (in theory b/c currently there is no when, everything is being monetized) a default occurs here in the states, by law, there is a pecking order of securities, or assets, to be paid first rather than forging payment.
Cops, teachers, fireman and the like, are the first to take the pain of default, bonds and treasuries are the last to take the hit, primarily b/c that’s where people like judges put their earned income and as such they make laws that protect those securities over the lower class’s public workforce.
“Something has stood out at me, and is sticking in my craw, “… The safest investment is in U.S. Treasury securities. …”.
Interesting that Hudson agrees with Mazaheri’s recent articles on the dollar’s dominance.
Would have liked a longer interview because Hudson is always necessary.
The 1% keeps most of its wealth in Treasury Bills and the domestic stock market. They will not allow government to confiscate these asset classes, and the Fed would prop up these markets to the very end. The rest of the world is in worse shape, so the rich will flee to the last safe havens, i.e. USD, T-Bills, and the DJI.
I guess what everyone’s dancing around is whether or not the “collapse” we’re all expecting will take down everyone, or just the 99%. By saying TBillls will be safe then you’re saying the latter, where I get the impression a lot of folks expect the former to happen.
And if the top 1% (really 0.01% – the top 10,000 or so ruling families) do manage to “manage” the destruction of just the people below them, and wind up with most of the assets and power, then, well, I don’t know if owning a small amount of paper assets will help you much.
And if we do have a complete collapse of society, then god help us all.
Always good to here from Prof Hudson!
Here is a question: let us look at countries x, y, or z which are islands with their most offshore trading is with countries other than the US. Say the Phillpines, New Zealand or Australia where trade with China is dominant. The country is secure in resources, the trading partnership is secure but the trading currency is still the US dollar. How and when should those countries alter their current arrangements? It seems that presently the US is attempting to threaten or blackmail such countries to retain the dollar. I think this is the crux of a situation that may also be contanimated by the problem of the virus and how it may redefine borders and the philosophy of neo-liberalism generally.
The second question is will we all breathe a sigh of relief if that happens?
I’m seeing it from a different point of view, we don’t threaten country’s until our ability to control them w/the dollar has vaporized.
So in essence its all bark and no bite and simply a mechanism to bolster the confidence of the citizens perceiving we are still the bully on the big stage rather than just adding another country on the list of ones who have abandoned the dollar in exchange for their local currency.
That’s been unofficial policy for quite some time now anyway. I’d just add – this is partly in response to the bail in discussion above – that any financial measure(s) subject to “the law” can be changed in the blink of an eye (not to our advantage) during any “crisis,” so I never find “current law says this” arguments persuasive in the least. The law is what the PTB says it is at any given point in time, period. If the last twenty years have taught us anything, it’s that.
An excellent analysis. However, the mechanism for US collapse is lacking. If the US dollar becomes toilet paper, so does nearly every other fiat currency on earth. A nation backed cryptocurrency doesn’t solve anything except perhaps for a way around US sanctions.
There needs to be a small note of optimism here because the Elite now realize that helicopter money is an absolute necessity. This is different from 2008. The amounts involved are staggering but how can the 1% maintain their position atop a pyramid with a collapsing foundation?
You say “A nation backed cryptocurrency doesn’t solve anything except perhaps for a way around US sanctions.”
Well, that’s a deep subject you’ve skipped right off the surface of.
Without going much deeper into what “cryptocurrency” is or is not and could or couldn’t do I have found that 99.99% of all mentions of the words “cryptocurrency” or “Bitcoin” are either flat out wrong. wild-ass guesses…or deliberate misdirection.
But let’s try to help each other go deeper since it just might be important either beneficially or detrimentally to personal wealth and national as well as species-wide well being….in due TIME.
I pose the following questions, just to scratch the surface and get a bit below it:
Q #1) Since banking and payments in most major currencies are already digital the ones and zeros of credit and debit card processing, etc, what is it about “cryptographic money” or “Bitcoin” that could offer societal or national or personal benefit?
A # 1) The Integrity and workability of its blockchain….and the extent of that blockchain’s adoption is the answer, IMHO.
