The Michael Hudson Report: The “Next” Financial Crisis and Public Banking as the Response

Yves here. This episode of Left Out’s Hudson Report was conducted by co-hosts Paul Sliker, a writer, media consultant, who you can follow on Twitter at @psliker, Michael Palmieri, and Dante Dallavalle, a graduate student in economics at John Jay College of Criminal Justice. You can listen to the podcast on Libsyn or SoundCloud.

Left Out, a podcast produced by Paul Sliker, Michael Palmieri, and Dante Dallavalle, creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left.  

‘The Hudson Report’ is a Left Out weekly series with the legendary economist Michael Hudson. Every week, we look at an economic issue that is either being ignored—or hotly debated—in the press that week.

In this episode of The Hudson Report, we speak with Michael Hudson about the implications of the flattening yield curve, the possibility of another global financial crisis, and public banking as an alternative to the current system.

Paul Sliker: Michael Hudson welcome back to another episode of The Hudson Report.

Michael Hudson: It’s good to be here again.

Paul Sliker: So, Michael, over the past few months the IMF has been sending warning signals about the state of the global economy. There are a bunch of different macroeconomic developments that signal we could be entering into another crisis or recession in the near future. One of those elements is the yield curve, which shows the difference between short-term and long-term borrowing rates. Investors and financial pundits of all sorts are concerned about this, because since 1950 every time the yield curve has flattened, the economy has tanked shortly thereafter.

Can you explain what the yield curve signifies, and if all these signals I just mentioned are forecasting another economic crisis?

Michael Hudson: Normally, borrowers have to pay only a low rate of interest for a short-term loan. If you take a longer-term loan, you have to pay a higher rate. The longest term loans are for mortgages, which have the highest rate. Even for large corporations, the longer you borrow – that is, the later you repay – the pretense is that the risk is much higher. Therefore, you have to pay a higher rate on the pretense that the interest-rate premium is compensation for risk. Banks and the wealthy get to borrow at lower rates.

Right now what’s happened is that the short-term rates you can get by putting your money in Treasury bills or other short-term instruments are even higher than the long-term rates. That’s historically unnatural. But it’s not really unnatural at all when you look at what the economy is doing.

You said that we’re entering into a recession. That’s just the flat wrong statement. The economy’s been in a recession ever since 2008, as a result of what President Obama did by bailing out the banks and not the economy at large.

Since 2008, people talk about “look at how that GDP is growing.” Especially in the last few quarters, you have the media saying look, “we’ve recovered. GDP is up.” But if you look at what they count as GDP, you find a primer on how to lie with statistics.

The largest element of fakery is a category that is imputed – that is, made up – for rising rents that homeowners would have to pay if they had to rent their houses from themselves. That’s about 6 percent of GDP right there. Right now, as a result of the 10 million foreclosures that Obama imposed on the economy by not writing down the junk mortgage debts to realistic values, companies like Blackstone have come in and bought up many of the properties that were forfeited. So now there are fewer homes that are available to buy. Rents are going up all over the country. Homeownership has dropped by abut 10 percent since 2008, and that means more people have to rent. When more people have to rent, the rents go up. And when rents go up, people lucky enough to have kept their homes report these rising rental values to the GDP statisticians.

 If I had to pay rent for the house that I have, could charge as much money as renters down the street have to pay – for instance, for houses that were bought out by Blackstone. Rents are going up and up. This actually is a rise in overhead, but it’s counted as rising GDP. That confuses income and output with overhead costs.

The other great jump in GDP has been people paying more money to the banks as penalties and fees for arrears on student loans and mortgage loans, credit card loans and automobile loans. When they fall into arrears, the banks get to add a penalty charge. The credit-card companies make more money on arrears than they do on interest charges. This is counted as providing a “financial service,” defined as the amount of revenue banks make over and above their borrowing charges.

The statistical pretense is that they’re taking the risk on making loans to debtors that are going bad. They’re cleaning up on profits on these bad loans, because the government has guaranteed the student loans including the higher penalty charges. They’ve guaranteed the mortgages loans made by the FHA – Fannie Mae and the other groups – that the banks are getting penalty charges on. So what’s reported is that GDP growth is actually more and more people in trouble, along with rising housing costs. What’s good for the GDP here is awful for the economy at large! This is bad news, not good news.

As a result of this economic squeeze, investors see that the economy is not growing. So they’re bailing out. They’re taking their money and running.

If you’re taking your money out of bonds and out of the stock market because you worry about shrinking markets, lower profits and defaults, where are you going to put it? There’s only one safe place to put your money: short-term treasuries. You don’t want to buy a long-term Treasury bond, because if the interest rates go up then the bond price falls. So you want buy short-term Treasury bonds. The demand for this is so great that Bogle’s Vanguard fund management company will only let small investors buy ten thousand dollars worth at a time for their 401K funds.

