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Michael Hudson : The "Next" Financial Crisis and Public Banking as the Response, from Peter Myers

(1) The "Next" Financial Crisis and Public Banking as the Response - Michael Hudson

(2) US vs China Housing - Michael Hudson

(3) Public Banking Institute (USA)

(4) Positive Money (UK)


(1) The "Next" Financial Crisis and Public Banking as the Response - Michael Hudson

AUGUST 2, 2018

Introduction and Transcript:

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Michael Hudson: That’s exactly right. It’s not that the inverted yield curve causes a slowdown. Rather, it’s a symptom reflecting that investors are expecting a further slowdown and non-recovery. The economy is in a debt quandary.

I should add that short-term interest rates are determined by the Fed, and it is pushing up short-term rates ostensibly to show down price rises (its euphemism for the possibility of wage increases). So that is the "given." Long-term rates have moved up slightly – meaning that their bond prices have declined a bit. There’s so little chance of their going down much (and rising in price), and so much chance of rates rising further (and lowering bond prices) that investors are afraid of taking a loss during the bond’s remaining maturity.

So the Fed is setting short-term rates. Obviously, there are still a lot of takers – but not enough to overwhelm the Fed’s insistence of raising rates. My point is that there’s not going to be a "recovery."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Paul Sliker is a writer, media consultant, and the co-host of LEFT OUT— a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left. Follow him on Twitter: @psliker

Michael Palmieri is the co-host of LEFT OUT — a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left.

Dante Dallavalle is a graduate student in economics at John Jay College of Criminal Justice and the co-host of LEFT OUT — a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left. Follow him on Twitter @Drax138.


(2) US vs China Housing - Michael Hudson

US vs China Housing…and Those Millennials


JUNE 1, 2018

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

The Hudson Report is a new weekly series produced by Left Out with the legendary economist Michael Hudson. Every episode we cover an economic or political issue that is either being ignored—or hotly debated—that week in the press.

Paul Sliker: Michael Hudson welcome back to The Hudson Report.

Michael Hudson: It’s good to be back. I’m just home from China, getting over jetlag.

Paul Sliker: You recently gave a paper at Peking University about the economy and what sorts of policies they should implement and what to avoid.

But Michael, because we only have a short amount of time in these weekly segments, I want to look specifically at housing in China, and then compare that to what’s going on here in the U.S. In your speech you argued that China’s most pressing policy challenge is to keep down the cost of housing and that the policies best suited to avoid what you call the "neo-rentier disease." Can you give us a picture of what’s going on currently with housing in China, and then explain what you mean by "neo-rentier disease" and how the Chinese can avoid it.

Michael Hudson: To put this in international perspective, you could say that international competition is based on labor’s cost of living in each country. The most important expense in every country’s cost of living today is housing. What makes a country competitive in manufacturing or other sectors comes down to how much it costs to pay for housing.

20 or 30 years ago only 10 percent to 12 percent of one’s income had to go for housing. That’s about the ratio in Germany today. But in America today it’s over 40 percent in the big cities. It’s also over 40 percent in London, and and it’s rising throughout Europe. But this is not a force of nature. It doesn’t have to be this way. It’s largely because banks have found that they can do to housing the same thing they’ve done to education: Housing is an excuse to get people into debt.

The most important way to get people into debt for housing is to take control of the government with your lobbyists to un-tax housing. The property tax is way less than the rise in land prices. That leaves the rising rental value available to be paid to the banks. The reason why housing prices are going up is because a house is worth whatever a bank will lend. And they are lending more and more, to enable new borrowers to bid up property prices.

You’d think that China would have learned this by looking at the West, or at least by reading Volume 3 of Capital. In fact the Peking University meeting, the Second World Conference on Marxism, David Harvey gave the opening and closing speech. His point was that the Chinese should read Volume III of Capital to understand why and how the volume of debt and credit grows exponentially. As banks get richer and richer, the One Percent get richer. They need to nurture more and more markets for their credit and debt creation. So they lend on easier and easier terms, at a rising proportion of the home’s value. So it’s bank credit that has been inflating the price of housing.

David Harvey asked how China can let the price of housing go up so high in Shanghai (the most privatized city) that almost everybody who has a house is a millionaire. How can China expect to remain competitive in exporting industrial products when the cost of housing is so high?