As such, the problem is that the vast majority of existing or proposed cryptocurrencies LACK integrity and workability and scale of adoption…………. and absolutely NONE are suitable in the very near term as widely useable “money”.
The Individual perspective: An individual might diversify into this “non-correlated asset class” for weeks, months or a few short years and may profit enormously (10X…100X….1000X and even more have happened….but volatility on the downside is alo common) or lose everything invested. Even profiting depends on the timing of their exit into FIAT for the foreseeable future because you can’t use any crypto widely as a medium of exchange if your transaction peer does not ALSO use it.
As such, your posited “national cryptocurrency” could theoretically serve as money more or less within national borders IF widely adopted but you are right that this is not a realistic probability. The reasons are various, but the most glaring one is that US citizens would not trust or accept China’s “national crypto currency” and viceversa and generally across the board for almost all countries except those like Zimbabwe whose money is already virtually TOILET PAPER…… and almost ANY alternative (that is widely accepted by others) is of interest to the receiver of payment. In the near term what can work is silver and gold or simply …barter…in such extreme situations where money has turned to toilet paper. Even if you possess a crypto that some people around the world value ….the chances presently of the specific person you need to pay valuing it or even remotely understanding it…is practically NIL….so the laboriousness of converting in and out of crypto into the local fiat, especially for smaller payments is something almost no one will fuss with!
And since nation’s have to trade with other nations a national crypto-currency that has not reached the status of a multinational reserve currency has ZERO chance of being used in trade shortly after launch…therefore, for the very short term….”fagettaboutit.”
Q # 2: Okay, in the medium to longer term where might “blockchain money” come into the picture and serve societies very well, and how or why would THAT be possible???
Ans # 2 The value of a well designed, durable blockchain is that it DOES have the potential to make money and a lot else much, much more HONEST.
Q # 3: How so???
Ans # 3: A proper blockchain is an immutable public ledger that cannot be faked or defrauded by “multiple entry book keeping scams” of the Enron or Bernie Madoff……OR Federal Reserve and other central banks’ sleight of hand thievery of value, energy from the masses.
That potential makes blockchain of great interest to those who want to eliminate public dishonesty (and not just in yardsticks of value…ie money…but ALSO VOTING!!) but such people encounter great obstacles ranging from complete incomprehension to scammers just using the buzzwords of “the space” to make a quick buck (that’s FIAT, BTW…lol).
In conclusion for now my advice for anyone that does want to go any deeper into the subject for personal diversification OR longer range societal, world political benefit of mankind would be to NOT think of “Bitcoin” or any existing or proposed cryptocurrency in EITHER/OR terms.
Imagine a world in which there is an honest open immutable public ledger that also enables payments within it….AND multiple other national currencies whose “books”…whose accounting ledger is recorded within or “on top of it”….while also utilizing the reserve function of precious metals, especially GOLD.
Such an imagined worldis not possible with the current mess of thousands of silly little blockchains that will go absolutely NOWHERE of any importance, longer term.
Hence the absolutely realistic and valid notion, IMHO of …… “ONE…..or NONE!”
Which ONE can only be discussed without wasting one’s time, if one is far more interested in getting “under the hood” to examine the motor, the mechanics of the underlying blockchain in question than one is in arguing the preferences for the paint job or upholstery options….which is where almost all attempts to “go deeper” are waylaid by silly opinions and sillier passions.
I will endeavor to go deeper over in the Moveable Feast Cafe in the next week because a critical event in the crypto space looms May 11 (“The Halvening” of the BTC miners’ block reward…cut in half every 4 years until eventual disappearance altogether) but for the moment I will draw a bucket of water out of the Deepest Blockchain Well that I know of…..and give y’all a taste of what is possible:
Imagine If Gold Turned To Lead When Stolen…….And Back Into Gold When Recovered!
THAT is just one of the promises of Honest “Internet Money”.
“But WAIT! There’s more!”
Much, much more!
Whether we are drinking from a well or a spring, remember:
“A little learning is a dangerous thing…………
Drink deep….or taste not the Pierian Spring”. Alexander Pope
I very much appreciated your comment.
