Michael Hudson Explains How Deficit Hysterics Target the Wrong Type of Debt

I was at the Atlantic Economy conference the week before last, and Michael Hudson got in one of the best quips: “Helicopter Ben has taken off and has been dropping money all over Wall Street. But he hasn’t dropped any on Main Street.” He has an informative talk with Paul Jay of Real News Network on why the fixation on public debt is wrongheaded, and we should worry about private debt instead.

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  1. Chris

    I used to think America was the last great democracy, a place where people could trust in their government. Thank you NC for showing me and others how wrong this thinking is. I watch and hope that enough people can see through this sham and rise up to do something about it. $13 trillion of your public debt just given away to keep private balance sheets intact. Sheesh!

    1. FrankZappasGuitar

      Not trying to be a prick here, but what era of US govt activity led you to believe it was a ‘great democracy’? Was it the genocide of native cultures? Slavery? World war II internment camps? Jim Crow? The Mexican-American War? Vietnam? The treatment of unions during the the first half of the 20th century? I’m seriously curious — what era did you used to imagine was this glory period of honesty, integrity, and upright ‘moral’ behavior (ie, not massacring/scamming the people)?

      1. craazyman

        It’s not that it did the right thing all the time, because it certainly did the wrong thing some of the time, but it didn’t do the wrong thing all of the time. And when it did the right thing it made you think more was possible. Sadly, these days you think that less and less.

        1. craazyman

          Wow. Professor Hudson looks like a man in his late 40s. he’s got that Ronnie Reagan black hair and youthfull vig going on. It’s impressive. You’d think studying up on bankster looting all day would wear you down, like following the devil around and reporting on who’s getting whipped and burnt. After a while you’d just say “No mas!” like Roberto Duran back in the Day and want to go fishing by yourself on some mountain creek where there’s not a banker within 100 miles. No fly fishing lodge for you, you’ll have to camp in a tent. I guess you gotta love what you do and life is eternal.

          1. MRW

            Both in Germany? Or wife here and girlfriend over there? Guess the wife doesn’t read nakedcapitalism. ;-)

            I love him. He’s a character. I like him best when he’s a little pissed off.

      2. Chris

        Hey, I’m just an Aussie looking in and thinking WTF, how did you let this happen, while just about everyone is going yeah, land of the brave, in god we trust…?? Just look at all the people who come out and cheer on the President, whoever he is? The world sees what the US MSM wants us to see and it is a far different view of America than what is the truth.

        Us Aussies hate bullshit and can see it a mile away. We have our own problems and our own MSM still fails to see the truth about public debt and our capacity to pay social security and debt by not borrowing. So, we face the same road as you do, but I am a lot more optimistic for my children than you are? Hell, I can still attend my local hospital with a problem and get them fixed for free.

        The real measure of a society is how it looks after its weakest citizens. America is the nation of self.

        1. from Mexico

          Michael Parenti had some choice comments on what he calls “super patriotism,” which can be seen here:


          What is the US #1 at? As Parenti notes, the only thing the US is #1 at is material force.

          And for an empire like the United States, a very large part, and balooning part, of that material force are the state’s instruments of violence — the police and the military.

          While Hudson and his MMT buddies do a great job of explaining that it is the state’s instruments of violence that give US dollars value domestically — the ability to tax — they nevertheless drop the ball when it comes to the international arena and explaining what gives the US dollar value in global markets. The thing that gives the US dollar value in global markets, if we follow MMT logic, should be, and I argue is, the exact same thing that gives the US dollar value in domestic markets — the US’s instruments of state violence, and the ability to project violence not only domestically, but throughout the world.

          Hudson’s failure to make the connecton between currency hegemony and violence was revealed in a paper he did called “Financial Predators v. Labor, Industry and Democracy” where he wrote:

          The most immediate decision was to do to Greece what the Versailles Treaty did to Germany: enforce foreign debt service far beyond its ability to pay. Politically, this requires suspending democracy and accepting the possibility of Greece slipping back into military dictatorship, by insisting that populations not be given a voice in whether to approve government’s commitment to pay. The veritable coup d’état is capped by replacing elected governments in Greece and Italy with “technocrats,” Euro-speak for what we Americans call investment bank lobbyists or factotums.