The reason small to large investors are buying short term treasuries is to park their money safely. There’s nowhere else to put it in the real economy, because the real economy isn’t growing.

What hasgrown is debt. It’s grown larger and larger. Investors are taking their money out of state and local bonds because state and local budgets are broke as a result of pension commitments. Politicians have cut taxes in order to get elected, so they don’t have enough money to keep up with the pension fund contributions that they’re supposed to make.

This means that the likelihood of a break in the chain of payments is rising. In the United States, commercial property rents are in trouble. We’ve discussed that before on this show. As the economy shrinks, stores are closing down. That means that the owners who own commercial mortgages are falling behind, and arrears are rising.

Also threatening is what Trump is doing. If his protectionist policies interrupt trade, you’re going to see companies being squeezed. They’re not going to make the export sales they expected, and will pay more for imports.

Finally, banks are having problems of they hold Italian government bonds. Germany is unwilling to use European funds to bail them out. Most investors expect Italy to do exit the euro in the next three years or so. It looks like we’re entering a period of anarchy, so of course people are parking their money in the short term. That means that they’re not putting it into the economy. No wonder the economy isn’t growing.

Dante Dallavalle:  So to be clear: a rise in demand for these short-term Treasuries is an indication that investors and businesses find too much risk in the economy as it stands now to be investing in anything more long-term.

Michael Hudson: That’s exactly right.

Dante Dallavelle: OK. So we have prominent economists and policymakers, like Geithner, Bernanke Paulson, etc., making the point that we need not worry about a future crisis in the near term, because our regulatory infrastructure is more sound now than it was in the past, for instance before 2008. I know you’ve talked a lot about the weak nature of financial regulation both here at home in the United States and internationally. What are the shortcomings of Dodd Frank? Haven’t recent policies gutting certain sections of the law made us more vulnerable, not less, to crises in the future?

Michael Hudson: Well, you asked two questions. First of all, when you talk about Geithner and Bernanke – the people who wrecked the economy – what they mean by “more sound” is that the government is going to bail out the banks again at public expense.

It cost $4.3 trillion last time. They’re willing to bail out the banks all over again. In fact, the five largest banks have grown much larger since 2008, because they were bailed out. Depositors and companies think that if a bank is so crooked that it grows so fast that it’s become too big to fail, they had better take their money out of the local bank and put it in the crooked big bank, because that’s going to be bailed out – because the government can’t afford to let it go under.

The pretense was that Dodd Frank was going to regulate them, by increasing the capital reserves that banks had to have. Well, first of all, the banks have captured the regulatory agencies. They’re in charge of basically approving Federal Reserve members, and also members of the local and smaller bank regulatory agencies. So you have deregulators put in charge of these agencies. Second, bank lobbyists have convinced Congress to de-tooth the Dodd Frank Act.

For instance, banks are very heavily into derivatives. That’s what brought down AIG in 2008. These are bets on which way currencies or interest rates will go. There are trillions of dollars nominally of bets that have been placed. They’re not regulated if a bank does this through a special-purpose entity, especially if it does it through those that are in Britain. That’s where AIG’s problems were in 2008. So the banks basically have avoided having to back up capital against making a bad bet.

If you have bets over where trillions of dollars of securities, interest rates, bonds and currencies are going to go, somebody is going to be on the losing side. And someone on the losing side of these bets is going to go under, like Lehman Brothers did. They’re not going to be able to pay their customers. You’re going to have rolling defaults.

You’ve also had Trump de-tooth to the Consumer Financial Protection Agency. So the banks say, well, let’s do what Wells Fargo did. Their business model is fraud, but their earnings are soaring. They’re growing a lot, and they’re paid a tiny penalty for cheating their customers and making billions of dollars off it. So more banks are jumping on the high-risk consumer exploitation bandwagon. That’s certainly not helping matters.

Michael Palmieri: So, Michael we’ve talked a little bit about the different indicators that point towards a financial crisis. It’s also clear from what you just stated from a regulatory standpoint that the U.S. is extremely vulnerable. Back in 2008 many argue that there was a huge opportunity lost in terms of transforming our private banking system to a publicly owned banking system. Recently the Democracy Collaborative published a report titled,The Crisis Next Time: Planning for Public ownership as Alternative to Corporate Bailouts. That was put out by Thomas Hanna. He was calling for a transition from private to public banking. He also made the point, which you’ve made in earlier episodes, that it’s not a question of ifanother financial crisis is going to occur, but when. Can you speak a little bit about how public banking as an alternative would differ from the current corporate private banking system we have today?