I believe it ties directly into the root issue of the article under discussion, and suggests development (by the Vineyard community ‘mind-trust‘), of recognizing and considering benchmark parameters:
1. the extent to loss of public order/trust, with respect to the impending ‘collapse‘ of the existing social order?
2. the benchmark parameters for consideration in analysis of outcome economic model currency models, i.e. a. a medium of exchange, b. a store of value, and c. a unit of account, i.e. to what extent will the existing fiat-based central banking system and the tools used by it, (the US dollar) will be recognized and used?
I don’t know why any one would trust money which is only electronic information. Has anyone seen the code? Anyone understood the code?
My definition of money is: A token of value in a recognized accounting system which tracks promises for goods and services.
With any digitized money, where is the token?
Internet money is not money, but, like a bank statement, is only an
accounting system. Real money can be stolen, lost, counterfeited, etc. But for accounting system reliability, think Enron. Worth $70 billion one day and worthless 2 weeks later. Because the accounting system is fraudulent. The need real money to protect against fraud and embezzlement.
Real money is a token which you can see and hold in your hand. Gold and silver have been useful as money because they are relatively scarce (costly to dig for), and hence not easy to “print”, as you can with an accounting system.
Paper dollars are tokens, but paper is easily printed and so must be backed by something. That is, paper dollars are a receipt for the money, not the money itself.
Thank you! Very interesting. I have some small objection. There is this geographic problem. I mean when the US is in bigger troubles will do its utmost to bring the rest of the planet down with itself, why? Because of the dollar. They are already doing that threatening Venezuela and Iran, when things become worst this threats will increase at the end real military action by the US will be taken specially against these nations which resource rich but militarly weak. The US is already showing interest on Greenland in spite that is against the wishes of a “friend” country, can you imagine then? What I mean the “big” fall will not be limited to the US better be prepared for that.
“We are at the end of the 75-year upswing that began in 1945…” and appear on the cycle of history towards a crisis, one far greater than the Depression of the thirties, a world war far greater than the last one.
thank you for making available this good interview with Michael Hudson, whose views I from a macro as well as a political perspective do mostly value and appreciate. As regards to his advice for the safest investment stance in the present situation, – his remark about treasuries as the safest investment, – I would suggest that your readers at least try to further scrutinize this question and make sure they understand fully the implications deriving from his recommendation. Regardless of financial literacy I think it is advisable for everybody to know some facts about US treasuries that are very relevant at this point.
As we speak, the yield on the longest maturity, the thirty year US Government bond stands at 1.253 % , minus the official inflation rate of 1.5% makes -.247 % real interest rate. Thus real yields (after inflation) are negative, so you are guaranteed to lose money if you hold the bond to maturity. The only remaining rationale for professional investors these days to buy treasuries is that they hope to
1. ) hold treasuries until they go up in price enough to make a profit with the sale in a bond rally if they find somebody dumb enough to buy them from them at that price (a game of musical chairs often associated with the figure of speech of the “greater fool”), or
2.) to hold them to maturity, lose money on their investment, but still lose less than on their stocks or corporate (junk) bonds in the event of a market crash (“the best horse in the glue factory”).
Another very important reason why treasuries still find buyers is that
1.) they are the only collateral that banks can use in their day-to-day interbank lending and
2.) that institutional investors such as public pension funds and insurances in many western countries are required by law to invest in them.
When you buy a government bond to hold and not to speculate, you lend money to the government. They then spend that money, knowing that they will tax you or your offspring in the future to pay back the principal to you, – minus inflation of course.
Oh, and before I forget, the government are those people who have just a while ago decided that they will no longer be legally required to lay open details of their finances if they see fit not to due to “national security” reasons. Google the term FASAB 56 and Catherine Austin-Fitts for that one. She regularly conducts an interview with you and you should ask her what she thinks about US treasuries.
In a nutshell, if you put in the time and work to study these things, you will come to the realization that government debt is a tax on the financial prosperity of your offspring. Hardly something you would want to do to your children and grandchildren. Therefore I think that Prof. Hudson may be referring to a short-to-medium term strategy of holding treasuries to make a profit off their price. Then you have to treat this not as an investment recommendation for the long term, but for a trade or speculative action. Anyway, I prefer sleeping at night, and would not put my money in treasuries.
