Yves here. Some readers saw and very much liked this discussion by Michael Hudson and Steve Keen with Nika of the David Graeber Institute on the terrible economic trajectory well underway.
As is my tendency, I do have a big quibble. Trump did not launch this war with economic objectives save perhaps regime-changing Iran and getting control over Iran’s oil. It has been widely reported how Zionists and Christian evangelicals have captured Trump cognitively and financially, even before getting to the fact that Netanyahu can contain his spectacular arrogance often enough to be able to play Trump like a fiddle. One of many examples: Max Blumenthal has reported that Mossad convinced Trump that Iran was behind the Butler assassination attempt and was still out to get him, to the degree that Trump was going to great length to hide how he traveled for the rest of the campaign.
Originally published by the David Graeber Institute
NIKA
Hello, everyone. We are very happy to invite back Michael Hudson and Professor Steve Keen to the David Graeber Institute. Steve Keen is an economist and author, one of the few who warned about the 2008 crisis in advance. He is known for his critique of mainstream neoclassical theory and his models of debt deflation and financial instability. Michael Hudson is an American economist and historian of debt at the University of Missouri, Kansas City. His work on finance, rent, and deindustrialization deeply influenced David Graeber’s own thinking on empire, tribute, and the politics of debt.
Today we will explore the deepening crisis and possible scenarios of how it might unfold, specifically in the context of the ongoing war, which increasingly resembles the Soviet invasion of Afghanistan — to me personally. My question to Michael and Steve is: inflation, hyperinflation, or deflation? Which scenario do they think will happen? We start with Michael Hudson.
MICHAEL HUDSON
If you look at the stock and bond markets today, the world is expecting that the war in Iran is not going to last more than a month or so. It’s a world war because the entire world is dependent on oil and liquefied natural gas — for fertilizer, energy, electricity, heating, cooking, glassmaking, and helium. Helium and natural gas were provided to much of the world by Qatar, as part of the Arab OPEC countries. But their billion-dollar installations to liquefy natural gas — which took four years to build — have just been bombed by Iran, because Qatar is hosting US military bases used to bomb Iran.
Iran has said: if you try to destroy our oil industry, we will make sure the entire world oil, gas, helium, and energy industry shuts down and causes a Great Depression — as a result of oil prices doubling. That will trigger a balance of payments crisis for America’s allies, not only in Europe, but in Korea, Japan, and the Philippines, which are already taking emergency measures.
Trump clearly intends to deliberately create a world economic crisis lasting at least four years — as World War I and World War II did. He thinks this will put America in the driver’s seat: America is self-sufficient in gas and oil. Other countries will have to buy from us. And if they do, we’ll require them to impose sanctions against Russia, Iran, and anyone else we’ve designated as an enemy.
Meanwhile, the ten-year US Treasury bond rate has gone over 4.5%, and the 30-year rate is over 5%. Wall Street has figured that if oil export prices double, that’s inflationary. But all of this is junk economics.
Of course oil prices are going up — so much so that Asia and the Global South will look like Germany after the US stopped it from buying Russian gas. Germany’s glass industry shut down. The fertilizer industry shut down. The automobile industry is cutting back — Mercedes and others are moving to China.
Trump’s tariffs on steel and aluminum are raising the price of agricultural combines and tractors. Farmers in the US face the same problem as farmers everywhere: higher fertilizer costs, higher harvesting equipment costs, higher gasoline costs.
What Wall Street doesn’t take into account: Yes, energy and energy-related prices are going up. But this will shut down industries and cause a huge depression. Layoffs. Governments will have to divert revenues to help families afford electricity and gas — which means cuts to social spending. Unemployment. People getting poorer and poorer. That’s not inflation. That’s deflation.
Prices will rise for oil, steel, aluminum, fertilizer, gas, and helium, while other prices in general fall. We’re facing the biggest collapse since the Great Depression. That is the deliberate aim of US foreign policy. They’ve gamed it out. They think that no matter how much this hurts the American economy, it will hurt labor by lowering its wages, by causing unemployment and making people desperate. It’s a godsend for the class war.
When companies have to cut production, how will they pay their debts? Workers — euphemized as “consumers” — are already paying over 30% interest on credit card fees and penalties. Student debt defaults are rising. Medical debt is the fastest-growing cause of bankruptcy in the United States. Mortgage rates have gone way up.
This is a new form of class warfare. It’s not employers against labor, because industry and labor are suffering together trying to survive. It’s the financial class against the rest of the economy. Finance, insurance, and real estate — the FIRE sector — is where almost all US GDP growth has occurred, while the real economy has shrunk.
Thisactually is a replay of debates from the mid-eighteenth century: How was Britain going to deal with the fact that creditors spend their money on luxury imports rather than domestic production? London was getting rich, not the rest of England.
NIKA
Michael, I want to include Steve. What do you think about Michael’s description?
STEVE KEEN
If there’s one person I agree with, it’s Michael. When you first asked me about this, I said: inflation initially, then deflation. Michael has given the historical context. Let me share some statistical elements.
The absolute foundation of the economy is energy. What I’m showing is energy use in petajoules on the left axis, and gross world product on the right. The two lines match almost perfectly. And crucially: it’s one-for-one. A 5% fall in energy produces a 5% fall in gross world product.
What’s happening now: roughly 20% of the world’s liquefied natural gas has been cut off. Together with the loss of oil from the Strait of Hormuz and other supply disruptions, we could be looking at something of the order of a 10% fall in global energy — which implies a 10% fall in GDP. My shorthand: labour without energy is a corpse; capital without energy is a sculpture.