Michael Hudson: Sure. I’m actually part of the Democracy Collaborative. The best way to think about this is that suppose that back in 2008, Obama and Wall Street bagman Tim Geithner had not blocked Sheila Bair from taking over Citigroup and other insolvent banks. She wrote that Citigroup had gambled with money and were incompetent, and outright crooked. She wanted to take them over.

Now suppose that Citibank would had been taken over by the government and operated as a public bank. How would a public bank have operated differently from Citibank?

For one thing, a public entity wouldn’t make corporate takeover loans and raids. They wouldn’t lend to payday loan sharks. Instead they’d make local branches so that people didn’t have to go to payday loan sharks, but could borrow from a local bank branch or a post office bank in the local communities that are redlined by the big banks.

A public entity wouldn’t make gambling loans for derivatives. What a public bank woulddo is what’s called the vanilla bread-and-butter operation of serving small depositors, savers and consumers. You let them have checking accounts, you clear their checks, pay their bills automatically, but you don’t make gambling and financial loans.

Banks have sort of turned away from small customers. They’ve certainly turned away from the low-income neighborhoods, and they’re not even lending to businesses anymore. More and more American companies are issuing their own commercial paper to avoid the banks. In other words, a company will issue an IOU itself, and pay interest more than pension funds or mutual funds can get from the banks. So the money funds such as Vanguard are buying commercial paper from these companies, because the banks are not making these loans.

So a public bank would do what banks are supposed to do productively, which is to help finance basic production and basic consumption, but not financial gambling at the top where all the risk is. That’s the business model of the big banks, and some will lose money and crash like in 2008. A public bank wouldn’t make junk mortgage loans. It wouldn’t engage in consumer fraud. It wouldn’t be like Wells Fargo. It wouldn’t be like Citibank. This is so obvious that what is needed is a bank whose business plan is not exploitation of consumers, not fraud, and isn’t gambling. That basically is the case for public ownership.

Paul Sliker: Michael as we’re closing this one out, I know you’re going to hate me for asking this question. But you were one of the few economists to predict the last crisis. What do you think is going to happen here? Are we looking at another global financial crisis and when do you think, if so, that might be coming?

Michael Hudson: We’re emphatically not looking for “another” global crisis, because we’re in the same crisis! We’re still in the 2008 crisis! This is the middle stage of that crisis. The crisis was caused by not writing down the bad debts, which means the bad loans, especially the fraudulent loans. Obama kept these junk mortgage loans and outright fraud on the books – and richly rewarded the banks in proportion to how badly and recklessly they had lent.

The economy’s been limping along ever since. They say there’s been a recovery, but even with the fake lying with statistics – with a GDP rise – the so-called “recovery” is the slowest that there’s been at any time since World War II. If you break down the statistics and look at what isgrowing, it’s mainly the financial and real estate sector, and monopolies like health care that raise the costs of living and crowd out spending in the real economy.

So this is the same crisis that we were in then. It’s never been fixed, and it can’t be fixed until you get rid of the bad-debt problem. The bad debts require restructuring the way in which pensions are paid – to pay them out of current income, not financializing them. The economy has to be de-financialized, but I don’t see that on the horizon for a while. That’s s why I think that rather than a new crisis, there will be a slow shrinkage until there’s a break in the chain of payments. Then they’re going to call that he crisis.

Hillary will say it’s the Russians who did it, but it really is Obama who did it. The Democratic Party leadership is in the hands of Wall Street, and has not done anything to prevent the same dynamics that caused the crisis in 2008 and are still causing the economy to shrink.

Paul Sliker: That’s exactly why I wanted to reframe that question, because I think a lot of people look at economic and financial crises through just the simple paradigm of a bubble and the bubble bursting. But I think you did a fine job of clarifying that.

Well Michael, as always, we could go on but we have to end here. Thank you so much for joining us on The Hudson Report.

Michael Hudson: Well you’ve asked all the right questions.

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  1. Colonel Smithers

    Thank you, Yves.

    Three weeks ago, former banker turned author Philip Augar launched his history of Barclays since Big Bang (1986). A descendant of Mr Barclay was there. Both good guys. Augar is always well worth reading.

    The pair took a similar view to Hudson. They were a bit surprised that the public and / or a utility bank option had not been pursued / pushed in 2008 and new competitors have not emerged since, but think that the world is going back to 2008 and the incumbents won’t survive.

    The duo think that what led to 2008 has not been resolved and that one could say the world has been in recession since the early noughties, not 2008.