Gregor, Treasury bills are simply dollar bills with a coupon attached–bearing an interest payment. Exactly like having a dollar in a US bank in an interest bearing checking or savings account. There is no more liquid place to put money than treasury bills. As an aside, it is laughable when people think that it is a “threat” [everything is a threat for Americans] when the Chinese, for example “threaten” to liquidate their treasury holdings. How do the Chinese get their bills in the first place? The same way anybody else gets dollars. By selling things to Americans–to American individuals, businesses or the government. The Chinese sell their goods and obtain dollars; they then choose to deposit the dollars by buying t-bills, and thus by depositing dollars earned in what amount to Federal checking or savings accounts. Of course, they could also take the dollars earned and buy things with them anywhere, they are not obliged to buy treasury bills. Also, the US is not going to “go broke” making the interest payments to bill holders. The idea is nonsense. The US can always pay interest owed in dollars. And also, the Chinese always have the right to cash out their savings or checking accounts. Or to deposit the funds in their checking account to their savings accounts or vice versa. These are all non-problems. And finally, the US never depends on tax deposits to pay for interest owed or for anything whatsoever. The function of federal taxes is quite different. The US, as Hudson notes, can simply issue dollars to buy or pay for anything. It is the sovereign issuer of its own currency. The federal “debt” is a misnomer.
People who want to correctly inform themselves can go to neweconomicperspectives.org, to find material by Hudson’s colleagues.
Well some are calling this a disastrous situation. Apparently people get all weak knees when their ‘full faith and credit” federal government by 2021 borrows more in two years what it took 213 years and 43 presidents to produce!
And the FRB expands their balance sheet to $10 trillion over paying for rapidly declining assets.
True to script, they can guarantee the quantity of currency but not the quality and therein lies the rub: once you start pumping digitally counterfeited dollars directly into the markets, you can never stop without a massive asset collapse.
So tell me at what point do these highly liquid treasury’s lose their value, if the only thing that gives our dollar value in the first place is trust and discipline which surely has been broken?
MOD: Gregor – Please go back and read the Moderation Rules especially Rule #2 (2) “All comments have to be courteous to me, the blog’s author, moderators, any guest author and all the other commentators. You are welcome to criticize and even attack ideas, but not people.” Thank-You.
MOD: 1st sentence violated Moderation Rule #2 and was deleted.
However, in my comments I was not trying to sow any doubt on the fact that Treasury bills are in fact very liquid. Nor was I trying to insinuate that there is or is not a threat of the Chinese suddenly liquidating their treasury holdings, or that the US is going broke making the interest payments to bill holders. I wasn’t speaking about that at all. But, as you correctly observe, the Chinese are not obliged to buy treasury bills. Nor is anybody else, for that matter. And if the US “simply” issues dollars whenever they need money, the rest of mankind, – they all have to work for money, remember?, they cannot just print it, – will not want that kind of “money”. Why would anybody want something that constantly grows in quantity but has negative yield?
You have not addressed that point, nor have you invalidated any of my other points.
MMT is considered not so much as an economic theory, but as a political position. It is very naive to think it is a good idea that we all have to pay our debts but we allow the people in government to spend like they do not have to! Can you tell me what incentive the human beings in government positions have to take good care that they use the money they have responsibly, if they can always get more? Bankruptcy is not a political choice! Even the US will find that out one fine day, reserve currency or not! Nothing is forever.
So, if you want to go on living in your phantasyland of MMT, and buy treasuries, you are very welcome to do so, MOD: Last part of sentence deleted. Violation of Moderation Rule #2.
I find your points and arguments, fascinating and often illuminating (this series no exception).
I send positive encouragement to ‘round the edges‘, as I feel I benefit from your thoughts, and would continue to do so.
To the subject of this article via your (resultant) comment content:
I find I am on a similar perspective with respect to the extent to which components and mechanisms of the current (weaponized) empire financial system, based on the ponzi-fiat currency floating/free-falling unit, specifically:
a. the extent to which components/structures/mechanisms will/will not useful viability (if no one continues to believe, or the ‘trust‘ in the system falls below a critical minimum)
b. the method of loss of viability, i.e. what cards in the system will fail, and to what extent that will or will not compromise the entire system?
