Yves here. Micheal Hudson gave a wide-ranging interview, focusing on China’s economic model and its recent real estate wobbles, Russia-China cooperation, China and the Global South opposition to financialization and creditor-favoring policies, and the big Belt and Road 10th anniversary meetings in China.
One minor point: Hudson mentions the US thinking it can move against Syria because Russia is tied down in Ukraine. I have not been able to independently verify it, but Alexander Mercouris reported that a key US ally in Syria, the Kurds, are siding with the Muslim world against Israel and its US/EU allies. I welcome reader comment as to how big a setback this represents for the US’ burning desire to topple Assad.
By Dmitry Simes. Originally broadcast at New Rules on Rumble
Dimitri Simes Jr.: Hello everyone! This is the New Rules podcast, and this is our very first ever live stream on Rumble. I’m your host, Dimitri Simes Jr., and our guest today is economist Michael Hudson. And we’re going to be talking about the Putin-Xi meeting, the broader changes in the global economy and to whether the United States can be hold on to its status as the global economic hegemon. Professor Hudson, thank you so much for joining the program.
Michael Hudson: [00:01:03] Well, it’s good to be back here again. [00:01:04][1.1]
So I guess I wanted to start with the bigger context, right? Because when we look at how the US media has been talking about the Chinese economy over the past several months, they’ve been saying that the Chinese economy is in trouble, that the Belt and Road Initiative has stalled. To what extent, in your view, is this a fair assessment of what’s going on right now?
Michael Hudson: [00:01:33] Well, when they say the Chinese economy is in trouble, they mean that despite the fact that it’s growing faster than almost all of the Western countries, it’s not growing as fast as it did before. And the reason is the very heavy real estate debt. Chinese real estate has been financed in a way that finance has been done in the United States for real estate. A company will make plans to develop a building or hundreds of buildings in the case of Evergrande and others, and they’ll begin to borrow money to begin construction. And they have to repay the loan by selling the right to apartments after the building is finished. And for decades that worked in the United States. You would get a seed money to build a building. You’d have pictures of it, you’d how it was going to look. You’d have people buying the buildings. And very often, certainly here in New York City, when a new building would go up, by the time the building was finished in five years or so, the market price of the building would be actually a lot higher. So many people not only wanted their own apartment, but investors who wanted to buy apartments in condominiums or condos, co-ops and rent out would make a profit. [00:03:08][95.3]
[00:03:09] And in China, they thought this is going to go on forever, just like in the United States. People didn’t see that at some point there was going to be a downturn. And the fact is that the borrowers, the developers who were building the buildings weren’t able to sell so many apartments as they were buying and they fell behind in their payments. Well, one of the problems in China is exactly what had happened in the United States. Here you had Fannie Mae, the government insurance real estate insurance company underwrote the risk of all of the real estate mortgages that banks would make. In America almost all mortgages are guaranteed by the United States so that the banks won’t lose money on the mortgages. Today, banks can charge 7.2% on mortgages here, and they’re guaranteed not to lose money by the government. China has done this on an even larger scale. And the Chinese insurance companies, rather the banks, the banks guaranteed the loans of the big developer because it seemed to the banks that our property can only go up in price. It can’t go down. Well, all of a sudden, right now, property prices are turning down in China. [00:04:45][96.5]
[00:04:46] Now, normally you would think that, if property prices are going down, that should be a good thing. If a wage earners can pay less for their housing, then they’ll have more money to pay goods and services and other things. But in this case, falling real estate prices are not good if it means that the developer is not able to pay the banks the money that it stipulated or the bond holders the Country Garden and Evergrande were paying interest rates of about 13 percent a year. Now, that’s an incredible interest rate. If you’re an investor and you buy a bond from one of the big Chinese real estate companies, that means you double your investment in just five years as the interest rates they were paying. No economy can grow that fast. Not even China’s economy. And so you had the government not overseeing these sales of apartments to say, “wait a minute, can the domestic market really grow at such a high exponential rate that the banks are going to be able to keep selling whatever they build at a rising price?” No country has been able to do that, but every country has run into the same kind of real estate slowdown that China is in now. [00:06:14][88.2]
