Michael Hudson On Why The US Risks Becoming The Next Greece

Tracy Alloway (0:10)

Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

So Joe, I think we've spoken about this a lot, but one of the defining factors of the COVID crisis and its impact on the economy has been this idea that economic time has sort of stopped. People weren't going out as much, they weren't shopping as much, they weren't eating, but financial time kept going. So even though businesses aren't getting revenue and income, they still have to pay rent, pay back any loans they might have, and pay taxes and things like that. I think you actually wrote about this when we were just getting started with the coronavirus crisis.

Joe Weisenthal (0:54)

Yeah, that was kind of like identified as the early theme, which is like, okay, even if we can get through this crisis in a expedient manner, which at least in the US we haven't, you still have this issue of like bills pile up today or next week or the month later, and without revenue, those bills suddenly become defaults and potentially bankruptcies.

Tracy Alloway (1:16)

Right, that's exactly right. So a lot of the policy responses we've seen so far have been focused on bridging that gap between economic time and financial time, if you want to call it that. And they've been offering things like tax relief and loan forbearance. But the question of course is eventually, eventually, people are gonna have to pony up the money that they owe and what happens at that point, especially after they may have injured months, possibly even years of economic weakness, right? And less revenue than they would otherwise have gotten.

Joe Weisenthal (1:52)

Yeah, I mean, I think one way to sort of like conceptualize the policy response, at least in the US, is that to some extent, you have the Federal Reserve having backstopped a fairly significant portion of credit markets and done a number of things that actually caused sort of credit issuance to boom, even in the middle of the crisis, so that companies would have enough liquidity. And then the other side of the coin, so to speak, would be fiscal policymakers and then the health policymakers trying to sort of get us to that other side so that all these bridge loans that have been taken out can actually be paid for at the other end.

Tracy Alloway (2:32)

Yeah, that's right. And of course, the concern that you hear quite a lot is always that one man's or one person's repayment is another person's income, right? So if you stop the flow of rent, for instance, landlords aren't going to be getting the income that they're expecting to get. And I know there's probably not a lot of sympathy for landlords at the moment, but the concern is that that ends up impacting the banking system, it ends up impacting the flow of credit, which feeds back into the economy in a negative way. So today, instead of talking about debt forbearance, we're going to be focusing on something slightly different, and that is the notion of debt forgiveness. So not just telling everyone that they can pay their bills or their debts in a few months time, but actually writing them off.

Joe Weisenthal (3:24)

Right, that is not something that we've ever really done much in this country. There was a lot of talk about it after the great financial crisis after 2009 There really wasn't much. You hear about it with student loans.

You hear about the idea of like, okay, this time we need a wash. But I would say both sort of culturally and politically, we're sort of allergic to this idea of just sort of writing them off.

Tracy Alloway (3:51)

Yeah, I think that's exactly right. Okay, without further ado, we're going to get into all of that. We have the perfect guest for this particular topic. We have Michael Hudson. He's the president of the Institution for the Study of Long-Term Economic Trends, also a professor of economics at the University of Missouri, Kansas City. He's also the author of numerous books, including And Forgive Them Their Debts, which is a sort of very long-term history and overview of the tension between creditors and borrowers, a really good book.

So the perfect person to give us perspective on what's going on right now and how it compares to thousands and thousands of years ago.

Professor Hudson, thanks so much for joining us.

Michael Hudson (4:36)

Well, it's good to be here, Tracy. Thanks for having me.

Tracy Alloway (4:40)

So maybe just to begin, I mean, where do we begin? Can you sort of give us your top level view of how you view the coronavirus crisis and the impact on the economy in terms of creditors versus borrowers? Like where does the power actually lie at the moment?