    Further to banking, the consensus was the American giants would survive and prosper due to the nature and scale of American markets, but European banks would become utilities and be challenged by newcomers and public options. This time, there would be no escape for European banks. The view was also that European banks would finally give up investment banking or accept to become minor league players, not that there was anything wrong with that. The only challenge to the US behemoths would be from China.

    They support Glass-Steagall and ring fencing, reckoning that the ring fenced banks could well emerge as the utilities.

    The descendant of Mr Barclay left his family bank in 1999 and has led the family’s efforts in financial technology and funding platforms. He did not see Barclays as having much of a long-term future. Aside, he mentioned their enthusiasm for China’s one belt, one road initiative and what spin offs could emerge from that.

  2. James Cole

    I highly respect Professor Hudson’s work and consider myself a MMT adherent, but his explanation of the inverted yield curve is confused and confusing. The large demand for short-term treasuries that he describes would lower short-term yields and steepen the yield curve, not invert it. In fact, the curve is inverted because of higher demand for longer-term treasuries because people don’t expect to have a better place to invest for the near- to middle term, which is consistent with expectations of poor econonic conditions over a relatively longer period than is normal for “good” times.

    1. Lou Anton

      I found that confusing as well. What’s happened this year is that short-term rates have increased steeply while longer-term rates have increased at a slower rate. So it’s almost like those who were in short term bonds are moving out of it and splitting the money between stocks, cash, and long-term bonds. Could be aggregation bias by me on the splitting though… maybe those who were collectively in short term bonds are all different types of investors and are now placing their bets in different ways.

    2. clyde weller

      Mr. Cole…thank you for a better definition of the yield curve inversion. Very few writers in the US financial press today offers a clear understanding of this concept, which the general public readership can understand. I know, I’ve tried, and usually end up asking my banker brother “what is this article (in the WSJ, recently) trying to say”? Even he takes a little time to figure it all out…

      1. michael hudson

        Short-term interest rates are determined by the Fed, and it is pushing up short-term rates ostensibly to show down price rises (its euphemism for the possibility of wage increases). So that is the “given.” Long-term rates have moved up slightly – meaning that their bond prices have declined a bit. There’s so little chance of their going down much (and rising in price), and so much chance of rates rising further (and lowering bond prices) that investors are afraid of taking a loss during the bond’s remaining maturity.
        I should have emphasized the degree to which the Fed is setting short-term rates. Obviously, there are still a lot of takers – but not enough to overwhelm the Fed’s insistence of raising rates.
        My point is that there’s not going to be a “recovery.”

        1. Collins

          So, which (if any) industrialized countries are managing the economic Rubic’s Cube properly? The ‘colors’ of the cube being health care, employment, public education, infrastructure maintenance, environment, & public safety?

        2. ToddL

          Mr. Hudson, it’d be very beneficial if you’d describe how the Fed manipulates the system so that increased purchases of US Treasury paper actually INCREASES the coupon paid!

          1. djrichard

            I wonder if what’s happening is that there’s actually greater issuance of private debt on the short-end of the curve. See for instance . I used the y-axis on the right hand side for the commercial paper issuance (bright red). The left hand y-axis is for everything else – the rates. Notice how issuance increases and decreases correlated with short term rates. Correlation doesn’t necessarily mean causation. So it would be good if somebody could weigh in on this. But to me it would make sense if the private issuance drove the causation.

            And more would have to be added onto that heap. Commercial paper isn’t the only private debt on the short-end, there’s other non-bank debt issuance as well, but I’m not sure of where to get data for that. That could explain what’s been happening in the graph with short term yields going up since 2016. Yes, the Fed Reserve is increasing their Fed Funds rate, but I’ve seen discussion/arguments elsewhere that the Fed Reserve sets their rate so that it remains competitive with what the private market is doing.

        3. rrennel

          You have it exactly right. The Fed’s easy money policy has distorted the price of all financial assets and has made asset flipping and the carry trade profitable, while long-term investment in productive assets is too risky. The flattening of the yield curve is highly suggestive that the Fed is taking away the punch bowl and we’ll soon be struggling to remember what it is that so many call a recovery.
          Keep up the great work!!

        4. Scott1

          Industrial Service Banking and Utility Banking are required if there is to be a recovery. I believe I am perceiving this interview as it is titled. I add Industrial Service Banking from my reading of “Killing the Host”.

          I’ve theorized that as regards Brexit & the Finance flight to France what is left in the UK could aggressively solicit business for industry as opposed to banking for real estate & risky financial instruments such as Derivatives.

          As a working man who graduated high school in 1971 I feel as though my work life perfectly tracks the common experience of a great many of us whose entire lives were sent on the war time trajectories. Our working lives ended as they began. We gained nothing and were knocked back to where ever we started.