[00:06:15] But it turns out that the amount of money that is guaranteed for the large real estate developers are almost one sixth of all of the foreign dollar reserves that China holds. So this is a real problem of what to do with the fact that the large companies can’t pay their debts, which normally wouldn’t be bad. They can’t pay the debts, okay? They lose their money and another company comes in and finishes building the buildings and sells them for something. But the problem is that Chinese banks and small banks often have guaranteed the bonds and the debts, and essentially their reserves will be wiped out. And if the banks that have guaranteed these real estate loans take a loss, then what’s going to happen to the depositors? Well, China have something like in America, the Federal Reserve, FDIC, Federal Deposit Insurance Corporation, that guarantees that up to 250,000 or so of depositors are going to be guaranteed not to lose their money. Who is going to lose? And how is the government in China going to decide which depositor lose when the banks are unable to cover the losses of the real estate company that they finance? [00:07:47][92.3]
Dimitri Simes Jr.: Obviously, the situation with the real estate market has created a tricky situation for the Chinese economy. But I guess I want to understand to what extent is this abnormal and potentially terminal for the Chinese economy? Because I remember we had Professor Jeffrey Sachs a few episodes back and he made the argument that, yes, there are challenges in the Chinese economy, but it’s normal for economies that go for business cycles to have ups and downs and that it’s premature to say that China’s economic miracle has come to an end or that China’s economy is on the verge of a major bust, as a lot of mainstream outlets are claiming. You know, to what extent is some of the more pessimistic assessments justified in your view?
Michael Hudson: [00:08:38] I don’t think they’re justified. I think the Americans want to say that anything that China does isn’t going to work, because that’s part of the whole juxtaposition of “the US economy works, other economies should be just like us”. But Jeffrey Sachs is right. It is normal for business enthusiasm to underestimate the risk and to realize that a boom, especially in real estate, can’t go on forever. This happens in every country. I think for the last 200 years, there’s been like a 19-year real estate cycle. No economy has been pushed under by it, but there is a cycle and somebody always has to lose. Many large developers are overly optimistic and they go under. I think Donald Trump went under a couple of times and the banks bailed them out. So, in a way, this overenthusiasm is a universal phenomenon, and it usually leads the government to set up checks and balances so that it’s not going to be overshooting the market so much again. [00:09:58][80.5]
[00:09:59] And I’m sure that China is trying to say, how do we prevent this from happening again? They certainly have enough money to cover everything. China can simply wipe out the debt. It has enough money that it can afford the downturn, but it is causing a real problem for investors and the two big real estate companies. And apparently there’s been a lot of bad accounting. And in the United States, accounting firms are very often found liable for not having warned the banks that have hired them that there’s a problem coming. So this overestimation is a byproduct of the bubble. The bubbles created this enthusiasm and it overcreated it. But the underlying Chinese economy is continuing to rise. And I think you mentioned the Belt and Road. The Chinese economy is much more than real estate. And that’s what the critics are not talking about, because everything that’s not real estate is forging ahead wonderfully for China. And its response to the American trade sanctions has been to become independent of reliance on the United States. That’s always the result of trade sanctions. Trade sanctions means it’s the country imposing the sanctions, for instance, on computer chips loses that market forever because the country being sanctioned said, “okay, we’re going to produce our own”. And China’s been able to do that. And even I understand the Taiwanese are investing more in chipmaking equipment on the mainland. So the Belt and Road is doing fine. China’s manufacturing industry is doing fine and the newspapers are looking for something to criticize. And China will have to do what all the other countries have done: decide who’s going to take a loss and how much of a loss and who to bail out. [00:12:15][136.2]
Dimitri Simes Jr.: Yeah, I think your point about the underlying economy is very interesting and very important because again, I’m not an economist, I’m a journalist. But when I look as a dilettante from a distance, it seems that China has a lot of the necessary fundamentals in place. It has strong industry, It has a large population that’s increasingly well-educated and it has a developing high-tech sector. Doesn’t that suggest that even though it’s going through some challenges now due to mistakes in the real estate market, that it’s well-positioned to be competitive over the long run?