Unfortunately, his talk and mine were almost the only economic talks at the meeting in Peking. As one of the Russian attendees pointed out to me, "Marxism" is the Chinese word for politics. "Marxism with Chinese characteristics" means to doing what they want politically. But economically they’ve sent their students to the United States, to attend business schools to learn how U.S. financial engineering practices.

Shanghai is where Milton Friedman and the Chicago Boys came in the 1970s and early 80s, because the Chinese government worried that if western Marxists came over, they would tend to interfere with domestic Chinese politics. So actually, China had less exposure to foreign Marxian economics than to U.S.-style neoliberal teaching.

I gave the same basic talk in neighboring Tianjin, which is a more interesting city in many ways. It’s where Chou En-Lei went to school. Talking to women students (about 80 percent of the economics students were women, because it’s considered a social science there) about how they planned to get an apartment, I was told that they would have to marry a boy whose parents gave him an apartment. I didn’t meet any male student who said he would have to marry a woman with her own apartment. It’s a male’s role to have an apartment for his wife. So if you can’t find a guy with his own apartment this is not going to lead to a happy married life, and there may be no marriage at all.

Some of the students that I talked to three years ago are graduating now, but are still not married. So I asked where they were going to live. One of the problems I found out – in addition to what we just talked about – was that in order to prevent a rural exodus to the big cities, people from the provinces or from small towns are not allowed to get a passport to live in these cities. They’re only allowed to buy apartments in their home town. China is trying to prevent overcrowding and the development of slums. As a result, in order to get an apartment the student decided to teach at a university or the high school that provides its own housing.

So China’s corporations, public universities and other institutions are doing much what the Russian Soviets did: Employers provide their own workers with housing.

Meanwhile, you’ve had a move in the last three years under President Xi against corruption. The way they’ve moved against corruption is to put in a bureaucracy to prevent it. That is a natural step in any country. The bureaucracy has put a short lease on what governments can spending. So most universities, if they have big conferences, need a private-sector participant to share in the cost, especially if they bring people over from abroad. At the worse, this shifts corruption from the public sector to the private sector.

Meanwhile, there’s a shift going on in China now, and the political attitude of the students I talked to is quite different from what it was a decade ago, when students really thought that they could change the country and get rid of corruption. OK, they’ve cracked down on corruption. They put in bureaucracy. But now they’re faced with a problem that their students have all been sent to America to study economics and come back and ask "How do we get a free market?"

I couldn’t believe that students in China were asking me about a free market. But that idea led President Xi a few months ago to say they’re thinking of letting in American and European banks. Well, I think this would be a disaster. If you let in the American and foreign banks, their product is debt! What are they going to lend money for?

The answer is that they’re going to lend more money to buy apartments than other Chinese banks are willing to lend. That’s how banks increase their market share – a race to the bottom, into deeper and deeper debt. The new banks will lend on easier terms, with lower down payments. That provides buyers with even more credit to bid up the price of real estate. The effect will be to start pricing China out of the market.

So this is a self-destructive move by China. Property is worth whatever a bank will lend, and foreign banks are going to be as aggressive as they were in America. What the Chinese don’t get is that the business plan of U.S. banks is fraud. Bill Black showed that in his analysis of the 2008 crisis. The junk-mortgage collapse was basically a fraud crisis. It may be repeated in China. In any case, it is a Trojan horse to financially bid up the price of housing, and maybe even education and anything else the banks can make loans on. That would make debt service so high that Chinese workers won’t be able to be hired to produce goods that are competitive internationally.

Paul Sliker: I wanted to ask you specifically about the issue of debt in China. Their private debt bubble is basically the biggest in the history of capitalism. I think the 2017 numbers had it at about 220% of GDP. So what do you think is going to happen there with the broader economy?

Michael Hudson: Under current conditions nothing. It’s not a problem. Here’s why: The debts are owed to government banks. A government can do what the U.S. can’t do. The government can forgive debts, at least those that are owed to itself, without creating a political backlash. If a viable corporation has run up too much debt, the government can forgive it. This is better than letting the debt close down a factory or force it be sold to a predatory asset management firm as occurs in the United States. That is the advantage of having public credit and why credit should be public. That’s how it was in Babylonia. Rulers were able to cancel debts all the time in the 3rd millennium and 2nd millennium BC, because most debts were owed to the palace or the temples. Rulers were cancelling debts owed to themselves.