          In times past this kind of asset grab imposing rentier tribute required an army to enforce. What makes today’s situation so remarkable is that it is achieved without need for military intervention – as long as populations remain passive and believe that the world that works in the way that banks depict.


          However, if we look at the 200+ year-long history of liberal internationalism, liberal imperialism and neoliberalism, what it reveals is that, in the long run — it is important to remember that it is only in the long run — it has never been imposed without deploying the empire’s instruments of violence. Hudson and the other MMTers turn a blind eye to the vast deployment of the US’s instruments of violence which are used non-stop and without restraint to enforce dollar hegemony.

          1. banger

            You are right. Mao said power comes out of the barrel of a gun and that’s how it has always been as long as there have been political entities. I think segmenting economics from politics has been one reason people are clueless as far as what is now called “deep politics” or, in my terms, realpolitik. The issues we are discussing here are all political in every detail. TBF corporations are in the positions they are in because they have power–power to write laws and regs that are enforceable by violence, i.e., the police. A bank can reneg on a contract, commit fraud or do almost anything because that bank (if it is a big one) is now part of the state apparatus. This is a political reality. The media does not report falsely on all issues (is there one the media gets right?) because every major issue is political, every nuance of a story has been carefully crafted with an eye for, at any one time, what the balance of power is at that time. Notice how once Wall Street got behind the gay marriage issue, suddenly, the country turned around and now everyone is for it where just four years ago they were passing laws against it. Did perceptions magically change? No, the propaganda organs started the mighty Wurlitzer. The only reason the oligarchs were opposed to gay marriage was because they felt it would win elections for conservatives. Now, both parties are both conservative parties (in terms of realpolitik) so there’s nothing to worry about the oligarchs have complete power and there is no threat to its position on the horizon so they can “allow” cultural change to happen.

          2. from Mexico

            banger says:

            You are right. Mao said power comes out of the barrel of a gun and that’s how it has always been as long as there have been political entities.

            Not so fast. That is without a doubt the political theory that the neoliberals and neoconservatives — along with liberals, Marxists and fascists — labor under. But it’s quite antithetical to my own political philosophy.

            My political philosophy derives from folks like Montesquieu who argued that the power of government is “in proportion to the number which it is associated,” and tyranny, as he discovered, is therefore the most violent and least powerful of forms of government.

          3. Nathanael

            While true, this all feels irrelevant to the current situation.

            In the current situation, the relevant fact is that — although US military spending is 10 times larger than Chinese military spending — the US cannot win wars.

            The existence of the imperial system of force is yesterday’s news. The *ineffectiveness* of the imperial system of force is today’s news.

          4. from Mexico


            While I tend to agree with you, I think it goes without saying that the plutocrats who rule the US and northern Europe do not agree with us.

          5. sleepy


            Perhaps the goal of the US is not to “win wars” in the conventional sense, but to create chaos, disorder, and uncertainty, all of which serve interests other than strict miliary ones.

      3. BillyBob

        @ZappasGuitar: Chris said “great democracy,” not “perfect democracy.” I think during the era 1933-1981 the US was indeed a great democracy. 1929 was a Big Shakedown similar to the current one. US oligarchs had done a lot to encourage and establish Eurofascism, and intended that the revulsion against WWI would keep us isolated from events abroad; and that the immiseration of the US masses would permit our oligarchs to complete the corporate state here at home. Thanks to Franklin Roosevelt, the union movement, and the spectacular performance of the US productive economy and the US armed forces, and the alliance with the USSR and Great Britain, the great democracy was able to be the key ingredient in defeating Eurofascism, while getting into place a decent safety net for average Americans and demonstrating to the world a degree of integrity that the Europeans at least had not seen but were bound to respect in the post war period. None of this was perfect – life is engineering, not science, and perfection is not possible – and it has now been undone almost completely. But there was a brief shining moment in historical terms in the early ’60’s when all kinds of great advances seemed – and were – possible. It was in this great moment of hope and democracy that civil rights, women’s rights and now gay rights were rooted. Substantive – and far from perfect – movement against those ancient prejudices is exactly the kind of fruit that a great democracy would bear.