…and c. what might be done to mitigate against this disruption to the existing global economic system?
example: what I think, on these questions:
a. I think the entire system will collapse and the US dollar itself will be effectively worthless (better yet, like oil, you have to pay to have it removed, the question of course is, what would you pay in?)
1. over printing of money, and other unhidable dysfunctional attributes of the current system (US dollar-based) causes a general loss of trust of key global policy-making executives (the smart ones)
2. national and national-level sub-economies begin making mitigations against the over-extended, corrupted existing monopoly,
3. part of these mitigations including divestiture of US Securities monetary units, and swapping them (while they still have any value-store/unit of transaction viability) for gold and gold acquisition capabilit possibly BITCOIN mining and BITCOIN acquisition
4. the creation of the alternative system, becomes a more and more visible frame of reference by which to compare and evaluate the existing system
5. previously hidable dysfunctional attributes of the current system, become visible to more and mor individuals and even the slower policy-makers – go back to 1., above
were I a policy maker of sufficient suasion in my large-land mass/comparatively small population base country in close political (and physical) proximity to the Grand Poobaaof the reigning controllership of the existing dominant political-economic policy-setter, I would divest in all US Treasury securities, by a. purchasing physical gold, purchasing/nationalizing the top-tiered most productive and richest (verified load) mining site/mining operations of Gold and other associated precious metals (i.e. platinum/palladium, etc.) rendering facilities across my large physical land-mass nation-state, b. all of the top (10%) productive BITCOIN mining facilities in my jurisdiction, then enact time-appropriate policy changes to c. accept BITCOIN/physical gold, as payment for government receivables, put fiscal and monetary programs/instruments in place contingencies to (complete) collapse of the US dollar (and the entire system built upon it) .
… and other stuff like that… including moving the operations of government to a similar secure blockchain technology as BITCOIN to make transparent government activities in order to restore critical-mass trust in the system…
Dear One Tribe
thank you for your kind reply to my comment. You pose some very heavy questions, ones that are way out of my paygrade as a lay person interested in the subject, but nevertheless I will try to use what I know to answer or add my suggestions, as far as I suspect they might be helpful.
If I understand you correctly, you are asking about the Western financial system currently in place,
1. when, that is at what point in the process of deterioration we currently witness, it will break,
2. how in concrete terms that might happen,
3. and suitable means of mitigation against its fallout from the point of view of a state-actor.
1. and 2. : I believe that the western power elites know the end for the USD as a world reserve currency is coming and they will try to devise ways in which they will be able to control when it happens so that they can trigger it and be prepared to ensure their own position and profit. So the answer I suggest is not an economic one, -it rarely is in these things I might add, – but one that is a hybrid of economic, political and socio-cultural aspects.
Market psychology however is at present pushing these elites into a corner, as they are demolishing the markets’ trust in the dollar by their monetary measures, and it is anyone’s guess at what point that will require further policy measures. At any rate, the markets globally are completely manipulated by the central banks, real price discovery is absent, and once they have used up the markets’ goodwill regards the USD, they might just declare a new global central bank currency to be the new reserve currency, the notorious Special Drawing Rights, – which are just a derivative of a basket of the leading market currencies, – and try to hold on to the wheel that way.
Anyway, but before that can happen, government will use the current health crisis to put in place state control mechanisms to place individual citizens in a chokehold, the preludes to which we are witnessing now. Due to the ineptitude of the functional elites, – the lackeys that are supposed to apply the policies of the elites, – we might see some miscalculations on the side of the powerful, and then we might see the people get jumpy and get the pitchforks out. This eventuality is both a fear and a hope for me personally.
3. When thinking of ways to defend against this large shift in the world market order from the point of view of an outsider market economy, what immediately come to mind are the measures taken by China and Russia during the last several years. Installation of the Shanghai Cooperation Organisation and other institutions have been guided by the insight that to ensure their countries prosperity, they have to find alternatives to the IMF/World Bank western financial architecture that is in place and is the overarching financial structure in the world today. The crucial point in this is the question of independence of central bank policies of these countries. This is one point on which I simply do not have enough insight and information about China and Russia to pass any valid judgement call, sorry!