Now, that collapse is going to raise oil prices — conventional thinking agrees on that. But we’re also in a financialized economy. And this is where Michael and I differ from mainstream economists, because they completely ignore private debt. They obsess about government debt. They don’t even look at private debt.
In America right now, private debt is around 140% of GDP — still enormous. That’s the burden Michael was talking about, on households and corporations. If they find they can’t make as much profit because of higher oil prices, if unemployment rises — they won’t be able to service that debt. And what you’ll likely see is the same as 2007-08, only on steroids: a complete collapse in credit-driven demand.
Workers can’t pass on oil price increases into higher wages. Industrial capitalists can’t necessarily pass them on either. So what happens? People cut their prices, hoping to keep customers. But their neighbour is doing the same thing. Everybody is trying to pay down debt — which destroys money, slows the economy, and causes deflation.
Irving Fisher said it beautifully in the 1930s — what I call Fisher’s paradox: the more debtors pay, the more they owe. The real burden rises as the price level falls. That’s what leads to Great Depressions.
And here’s the horrific part: if fertilizer supply falls by 20%, food production probably falls by more than 20% globally. That means enough food for about 6 billion people — and there are 8 billion. We may be looking at a global famine this year.
Just as the anarchist who pulled the trigger that killed the archduke had no idea what he’d set off — I think Trump is the same. He has no idea of the consequences. He’s behaving like a mafia boss, squeezing money from ups and downs in the market. But the rest of us will live with the unintended consequences.
And if any world leaders are watching this — which I doubt — get rid of Trump. Stop this. America has to concede defeat and step back, to give us a chance to rebuild the world’s physical infrastructure before global famine sets in.
MICHAEL HUDSON
I want to pick up on Nika’s question about hyperinflation, since deflation and hyperinflation may go together. When countries cannot pay their foreign debts — and the Global South has enormous foreign debts falling due, all in dollars — what do they do? The IMF says: impose austerity. Make labour poorer and poorer until you can pay the debts. That’s today’s junk economics, and it goes back to David Ricardo’s bullionism.
Every hyperinflation in history has been caused by the need to pay foreign debt. Germany’s hyperinflation in the 1920s wasn’t caused by government spending on labour or social programs — that’s the myth. It was caused by printing Reichsmarks to throw onto the foreign exchange market to pay reparations. Chile and France had the same hyperinflation pattern.
And this reality is not taught in academic economics. So the graduates who join central banks around the world don’t understand the difference between hyperinflation, regular price inflation, and deflation. Steve and I are essentially persona non grata in polite circles, because what we’re spelling out threatens a very large power grab being put in place much like the Asian balancne-of-payments crisis of 1997-1998.
NIKA
It’s interesting, Michael — I just realized Russia also owed a lot, because Yeltsin agreed to pay all the Soviet Union’s foreign debts. And oil was maybe $10 a barrel at the time. I never thought hyperinflation and deflation could happen simultaneously. But maybe that’s exactly what was going on in Russia in the nineties.
STEVE KEEN
Yes — Russia didn’t have much domestic debt, but had enormous foreign debt. And there are arguments — which I haven’t fully researched — that the Weimar hyperinflation was partly deliberate: it wiped out the debt that American speculators had bought in German bonds. So it had a horrific cost, but a beneficial side effect: Germany’s foreign debt was eliminated.
And one thing Michael and I keep having to correct: people say the Weimar inflation caused Hitler. No. Hitler was in jail during the Weimar inflation. He came to power ten years later. What brought him to power was deflation — the cascading collapse of 1932-33, when prices were falling 10% a year. That’s what leads to social breakdown.
We are going to see a catastrophic year. Even setting aside the debt dynamics, losing 10% of global energy alone implies a 10% fall in GDP. And people are going to starve, because you aren’t eating vegetables — you’re eating oil. The Haber-Bosch process, invented in World War I, uses petroleum to create nitrogen fertilizers. Without it, the planet’s carrying capacity is about 1-2 billion people. We currently have 8 billion. If we lose 20% of global fertilizer production, we lose food for 20% of the planet. We have never seen a global famine before. We’ve seen localized famines. This would be something else entirely.
MICHAEL HUDSON
To clarify the chronology Steve mentioned: the financial economy collapsed in 1929. The world moved into depression by 1931. In 1931, the world finally declared a moratorium on Europe’s allied debts to the United States and on German reparations. That moratorium — the recognition that the debts couldn’t be paid — came before Hitler came to power. The deflation that followed was what created the political conditions for his rise.
STEVE KEEN
And this connects to what neoclassical economics gets fundamentally wrong. They model the economy as a single good, produced by combining labour and capital — with no natural resources, no energy input at all. They’re not even aware that you cannot produce output without energy. They don’t know that helium can’t be stored — it evaporates through any container in a month or two. So as soon as that supply is cut, those industries break down.
Forty or fifty years ago, even the economists we criticized for their equilibrium fetish at least had input-output matrices. They understood: to produce this, you need these inputs. The morons who took over since — with their Dynamic Stochastic General Equilibrium models — have a single-good, no-natural-resources model of reality. They don’t know that going to war over the Strait of Hormuz cuts off a third of the world’s fertilizer supply. They’re finding out the hard way.
This is why I think it’s idiocy rather than conspiracy. The people making these decisions don’t realize you need physical inputs from the natural world to produce goods and services.
