• Latest News
  • Pitch a Story
  • Work with a Journalist
  • Join the Blog Squad
  • Afghanistan
  • Africa
  • Asia
  • Baltimore
  • Canada
  • Egypt
  • Europe
  • Latin America
  • Middle East
  • Russia
  • Economy
  • Environment
  • Health Care
  • Military
  • Occupy
  • Organize This
  • Reality Asserts Itself
  • US Politics
  • Debt and a Broken System

    Hudson and Wolff: Massive public debt incurred to bail out a broken private system -   May 9, 11
    Members don't see ads. If you are a member, and you're seeing this appeal, click here


      Share to Twitter
    Share to Facebook

    I support The Real News Network because it is news - David Pear
    Log in and tell us why you support TRNN


    Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971). ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East. Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law. Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne).


    Debt and a Broken SystemPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. In Washington, the partisan rhetoric flies about the debt debate. But let's take a sort of deeper look at it. And now joining us to do that are Richard Wolff--Richard is a professor of economics emeritus at University of Massachusetts Amherst; he's also a visiting professor at the Graduate Program in International Affairs at the New School in New York City--and Michael Hudson. He's a former Wall Street economist. He's now a distinguished research professor at the University of Missouri-Kansas City. And he's the author of many books, including Super Imperialism: The Economic Strategy of American Empire. Thank you both for joining us again. So, Michael, you kick us off. What's concerning you?

    MICHAEL HUDSON, RESEARCH PROFESSOR AT U OF MISSOURI: In all this talk about the deficit, people are talking about income tax rates, but they're not talking about how most debt is being run up. It's true that most of the debt, until a few years ago, was run up by cutting taxes. When Ronald Reagan came in, under Reagan and Bush, the US federal debt was quadrupled by cutting taxes on their constituency, Wall Street and the wealthy. But today there's a new way of creating debt, and that's by the Federal Reserve. The Federal Reserve, by bailing out Wall Street, spent $13 trillion, more than tripling America's public debt just to give it away to Wall Street for the money that it had gambled and lost. And now, today, the Federal Reserve is in the middle of quantitative easing 2, creating $600 billion just on computer keyboards to lend to the banks, and saying, make enough money to earn your way out of the debt that you've run up by your fraudulent real estate loans and your gambling. So the banks are putting all their money abroad, mainly in the BRIC countries--Brazil, Russia, India, and China. The result is that these currencies are going up, and the countries, even Korea and raw materials exporters, are raising their controls against dollars coming in. The attempt is to make--to drive down the dollar so that you increase the cost of living for American consumers. And Americans, workers, are being squeezed not simply by shifting the taxes from the rich down to them, but also by depreciating the dollar and making them pay more for what they import, especially from the American companies that have moved their jobs abroad, and from the raw materials producers, and from the countries that the US banks are using the Federal Reserve credit to bid up their currencies and drive down the American currency. [crosstalk]

    JAY: Michael--hang on just one sec, Michael. My understanding is that when the Fed creates this money and loans it to banks, it doesn't show up the same way on the federal government debt. It's not considered a normal part of sovereign debt. And also, doesn't most of that eventually actually get repaid to the Fed versus what--apparently, the accumulating debt on the Treasury side?

    HUDSON: Well, you know, Adam Smith said that no government has ever repaid its debt, and he said that over 200 years ago and it's still going on. The debt is supposed to be repaid in principal over time, but there's no money to pay. The government's creating all of this debt because the banks don't have enough money to pay what they already owe. The banks are insolvent, especially the banks that are too big to fail. So the government's creating money to bail out its campaign contributors, basically, and it's bailing them out by creating keyboard credit, by giving them free loans, by cutting their taxes, and by shifting taxes onto people that are not their campaign contributors--organized labor, labor unions, voters, and consumers. That's not the poll that the government's looking at. It's looking at the poll of its campaign [crosstalk]

    JAY: Okay. Richard?