        1. from Mexico

          While the post-WWII era was certainly the golden era for the common man who lived under the US/NATO umbrella, the same cannot be said of those who lived outside it. Scott Noble in The Power Principle throws water onto your rather sanguine view of the empire as being benign:


          And what about those who argue that civil rights, women’s rights and now gay rights have been advanced by abandoning all that unglamorous and twice-told stuff about the workers, or about the people who live outside the US/NATO empire in the empire’s vassal nations?

          1. Nathanael

            Actually, by many standards the Soviet era was also a ‘golden age’ (relative to what had preceded it) for those who lived under the protection of the Russian imperial umbrella.

            It was really the people in the ‘third world’ (using it in its *original* meaning, where ‘first’ was US empire and ‘second’ was Russian empire) who were comprehensively screwed.

            I remember that the mistreatment of the third world was the main topic of discussion and activism among leftists and liberals in the 1980s, before it started becoming clear that Reagan and his ilk were going to trash the US.

          2. Calgacus

            Nathanael:It was really the people in the ‘third world’ (using it in its *original* meaning, where ‘first’ was US empire and ‘second’ was Russian empire) who were comprehensively screwed.

            Not really. If comprehensively screwed, it was less so than the preceding century. The postwar era also saw decolonization – the more forgotten something is is a good index of its real importance. And the 3rd world overall saw good growth til the 70s and 80s. That was why there had to have so many interventions, of which Vietnam was only the biggest. But the future looked much brighter everywhere than it turned out to be. The blight of neoliberalism, the mass forgetting of numerate economics, the Great Moderation = Great Stagnation assaulted everyone on the planet.

      4. banger

        The difference today is one of scale and balance. Today the U.S. is the center of a global empire. The old checks and balances between local, state, and federal gov’ts has altered. Local newspapers, businesses flourished and were just as dishonest and grasping but power was more diffused. Today power is centered in a few large industries who act as one, i.e., the banking industry–they may “compete” against each other but the collude more than compete.

        Good old fashioned corruption and theft went on episodically and, in a few areas systematically as in the case of organized crime. Now the entire society is dominated by big giant virtual state enterprises–the TBF corporations and the government contracting community from prisons to the military and corruption is systemic and utterly immune from prosecution.

        On the other had, back then, racism, sexism were normal and men could not wear long hair without risk to their persons.

      5. nonclassical

        ..you missed south-central america, ’70’s-’80’s and most importantly, parallel history between today-30’s; Marine General Smedley Butler-whistleblower, twice decorated Congressional Medal of Honor, as opposed to whistleblower Bradley Manning-WikiLeaks version…other parallels; “socialist” FDR & “socialist bushbama (bushbama is NO FDR), Wall $treet economic destruction both scenario, military exploitation-phony wars exposed, along with plot to seize White House by banksters-repubLIEcons..(and some wealthy dems). True history of McArthur involved, riding down upon WWI vets in D.C…one book-“The Plot To Seize The White House” (and turn democracy into fascism) says it all…

        but let’s all tell the truth-bushbama INTENDED to play “sequester”-debt game
        by pitting “Social Security”-Medicare recipient retiree funding VS. government-military employee recipient funding…either way he wins…and dems LOSE 2016..
        bushbama gets his continuation of bushit, Wall $treet wins (what is the “spending problem” spending for?-answer-QE3; $80 billion per month FED-taxpayer buy-back of “toxic assets”-“mortgage BACKED securities”….

    1. from Mexico


      We need more programs like this to illustrate to the masses, in easy to understand ways in no uncertain terms, that Abbot and Obama are pathological liars running a big con on the people.

      1. skippy

        I’ll have to give the boys a ping and get them to offer Abbot some CDS on that debt. I’m sure the accounting agency’s will validate their assets – virtual backdrop and stage props used during broadcasting… good cash flow till the show is canceled.

        Skippy… Just imagine developed nations through their financial intermediaries, all tightly coupled, with this stuff.

  2. Gil Gamesh

    If we were living in a democracy, Hudson would be a policymaker, instead of a fringe figure.

    One can be sure that the Austerians never lose sleep over their revenue…sorry, private debt.

  3. docG

    Ron Jay’s questions are very sensible and Hudson never fully addresses them. Whenever his argument is seriously challenged, he dodges the question by pointing to the banks. Of course,what he has to say about all the money printed to help the banks is right on. But, sorry, Michael, two wrongs don’t make a right.