Whether BITCOIN or a similar digital currency will be part of any new national financial structures or currencies that could be desirable…. I think it is likely that a digital currency issued by state actors is most probable. Gold will also play a role backing national currencies.
Towards the end of your post you mentioned blockchain technology as a means to make government activities transparent. There is a contradiction in terms there, which I believe is hitting at the core of the problem that will affect us as individual citizens in the immediate future: The fact that any technology always requires an infrastructure that is then open and vulnerable to the control of the collective ruling entities, – the government,- and therefore it truly is a challenge to devise a digital currency that is not regulated by the government. Actually we are talking black-market currency in this case! At the moment it looks more to me that governments are going to use digital currencies as a way to control the population.
To close I can recommend the writings and commentaries of one Catherine Austin-Fitts, former Assistant Secretary of Housing and Urban Development in the Bush I administration, and former wall street banker. She has a lot of insightful stuff to say on all of this. By the way, she regularly interviews the Saker, I think four times a year!
Saker, great interview with Michael Hudson. Please interview Richard D. Wolff next.
Saker, could you please ask Michael Hudson to spell out his thinking that “The safest investment is in U.S. Treasury securities.” I see a lot of people have questions on that score.
Somehow I suppose those who came before us were just being silly plundering each other’s precious metals and such and bringing it back home to their King so he could finance future wars and land grabs.
And all those freezing goofballs trekking back and forth Chikoot pass rushing for the gold, what a waste of time.
What were they thinking?
Had they known all they needed to do was write on paper any digit they wanted all was just fine, and this form of prosperity could blossom into the wonderful world we see today, they didn’t need to to bother.
Our monetary system is under huge pressure due to the accumulation of debt. These debts extend in long chains where one debt is an asset for someone else, in turn becoming a debt owed to another. Imagine a million dollars in debt, made up of 1000 people, each owing $1000, in a long financial chain.
If we pump prime $1000 into the last link of this chain of debt, with the proviso that this $1000 is a ‘pac man’ which can only be used to pay down debts, then at the speed of computers, in a milli-second the one million dollars in debt could simply disappear. Repeat endlessly until the debt monster is reduced to the size of an amoeba.
A simple solution?
Let us say that the ownership of all our debts was eventually traced to an elderly gentleman, Elmer J Fudd, apartment 4, Old Kent Road, London. When the police enter Elmer’s one room apartment they are surprised to find that the room is completely empty, apart from Elmer and a wall mounted mirror.
When the police ask Elmer for the source of his capital, the money which finances all his loans, Elmer says, ‘This is not how banking works. My family has been pawn shop owners for 2000 years and I run a pawn shop, now with a license to create bank credit. I simply monetise customer collateral, by placing a list of the customer’s collateral in front of this mirror and calling the reflection ‘bank capital’. This capital is then deposited into the customer’s account.’
The police are incredulous. ‘You mean your banking customers are paying compound interest upon a reflection of their own assets’?
Elmer nods, ‘you got it in one, baby. If the customer has no collateral, then I have no capital!’
Welcome to Banking 101, the grand heist, performed in broad daylight, every day of the week, down at your local bank!
Welcome to the Shakespearean idiocy of our world, welcome to the poverty of the human condition and the terrible, excruciating pathos which we call our lives!
Robert H. Hemphill, Federal Reserve Bank of Atlanta.
‘If all the bank loans were paid up, no one would have a bank deposit, and there would not be a dollar of currency or coin in circulation. This is a staggering thought. We are completely dependent on the commercial banks for our money. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp upon the picture, the tragic absurdity of our hopeless position is almost incredible – but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it is widely understood and the defects remedied very soon.’
Yet he fails to recognize that the defect is the fact that loans are not paid up. If the cost of living was low, and the people lived within their means, the efficiency of the system would sustain its self.