Michael Hudson: [00:12:55] Well, you didn’t mention its number one advantage. Unlike the Western economies, China has created money and credit and banking as a public utility. That means that it’s the government that is the ultimate creditor of the banks. Now, in the United States, that’s not what happens. In the United States, if banks go under and the corporation goes under, there are reverberations all through the economy of bankruptcies and also derivatives in 2008. The fact that there are huge Wall Street gambles over whether bonds and mortgages are going to default or not default. [00:13:41][46.0]
[00:13:41] None of this plagues China because the government can always decide when a when a company goes under, suppose it’s a factory, instead of a real estate company, we’re not going to say, “well, the company is bankrupt. Okay, it’s got to be sold to somebody else. Maybe a foreigner will take it over, maybe another investor will take it over and tear it down. Do we really want this business that is in debt to go bankrupt and go out of business?” And if China says, “well, no, the reason we funded it is because it’s playing a positive role in the economy.” So it’s too bad that it can’t pay the debt, but it’s not worth closing it down. And there is not going to be a big stock market and bond market and the financial speculation superstructure that all comes down simply and says, “okay, we’re still financing our industry and much of our real estate for what is in the national interest to raise living standards and prosperity. So because we are the creditor, we don’t have a problem with writing down debts because the debts owed to us.” And it’s very easy for creditors to write down what they’re owed when it’s owed to themselves, not to somebody else. [00:15:09][87.6]
[00:15:10] Well, in the West, the United States government isn’t going to say, “well, this company, like the Rite Aid drugstores, it went bankrupt. So the banks are in trouble. We can’t let it write down the debt because the debts are not owed to us. It’s owed to a bank and let the banks and the bondholders foreclose.” China doesn’t have that problem. And that’s what really is distinguishing this new economic order that we’re seeing outside of the West. A whole restructuring of how economies work. And China has essentially followed the same policy that that made the United States industry so successful in the 19th century. It’s kept infrastructure, transportation, communications, basic needs, health care, education, all in the public domain. And the advantage of that and that it was all spelled out in the 19th century by American industrial capitalists. It was the industrialists that were advocating government spending and investment in infrastructure, because the whole idea of the government transportation, government communications is to supply basic needs at subsidized rates so that employers don’t have to pay wage labor enough to have to pay higher prices for these basic infrastructure needs that are mainly monopolies. [00:16:49][99.4]
[00:16:50] In the West basic infrastructure has been monopolized, very high prices. Look at Thames Water in England as an example. Look at in the beginning of the 1980s, Margaret Thatcher in England and Ronald Reagan in the United States began to sell off all the basic utilities and privatize them. The result is that prices, the cost of living and doing business in the West has gone way up. For instance, education. It costs about $50,000 a year just to go to college in the United States. China and other countries treat education as a basic need, and they don’t have to pay like that. Public health. In America, health insurance costs about $25,000 a year per person. Well, just imagine a country that provides public health freely. That means that its employers, its labor do not have to pay, earn high enough wages to pay this enormous cost for education, public health, or for monopolized transportation, that’s very inexpensive in China, monopolized communication. You’ve avoided monopoly rents when you have government investment in infrastructure. So China is in a way doing what was the ideal of the United States industrial capitalism in the 19th century, German industrial take off, England’s industrial take off. [00:18:29][99.0]
[00:18:29] It has a mixed economy, a government and private sector, with the government providing the basic needs. So that means that China and other countries that are following its policies are going to be much lower cost producers than their counterparts in the West. And this used to be called “industrial capitalism”. It was the capitalists that were advising what’s called “socialized medicine” and so-called “socialized infrastructure”, because the purpose of this government infrastructure was to lower the cost of doing business for American industry so that it could undersell European and other countries that didn’t have mixed economy with public infrastructure. Well, China is doing this, and it’s called socialism now. Not capitalism. But the the basic strategy is exactly the same strategy that led the West that they go. [00:19:30][60.4]
[00:19:30] But the West is not following the strategy anymore. The West has led itself to be financialized and privatized. And what you’re really seeing now is a split in the world between neoliberal privatization, financialization and wealth being created by financial engineering, not by industrial capital formation and actually producing things. Well, that’s what China’s trying to do with the Belt and Road Initiative and with the model for other countries. So we’re really seeing a conflict of economic systems, and this appears to be a geographic split between the US and Europe, on the one hand, what Borrell in Europe, the head of the European Union called “the Garden”, and the rest of the world, meaning “the Jungle”. The jungle meaning countries with strong government investment to lower the cost of living and increase productivity. [00:20:29][58.3]
Dimitri Simes Jr.: So this is really interesting because what your answers suggest is that the US-China competition is not just a geopolitical showdown, but it’s also in the sort of ideological and economic showdown for the model that’s going to dominate the future. Is it going to be this sort of rentier financial capitalism that you describe now, dominating the West? Or is it going to be something along the lines of industrial socialism, industrial state capitalism, something an economic model that is based on producing things instead of just providing services and, you know, high tech toys?