          If you didn’t go into Finance, or Insurance or Real Estate, or Government Work you were beat by “Forces Beyond Your Control”.

          In my own case it was from carpentry to Aviation Ground Services to Motion Picture Technical services then back to carpentry. “Fed Policy, Fed Policy, Fed Policy…”
          Now I simply identify as “Beat”.

          We were made into the “Reinsurer of the Reinsurer AIG” and that is our doom since the election of Trump and Minuchin.

          Not much chance of Utility Banking. All of everything done is to keep pushing up land assessed values and the banks just lend to the rentiers who get their checks from the management companies while neo feudalism is made more & more recreated.

          If there is to be any write offs or write downs they will come from some bigger more traditional war, appears to be in the offing though that looks a lot like Apocalyptic Riot to me.

          While you can blame Obama for what happened under Timothy Geithner it was Clinton Unit One that engineered the set up. That being Meyer Lansky Financial Engineering.

          Thanks, P.S. My ideal political event would hence be a great Mechanized March on the US Treasury in Washington. There I would see on stage all the greats of Economics working today. Michael Hudson, Warren Mosler, Stephanie Kelton, Randall Wray, Bill Black, Robert Reich. The American People are simply denied the benefits of their own Treasury is the way I see it. Youtube is TV Land Lite. When the people are at least given the true story of why they are forced into desperation for no reason other than the wealthy can and it is thrilling to them to keep getting away with the whole thing. Certainly Jeff Bezos the national overseer of the dispossessed is obviously just thrilled, simply thrilled. His and then Musk’s Mars mission mimic the Puritan immigration to the New World. Auto electrification and the Musk Power Wall are valuable contributions to a possible future of some sort of Civilization. Gopsay policies are fully dystopian. A Reinsurer’s Revolt? Is there a phrase that will work?

          1. Hamford

            Thanks for this post and sharing your all too common story of “retraining” and “bootstraps” to no avail.

    3. lyman alpha blob

      Thanks you for making that point because I had the same thought when reading the piece (but wouldn’t have brought it up for fear of 2nd guessing those more knowledgeable than me!).

      And thanks to Mr. Hudson for clarifying the point – now it all makes a lot more sense.

  3. timbers

    We’re emphatically not looking for “another” global crisis, because we’re in the same crisis! We’re still in the 2008 crisis! This is the middle stage of that crisis. The crisis was caused by not writing down the bad debts, which means the bad loans, especially the fraudulent loans. Obama kept these junk mortgage loans and outright fraud on the books – and richly rewarded the banks in proportion to how badly and recklessly they had lent.

    The economy’s been limping along ever since. They say there’s been a recovery, but even with the fake lying with statistics – with a GDP rise – the so-called “recovery” is the slowest that there’s been at any time since World War II. If you break down the statistics and look at what isgrowing, it’s mainly the financial and real estate sector, and monopolies like health care that raise the costs of living and crowd out spending in the real economy.

    So this is the same crisis that we were in then. It’s never been fixed, and it can’t be fixed until you get rid of the bad-debt problem. The bad debts require restructuring the way in which pensions are paid – to pay them out of current income, not financializing them. The economy has to be de-financialized, but I don’t see that on the horizon for a while. That’s s why I think that rather than a new crisis, there will be a slow shrinkage until there’s a break in the chain of payments. Then they’re going to call that he crisis.

    Hillary will say it’s the Russians who did it, but it really is Obama who did it. The Democratic Party leadership is in the hands of Wall Street, and has not done anything to prevent the same dynamics that caused the crisis in 2008 and are still causing the economy to shrink.

    Love it when Michael Hudson says it was Obama not the Russians who did it, because his words are truer than he knows (Obama’s act of fraud when he classified Steele report so he could spy on his political opponents so he could meddle in the election for Hillary).

    1. Colonel Smithers

      Thank you.

      About 2010, the CEO of one of the UK’s largest retailers thought that the British economy had been in a crisis for a lot longer than from August 2007. This was echoed recently by one of the City’s leading economists.

      Interestingly, said CEO’s successor reckons that, judging from retail footfall, the UK’s population is a few millions in excess of the official figure and this is what is driving growth, albeit anaemic growth.

      1. PlutoniumKun

        Thats a very important point about population. Its a major factor sometimes in why GDP PP figures can be deceptive. Back in the 1990’s in London it was considered a rule of thumb to add one million people to the official census figures. Its not simply a case of illegal immigrants – often its just a big floating population around Europe (construction workers, casual workers, students on a year off), settling somewhere for a short while and not bothering to register officially).