MICHAEL HUDSON
Any economic theory has a political implication. Equilibrium theory serves those who want government to play no role: let the financial sector regulate markets, let wages fall to whatever equilibrium the one percent demands. The reason Steve and I support debt cancellation isn’t abstract — it’s because canceling the debts cancels the savings of the creditor class. It ends the financial class’s stranglehold on the economy.
China has done what the West failed to do. It treats money and credit as a public utility. Almost 80% of credit in the US and Britain is created to buy real estate — inflating asset prices, inflating debt, enriching mainly the financial class. China’s People’s Bank creates money to finance infrastructure, industrial investment, high technology. It doesn’t have a financial class. That class fled to Taiwan or the West after Mao’s revolution.
The historical precedent goes back three thousand years. From Sumer, Babylonia, the ancient Near East — the Bronze Age to the first millennium — when debts couldn’t be paid, they were canceled. The laws of Hammurabi ruled that if there’s a flood or drought and crops fail, agricultural debts are canceled. Because the alternative would have been that the debts accumulate to a creditor class that becomes an oligarchy foreclosing on the land and reducing the population to debt bondage. That’s what happened to Rome. And that same dynamic is what the world is entering now.
That’s what my book The Collapse of Antiquity is about. China has managed to avoid letting a financial class take over.
STEVE KEEN
And one reason is that China learned from Marx, not from neoclassical junk. Marx, in Volume III of Capital, chapter 33, described the financial class as “roving cavaliers of credit” who pay high interest out of other people’s pockets while living in grand style on anticipated profits. He described the credit system as giving this class of parasites “the fabulous power not only periodically to spoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it.”
That awareness has seeped into the bones of the Chinese Communist Party. Because the neoclassical theory completely ignores finance, the West has let the financial system take over the economy. That’s why Western economies are in the state they’re in.
MICHAEL HUDSON
And Marx was anticipated by Ricardo, who showed that if landlords take all the rent, there will be no profits left for industrialists — because they have to pay workers enough to buy food whose price is inflated by rent. Marx extended this concept from land rent to monopoly rent to financial rent. That was the analytic and fiscal project of classical economics: to identify and eliminate unearned income. Adam Smith and John Stuart Mill have been called socialists for wanting to prevent a financial oligarchy.
Then at the end of the nineteenth century came the counter-revolution. Neoclassical economics denied the very concept of economic rent — because rent, in the classical sense, is income without playing a productive role. Neoliberalism was built on this denial that rentier income was unproductive. And so today we have economists who don’t even include debt in their models — because, they say, “one person’s debt is another person’s asset.” What they don’t say is: the debts of the 90% are the assets of the 10%. And that 10% of credit grows exponentially, regardless of the economy’s ability to produce anything or pay anything back. That’s the blind spot of academic economics.
And yet China still sends students to the United States to study economics. Michael taught at Peking University for two years. His students told him: the government and companies prioritize hiring economists trained in the United States over those trained in China. That’s the contradiction China still hasn’t fully resolved.
NIKA
But how is China different? They were stockpiling everything — oil, grain. They have electric vehicles. They’re in a very different position. Michael, how do you think China will benefit from this crisis? Might they simply take over?
STEVE KEEN
China apparently has one and a half years of grain in reserve. So even if there is a global famine — and I think there will be — China can still feed its people. They’ve also put more energy than any other country into transitioning away from fossil fuels: solar, nuclear, wind.
And there’s a deep cultural reason for all this preparation: every Chinese schoolchild learns about the Opium Wars. They know that Britain, unable to produce anything China wanted, forced China to import opium to balance trade — and that this humiliation defined the nineteenth century. Chinese children learn that. American children don’t even know what the Opium Wars were. So China’s drive for self-sufficiency isn’t just policy — it’s a multigenerational response to colonial exploitation. Because they’ve made that preparation, they may avoid much of what’s coming for the rest of the world.
NIKA
Can you explain — in words that I can actually understand — how deflation and inflation can happen at the same time? I think many people find this genuinely confusing. Especially when one part of the world, China, looks like it will do much better than everyone else. Suddenly we don’t have a connected world anymore. We have this split. And in our part, we’ll have this strange beast — deflation and inflation together.
STEVE KEEN
The basic point is this: mainstream economics doesn’t understand the economy’s dependence on energy. Destroying energy supply, fertilizer, and critical production inputs will cause a plunge in global physical output — that alone. And they don’t understand private debt. They obsess about government debt. By ignoring private debt, they can’t see the deflationary follow-through — when so many people and corporations are unable to service their debts, that destroys money, shrinks the economy, and pushes prices down.
I have to run — third podcast of the day. Great to see you, Michael.
MICHAEL HUDSON
Steve has said it exactly. Deflation and inflation at the same time. What’s being inflated is energy prices. What’s being deflated is the rest of the economy — which needs that energy, and can no longer afford to operate.
NIKA
Looks like a scary year ahead. Thank you both for coming. We had about 250 people watching live on Twitter — that’s good. Thank you so much, Michael. Can we continue talking after this?
MICHAEL HUDSON
Yes, yes. We just ran out of time.
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Excellent article. I think the other thing that wasn’t necessarily discussed here was the role of AI in the coming economic crisis. The firms that don’t go out of business entirely will probably shed staff in a cost-cutting measure. It will then ask the current staff to get by using AI to fill the gap. If that ends up being successful, those original workers are not gonna be hired back if/when the economy recovers.
In other words, it will be a chance for AI to show if it can really boost productivity so that employers can get by without X % of the workforce. And it will give employers a chance to discover the value of X while having a different excuse as a cover.