Michael Hudson: [00:21:13] You’ve just said it in a nutshell. That’s exactly what we’re saying, Dimitri. [00:21:17][3.3]
Dimitri Simes Jr.: Yeah. So, I mean, I think that given that we’re on the sort of topic of a showdown between the East and the West, I want to ask you about something Putin said in Beijing today, shortly after meeting with Xi Jinping. He said the following, “Common threats are strengthening cooperation between Russia and China.” Do you agree that Western sanctions are, in effect, helping to push Russia and China closer together?
Michael Hudson: [00:21:46] Well, this is ironic. A few years ago, we were all talking about “will China take the lead with other countries in breaking away from the United States?” All this goes way back to the Bandung conference in 1955 when the third World countries said, “well, can’t we have a third way? Can’t we be independent of the United States?” They couldn’t go it alone. But China and Russia, for the first time, are large enough economy to enable other countries to join together and not be subject to a world order that’s shaped by the United States. But the irony is that today it’s the United States that is driving other countries together. It’s the United States that is breaking up the world order of the International Monetary Fund, the World Bank, the criminal International Criminal Court. The United States is driving these other countries together, not acting in its own self-interest. [00:22:52][65.3]
[00:22:53] And so history seems to be repeating itself. You had the Delphi Oracle in about the 5th century BC. You had the richest king of Asia Minor, Croesus, decided he wanted to attack Persia, and he went to the Delphi Oracle and said, “what is my fate going to be?” And the Oracle said, “You will destroy a great empire.” And so Croesus attacked the King Cyrus and lost. Then it turned out that the empire he destroyed was his own. Well, that’s exactly you could say that President Biden went to his advisers, Blinken and Nuland and his other advisers, have all said, “yes, impose trade sanctions on Russia and China, don’t trade with China, say it’s our enemy, isolate it, and you’ll destroy it.” And what they’ve destroyed is the Chinese, Russian and basically Asian market for products that the United States had hoped to monopolize and benefit from. [00:24:05][72.3]
[00:24:06] The United States plan was to designate certain monopolies that they could charge much more than profit. But huge monopoly rent, for instance, on computer chips and information technology. If they could prevent other countries from producing their own computer chips and their own processors and communication system, phone system, then they could charge enormous prices and they wouldn’t have to employ much labor. It would be the rentier economy that you said. And if American pharmaceutical companies could get patents on vaccines, then they could take a pill that it costs $0.10 to make and they could sell it for 800 or $1,000 because of the monopoly power. [00:25:01][55.6]
[00:25:02] Well, this is a system that the United States thought it could do. But what it’s done by abusing its privilege and pushing other countries beyond the breaking point, what it had done is forcing other countries to say, “well, we know there’s going to be an interruption in interactivity as we invest in our making our own pharmaceutical, invest in making our own computer chips, our own computers and our own chip making machinery. But once we do that, we don’t have to depend on the United States anymore.” The objective of any economy in principle is to be independent of other countries being able to interrupt their business activity by imposing sanctions or financial raids on their currency. You want to protect yourself from economic attack or financial attack by other countries. [00:26:05][63.3]
[00:26:06] And for about 70 years after World War II ended, country didn’t have to do that. There was an open economy and countries weren’t attacking other countries. It’s the United States that had led the policy of imposing sanctions on Russia, China, Iran, Venezuela, and now it’s extending to more and more countries. And you’re saying that in every single case where sanctions imposed, for instance, stop of food exports to Russia, well, Russia’s grown its own grain now, and it’s a grain exporter, not an importer. In vegetables and cheese it’s independent of foreigners. And you can say the same thing for automobile, for arms, for computers, for cars. Now, Russia and China are producing their own automobiles. Not dependent on Europe or Japan or the US dollar-euro-yen sphere. So that in every case of these sanctions, if the United States that’s driving these countries together and sort of catalyzing what they sort of thought of wanting to do. But there has to be a critical mass of wanting to break away and create your own self-sufficient economy. [00:27:29][82.9]