    RICHARD WOLFF, PROF. ECONOMICS, THE NEW SCHOOL: Well, I think the important thing is, again, the clues provided to us by history. Up until 2007, the deficits we had were running in the neighborhood of 2, 3, 4 percent of our annual production in United States. Starting in 2007 and '08, it zoomed up to 10 and 11 percent, which is what it's running now. The lesson here is clear. The reason we have a suddenly humungous deficit is because we had a failure of our private capitalist system, and that the government has come in to hold it up, to rescue it, and to keep supporting it, which it is doing. Just to give you one statistic, 97 percent of all mortgages written over the last two years in this country were either guaranteed by or have become the property of the United States government. We would have no housing market in the United States without the government. If people are upset that the value of their homes have dropped in recent years, they will drop another 50 percent if the government ever got out of supporting the housing business. What we see is a failure of a private system, the government shoring it up. But then here comes the real kicker. When the government shores it up and borrows tremendous amounts of money, incurring huge interest costs every year, it wants to make the people who pay for this be the poor people on Medicaid, the old people on Medicare. Everyone who's entitled to social security should take a hit to help the government in its time of difficulty, when that difficulty has to do with an economic system that isn't working, and the payoff is going to the people who are mostly responsible for it not working. Is anyone surprised that the American people are upset, or that the Icelandic people in a very similar situation voted against their government's proposal, or that the Finnish people recently voted on the right wing, but out of the same anger from a situation that is becoming intolerable in terms of who is benefiting, who is causing trouble, and who has to bear the cost of it all in a kind of crescendo of self-destructiveness that the American economy now looks like to so many people that even our own Standard & Poor corporation is sounding an alarm?

    JAY: Michael, one of the things in Standard & Poor's that didn't get a lot of focus in the media was its prediction or the possibility (or enough that it gave it some weight) of another big bailout, which it talked about could be another significant number of percent of GDP to do another big bailout. On the other hand, we're being told by the administration and others that the regulatory bill, the Dodd-Frank bill--and we're also being told by the chair of the FDIC that this too-big-to-fail thing is kind of solved, that there is the mechanisms now to deal with this. So which is it?

    HUDSON: Well, there are no mechanisms. The system has not been changed. And the bank lobbyists have been at work, basically, on the small print of the Dodd-Frank bill doing everything they can to undo it and to have loopholes, which is what bank lobbyists do. For instance, you don't hear anything about Elizabeth Warren and the Consumer Financial Protection Agency that [incompr.] was supposed to occur. The fact is that, as Professor Wolff said, Wall Street has turned the economy into a Ponzi scheme, and the government tax system has turned into the subscriber to the Ponzi scheme, pumping enough money into it to keep the illusion going if the whole scheme works. And it doesn't work, because it requires exponential growth. And the only way that the exponential growth and debt can occur is, as Professor Wolff says, by paying more and more interest to Wall Street, more and more giveaways, more and more bank bailouts, until finally the banks are allowed to fail and they have a clean slate and start all over again. That's where we're moving to as the endgame.

    JAY: Richard, but that endgame won't look very good for ordinary people.

    WOLFF: No. It's already in bad shape for ordinary people. And you can see in the decision Obama made last November and December not to push for the higher tax rates on the rich, you can see it in this deal they made for the $38 billion--I'll be generous and call it a symbolic cut that doesn't basically deal with our deficit problem at all. You'll see that the difference between Republicans and Democrats reduces to exactly how much to cut--not whether to cut, just how much--and exactly on whom these cuts will fall. You can choose old people or sick people or poor people, but that's who's going to be getting it. And the ironic part of it for me, as an observer of this whole thing, is to see a process in which I would have thought, in my naivete as a professor, that when you have a collapse of a capitalist private enterprise system as severe as this one, taking us all back to the even bigger one 75 years ago, that you would have come out of it chastened a little bit, unwilling to reenact the same policies, as Professor Hudson says, that we had before, the too-big-to-fail--. Let me give you one concrete example. Merrill Lynch was our largest stock broker. It was too big to fail. Bank of America was one of our largest corporations by itself--too big to fail. When all the dust settled, those two corporations are now one corporation much bigger than either one was before. And the same people who told us before that regulations were in place that need not make anyone worry about a collapse are now telling us that again. The first time we believed it. Shame on them. But if we're going to believe them again, then it's shame on us for being as naive and as willing to put our whole futures on the line as we seem as a people now apparently willing to do.

    JAY: Thank you both for joining us. And thank you for joining us on The Real News Network. And as far as our fiscal issues go, don't forget the donate button around here, because if you don't do that, we can't do this.