China can cancel business debt owed to itself. It can proclaim a clean slate. It can minimize debt service to whatever it chooses. But imagine if Chase Manhattan and Goldman Sachs are let in. It would be much harder for the government to raise real estate taxes leading to defaults on the banks. It could save the occupants by making new loans to those who default – based on lower land prices.

Well, you can imagine the international furor that would erupt. Trump would threaten to atom bomb Peking and Shanghai to save his constituency. His constituency and that of the Democrats are the same: Wall Street and the One Percent. So China may lose its ability to write down debts if it lets in foreign banks. That was what the big political discussion was when did discuss economics at the Chinese Academy of Sciences in Beijing and in Tianjin, where we’re going to have a conference on Fictitious Capital in October.

Paul Sliker: Michael I know you briefly explained this a bit earlier in our conversation, but when we were emailing today about doing this segment, you tipped me off to a new book by the London-based economist Josh Ryan-Collins. He essentially shows that unaffordable housing is not a part of nature. That’s counter to the way most people believe that housing actually works. Can you explain that in more detail?

Michael Hudson: Yes it’s natural for people intuitively to think that housing prices are going up because people have more money to spend, or that the population is going up. But housing prices are going up even where population isn’t, like in London or Australia. The reason prices are going up is that banks are making more and more reckless loans. They’ve lowered the down payments. They’ve stretched out the mortgages to interest-only mortgages (no amortization payments!) and they’ve basically convinced government to pick up most of the costs.

Once you’re able to package mortgages and sell them to somebody else, the bank doesn’t care whether or not the buyers can pay. So you can have someone without a job, without an income, or with no assets at all (the NINJA borrowers that were infamous in 2008). If you lend them a million dollars to buy an apartment, they’re can live there for a few months and then default if they can borrow 100 percent of the mortgage, as they could in 2008. But that’s going to bid up the price of everybody’s apartments.

Something like that has has happened in London. It’s happened throughout Europe. It’s happened in New York. It’s happened throughout most of the United States. The price of housing is rising, but not because people are more popular or prosperous. They’re paying more and more of their paycheck for housing. And as we’ve discussed before, that forces them to cut back on their other consumer spending, so that they don’t have enough money to spend on goods and services.

That’s why now you’re finding whole buildings like 666 Fifth Avenue that Trump’s son-in-law Kushner owns. It’s reported to be 40 percent empty. He had to go to Qatar, right near Saudi Arabia, and promised to make US foreign policy serve it if its rulers would give him a loan to bail out his building. So you’re having New York commercial real estate being bailed out by Trump’s foreign policy.

And also, you’re having business rents in New York going down because there’s no one to buy stuff in the stores, because they have to spend so much money on the apartments they rent just to live in New York City or its environs.

Paul Sliker: This is a good transition to what I want to ask you about millennials and the U.S. housing market. A good chunk of our listeners are in the millennial generation. Some of those people have reached out to us, knowing that we do these weekly episodes with you and have wanted to get your take on the state of the U.S. housing market. I know you just shared a little bit about it.

I presume they want that information because some of them are straddling that line. Maybe they make just enough to afford housing, but it’s still a pretty daunting investment. A lot of younger adults are still scared about what they saw happen, maybe to their families, neighbors or communities during 2007-2008. By the numbers millennials are buying less than older generations – and lots are rejecting the notion that they need to buy a home.

There’s still a profound cultural impression here in America that owning a home is a good investment, the ultimate symbol of prosperity, success and tangible proof that you’re living the so-called American Dream. But some people who have reached out to us have been so forthright to ask point-blank: "Can you ask Michael Hudson whether it’s worth it or a safe investment for me to get into the housing market?" Of course, there’s no blanket answer here. People’s personal finances, where they’re looking to buy the home, how much other types of debt they might be in, all would play a role in assessing that.

But excluding the trust fund babies – who are wealthy enough to buy a house without batting an eyelash – what could you say about the U.S. housing market right now to someone who is young and who is genuinely torn on whether to take out a mortgage on a house, to inform them on how to make that decision a little bit better?