[00:27:29] And the United States made it economically worthwhile and politically viable for these countries to actually say, “okay, we’re going to bite the bullet, we’re going to become independent. We’re not going to have the interdependency based on the United States being able to keep changing the rules and have a self serving economy. We’re going to have a multipolar economy, but that has to be based to some extent on mutual aid and mutual support. And we’re going to have our own growth model.” Because it’s obvious that the US post-World War II model turns out to be a predatory and exploitative and zero-sum model, instead of a win-win model that China, Russia and the global South and the global majority are trying to put together. [00:28:25][56.2]
Dimitri Simes Jr.: Yeah, and I just want to give our audience members some context that I think help illustrate this situation. The trade turnover between Russia and China increased by 32% last year after the imposition of Western sanctions, and it’s expected to break a record high of $200 billion this year. And if you look at everyday Russian life, this is very noticeable because after Western brands left the country, you saw that, for example, Western automobiles were replaced with Chinese-made automobiles. And the same goes with smartphones, washing machines, so on and so forth. So you have this sort of really interesting situation where Biden says that he wants to stop China’s economic rise and, you know, compete with China. But as a result of his Russia and Ukraine policy, he basically surrenders a market of 150 million people to one of his biggest geopolitical rivals.
Michael Hudson: [00:29:28] But that’s exactly what’s happening. Geopolitical theory starts from the idea that countries are going to act in their own self-interest. Well, that’s not happening today. In a broader sense, America thinks it’s acting in its self-interest to be protectionist because it doesn’t really understand that other countries have a choice. And so the United States trying to stop other countries from having a choice. And it’s doing it militarily in the NATO war against Russia in Ukraine. And you’re seeing it doing it in the Near East now, the United States is trying is trying to attack Syria and Iran to sort of take over the whole Near East. And that’s what this whole fight nominally about Israel is all about. It’s the United States moving into Syria. [00:30:28][60.4]
[00:30:32] I’ve heard American generals talk to Netanyahu’s main economic adviser, Uzi Arad, when we worked together at the Institute. The American generals would tell him, “You’ve our landed aircraft carrier there. We’re using Israel. We can always use that to make sure that we control the Near East and its oil supplies.” Well, that was in about 1974 and that’s almost 50 years ago. And it’s still the mentality of the United States, that the United States wants to be able to do to the whole Near East what it’s done to Iraq, simply move its navy and take over Iraq. The Iraq Congress says, “you got to leave” to the United States from Donald Trump through, president Biden says, “we can’t leave, we’re taking all of your oil!” And they’re taking all the oil and funding US military operations all over the world. They want to do what they’ve done to Iraq, to Syria and basically Iran. And you have the congressional Mitch McConnell, the Republican leader in Congress, saying, “forget about attacking Hamas, attack Iran. That’s what we really have to do.” You have the Republican nominee running for president, Nikki Haley, the former United States UN representative, saying, “forget Israel, attack Iran!”. [00:32:03][90.8]
[00:32:04] Just after 9/11, the United States didn’t retaliate against the people who mounted 9/11 Saudi Arabia. They invaded Iraq. Right now, today they’re not really responding against the Hamas or Lebanon. Biden’s telling Israel, I think, “you better not invade because you’re going to be on the losing end if you try to invade Gaza”. They’re really moving the whole naval armada to try to finally take out Assad in Syria and use ISIS, America’s foreign legion, basically as ISIS and al-Nusra, the terrorists that tear the country apart and let the United States do to Syria what it did to Iran. And then this is probably going to lead Iran to fight back and you’ll have the whole Near East going up in flames. Obviously, nobody thought that the world order, the US Senate order was going to break up this fast. But this militarization of the economic conflict, the neoliberalism and US takeover of foreign economies, nobody thought that it would become so violent and so drastic as that’s become so quickly. And we’re seeing that today. This year we are going to see the whole world transformed. [00:33:38][93.7]
Dimitri Simes Jr.: Yeah, I definitely want to touch more on the situation on the Middle East a bit later because it seems to me at least that we’re sleepwalking towards World War III. But I want to touch a little bit on an idea that we’ve been discussing throughout our conversation, which is that you have this sort of rentier capitalist model by the West and a different economic model presented by Russia and China. Something that came up over the past few days at the Belt and Road Forum, and this was articulated both by Chinese President Xi and Russian President Putin. They talked extensively about the importance of creating new transport corridors. Could you explain to our Western audience members, which are the majority of the people watching, why is this such a priority for Russia and China? Is this just an economic imperative or is there some geopolitical underlining here as well?