        I recall in Ireland about 12 years ago when someone pointed out that the new census figures for Polish and Chinese people were less than half the claimed circulation figures for the main Polish and Chinese language newspapers the official response was…. silence. Nobody wanted to know.

      2. readerOfTeaLeaves

        In the US, our ‘financial crisis’ has morphed into a political crisis, and we’re deeper into a legitimacy crisis by the day.

        The Dems can’t seem to get it through their thick, dull sculls that Pelosi is perceived as a Bailout Queen by a whole lot of ‘flyover folks’, no matter what else she manages to achieve. She’s become political poison, and she’ll never stop wreaking of TARP. Ditto Schumer. The GOP needs them both desperately in order to act like they’re railing and wailing against Big Gumint; unfortunately, as long as this stale drama continues, we’re going to be offered pallid incrementalism, because they can’t seem to imagine revamping the system. Thus, in a horrifying feedback loop, the delegitimacy spirals ever downward.

        One reason the Dems need new leadership is to clean up the gridlock, but another reason is to give some breathing room to initiatives like postal banking. I don’t see it coming from those who have held power, or who were anywhere near the TARP bailouts.

        Which, I suppose, is my cue to go donate to some smart, tough Dems running for Congress this year. (Fingers crossed!)

  4. Catullus

    Excellent article.

    I already had similar thoughts but the article lays them out better than I could write/say. The current whole system is basically the reason why I am buying Bitcoin et al. I strongly believe that money itself should be 100% neutral, no government control over it. Once you have government control… that’s where “the road to hell is paved with good intentions”. Gotta keep things “safe” – more government regulations make things safer when it merely moves the actual risk underneath the rug. Purely an illusion.

    Banks should be much smaller and that when the inevitable chaos happen (it’s human nature, cannot regulate it away) the smaller banks should go under without too much damage to the whole economy. Lessons thus learned, etc. Now it’s only a few giant banks. Making the giant banks safer goes only so far… best to be smaller and focus on government controls purely on keeping banks small and stamping out unethical behavior.

    Insane debt levels, insane housing pricing, insane medicine pricing, insane constant military industrial complex, etc… all symptoms of money emittance. I thought MMT would solve much of the problems but realized that it still has central authorities emitting money… no good.

    So Bitcoin et al it is. I will find out in 2030 whether I am correct on Bitcoin et al being the money for the world or not. Don’t bother telling me Bitcoin will never work… it has been around a decade now – it does have staying power. That alone made me look closer into it. You should, too. If you don’t agree, at least Bitcoin is a relatively uncorrelated asset class…

    1. sharonsj

      I am not rich enough, nor tech savvy enough, to invest in Bitcoin–but this slow decline into oblivion is why I have always put my money into tangibles (antiques, collectibles, jewelry). Fortunately I bought these things long ago and selling them now is what’s keeping me afloat.

      1. blennylips

        I got an unexpected bounty and had the tech savvy (+ NN Taleb inspired courage) to invest in Bitcoin – before any vulture capitalists’ siphons got involved. Fortunately I bought these things long ago and selling them now is what’s keeping me afloat.

    2. Grand

      I think that cryptos can be good (or bad) investments. I think their capacities as far as replacing government issued currencies (i.e., being the mediums of exchange for most transactions) are extremely limited on a mass scale, as day to day life for most people would be even more chaotic. I don’t think people have thought through how regular, day to day, life would be for most people in a world where there are no more dollars, Yen, RMB, etc. Most people don’t have the capacity to invest in anything, since the costs of basic things have been outpacing wage growth for decades. So, what might make you some money or what might be a good investment doesn’t mean that crypto currencies can be used on a mass level, and it doesn’t mean that the profits from appreciating crypto currencies are benefiting anything more than a very small percentage of the public. Same as stocks, bonds and every other financial investment where ownership is highly concentrated. Them being a unit of account would be problematic, as any item you could imagine would have no one value in any country. A pair of shoes wouldn’t be worth X amount of dollars in the US, or X Yen in Japan. The shoes would be worth X amount of Bitcoin, X amount of this crypto, x amount of that crypto, there would no longer be a unit of account in the same way there is now. How in the hell would a poor working stiff possibly exist in that world? Maybe you could operate in that world, most couldn’t, and wouldn’t want to either. Maybe we could pass around Rothbard books and convert people to the church. Some might suggest that Bitcoin could be the unit of account and that other crypto currencies would be fixed to Bitcoins, but who would decide this, and if we have a democracy, why would people vote to support that? Would the big, evil state decide this? How are taxes paid with cryptos? Let’s say you have a few cryptos, and they collapse in value. You’re in trouble as far as redeeming your debt to the state. And how would the state calculate how someone would pay taxes? What would they do a bunch of different crypto currencies? During the free banking era, there were thousands of currencies. Do they have values for each currency, which change second by second with those currencies? You owe this much in this currency, this much in this one, etc. Naïve to think it would work, or that most people would want that world.

