And the choices, do you want to depression, or do you want the banks to be able to collect all the economic surplus for themselves? Well Donald Trump, supported unanimously by the Democratic Congress, says, "We want to protect the banks, not the population, not the economy. Let the economy shrink, as long as our constituents, the donor class, are able to avoid making a loss. Let's make the loss borne by the 99 percent, not our donor class."
(21:17)
BEN NORTON: Yeah, and Michael, you mentioned something, getting back to the Federal Reserve and understanding how this whole system works. I mean frankly it seems to me to kind of be a house of cards.
But you mentioned this idea of Modern Monetary Theory and just kind of creating money out of nothing. Can you talk more about that? You know this is a term that's become more prominent, especially on the left: MMT, modern monetary theory.
There are socialists who argue in support of MMT and then there are others who are kind of skeptical of the whole notion that you can just print all this money to fund these social programs that you want to create, and that it won't create inflation.
But at the same time, you and other people point out that that's exactly how the economy already works. Where for instance, you want to fund a war, there's never you know frequently when someone on the left asks for universal health care or free public education, members not only of the Republican Party but many neoliberal Democrats often say, "Well yeah, where are you gonna get the money from?" And the response of some of the MMT supporters is, "Well we just fund the program, and we just create the money because we control the creation of the dollar."
And we see that same attitude used actually by the Federal Reserve right now, but to bail out Wall Street. "Yeah we're just gonna print" they printed $1.5 trillion, and then just gave it, they just injected it right into Wall Street.
So does that not create inflation, or what exactly is happening economically there?
I mean to me, it seems like a scam; it seems like totally a scam.
(22:59)
MICHAEL HUDSON: Since 2008, you have had the greatest inflation of money in history. And you have also had the greatest inflation in history, but it's entirely asset price inflation.
You're absolutely right: the money has gone into the stock market and the bond market, to hold down bond prices, meaning you've had the biggest bond boom in history. You've had a huge stock market boom. But consumer prices have gone down. So here you have an enormous amount of money creation, and consumer prices and real wages have been drifting down.
So they are really two economies. The question is, are you going to create money for public purposes by spending it into the economy, on industry, agriculture, and the goods and service production and consumption economy, or are you going to put it into the financial economy?
Well if you put a bank loan the whole way of our banking system is that banks create credit. If you go into a bank and you take out a loan, you say, I'm gonna borrow $5,000 for something. The banker doesn't go and say, let me see if we have any money to loan you; he says, okay I will write a loan on my computer. I will credit your deposit with $5,000, and you will sign this IOU, and we have an asset. And the asset is $5000, on which we're going to charge interest on what we pay you.
So it's just done by computer, on a balance sheet. And as long as money is created on a computer, the only cost is the electricity used to make that debt record.
Now the banks, when they make a loan, they very rarely make loans just against here's just free money. They say, okay if we're going to make a loan, well 80 percent of their loans are against real estate. So they say, in case you can't pay, you're pledging your real estate, the home you're buying, or the commercial building you're buying as collateral. So we'll lend you up to 80 percent, maybe 100 percent, of the value of what you're buying, and that's the collateral we have.
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