    End of Transcript

    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


    Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address. Please make thoughtful comments with minimal links using only one user name. If you think your comment has been mistakenly removed please email us at


    Latest Stories

    Affirmative Action Ruling Will Further Racial Inequality
    Evidence for Russian Involvement in East Ukraine Based on Shoddy Journalism
    Ivy League Study: The General Public Has Virtually No Influence on Policy
    The Modern History of Venezuela and Popular Democracy - Edgardo Lander on RAI (9/9)
    An Asia "Pivot" Should Mean Cooperating with China to Solve the Global Environmental Crisis
    Assessing the U.S. Environmental Movement
    Intimidation and Political Interference Goes Unpunished in UAW Case
    Exclusive Investigation Uncovers How BP Uses Bribes To Do Business
    The Modern History of Venezuela, The Protests and Democracy - Edgardo Lander on RAI (8/9)
    Greek Politics 4 Years After The Financial Crisis
    CBO Report Confirms U.S. Deficit Back to Normal Level
    Israel Uses Refugees as "Currency" in Arms Trade with Africa
    Who Will Pay for Climate Change Disaster?
    Canada Shifts to Right Under Harper, Mimicking the United States
    The Savings and Loan Crisis Demonstrates the Importance of Glass-Steagall
    South African Platinum Miner's Struggle Challenges ANC Leadership
    TRNN Original Report: Manning Determined to Fight Back After Army Upholds 35- Year Sentence
    Hundredth Anniversary of the Ludlow Massacre
    The Bundy Ranch Standoff Demonstrates Values Shared by Corporations and the Far Right
    The Resegregation of American Schools
    The Modern History of Venezuela, Why Still So Much Crime? - Edgardo Lander on Reality Asserts Itself (7/9)
    What Role Has Russia Played in Eastern Ukraine?
    Can Johns Hopkins Afford to Pay A Living Wage? (2/2)
    University Sit-In Targets World's Largest Private Coal Company
    The Modern History of Venezuela and the Need for a Post-Oil Economy - Edgardo Lander on RAI (6/9)
    Can Johns Hopkins Afford to Pay A Living Wage? (1/2)
    One Percent of Environmentalists Killings Lead to Convictions
    Investigation Finds Former Ukraine President Not Responsible For Sniper Attack on Protestors
    The Modern History of Venezuela from 1973 to the Caracazo Massacre - Edgardo Lander on Reality Asserts Itself (3/9)
    Ukraine Transitional Gov't Moves Militarily To Reclaim Seized Buildings
    IPCC Report Flawed By Narrow Focus on Carbon Emissions
    The Modern History of Venezuela: The Bolivarian Revolution - Edgardo Lander on Reality Asserts Itself (5/9)
    Obama Signs Directives to Reduce the Gender Wage Gap
    Eastern Ukraine Lacks Political Representation in Kiev
    Demystifying the Role of Mitigation in the Most Recent IPCC Report
    Hypersurveillance State Won't Prevent Another Boston Marathon Bombing
    The Modern History of Venezuela from 1973 to the Caracazo Massacre - Edgardo Lander on Reality Asserts Itself (3/9)
    Univ. of Maine Faculty Reinstated After Students Protest Against Cuts
    The Modern History of Venezuela from 1908 to 1973 - Edgardo Lander on Reality Asserts Itself (2/9)
    IMF Will Address Global Inequality, Says Managing Director Christine Lagarde
    Raising Big Banks' Leverage Ratio Good, But Not Nearly Enough
    TRNN Replay: Austerity Road to 19th Century
    Has Palestinian Maneuvering Revived Peace Talks?
    Late Jackson Mayor Lumumba's Son Wins Primary to Replace His Father, Runoff Election Ahead
    Quebecers Reject PQ and Elect a Liberal Government Representing Big Business
    TRNN Debate: Decriminalization vs. Legalization
    The Beginning of the Chavez Era - Edgardo Lander on Reality Asserts Itself (4/9)
    "Off With His Head": Court Upholds Obama's Power to Kill
    Workers at Nation's Top Hospital Strike For Fair Wages