      How exactly would we possibly deal with the environmental crisis with cryptos? We already are struggling with the non-market nature of most of these impacts, and it is already extremely difficult to address the environmental crisis, given the complex and chaotic nature of decentralized market systems. Now, we’re going to further fracture society and our economy by using a multitude of currencies? Mises had a book called Planned Chaos. This world would just be chaos, as planning would be next to impossible. Maybe that is the point.

      Personally, I think cryptos are actually far more un-democratic than government issued currencies. At least with US dollars, we could democratize money creation, we could have transparent public banks (seems just fine with the Bank of North Dakota), we could have some say on what we spend on, invest in, etc. Not the case now because of corruption, but it would be the case if we democratized the economy and the political system. That isn’t possible with cryptos. That’s a big reason why the libertarians love them.

      To me, this stuff is just more financial “innovation”. Saying that they are good investments is one thing, I have a problem with them personally beyond that, and I don’t have tons of faith in libertarians in regards to their relationship to objective reality.

    3. juliania

      As Professor Hudson makes clear, it is not the size of the bank that matters, it is the fact that banks were allowed to expand into derivative trading and what I being no expert would call ‘financial wheeling and dealing.’ His recommended fix is not that the banks become smaller but that there be an alternative public banking system that doesn’t do all those there things.

      One point I would enlarge upon is fixing the blame for all of this. Clearly Obama fell down in extending huge loans from public coffers to big banks in trouble, and Professor Hudson explains clearly how the failures of 2008 occurred, and that we are still in that recession – it has most definitely felt like it! And thanks to him for also explaining clearly how the failures of that critical time have been converted into pluses by finagling the factors going into GDP. We knew it had to be phony; he has explained how. So, who else is to blame? I’ll go right back to that late signing of Bill Clinton that gave away the store. Bill and Newt, partners in crime. At the time I didn’t know what they were doing, but you can bet they did.

      1. Bernard

        Bill and Newt agreed to the “selling of the America.” It was labelled as the “Contract for America.” When, really, it was a “Contract ON America”.!

  5. Octopii

    Not seeing any of this gloom and doom and stress and vacancies here in the DC area. It is go-go-go, buildings sprouting like weeds, luxury apartments (not condos) and few vacancies in existing buildings. Developers are starting new phases because the previous phases are full. The thing that will put a more immediate kibosh on this steam train is construction costs – Mr. Trump’s tariffs and immigration policies have already hit construction hard, and a sub that might have projected $8mil last year early in design is quoting $10mil now that it’s time to sign a contract (that’s unusual).

    All that said, most of us building these things have no idea who is paying $5k/mo in rent but that’s what it is. For now it’s not letting up. Maybe next year.

    One thing that does line up with the article to some extent is the mixed-use retail spots are not filling up. But retail is being universally crushed by online sales.

    1. Colonel Smithers

      Thank you.

      London is not so different and some regional markets like Edinburgh, Oxford and Cambridge.

      UK retail is getting crushed, even at the high end, but that is due to the immiseration of the population, fraud and private equity “investment”. Online sales are a convenient fig leaf.

    2. Octopii

      My friends in A/E/construction in NYC say it’s similar to DC at the moment. I was up over the weekend (chicken bus delayed 3hrs in massive traffic btw) and noted all the new skyscrapers and other interesting new bldgs — wow Chelsea and the Meatpacking dist are hot hot hot! The highline sure did a lot for that area. Lèched les vitrines all over town and didn’t notice many street level retail vacancies in Manhattan. It’s sure to come crashing down spectacularly but that does not seem imminent.

  6. John

    The DC area is awash with the largesse of the imperial treasury. Of course thing would look different there. I live out near the WV border and the overflow even splashes around here. Life is easy next to the spring in the desert.

      1. Colonel Smithers

        Thank you, both.

        It’s the same with London. This confuses visitors who think everything is OK and mistake London for the rest of the country.

        I live 50 miles north west of London, mid-Buckinghamshire. We might as well be another country.

        1. gordon

          I have sometimes thought (especially since reading Will Hutton’s “The State We’re In”) that London shouldn’t be part of the UK, but should be hived off, maybe together with the millionaire’s belt known as the Home Counties, into a self-contained State based on financial fraud, money laundering and tax avoidance, sort of like Liechtenstein.