On the ‘AI’ front, I’m expecting the helium shortage and the ensuing impact on chip production will kick in well prior to any energy market component. From the recent Ed Zitron posts, most of what Nvidia has sold is warehoused, waiting for data centers to be built. By the time that happens, they’ll be 2+ years out of date. The industry is a bubble propped up by the chip sales and resulting circular financing of compute-deals. If Nvidia can’t keep selling chips at the same rate, even just to throw in a closet somewhere, it’s impossible to keep all the plates spinning.
I think you’re correct insofar as firms will still cite AI’s impact on productivity as a reason for shedding jobs bc it sounds better than having to cop to canning folks due to reduced demand, but that will be a harder line to sell when the bottom has fallen out of the AI industry writ-large.
Read today’s Ed Zitron!
Just to add, I don’t think it will be just the workers let go. If there’s any one job AI can do very well, or at least not worse, and in many cases better, it’s the execs – the S, SV and C-suites. At these higher levels they are fed summaries and highlights and powerpoints and if a decision is required will be informed by these. AI has the logic capabilities to do this aspect.
Having ruled that corporations are persons, the next logical step is for the courts to rule that AI are persons for the purposes of managing and representing corporations.
I’ve been wondering if the present-day iteration of so-called AI wouldn’t be mainly used to cover the dreaded “bull-s–t jobs.” It should have become quite clear to whomever is actually ‘managing’ business that it is much cheaper to “pay” an AI to do nothing than to “pay” a wet works unit to do the same ‘nothing.’
Stay safe.
I am working on a post on this–seems very plausible, but then what?
It then calls out for Public Policy to fill the gap. As far as I can see, no society can function even to a minimum standard when overall unit cohesion collapses. Such a society becomes several mini-societies. At some point, global flows slow down and or collapse due to a lack of overall coordination. The supranational organizations that ‘normally’ coordinate international flows depend on lower order organizations for support and resources needed to function properly. Think international communications, which rely on numerous smaller resource flows, electronics, cables and satellites, energy sources to power all that. International coordination is based upon standardized education across the world. Then we get to shipping, banking, etc. etc. One worst case scenario here is, what if the dollar as reserve currency collapses and nothing takes its place? An entire order of extra complexity has just been added to international business.
One general thought I have had concerning this matter is that, when you reduce inputs to an AI, it does not complain, go on strike, loot stores, attack the “upper classes” etc. etc. Actual ‘wet world’ Terran humans on the other hand…..
If one of the basic tasks of “Leaders” is to maintain the society that rewards them, this race to AI fails the test.
Another thing that I consider is, why are “bulls–t” jobs created in the first place? My best guess is that such excremental employment is designed to soak up excess educated manpower. Going “back to the farm” is not considered as a viable response to that problem anymore. For one thing, small scale farming would not be able to support the present levels of world population. The efficiencies are not there. Second, subsistence farming is bone crushing, boring work.
End of rant.
Stay safe.
Thanks for sharing, and this comment from Steve Keen has had me thinking all morning:
I read this article first, then saw the news about the Teva pharmaceutical factory in the Iran War post. That was probably on someone’s bingo card…but what other future, unknowable Black Swans await us?
Big thanks to Yves for excerpting the relevant portion. In the full video, Michael goes on for quite a long while before Steve pipes up and the discussion really gets to this section; while I always find Michael’s perspective enlightening, he can be rather longwinded, so this is a great help!
As Steve Keen says, people are going to starve. And the comment from curious brings up AI which will demand large amounts of energy, and make more humans redundant. The dystopian elements of this are not pretty. And the other factors are fresh water access and availability, environmental destruction, etc.
A side note, I agree with Yves, but ‘m not sure where the big quibble comes from, judging from what Steve and Michael said.
I would also say our dear leader has experienced serious cognitive decline. His statements have become more contradictory, reckless and irrational. His campaign promises were all lies (but that’s what politicians do) A chicken in every pot and two cars in every garage blah blah. We have no way of knowing for sure, but the circumstantial evidence would point to serious Epstein kompromat on the Mad Emperor.
In addition, he has taken 100s of millions from Adelson and other Epstein Class Zionist oligarchs. Reportedly, Rubio was appointed on the direction of Adelson, The DTs performance last year at the Israeli Knesset was getting close to a form of treason: boasting about selling US foreign policy for the interests of Israel.
The reasons for the emperor’s behavior are likely cognitive decline, kompromat, and corruption. Some of that is speculation, but… Time will tell, but most of us will suffer the consequences regardless.
I’m guessing Yves was quibbling with Hudson’s hypothesis that the Iran war is part of Trump’s grand economic class war design. I too had a problem with that part and so did my friend P. Hudson has made similar arguments since fairly early last year in the Alkorshid/Wolff/Hudson sessions on Dialogue Works.
In terms of aesthetics and rhetoric Trump seems radically anomalous, especially to liberal educated people like me, but in the grand scheme of American politics I think he’s only a little bit more than we should have expected given the prior patterns. Observe the greatest of American dances: Bipartisan Ratchet Two Step. Every step to the right is a big thrusting jump in the appearance of stupidity and towards privilege for the wealthy at the expense of everything else (working people, environment, peace, liberty, equality etc). Every step to the left is an elegant pirouette in which the appearance of stupidity is reduced and environment, liberty, idpol etc. are back on the agenda even if not much gets done about them. Nixon, Reagan, Bush, W, Trump, Trump. And between the last two what did the elegant pirouette really look like?