Michael Hudson: Well, first of all as you just hinted, there are two classes millennials now. One class of millennials inherits houses from their parents, or have a trust fund or the parents have paid for their education in full and have helped them get a house or have given them their own house. Those are the millennials that have housing. But I don’t see how the rest of the millennials can get housing, especially if they have a student debt, because the banks are now subject to higher lending standards. These higher standards mean that if you already have to pay 15 to 20 percent of your income for your student loan or other bank debt, you’re not going to have the 40 percent of your income left to spend on the mortgage. That is what it takes now that we just raised interest rates last week to 5.3%. Banks are not going to lend you as much money as they used to. New buyers now have to actually have to make a substantial down payment, and pay off the mortgage in a shorter time. So unless the millennials can get their parents to co-sign, it’s not going to be practical for them to buy a home.

It’s not a generation gap as such, because rich millennials who have parents helping them are in one class, and self-supporting millennials (which used to be just about everybody in their late 20s) can’t afford to be self-supporting anymore, even in their 30s. If you are self-supporting and do have a job, you certainly can’t ask for a raise, because you could be escorted out quickly. And you can’t go on strike because then you would miss the mortgage payment and lose your house. So you’re painted into a corner.

So sure, housing is a good investment if you have millionaire parents. But if you don’t have millionaire parents you’re stuck. Don’t worry if you can’t get a bank loan. The market has really become extreme.

The problem is, how to rent in New York City, where the average rent is $4,500 a month. They’d have to move out to the suburbs with a roommate. So here you have the problem that China solved: the student debt problem. Basically the US government should abolish the student debt. That would enable this class of millennials to use their money to make a down payment for an apartment and actually get a place to live, like everybody for the last hundred years has been able to do.

I don’t think people realize the radical damage that Obama did to the economy by bailing out the banks and not rolling back the terms of bank credit to keep housing affordable. Obama basically said, "Make housing unaffordable. Make as many junk loans as you want. Don’t worry, because I’ll stand between you and the mob with the pitchforks." He didn’t jail any bankers. He didn’t regulate them. He created the situation that Trump inherited. Trump has just pushed it to a further degree, with full Democratic support. The Democratic donor class loves Trump. They want him to be reelected because he’s cutting their taxes, he’s deregulating their banks, and he’s essentially deregulated fraud!

This leaves the millennials with a problem. How can they cope with a situation where they don’t have anyone representing their interests either in Congress where it’s really the same party now, or with an opportunity to earn enough to get a home mortgage? It’s very hard to earn the money that you need to buy a house anymore. There has to be a god in a machine – Deus Ex Machina – meaning rich parents or a rich uncle.

Paul Sliker: So maybe a better investment for millennials would be to organize outside the banks.

Michael Hudson: Well, here’s the other problem: Congress last week deregulated community banks. I’ve worked as a consultant for community banks in Chicago. Their strategy is to make more reckless loans than the commercial banks. So deregulating them enables them to lend at even higher debt to equity ratios. They can set lower down payments, and help bid up the price of real estate even more. So the congressional rewriting of bank regulations last week makes it much harder for millennials to get an apartment, because it will inflate the price of housing with yet more bank credit.

Paul Sliker: fascinating. Well Michael, like every week, I wish we had more time to talk. But I did want to let everyone know who is in the Greater New York area that this coming Saturday, June 2nd, 2pm at The Left Forum in Manhattan at John Jay College, I’ll be moderating a panel—Negative Economics – its Pedigree and History—between Michael Hudson and Michael Perelman about the long pedigree of anti-labor and anti-reform junk economics from the 18th-century classical economists to the Austrians and modern mainstream. You can find more info about that, on

But Michael Hudson, thanks again for joining us on this week’s edition of Left Out’s "The Hudson Report."

Michael Hudson: It’s good to be here with you ,and I’m glad we had a chance to talk about real estate for a change.

Paul Sliker is a writer, media consultant, and the co-host of Left Out—a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left. Follow him on Twitter: @psliker


(3) Public Banking Institute (USA)


  Make affordable loans to small businesses, farmers, government entities, and students

  Save taxpayers up to 50% on infrastructure projects, like bridges and trains and schools 

  Eliminate billions in bank fees and money management fees for cities and states

  Support a vibrant community banking sector 

  Enable sustainable prosperity


(4) Positive Money (UK)


We work with economists, academics, journalists, policy makers and the public to bring about a fairer money and banking system.

Join a growing movement of students, grandparents, economists, activists, politicians, journalists, dreamers and realists – all fighting for a fairer, greener, safer economy.

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