Yes banks themselves could no longer be the predator of living on the interest of the people, but this would be an over all good thing for the citizen who out number the # of banks, a new, a better system of banking could/would be arranged to replace the predator one that has been alive for so long.
In retrospect this might have had to be done long ago in conjunction with an efficient transportation system to move people to and from said new system. Today we have overbuilt and under designed our infrustructure.
Yes, the US dollar is a privatized currency created by banks as compound interest bearing debt, such that:
no debts = no money
It is time that the US Treasury took back the right to create the US money supply debt free by issuing interest free US Treasury Notes of equal value to US federal reserve notes as in HR 2990 and end the system of fraudulent fractional reserve money lending.
For this debt based monetary system to exist in the darkness of the middle ages is forgivable. But for it to exist within the informational power we possess now, in the light of day, is a crime beyond absurdity.
We take the greatest treasure in the nation, the monetary supply, and we create it as privately owned debts, and we do this using a mirror to monetise customer collateral! The heist for the ages!
If we saw this situation in a Shakespearean play we would consider it to be unbelievable. And yet everyone in the ‘financial court’ is either ignorant beyond words, or they have been purchased with their ‘thirty pieces’ of silver.
History will mock us and spit upon our tombs, and we will deserve their contempt!
You overlook the fact that the human race was designed to collapse, a race hell bent on competing for resources with what amounts to insanity.
God has done (in the past) an unthinkable amount of things to slow down this collapse, but that time is well over and now there is no mechanism to prevent or even slow down this trend.
So spit or mock or paint upon the tombs, for it was all by design, and agreed to by the ignorant competing powers that we as humans have become.
There is no stopping or explaining the hows and whys, just know that this is the way it had to be, and no one knows just where it will lead, not even god.
The question is: How does one achieve immunity while imposing a containment policy that forces isolation? It can’t be done or can it? Swedish experts figured out how pursue two seemingly-conflicting objectives at the same time: Contain the virus sufficiently so it doesn’t collapse the health care system while exposing enough people to the infection to eventually achieve herd immunity. Without immunity, nations are condemned to an endless cycle of recurrent outbreaks that decimate the economy, stress the health care system.
We can all speculate but what we should be doing is looking at the ‘worst case scenario’.
I personally do not believe that Bank Insurance will work. Why? Well as others have said the Bail In Laws enacted everywhere were not done for nothing. They do intend to rip everyone off, that much is clear, besides who would stump up those 250K amounts in reality?
That being said, what to do? Well I would advocate precious metals, gold or silver. Yes it is a risk having that at home so secure it very well and never talk about it. I advocate those because if fiat currencies devalue your 250K will later on not even buy you a burger. The PM s will. They are a universal currency and are likely to increase in value in a crisis. Many will say no way! Not being able to contemplate their savings not being in a bank vault.
But now is the time to take responsibility for yourself because institutions can no longer be trusted. If you do not safeguard yourself you may get to find out ……regret is forever.
Make the gold and silver in the smallest denominations possible otherwise if and when bartering arrives one will not want to handle transactions with gold in bars! One may find it very difficult to purchase lets say toilet paper and bullets with a bar of the precious metal? There won’t be any room for change!
One who is not a trained economist must read and think, read again a few times to get his thought. He is not optimistic in any way.
If it is all about the bonds, the whole system is stadding and on it feet because of FEAR alone.
The fear of every bond holder, be it a nation or an individual of a sudden lack of terrain, or a soil vanishing under their feet.
I agree with much of what Hudson is saying. However I disagree when he says that “The current depression is the worst since the 1930s.” It will make the 1930’s look like a Sunday walk in the park on a sunny day with ice cream cones.
*”FDIC-insured deposits are safe. They won’t let that go, because that would end the banking system.” Under the Boy Bush administration the payoff for default and bankruptcy of banks was changed so that derivative debts are unquestionably to be paid by the FDIC before depositors (who are legally recognized as unsecured creditors, i.e. sitting at the back of the bus). Derivatives are essentially bets between banks and hedge funds. Global derivatives are realistically estimated to be over a quadrillion dollars. Apologists claim that all derivative bets are hedged so their liability is a tiny percentage of this, but this argument is strictly based on the idea that no “losers” are forced to default. In a systemic collapse, defaults will be near universal. The bottom line to this is that the Fed would have to print hundreds of trillions of dollars to lend to the FDIC before mom and pop depositors would even be considered to be covered. This is common knowledge and I am amazed that Hudson didn’t bring it up.