Since Reagan, war with Iran has been on the bipartisan Washington agenda. Who in Washington politics is genuinely against it on moral grounds? Idk but it’s not enough to make any difference. Those against are either being pragmatic or they want the other team to get the blame if it goes badly. But war with Iran has always been on the bipartisan wish list.
So now along comes Trump. He’s the next step in the Ratchet Two Step. A bit more stupid and vainglorious, surrounded by staffers a bit more stupid and brownnosing, he doesn’t read and can’t absorb reasoning more than a couple of sentences long. So now we finally do it. Bonanza! The military types get to shoot off the greatest firework show in history (“Cool! What’s G-13 do?” Bill Hicks. NSFW YouTube) and defense contractors’ order books will be full unto the end of the republic, if not beyond. As usual there will be no punishment for the wicked in this crime.
No doubt other factors played into this. Yves mentioned Max Blumenthal’s hypothesis in the intro. I can easily believe Netanyahu, the Zionists and Israel lobby encouraged him and fed him mis/dis/malinfo, e.g. it would be quick and easy. After starting the year on a high with Venezuela Trump must have got a bit bummed out about the fiascos of Mpls and Greenland and wanted to restore his manhood. There are lots of things like that. But those are, I believe, secondary to the fact that Washington DC has always wanted war with Iran.
Thanks for that, I must have missed it, I took it as a larger view that the current POTUS is merely continuing long-term foreign policy and class warfare, but yes the war on Iran as planned specifically for that reason is not how I see it either. On other occasions prof. Hudson has made it clear that he does not see Israel as calling all the shots, he disagrees with some of Mearsheimer’s claims, for example. He makes a good point: The US is willing to fight “til the last Israeli” and that Israel is a forward garrison state of the US empire, while the US enjoys “splendid isolation” while Israel gets hammered.
We can quibble about that, but I see evidence that British (and later US) meddling in Iran’s affairs predate Israel. And even after the State of Israel was created, the overthrow of Mossadegh in 1953, one could see that Israel was not the reason for the coup.
Some conveniently attribute US policy and all of this to Israel and The Lobby, but this is much more than just this institutional corruption and legalized bribery. Crudely put, after the Shah was ejected, the US has wanted regime change and that there are a convergence of interests with regard to Israeli expansion, attacking Iran, and US attempts to maintain some sort of hegemony. Who benefits? Not Israel or the US as a whole, but the Epstein Class oligarchy (at least they appear to believe so). So in an abstract way, prof. Hudson may have a small point.
I also think you raise a good point about what some have described as “the mask is off” and the true face of Ugly American policy are not even partially obscured. The in-your-face atrocities, lawlessness, corruption, genocide etc. are just more crudely stated and demonstrated in the past the so-called liberal Ds are just uncomfortable with exposing the ugly truth to US policy, they would rather dress it up with democracy and human rights hypocrisy.
I certainly didn’t mean to say that Trump had a PLAN for a class war against labor. But it’s the EFFECT of his policies — which the orthodox austerity economics of monetarism assume are good economic management, e.g., as when the Federal Reserve raises interest rate to slow employment, imagining that this will slow employment and hence keep wages low. That’s the IMF’s “adjustment theory.” Devalue the currency (basically affecting labor, as most prices are fixed in world currency). And the war on Iran will certainly increase consumer prices for wage earners.
Thanks for clarifying that
Yes, thank you.
“In terms of aesthetics and rhetoric Trump seems radically anomalous, especially to liberal educated people like me, but in the grand scheme of American politics I think he’s only a little bit more than we should have expected given the prior patterns.”
Jeffrey Sachs 3 weeks ago with Glenn Diesen kind of failed to carry home his intended point over how more awful Trump really is. (I am asking to look at it from the state of affairs by March 8th.)
Jeffrey Sachs: We Are Now in the Early Days of World War III
March 8th
https://glenndiesen.substack.com/p/jeffrey-sachs-we-are-now-in-the-early
Remember that was the point when Trump said he would elect the new leader of Iran. And everyone said he is crazy. Be that as it may. But it was merely a repetition of the state coup operations the US has always been gaming out.
Eventually Sachs makes this comment when comparing Trump and the preceding Presidents:
TC 30:00
“(…)They had manners. Trump has no manners. Trump has grandiosity. But it was the same. (…)”
That´s it in a nutshell.
As of what damage the incompetence and irresponsibility of current US leadership will do to the planet is a different matter. But as with Europe´s allegedly so much worse leaders than their predecessors – (I have lived through a few of those and I vividly remember the complaints about their incompetence…) – we will never know if the demise of the West is not so systemic that the personnel administering it is secondary and even exchangeable.
Which of course doesn´t excuse any of these contemporary leaders and their evil actions.
Watched this podcast last night. Steve Keen’s main point of concern was that energy is the basis for all, and with a 20% reduction in world energy, that’s 20% reduction in things like food, meaning possible global famine.
Second point that they both seemed to agree on was that there is likely going to be deflation from private debt obligations not being able to be met. The financial class won’t want to lose their power and debt won’t be forgiven or restructured in a meaningful way to support the upcoming private credit crisis.
I really hope Western economies get their heads together and don’t raise interest rates because of inflation here. I think we need to maintain credit creation combined with governments creating demand through projects – hopefully green projects to transition from these God forsaken fossil fuels
I agree with you Yves that Michael is a bit off his rocker re: the deliberate nature of this affair.