    What we’re talking about here is very much like a Ponzi scheme. Which he more or less admits when he explains how so many billionaires in all the other countries are happy to entrust their money to US bonds. Why? Because they’re confident the US can be counted on to simply print more money and generate more debt INDEFINITELY, i.e., with no limit. Which translates into the “perfect” Ponzi scheme. If Bernie Madoff had similar capabilities he too could have extended HIS scheme “indefinitely” as well — and NO ONE would have complained.

    Of course, as we know, there is no such thing as unlimited funds. Sooner or later such practices catch up with you, and that’s just as true of swindling governments as it is of swindling swindlers.

    As I see it, the greatest harm done by such pie in the sky “reasoning” is the fact that it obscures the very real scandal driving our current financial trauma: inequality. There has never before in history been as much wealth as exists today in the world and particularly in the USA.
    And yet the tax rates have never before been as favorable to the many plutogarchs literally hoarding all that cash. The solution to our economic crisis is NOT the printing of more money by the US government, but the reinstitution of a truly progressive system of taxation, if not out and out appropriation of funds and resources currently controlled by a small minority of oligarchs, whose power and influence is growing by leaps and bounds, year after year.

    1. Moneta

      I’m not against printing per se. I’m just against printing money that promotes laziness and inefficiencies leading to an unsustainable way of living.

      When your main export is money and you import oil and resources, you are bound to meet the Piper somewhere along the way.

      1. The Rage

        right, you don’t print money for consumption, you print money to build stuff(as in LBJ’s case, war toys for Vietnam…..)

    2. The Rage

      Hey, if you want to print money to build infrastructure, go right ahead. It would be absorbed into the system quite freely.

      1. MRW

        We’ve been “printing money” since 1934. How do people think we paid for WWII materiel? Or the space program? The Hoover Dam? The Vietnam war?

  4. The Rage

    Let remember alot of the “printed money” is actually DOA in terms of production and money supply. It is revolved around so the insolvent banks can make pay and look “solvent”. This money never actually gets out into the system and thus money velocity never moves.

    That is why the FED is trying move the yield curve steeper while saying the opposite. The banks needs a steeper yield curve to produce more revenue and Euro’s aren’t helping this with their rediculous monetary games.

    1. Chauncey Gardiner

      I agree. Michael Hudson identifies QE as a relatively small (~$2 trillion) component of the “Great Giveaway” from us to them.

      He is right in terms of the relative size of QE, of course. But the other components of the bailouts have been direct. Accordingly I believe QE is important to consider both in its own right as a standalone policy and as a microcosm of the monetary-financial system.

      Besides the bailout, I believe there are a number of interrelated policy objectives, issues and dimensions associated with QE that merit consideration. These range from financial asset and real estate bubble reinflation for mark-to-market accounting at the banks in order to generate “earnings” and to achieve capital adequacy ratios; to meeting wealth retention and generation objectives by large campaign contributors; to global currency wars that include ancillary considerations relating to the US dollar as the global reserve currency; to the lack of money flowing into the real economy under a “Soft Austerity” policy that facilitates privatization efforts.

      I feel it is noteworthy that ~$1.6 trillion of QE “Money” has effectively been “inoculated” and is resting quietly and peacefully, supine on the Fed’s balance sheet in the banks’ Reserve Accounts. Why?…

      The Cash proceeds they have received from the Fed under QE have not only enabled the banks to sell their heavily impaired MBS to the Fed (where I suspect the MBS subsequently are dispatched quietly onward to Money heaven), but their Cash proceeds from QE also enable the bankers to achieve their regulatory capital requirements… painlessly… in fact, the banks are actually being paid by the Fed to do so, as the Fed pays interest on balances held by the banks in their Reserve account at the Fed. Furthermore, the extent to which Reserve Account balances are being used to fuel fractional reserve credit creation is unclear?… particularly noteworthy is the relentless ramp of financial assets upward with margin debt that has been punctuated with only short intermissions since 2008.

      Student debt?… Not to worry… think MBS.

      In fact, IMO you could call QE-Infinity “MMT for the Few” as inequitable distribution of money, concentration of wealth, and low turnover of money in the real economy (“low Velocity” of money) are really at the crux of the issue, no?

