Michael Hudson answers questions about Europe’s self-immolation, Fed abuse and changing world order

Yves is here. We believe you will enjoy this extensive yet compact interview with Michael Hudson on Lebanese TV Almayadeen. Topics include the deindustrialization of Europe, the Fed waging the wrong war and harming innocent bystanders, the rise of new power blocs, and debt.

Questions from Almayadeen TV, Lebanon from Mohammad Itmaize

1 – In light of the conditions Europe is experiencing in terms of high energy prices and the impact on the industrial sector such as plant closures and high production costs. In your opinion, do European countries have the capacity and resources to prevent industrial investment from running away? Especially since the US as a whole plans to restore industry on its lands, so this may be an opportunity to lure European industry there and take advantage of cheap energy prices. This shift will have major implications for Europe’s productive capacity and competitiveness, as well as its trade balance. So what happens to Europe’s position in the global economic system? Will it remain part of the capitalist center or deviate from it?

MH: The wording of your question basically answers itself. European political leaders are unwilling to resist US demands. All they can do is complain about the abuse. This led to a split between German and other European businessmen and European political parties.

See, for example, Politico, November 24, 2022: Europe accuses the US of profiting from the war.

Biden’s green subsidies and taxes, which Brussels says unfairly divert trade from the EU and threaten to destroy European industry. Despite formal objections from Europe, Washington has so far shown no signs of backing down. … the price paid by Europeans is almost four times higher than the same price of fuel in America. In addition, there could be a surge in orders for American-made military gear as European armies run out of weapons after being sent to Ukraine.

But even businesses are giving up and planning to move to the United States and become American companies. “Companies are planning new investments in the US or even moving their existing operations from Europe to US factories. Just this week, multinational chemical corporation Solvay announced that it would prefer the US over Europe for new investment.”

As a scenario for the subsequent depopulation and deindustrialization of Europe, see the mass exodus of people from Latvia, Estonia and Lithuania since 1991. The alternative is to move to Russia or China, which produce energy, as well as weapons, at a much lower cost than the United States.

The problem is that Europe cannot leave NATO without dissolving the European Union, which puts military policy on NATO and therefore leads to a huge balance of payments waste on expensive American weapons and other necessities. If the question is how long Germany and Europe can put political and military loyalty to the United States ahead of their own economic prosperity and employment, then the Greens will answer that “shock therapy” will help make Europe greener.

At first glance, this is correct, since heavy industry has been stopped. But it looks like the fuel of Europe’s future is coal and its deforestation.

The US Federal Reserve pursues a policy that leads to internal and external results:

2- At the domestic level: If the source of inflation is supply and not demand, then what is the purpose of raising interest rates, especially since the US Federal Reserve is aware, as many of its officials say, that its measures will lead to an economic recession. Why insist on such measures, even if they did not save the US economy from further inflation?

MH: Blaming too many workers for today’s price inflation is just a pretext for imposing a new class war against the labor force. Obviously, the level of wages has not led to an increase in prices for oil, gas, fertilizers and grain. This price increase is the result of US sanctions. But the central claim of today’s neo-liberal economic orthodoxy is that all problems are caused by labor being too greedy and putting its own standard of living above the ideal of creating a wealthy rentier class to dominate them.

The purpose of the credit cut is to reduce employment by triggering another recession, that is, by cutting wages, as well as by significantly tightening working conditions, blocking unionization and cutting government social spending programs. The economy must be Thatcherized – all by climbing to the top of US anti-Russian sanctions and claiming that this creates a crisis that requires the dismantling of public infrastructure, its privatization and financialization.

3- At the external level: the increase in interest rates has provoked many crises around the world. Not only did the “developing” countries or countries of the global South suffer from the effects of higher interest rates, such as high debt costs and reduced investment and savings, but Europe (including the UK) was also affected. ), and US monetary policy doesn’t seem to care what happens outside of the United States. Whereas in 2008, for example, the US Federal Reserve was forced to open credit lines to save countries like Japan from the collapse caused by the global financial crisis that originated in America. Is this the same model that America is/will be imposing today? Or will it continue without regard to what will happen around the world?

MH: The United States really cares about what happens outside of the United States. This is the essence of imperialism: you care about conquering other countries economically, financially and technologically, making them dependent on you so that you can set monopoly prices and siphon their economic surplus for your financial and corporate elite.

The goal of US unilateral diplomacy is to establish trade, currency, and military dependency. This is how politicians “care” about what foreign countries are doing and why the US interferes so much in their political processes.

4- After the Russian-Ukrainian war, the features of the formation of economic blocs between countries in addition to the Western bloc. appeared. Previously formed blocs have been strengthened by the new reality that has emerged from this war, such as agreements between Russia and China, Russia and India, between Iran and Russia, Iran and China. Even the behavior of some of the BRICS countries close to the West was not hostile towards Russia. It seems that the purpose of these blocs is to oppose the Western empire led by the United States. Does this mean that we are witnessing a reshaping of economic globalization? And why hasn’t this happened yet?

MH: US sanctions and military confrontation force other countries to defend themselves by creating alternatives to the US dollar, as well as dependence on US suppliers of food, energy and critical technology so they can avoid “sanctions” that force them to comply with US dictates.

This break didn’t happen before because it wasn’t urgent. It was the US sanctions and the threat that the US/NATO war against Russia would last much longer than against Ukraine. Ultimately, this is a move against China, and President Biden said it would take twenty years or so. For Americans, the threat of losing their ability to control the economic policies of other countries is a threat to what they consider civilization itself. The clash of civilizations is taking place between US attempts to create a neo-rentier, neo-feudal world order and an order of mutual benefit and prosperity. As Rosa Luxembourg said a century ago, the clash is between barbarism and socialism.

5- In recent decades, the world has seen a significant increase in debt, whether household debt or public debt, where does it end? Will the debt grow indefinitely or will it come to a global debt crisis? And if that happens, what will be the implications for the global financial system?

MH: The exponential mathematics of interest-bearing debt makes debt crises inevitable. It has been so for thousands of years. The path of debt expansion is faster than that of the mainstream “real” economy.

At some point, either the debts will have to be written off—cancelled—or the countries will become indebted to the creditor powers, just as in the creditor countries the economy polarizes between the creditor one percent and the increasingly indebted 99 percent.

I explain this dynamism in The Fate of Civilization and also in The Killing of the Master.

The global system will have to move beyond dependence on the US dollar and turn national banking and credit systems into public services. This is the only way that governments can write off debt – mostly debt to themselves – without instigating a political and even violent struggle against their efforts to rid the economy of debt overheads.

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