I’m not sure why he feels compelled to opine that this is some manufactured crash when the more straightforward answer is the US is a dying Empire and as such lashes out in ways that are antithetical to its material interests.
If anything I feel like these events do more damage to the hydrocarbon economy the US depends on for hegemony. Time will tell.
Many have one or two perceptual biases that are connected:
1. Wanting to see that there are plans or designs behind events. It’s more comforting to see someone or something as in charge, even if that means they are malign.
2. Not wanting to see how path dependent things are. Some event or action occurs, which creates possibilities that were not there before
Yves makes the point that I thought I also was making. No mainstream plan could have thought of so complex a set of results. But the anti-labor results were implicit in the WAY that orthodox economics thinks. Its value system puts financial gain-seeking first – so of course labor is left out of account, and the very thought that raising wages may help raise productivity even more has become anathema to monetarist and other thinking.
I wrote a longer answer to this, but somehow it got lost when I may have pressed the wrong button. That’s my inability to forecast the future consequences of my acts.
“the very thought that raising wages may help raise productivity even more has become anathema”
I believe that´s also German economist Heiner Flassbeck´s one major point he tries to get through but to no avail. (He was part of Oskar Lafontaine´s short-lived team in the Ministry of Finance under Schröder. After Lafontaine left the government his successor Hans Eichel fired Flassbeck.)
For German-speakers Flassbeck´s latest book:
“Grundlage einer relevanten Ökonomie” (something like “Principles for Relevant Economics”)
https://westendverlag.de/Grundlagen-einer-relevanten-OEkonomik/1627
I just saw the boss of the Young German Social Democrats, Philipp Türmer, speak on TV constantly about tax the rich and that due to AI we will work less. All suggested with the notion of a hyperactive teenager. The worst thing is the insanely narrow corridor of dispute which excludes any serious angle. Be it war, be it economics or financial issues. Not a word about the fallout of this war. In fact German public deliberately deflects this topic if it goes beyond gasoline prices for cars. Public “discourse” has dropped to shockingly low levels.
It´s not unlike Washington D.C. where apparently a new generation will get into power that really believes the lies of the Bush Administration over the Iraq War, and in general the fabrications of the surveillance state post 9/11.
As Chomsky warned 30 years ago: If we are not careful the digital era might bear a future dystopian and fascistic beyond our worst nightmares.
That’s a pity you lost a comment. (It’s happened to me more than once.)
The institutional context including orthodox economic beliefs are certainly worth taking into account.
That is a valid point, the underlying motivations of financiers create a pattern that becomes a “plan”.
yep
ps: combined with a tacit understanding which is part of “culture”.
re: point #1
It does serve the desire and necessity for some forms of political opposition and change to be able to identify concrete perpetrators, their goals and tactics. It you can point at this bank, that hedge fund or certain industries you have an argument in public and with lawmakers. And there is a justified logic to that. The more general your point becomes on the other hand (“it´s American billionaires”, “it´s the system” ) the less compelling and detailed you might argue in that particular space. Or it turns too complicated and abstract to sell.
I agree it’s more stupidity as Steve said. I can also understand how the financial class would want this, though.
I wouldn’t be surprised if they view Bitcoin as the store of wealth for a USD deflationary wealth grab. Deflate asset prices, store wealth in Bitcoin that inflates, grab cheap assets?
There’s a lot of focus on cryptocurrency in the tech-financial class circles, and ideas such as “freedom cities” and libertarianism
I knew this discussion would be a rough-ride the minute I saw Michael Hudson’s and Steve Keen’s facial expressions. They both appeared to be in a bleak mood. After listening to the discussion I too became much more bleak in looking forward to the next several years, and I was already deeply concerned before I listened to this concentrated hour of wisdom and perceptive analysis.
Based on Yves’s discussion and analysis of the war for today and considering her earlier war posts I worry for how many ways Trump and Israel could make things ever worse than they already are. I cannot understand why no one — who can, if there is anyone or any group who can — has stepped in to stop their stupidity and utter madness. Trump did not launch this war with economic objectives. Trump’s actions have been so erratic and ill-considered or unconsidered I have trouble attributing objectives to explain what he’s doing.
Jeremy Grimm: I cannot understand why no one — who can, if there is anyone or any group who can — has stepped in to stop their stupidity and utter madness.
It was a striking moment in the video when Keen addressed the audience:
Keen has to be one of the smartest people I’ve ever paid attention to so he surely knows that nobody can do this.
1. Trump is president of the USA. Who can get rid of him?
2. Pretty much everyone with power or influence in Washington wants war with Iran. Nat Wilson Turner set it out well in yesterday afternoon’s coffee break. There’s nothing so bipartisan as war with Iran.
3. Leaders of pretty much all allied nations have no power (see 1.) and are scared to confront Trump. Shout out to Pedro Sanchez of Spain for showing some gumption.
4. Investors, going by Yves’ reports, are out to lunch. Perhaps they are dominated by speculators as opposed to people who understand real-world markets.
5. Business leaders are too scared of Trump as his 2nd term is characterized by use of the federal government for vindictive retaliation.
and finally
6. Even if it weren’t for all the above, it would take great expertise. A theme on NC for years is that such expertise has been in decline as Western societies turned themselves into financialized, speculative, extractive get-rich-quick schemes for their elites. The high level of administrative, military, economic, industrial and diplomatic expertise that would be needed to fix the mess Trump has made in the last month is going to be hard to put together.
and even more finally
7. If you like a good conspiracy theory (I do!) about an amoral transnational oligarchy of nihilists loyal to nothing as characterized/caricatured by the Epstein class, the team of experts required fix the mess (see 6.) would not be allowed to form let alone operate.
so, um, should I convert my IRA mutual funds to cash in a bank and buy food? Or should I let my funds set and hope for a rebound in 10 ~ 20 years.