*”The safest investment is in U.S. Treasury securities.” The Fed, a private corporation which is neither federal nor has any reserves, has printed trillions of dollars since March to bail out, or in many cases buy out, everything including the kitchen sink. This will grow in the future exponentially. There is good reason to believe that they are printing tens of trillions off their public books in their clandestine balance sheet, propping up other central banks and assets around the globe. They have a firewall between Main Street and Wall Street to prevent Weimar hyperinflation, but it will break down eventually. By locking everyone in their houses, they have managed to keep the velocity of money close to zero. You can’t have hyperinflation when there is no velocity. But this will break down in time after which treasuries will become essentially worthless as was currency in Weimar. The best way one can attempt to avoid being wiped out by hyperinflation is to own real, physical assets outside of the banking system, preferably ones which value have been suppressed through rigging the futures market, and gold and silver are on the top of that list As to being stolen, any one who has an IQ over 85 and knows how not to babble can avoid that to a very high degree. The chances of having the purchasing power of financial assets stolen by the banksters and central banksters are near infinitely greater than theft of precious metals if one has any smarts.
We are all Palestinians now!
I would sell everything I own, max my credit and use all that cash to buy ammo as it will be the best trade currency when the $ turns into toilet paper.
I will also stock up on rechargeable batteries (and a solar panel to charge them), gasoline, prescription medicine, survival gear and basic foodstuffs like rice and pulses as well as vegetable and herb seeds.
good to have a portable radio, even a CB radio, and guns, lots of guns.
If my debts amount to $100,000, see if the can find me to collect!
Yes I expect treasury bonds will be the last to collapse, but it is only paper. I can’t eat paper, and it makes a poor tent. I will use my cash for real stuff instead of trying to earn money in my sleep.
The only real asset is Land, free of mortgage debt. Land is Everything, Life Itself! How many millions have died to get Land. How many millions died because they didn’t have Land. Control of it is why wars are fought and people killed. This is why banks want real estate for collateral: it is the only asset that matters, when push comes to shove.
But when the men-at-arms show up, a piece of paper stamped “Deed” or “Title” means nothing. So it helps to have land where few others want to live. It also helps to have friendly neighbors. I feel sad for the 80% of US people stuck in urban areas. How they will survive, I have no idea.
As the Great Depression in the USA proved, one never own real estate free and clear. Tens of thousands of farms with rich, productive soil went on the block for pennies on the dollar because the farmers could not pay their real estate taxes. Any hard asset that is taxed by the state annually is dangerous to hold unless you can prepare in advance to pay the taxes with another hard asset that will keep pace with hyperinflation.
Read the book “End the Fed” by Dr. Ron Paul.
But US debt is owed in its own currency, which the Fed and Treasury can create at will.
Sorry, but I got to stop listening, reading, every time an economist says that, because that is simply not the case,only the first half of that sentence is true. The FED does have the capacity to create currency, UDSs, at will but not the Treasury. If the Treasury is able to create its own currency, then why it has to borrow a single USD from the FED..? My understanding is because THE TREASURY CAN’T ISSUE CURRENCY (only coins) otherwise they wouldnt need to be borrowing from the Central Bank or FED.
Have you read HR 2990 that addresses the mystery of currency issuance ?
Only the small secrets need to be protected. The big ones are kept secret by public incredulity. – Marshall McLuhan
The Saker: In the same article you also write: So maintaining the dollar as the world’s reserve currency became a mainstay of U.S. military spending. We often hear people say that the dollar is about to tank and that as soon as that happens, then the US economy (and, according to some, the EU economy too) will collapse. In the intelligence community there is something called tracking the indicators and warnings . My question to you is: what are the economic indicators and warnings of a possible (probable?) collapse of the US dollar followed by a collapse of the financial markets most tied to the Dollar? What shall people like myself (I am an economic ignoramus) keep an eye on and look for?