Michael Hudson: [00:34:40] There’s always a geopolitical imperative because countries don’t really want to be self-sufficient if they cannot produce cheapest minerals and raw materials and oil. Most countries would like to minimize their costs in order to be more efficient. That’s not true of Germany in Europe. They want to pay six times as much for their oil. But nobody would have anticipated that a country would commit industrial suicide like that. But most countries want to have an inter interconnected economy with other countries so that everybody can have a specialization of production, specialization of labor, and that is most efficient geographically. [00:35:34][54.3]
[00:35:35] Well, in order to have the specialization of labor and mutual support in the market, every country will get all the other countries around the market. You have to have transportation. You have to have a means of transporting oil and gas through pipelines in a way that the United States cannot blow up. You need to have ports for shipping. You need to have railroads, ideally of the kind of railroad that China has built, the very fast and efficient railroad. These railroads and the Belt and Road Initiative are sort of like the arteries, the circulation system in the body so that you can you’ll be able to, on the basis of these transportation facilities, build up all sorts of industrial and agricultural facilities around them. [00:36:32][56.9]
[00:36:33] So, for instance, in the United States, when the United States in the 19th century built railroads all along the railroads, wherever there was a station, there would be a whole town growing up. And then back of the town, there would be prosperity. The prosperity followed the railroad routes. And China, Russia, Asian countries can do that today. The West can’t do it, and particularly the United States can’t do it because the Chinese trains, which I’ve taken very enjoyable rides on, between Beijing and Wuhan, for instance, the Tianjin go so fast that you need a railway. You have a highway on one side, one direction, a highway on the other, and on an elevated separate rail track, you have the high-speed rail tracks. Well, in the United States and Europe, the land of so densely settled that there are residential buildings and factories and towns in the way. Well, imagine going at 150 miles an hour through a town with railway crossing going up and down. You’re going to have some trucks going, you know, right through the gates and kaboom! And if you have a railway accident, 150 or 200 miles an hour, it’s really serious. [00:38:00][86.8]
[00:38:00] The United States can’t afford the money to buy the ride away from the existing real estate owners and don’t have the legal basis really for saying, “we’re going to condemn your property and take over the property to make the trains moving in a straight track.” You can’t have trains do what they do now and just go around all of the buildings and the farms. It has to go straight. So you’re having the Belt and Road Initiative is designed in such a way that it’s going to minimize the cost of transport and make it less costly for China, Russia or other Asian countries to trade with each other than it would be to trade with the United States and Europe. So this accessibility of markets to each other, of consumers, to their suppliers and various countries are going to essentially create a mutual prosperity. [00:39:07][66.8]
[00:39:08] And the reason that has to be mutual is that if a country, let’s say, Central Asian countries are going to buy Chinese industrial products and Russian oil or gas or a Russian product. They’re going to have to have some financial means of paying for them. The only way they can earn the financial means they’ll have to export something. And that means that China, Russia will have to say, “all right, if we want to sell our manufacturers and other products to Kazakhstan and Uzbekistan, what are we going to buy from them to enable them to pay for it?” We can’t just lend them the money and then say, “we’re going to foreclose on your country when you can pay.” We have to enable these countries to pay for the products they buy from us so that we can have a market in these countries. That’s where the Chinese are thinking ahead and realizing that we can’t just make a great foreign dependency without developing foreign countries. [00:40:20][71.4]