    From Exile to Radicalization in Venezuela - Edgardo Lander on Reality Asserts Itself (1/9)
    Rwanda 20 Years Later: Genocide, Western Plunder of Congo, and President Kagame
    Ukrainian Protesters in the East Demand More Autonomy From Kiev Government
    Hunger Strikers Demand President Obama Halt His Record 2 Million Deportations
    Indian Parliamentary Elections - A Primer With Vijay Prashad
    West Looks to Carve Up Ukraine & Privatize Industries Held by Kleptocrats
    Where Are Israeli-Palestinian Peace Negotiations Headed?
    The Multiple Kingdoms of Saudi Arabia (5/5)
    Do the Afghan Presidential Elections Signify Progress?
    Republican Presidential Hopefuls Pay Homage to Billionaire Casino Tycoon Sheldon Adelson
    Will Extremist Lieberman Become Israel's Next Prime Minister?
    Why do the Saudis Want the US to Attack Iran? (4/5)
    Immigrant Advocates and Families Tell President Obama 'Not One More'
    Elections, Pipelines, and Protests - The Canada Panel
    Chris Hedges on "Israel's War on American Universities"
    Baltimore Residents Decry Lack of Affordable Housing
    Yellen Talks the Talk But Will She Walk the Walk?
    Hopkins Hospital Workers Speak Out against "Poverty Wages"
    Will Venezuela's New Floating Exchange Rate Curb Inflation?
    The European Central Bank's War on Wages is Pushing Europe's Economy to the Brink
    Supreme Court Decision Opens Floodgates for More Campaign Cash
    Charles Keating, the Financier Behind the Savings and Loan Scandal, Dies at 90
    Saudi Arabia and the al-Qaeda Monster (3/5)
    Maryland Residents Voice Opposition to Natural Gas Fracking Export Facility
    Supreme Court Ruling Gives Wealthy Individuals More Influence Over Elections
    What are the Saudis Afraid Of? - Madawi Al-Rasheed (2/5)
    Baltimore's MICA Adjunct Professors Set to Vote on Unionization
    Boycott of Israel Moving to Next Level?
    Hypocrisy Dressed Up as "Realism" Justifies American Alliance with Saudi Dictatorship
    Immigration Reform in the Shadows of Cesar Chavez's Legacy
    Leaked Senate Report Shows Use of Torture As "Ineffective"
    UN Report Says Climate Change Will Threaten Food Production Worldwide
    The Hypocrisy of US Calling for Enforcement of International Law
    How the Ecuadorian Economy Grew in a Global Recession
    'Shadows of Liberty' Trailer
    Kristina Borjesson on Why CBS Shut Down Her investigation into Flight 800 (2/8)
    Glen Ford on Racism in the American Media (3/8)
    Paul Jay on What Drives Corporate Media and What Drive The Real News (4/8)
    Creating a New Media Paradigm After Citizens United (5/8)
    Should The Left Engage with the Mainstream Media? (6/8)
    What Is the Financial Backing For The Real News? (7/8)
    Standing up to Character Assassination (8/8)
    Oligarchs, Fascists and the People's Protest in Ukraine
    TRNN Debate: Is Obamacare In the Interest of Workers?
    Too-Big-To-Fail Advantage Remains Intact For Big Banks
    Obama and the Saudi Agenda
    TRNN Replay: Investigating the Saudi Government's 9/11 Connection and the Path to Disilliusionment - Sen. Graham on Reality Asserts Itself pt 1
    The Iraq War's Real Legacy
    Petitions with 100,000+ Signatures Call for Snowden's Passport to be Reinstated
    We Need to Harness People Power - Andy Shallal on Reality Asserts Itself (4/4)
    BC Pipeline Fight and Quebec Elections - The Canada Panel
    Jonathan Schell - 1943-2014: Board Member of TRNN on Why We Need The Real News
    Teachers on Strike from the UK to Argentina
    Connecticut Poised to Become First State with $10.10 Minimum Wage
    Oil Spill Threatens Wildlife and Local Economy
    DC School Test Scores Up, But Poor Black Kids Are Doing Worse - Andy Shallal on RAI (3/4)
    Obama's Proposal To End NSA Bulk Data Collection Won't Protect Privacy
    How Google, Apple & The Biggest Tech Companies Colluded to Fix Workers' Wages
    An American Should be One that Questions Their Government - Andy Shallal on RAI (2/4)