Just wondering what might be a productive change on a personal level.
I have no idea what to do myself, let alone what anyone else should do. There have been some comments in recent posts with suggestions and even lists of what to stock for the coming shortages. I’d be doing some of that if I had storage space. Cash on hand in case if bank troubles or in case you get debanked in the purges?
Spouse and self do have storage space, and tomorrow I am heading to Costco for shelf-stable foods and household supplies – perhaps buying now instead of later may save hundreds or maybe thousands of dollars, possibly if things really get tight some things may be unavailable for a while…. If nothing much happens, which is what people in general seem to be expecting, then we are not really any worse off for having pre-bought things we will use anyway. We always have cash on hand just in case.
We are a retiree couple living in the suburbs, spending Social Security and Required Minimum Distributions from retirement funds. We are maintenance medication dependent. I am aware that we – like most Americans – are very much at risk if “the machine stops”. Some people can ride out a long or indefinite disruption, but that’s not us – it was never in the cards that we would be ‘survivalists’ in that sense. To everything there is a season, and a time to every purpose under heaven.
GFS for the huge spice containers. Black pepper and cumin largely come from southeast Asia, and both help flavor squirrel stew.
I concede all seven of your points, reserving some quibbles about #4 and #7. I have difficulty believing that Trump is running the u.s. government. If not, I have difficulty grasping how those backing Trump, and backing the uni-party, could be so incredibly stupid and reckless. I do not believe in the idea that wealthy people are necessary intelligent and perceptive people, but the level of stupidity and recklessness they are displaying, assuming they have some control over Trump, greatly surpasses what I can wrap my mind around.
The Epstein class is amoral and constitutes a conspiracy, at least one aspect of conspiracy, but being amoral does not fully explain the reckless disregard with which members appear to gamble with their own wealth, position, welfare, and safety. The risks of their activities on Epstein’s island impress me as several orders of magnitude less than the risks I associate with Trump’s war, and allowing Trump to continue with his wanton impromptu actions destroying the last vestiges of the u.s. Empire.
I ask myself this question with each day, with each new exposure of a level of stoopid reckless one would think is simply impossible, hoping that this is the day we read a NYT headline, “President Trump tragically disabled in apparent accident on stairs … ”.
HTF can anyone think that they can profit from this disaster?
There is also the small subset of the population, the Millennialists, who believe that the ‘profit’ in all of this is the disaster.
The is the square I cannot circle (or is a circle I cannot square?). It’s not like all these bad outcomes are a secret or forbidden knowledge. It’s all there for anyone to see. I have a hard time accepting that it is stupidity. Terminal group think? Or is it really just Upton Sinclair’s “It is difficult to get a man to understand something, when his salary depends on his not understanding it”?
At least Trump is not an idealog so there’s a chance he really is looking for an off ramp.
Pope Leo Palm Sunday homily: US hands are “full of blood.”
“Even though you make many prayers, I will not listen: your hands are full of blood” (Is 1:15).
a few lines later:
“Christ, King of Peace, cries out again from his cross: God is love! Have mercy! Lay down your weapons! Remember that you are brothers and sisters!”
He was talking to US.
I thought it was a great (if sobering) discussion of how this will play out.
There were oil analysts who made very similar forecasts at the start. One estimated mid-April as the final drop dead date when damage would start to become visible in the US. So I don’t think Marxist analytical tools are required, just an understanding and willingness to look at second and third order effects and some knowledge about how the physical economy actually works.
On the other hand, even today, so-called stock analysts on CNBC are telling people that energy is only 3% of the S&P so no big deal. I don’t think that will age well.
I find it odd that neither Keen nor Hudson mention China’s immense private debt, which apparently is approaching 2x nominal GDP, much larger than what they cite as the private debt level of 140% of GDP in the US. China does not have bankruptcy to discharge debt. So how is it that China does not have a financial oligarchy – is it because the debt is created by the State and not private banks? And if so, why is that a different/better situation than private bank created debt? Is that what keeps China from being like the US, where the “debts of the 90% are the assets of the 10%”?
This article from the Dallas Fed talks about China’s “zombie firms” which tie up capital in non-productive entities that lowers growth. It points out that most of this debt is generated from household savings and so is in theory more stable. Also, the Fed article points out that in China “the real estate sector has by far the highest zombie share, rising from 6 percent to 40 percent, consistent with China’s extended property sector downturn.” This seems to belie Hudson’s assertion that loans in China are not for real estate. Curiously, the article makes no mention either of inflation or deflation.
https://www.dallasfed.org/research/economics/2025/1223
At any rate, I would not argue that the US has by and large reached Minsky’s final Ponzi stage of financial capitalism where only more borrowing, not income, can service principal and interest.
They sort of touch on it when they mention that China is more open to debt forgiveness because the financial class has less power.
It seems like China is much more open to that sort of financial policy as seen with their housing buildout
Not mentioned is population decline, which is deflationary. China may or may not balance rapid decreases, related to the one child policy, with energy-reliant robots. US anti-immigrant policies, plus chronic disease, fertility loss, and social support declines, could exacerbate both population and productivity loss.