      We need fiscal spending on education, infrastructue, healthcare, alternative energy and other areas. It is clear this monetary policy, which is now in its fifth year, is not working.

  5. docG

    If we absolutely positively MUST print money, then sure, let’s print it to pay for meaningful job and infrastructure programs. I’m with Hudson on that score, and sure, creating a significant number of well paying jobs will definitely boost demand.

    But I’m sorry, just because it’s for a good cause does not make it good policy. What’s really insidious about such thinking is the way it very quiety insulates the super wealthy from any responsibility, creating the impression that we really don’t need tax reform, when in fact we do — desperately. Or outright appropriation — even better, as far as I’m concerned.

    The E-U-eorcrats have blazed a daring path this week, though I’m sure they’ll never admit it. By confiscating a hefty chunk of the Russo-British wealth socked away in those Cypriot banks, they have opened the door to the appropriation of wealth in every other sector, a move that is desperatly needed and may well prove ultimately to be the only meaningful solution to their — and our — economic woes.

    1. Ben Johannson

      No. A Jobs Guarantee is the last thing business elites want to see because it increases labor power and decreases profits. When everyone has the choice of working in the public sector the labor market tightens and firms wishing to retain and/or hire new workers are forced to make those jobs more attractive through higher pay, benefits and treating employees like they aren’t a fungus.

    2. F. Beard

      The banks “print money” every time they make a loan but they DON’T print the INTEREST except as MORE DEBT.

      Money printing by the Federal Government creates that interest.

      Or are you in favor of allowing the banks to create unpayable debt?

        1. skippy

          “Laiki Bank is not alone in this problem; the ECB has already complained about the deteriorating quality of the collateral being offered it by banks from Italy, Spain, and elsewhere, and it has lowered its money good threshold several notches in order to keep these banks afloat in liquidity. You might ask – where has all the liquidity gone, especially since the US Treasury is issuing over a trillion dollars in new debt every year?

          The answer is simple. The Federal Reserve is buying up its own country’s debt almost as fast as it is printed – to the tune of 77% of all new paper. Most recently, the Fed has begun-announcing which bonds it wants to buy, by serial number, before the bond is even issued by the Treasury. The same day the paper is issued, it is gobbled up by a large US bank and sold that afternoon to the Fed. The Fed says it is buying up all this paper because it wants to help the economy recover, but this is a simple falsity that no one in the markets believes.

          The Fed is buying this paper because it has to, because the usual buyers no longer have the money to purchase a trillion dollars of new Treasuries each year. The Chinese government is no longer in the market because its trade surplus is shrinking, and the Japanese government is in an even worse situation – its trade surplus has switched to a deficit for the first time in half a century. American fiduciaries are another source of buyers who are low on cash, because what Treasuries they do own pay close to zero percent interest. The investing community has been starved for interest income for so long that it has no desire to buy a financial instrument that offers no yield. Much better, they reason, to speculate in junk bonds, to the point now that we find junk bonds, even with a very high risk of default, replacing default-free Treasuries in the portfolios of many fiduciaries. The spread between the yield on junk bonds to Treasury yields has shrunk to an all-time low as a consequence.” –


          Skippy… n’est–ce pas?… commingled PUB + PRV credit = good money collateral = GDP now?

  6. MyLessThanPrimeBeef

    Wrong type of public debt we must worry about: government borrowing to buy more drones.

    1. nonclassical

      ..just back from western colorado=droneland U.S.A….as Halliburton leaves, all remaining for jobs is drones, corporate franchises-cheap labor force, dirt farmers, and vine-wine makers…toast the buzz…(and figure out who is toast)

  7. jfleni

    “Bernie Madoff could have extended HIS scheme indefinitely”

    Absolutely true! Essentially, as a normal man gone very wrong, he could not look himself in the mirror and then face his family and victimized friends. If he were only totally amoral like most banksters, he would have landed on his feet and retired happily (after getting lawyered up) with no questions from corrupt officials who had ignored all warnings about his offenses

  8. MRW

    The National (or Public) Debt is nothing more than a record of all the dollars created by the federal government since 1792 minus the dollars destroyed (taxes). That’s it. Pure and simple.

    In March 2013, they are sitting in the private and foreign sectors’ bank accounts.

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