    What's Driving Putin & Obama's Posturing on Ukraine?
    Hundreds of Students & Faculty Occupy College Campus to Fight Cuts to Public Higher Ed
    Due Process 'Impossible' In Harsh Death Sentencing Of Over 500 Muslim Brotherhood Members
    Has Anglo-American Capitalism Run Out of Steam?
    Being the "Other" in America - Andy Shallal on Reality Asserts Itself (1/4)
    TRNN Debate: Should Baltimore 'Ban The Box'?
    How Fallujah Became the Iraqi Government's New Battleground
    Why I Decided to Blow the Whistle on the NSA
    NASA Climate Predictions Show Serious Threat To Humanity
    Professor Who Teaches Israel-Palestine Conflict Accuses College of Violating His Academic Freedom
    CIA and NSA Wrongdoing Requires Independent Investigation, Says Former Church Committee Staff
    Are Tuition Breaks Enough To Combat High Student Debt And Low Graduation Rates?
    Industries Across the U.S. Are Stealing Wages From Their Lowest Paid Workers
    Who In Ukraine Will Benefit From An IMF Bailout?
    NSA Recording All International Calls From U.S.
    Israel "Making Lives Miserable" for Africans, Hoping They 'Self-Deport' (2/2)
    BP Gets Green Light to Drill in Gulf, But Has Safety Improved?
    Residents Still Not Drinking Tap Water Two Months After West Virginia Spill (1/2)
    Libya's Descent Into Turmoil Three Years After NATO Intervention
    From Pipelines to Peladeau - Canadian Report
    Israel "Making Lives Miserable" for Africans, Hoping They 'Self-Deport' (1/2)
    Congressional Progressive Caucus Budget Strikes Back Against Austerity
    Libya Three Years Later - Chaos and Partition
    Why Was Gaddafi Overthrown?
    Should Ukraine and West Accept De Facto Crimea Joining Russia? (2/2)
    Tony Benn Saw Socialism as the Culmination of Democratization
    Why Didn't Bush/Cheney Attack Iran and Can Obama Make and Sell a Deal? - Gareth Porter on Reality Asserts Itself (3/3)
    After Late Mayor Lumumba is Laid to Rest, What's Next for Jackson, Mississippi? (2/2)
    Crimea Referendum: Self Determination or Big Power Manipulation? (1/2)
    Sen. Graham: President Must Side with Openness About CIA and 9/11
    Manufacturing a Narrative for War - Gareth Porter on Reality Asserts Itself (2/3)
    Protesters Hit the Streets of Brooklyn to Demand $15 Minimum Wage
    Hammer: 'Moral Bankruptcy' Behind Massive GM Recall
    White House Withholds Thousands of Documents from Senate CIA Probe
    I Grew Up Believing in Time Magazine's Version of America - Gareth Porter on RAI (1/3)
    Western European Banks Vulnerable to Ukrainian Sovereign Debt Crisis
    TRNN Debate: What's Driving Inflation in Venezuela? (2/2)
    CIA vs. Senate: Who Is Obama Protecting?
    Will Tipped Workers Get Excluded Again From Minimum Wage Hike?
    TRNN Debate: What's Driving Inflation in Venezuela? (1/2)
    After Late Mayor Lumumba is Laid to Rest, What's Next for Jackson, Mississippi?(1/2)
    TRNN Replay: A Look at Who's Poised to Become No.2 at the Fed
    How Right-Wing Nationalism Rose to Influence in Ukraine (2/2)
    Netanyahu Attacks Boycott As Campaign Enters New Phase
    Moving Towards a Police State - Michael Ratner on Reality Asserts Itself (7/7)
    Fighting Reagan's Secret, Illegal Wars - Michael Ratner on Reality Asserts Itself (6/7)
    Puerto Rican Independence Movement and Cuba Further Radicalized Me - Michael Ratner on RAI (5/7)
    The Butcher of Attica - Michael Ratner on Reality Asserts Itself (4/7)
    MLK and a Radicalizing Moment in American History - Michael Ratner on Reality Asserts Itself (3/7), Real News Network, Real News, Real News For Real People, IWT are trademarks and service marks of IWT.TV inc. "The Real News" is the flagship show of IWT and Real News Network.

    All original content on this site is copyright of The Real News Network.  Click here for more

    Problems with this site? Please let us know

    Linux VPS Hosting by Star Dot Hosting