Also not mentioned is the constructive aspect of regenerative growing methods, now well honed. These increase soil health and produce nutrient density, while decreasing fertilizer and diesel use – within one to a few seasons. Industrial-style growing tends to peak at 20+ years, then flatten and decline, as soil health declines and pesticide resistance rises. Part of our chronic health problems likely relate to poor quality produce – a turnaround would be welcome in many ways.
Back in the 1950’s, half of US households had access to a kitchen garden, supplying significant vegetables, starches and (often) chicken eggs. When Cuba went thru a previous rapid loss of fuel (Russia), backyard gardens and market farmers accelerated fast.
I cannot take heart from your rosy views on population decline, “regenerative” growing methods, or the health benefits we could enjoy eating vegetables from our household garden and eggs from the chickens we might raise, if we lived in the right locale in the 1950s. Have you considered the impacts of the precipitous changes we may begin seeing in a few weeks? Adaptations such as you describe are far more difficult and painful when forced willy-nilly into an immediate moment?
I’ll add in here that gardens have a “start up” phase. Crops don’t just appear “ex machina.” Some municipalities also prohibit many forms of self-sufficiency. Here in the Half-horse Town, domestic chickens are prohibited within city limits. Some areas prohibit front lawn vegetable gardening.
As I have been known to remark when confronted with the idea that “you know that’s illegal, don’t you?”, I’ll guilelessly look up and ask: “What isn’t illegal nowadays?”
Stay safe, and out of the clutches of the Organs of State Security.
Yes, these are longer term considerations, though necessity could come into play. Gardening interest rose abruptly with early Covid shutdowns and supply chain breakdowns. Though it has partially moderated, realization of system fragility is at least somewhat more appreciated. Also noted in recent years are Right-to-Garden movements, alongside Right-to-Repair, though follow through is to-be-determined.
I am not sure I would call these views “rosy”- rather an attempt to find helpful actions we can take. Learning garden skills and building soil health fit the bill.
Steve Keen has pointed to the relationship between energy in and product out for as long as I can recall.
It seems to my humble self that this should be obvious. The trajectory of this reckless war will lead to a dire outcome.
At least for corn, a 20% reduction in fertilizer does not mean a 20% reduction in yield. For example, this study (https://blog-crop-news.extension.umn.edu/2024/04/are-you-overspending-on-fertilizer.html) found zero fertilizer resulted in a yield of 138 bu/ac. Fertilizer increased yields, with diminishing returns: 40 lb/ac N ~> 158 bu/ac, 80 lb/ac N ~> 180 bu/ac; 120 lb/ac ~> 187 bu/ac (numbers approximate).
If I understand correctly, access and cost of fertilizer are what matter. You can’t buy as much fertilizer so you devote less acreage to the given crop.
I plead confusion on how AI and blockchain are supposed to survive an energy crisis.
This is always what I ask. Nobody ever gives a satisfactory answer
Having read Michael Hudson now for nearly 20 years in alternative sources, it feels as if I am just now comprehending the level of economics he presents.
That being the case, as a fatalist, I have been waiting for this empire to crash since 1973. Now that we appear to be entering an end phase of this collapse, (which, granted, could last for the next 500 years, {or not}), my question to him is,
what are we supposed to do to establish a continuity to our lives?
We purchased pre-63 coins in the early 1990’s, gold immediately after Sept 11 and silver in the next 8 years afterwards. We have never invested in the markets, nor do we carry debt.
Yet, at 70 years old, creating a survival garden in Texas where gardens literally burn up from the heat, (this with several inches on mulch protecting the roots, the leaves literally fry themselves from the sun), is an option, but a labor intensive one, that produces marginal results for the water usage.
How can someone who has the desire, protect themselves form the criminal syndicates that appear to control our country?
As the petroleum supply that has been a part of sapiens food chain now for nearly 100 years is threatened,
Where Are We To Turn?
My suggestion is that at your age (and mine) we recognize we have lived like kings on the back of fossil fuels and that death is not the worst thing!
Bingo! (at 80)
My quibble, and I think it is not minor.
States that the US is self-sufficient in oil and gas. This is NOT TRUE. The Media and Punditry need to study energy with greater rigor, and report with accuracy.
This false fact’ is helping engender some critical misunderstanding, complacency, and bad decision-making.
The US is a net importer of oil: we produce 13-15 million BBL per day, we use 19-20 million BBL per day.
We are short 25% daily. The global mix and nature of Oil demanded used and produced varies.
Also, our military still runs on Oil. For all the money we spend, we get National guard helicopters hunting shed elk antlers in MT and practice flights past the manse of Kid Rock. And forays hither and yon with a bottomless checkbook in support. How’s the champagne and Lobster, Petey-boy?
I want my money back.
Once more, with feeling: The US is a net importer of oil: we produce 13-15 million BBL per day, we use 19-20 million BBL per day.
We are short 25% daily. The global mix and nature of Oil demanded used and produced varies.
We do have a lot of gas here in the US!
This article is interesting but ultimately disappointing because it doesn’t live up to its title. It only talks about hyperinflation in the Weimar Republic and how subsequent deflation (unemployment) led to the rise of Hitler. The insinuation seems to be that this is what’s going to happen in the U.S.A. as a result of the supply shock coming out of the Persian Gulf. To my knowledge, however, no such supply shock occurred between WWI & WWII. Moreover the U.S.A. appears to be going fascist quite well even before any comparably serious financial crisis has happened. There is no shortage of other reasons to suspect this analogy will not apply very well to the present situation, as well.