    1. polecat

      Yeah, easy until one realizes they’ve been drinking *crystal pure Guyanan cool aid ..

      *bath salts for an extra kick of debasement !

  7. Thuto

    Great article once again. This subject of public ownership of banks is close to my heart because here in South Africa it’s one that always finds itself pushed to the periphery of public discourse. The argument used to discredit the notion is one of “scarcity of skills/expertise” and it goes something like this: banking and finance institutions are highly specialized entities requiring highly skilled operators to manage them “successfully”, and such expertise aren’t in plentiful supply in the public sector. As such, a public bank would be faced with only two options:

    1. Parachute specialists (Jamie Dimon running a public bank) private banks to come and run it while keeping them on a very tight leash ( surely a highly undesirable prospect for people used to operating in environments where leashes are anathema)

    2. Collapsing into dysfunction and insolvency due to the ineptitude of its lowly skilled management plucked from other public sector entities

    But to my mind, Prof Hudson clears this up by debunking the complexity myth. Complexity in banking is a function of financial engineering and public banks would have no business conjuring up such elaborate schemes. The assumption underpinning this argument is that public banks would be structured the same as current private banks, thus requiring the same “skills” to run, which clearly wouldn’t be the case.

    1. juliania

      Yes, thank you very much, Yves and Lambert, for featuring these conversations, and to Professor Hudson for appearing in the comments here as well.

    2. perpetualWAR

      Did you just say Jamie Dimon should be in charge of running a public bank???? Hahahahahahahahahahahaha

  8. monetary sovereignty

    I love this weekly podcast. Thank god someone is doing a regular update with Michael Hudson, the best economist in the world.

  9. juliania

    Yes, thank you very much, Yves and Lambert, for featuring these conversations, and to Professor Hudson for appearing in the comments here as well.

    [The minder is telling me this is a duplicate comment. I hope that can be sorted out, Please delete if it has indeed just gone to a moderator.]

  10. notberlin

    It’s a great podcast. The question for me is why are there personal debts at all? The reason is clear of course, but those of us who are victimized from these schemes from young adulthood (for a lot of us it is merely going to college/university, which, incidentally, we were repeatably told to do from early childhood, or much worse, young mothers just going to the Dollar Store to feed their kids) –whom among us did not freak out when Obama said (regarding the banksters), “We must look forward and not backward.” When I heard that I knew I was played, big time. We all were. In my opinion, anything going forward that does not confront that piece of shit statement, ever, and forever, is just delusional.

    90+ degrees in Munich today. Reality is setting in.

  11. Larry Coffield

    The class warfare that will surely destroy the Democratic Party is rooted in public banking controlling conjured money. The equity/bond bubble is a sole manifestation of trillions in keystroked money visiting free-money moochers of financial parasitism.

    Bernie’s entire agenda is predicated on this money underwriting social needs as opposed to the capital needs of monopolists who aspire to mug the world via privatizations with attendant asset grabs. Whereas Trump is clearly the worst president in history, he is destroying identity politics, individualism, and sheeple champs
    such as Obama and the Clintons.

    In other words, the serious people could not make a better chess move than having Trump foster lesser evil via ‘anyone but Trump’. It will not work as a strategy because the Left has equal contempt for corporate
    Democrats, e.g., moribund yuppies, and their snowflake progeny. Perez and these corporatists are still pushing for TPP and ISDS.

  12. ChiGal in Carolina

    Another great resource, thanks to NC. Now I need to read again to try to understand it. But this much I knew before reading the transcript: we aren’t looking for another crisis cuz we’re not out of this one yet :-(

  13. gordon

    It’s always nice to have prominent people agree with one’s own position. Just vanity, I guess, but still nice. I remember advocating public banking for the US (I called it The Commonwealth Bank of the United States) in an Angry Bear post I did back in Feb. 2009. I’m not claiming that I thought of it first, but I am claiming I thought of it a long time ago – and it’s nice to see someone like Prof. Hudson still running with that ball.

  14. Andre

    I normally like Naked Capitalism insights but this one has way to much error for me to take seriously. It has a pretense of being technical but then whitewashed over technical aspects.

    GDP is just one way to understand the health of an economy. It’s a huge jumbled figure. Overhead is a service/good no matter how you pay for it. Thus some form of it should be in the GDP. Rent is a better figure because it’s only a service payment not an service + interest + equity. If similar ervices cost more… than they cost more. Not sure how you want to fix that. Finally income inequality is an issue but you use other metrics to compare.

    Student loans are a serious social issue. Not sure how this is supposed to help the GDP accounting of unfortunate legal payments.

    Rents are now going down.

    I had to stop reading once in the regulatory area.

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