[00:40:20] The United States has not tried to develop the Global South countries that have run up huge dollar debt to finance their balance of payments deficits. They’ve just said, “well, don’t compete with us, buy what we’re producing and borrow the money from us.” And that’s what’s happened. Argentina, Latin America, African countries have borrowed American and European money and they owed dollar debts and euro debts, but they can’t produce the dollars and euros. And the United States and Europe said, “we’re not going to import anything from you, Argentina, Brazil and Africa. You’re going to be markets. But we want to make the money and the profit selling to you.” And the result is there’s been an enormous imbalance. [00:41:13][52.9]
[00:41:13] And you can see the whole growth of international monetary reserves is a measure of this imbalance. For the Belt and Road countries and the BRICS plus countries that are joining this, the idea is not to have a new kind of reserves to replace the dollar. It’s not to have a need for such large reserves to build up in the form of debts to other countries that can’t be paid. And that’s going to be the next big challenge to the Belt and Road countries, and to the Global South. How can their governments invest in infrastructure and at the same time paying the result of financial colonialism? How can they pay the US bondholders, dollar bondholders? How can they pay the euro bondholders for a development process since 1945 that has been exploitative and not help the debtor countries develop? [00:42:10][56.7]
[00:42:11] This is the whole relationship between debtors and predators is all of a sudden coming to be acknowledged in Asia and the Global South, because they’re the debtors, and the creditors are not even looking at this. And the fact is that the Global South and the debts owed by the Belt and Road Initiative and BRICS countries to the West have to be paid. And at some point they’re just not going to be paid. But because that causes a monetary and financial fracture, they have to be able to put in place an industrial and agricultural mutual self sufficiency in order to go it alone. When America and Europe go into a rage in not being able to exploit the rest of the world in the way that they dreamed of doing. [00:43:02][51.3]
Dimitri Simes Jr.: I think you make some really important and interesting points because when you look at, for example, what The New York Times writes, when it talks about Russia and China, they say that these two countries are trying to dethrone the international rules based liberal order. But I think you make a very important point that Russia and China are not against the idea of globalization and interconnectivity. They’re against the current US neoliberal, rules-based approach to globalization, where basically the resources are concentrate around the United States and other countries have no viable way to develop.
I guess this does beg the question, right? Because, you know, we’ve been talking about the sort of vision of a more equitable global development, of this sort of interconnected Eurasia from Moscow to Beijing, from Vladivostok to Tehran. But, you know, as you pointed out, right as we’re speaking, we’re seeing not unprecedented, but a new round of tensions in the Middle East that at any point, you know, over the coming days or weeks, could explode into a major regional war. Is this sort of model that Russia and China are thinking? To what extent is it threatened by what’s going on in the Middle East right now? Could a major Middle Eastern war put all of these sort of ambitions of a greater Eurasia at risk?
Michael Hudson: [00:44:41] Well, you’d said that they’re sleepwalking into World War Three, but they’re not sleepwalking. The United States is deliberately risking and even triggering World War Three because it realizes that the United States is losing its military power. And in fact, NATO is literally out of weapons right now because of the war in Ukraine and the way that the United States national security establishment is thinking, and I was associated with it for many years, is, “if we’re going to have a war, a World War III, we’re never going to be in a stronger position than right now. Our position is weakening. So if we’re going to blow up the world, let’s do it now, because we’re going to blow up the world and lose even more heavily if we do it in the future. They’re actually risking the takeover now, especially because it’s so centered in the Near East with Iran and Syria, as I mentioned, being the real keys to all of this. [00:45:42][61.6]
[00:45:44] They think that right now maybe Russia has already tied up its army in Ukraine and there’s nothing it can do to come to the aid of Syria if the United States moves against Syria, and once it moves against Syria, The neocons and conservatives in the national security establishment have already said, “first we go to Iraq, then Syria, and then Iran is where we’re all aiming all of this”. They’ve spelled it all out in national security reports. This is not sleepwalking. This is a very conscious plan that the leading neocons, Victoria Nuland’s group, have all put together. And they are actually trying to trigger it all. [00:46:34][50.1]
[00:46:35] So I think while Biden is trying to tell Israel, “this is not a good time to fight Gaza anymore because you’re turning the whole world against us,” and Biden is finding that his support of Netanyahu is an albatross around his neck, as I think a recent column by someone put it, that somehow he’s supported a right wing belligerence that the majority of Israelis have voted against and the majority of American Democrats voted against. It’s not that America is supporting Netanyahu, it’s supporting the Likud right-wing neo-liberal approach, basically. And the fact that this economic warfare is taking so violent a turn is shocking to the rest of the world. They really realize that it’s not countries that have been exploited that are going to fight as hard as the exploiters. As the exploiters, the beneficiaries of an unfair, one-sided system, are willing to go to war because they have no means any longer to support themselves. [00:47:53][77.7]
[00:47:54] Their only way of survival is by exploitation, and they’re fighting to be able to take over the oil reserves elsewhere. And the National Security Council in America have said, “if we can take over Iran and the Near Eastern oil and with Saudi Arabia being next, then we can cut off the oil supply of any country that doesn’t follow the United States neoliberal plan. And if they don’t have oil and gas, they don’t have electricity and power. And GDP is basically based on electricity and power consumption: oil, gas and electricity.” So this is actually all spilled out visibly. And that’s what the United States is doing, and it’s let the whole world know. Yes, we do have a plan to exploit you. What are you going to do about it? Because if you defend yourself, we’re going to do to you what we did to Iraq, what we what we are doing to Syria, what we did to Iran, what we did to Ukraine. Do you really want to go through that? That’s the gantlet that the United States has thrown down. And I think other countries are saying, “we’re not going to be a part of that. We’ve got to go our own way.” [00:49:05][71.3]
Dimitri Simes Jr.: You know, as I listen to your analysis and you mentioned that a lot of people in the United States or in the US political elite, to be more specific, think that better now than later, because later we’re not going to be as strong and considerations about domestic political dissatisfaction. That was very chilling for me because I remember reading the deliberations that German leaders made prior to World War One. They also looked at the Russian empire in the East. They said the Russian empire economy is growing very rapidly, it’s industrializing. And at the same time we have a growing socialist movement at home. So better to try and fight a war now on our terms than wait ten years and potentially lose.
I guess though, we saw Biden and Janet Yellen and this is my final question, I promise. Both of them said earlier this week that the United States is capable of walking and chewing gum, that they’re capable of, you know, fighting this proxy war in Ukraine, supporting Israel in its conflict with its neighbors and facing down China economic Cold War. Is the United States really capable of juggling all of these things at the same time? Or is this just another Washington delusion?
Michael Hudson: [00:50:27] There’s no question, it [the US] can go to a war on three fronts. There’s also no question that it’ll lose. The army, the military has done a game plan and said, “what if there is a war, first of all, in Ukraine?” They acknowledge Russia’s won, NATO’s total lost. What if there is a war in the Near East? Every plan shows the US losing. What if there is a war in the South China Sea? Every military plan that’s been announced shows that the US navy’s wiped out in the first hour. It’s going to lose. [00:51:05][37.7]
[00:51:07] I remember during the Vietnam War, when I was working with Herman Kahn at the Hudson Institute, we would meet with the leading generals that were planning the Vietnam War. And I’d have dinner with them, and they sounded like they were leading a peace march. “We can’t possibly win, this is awful, there is no way we can win to get out.” They knew that they were losing, that’s the politicians who overruled the Army that had this illusion of world dominance. [00:51:42][34.6]
[00:51:42] You’re having the same thing today. The Army knows that the US will lose. But the politicians said, “we’re America, we’re always going to win!” It’s almost a religious fervor that you’re finding on the part of the US National Security Council and the CIA, the deep state. They really believe that God is on their side. And, of course, this is what you had in the Middle Ages. You had each country thinking that God’s on their side. And that’s not the same thing as military strategy, working out a game plan. [00:52:22][39.4]