Michael Hudson: Debt Deflation in America
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. Edited Interview by Bonnie Faulkner September 2, 2011 (first aired on Pacifica, September 14, 2011).
“Without consumption, markets are going to shrink. Companies won’t invest, stores will close, “for rent” signs will spread on the main streets and local tax revenues will fall. Companies will lay off their employees and the economy will shrink more. Why aren’t economists talking about these effects of debt deflation, which are becoming the distinguishing phenomenon of our time? They advocate giving more money to the banks, hoping that somehow everything will be okay, as if the banks would lend out the money to fund new production and employment. Mainstream economics and political leaders in both parties are failing to ask why the banks are using these giveaways to speculate abroad, pay their managers bonuses and high salaries or to pay dividends rather than to lend to small businesses or do other things to actually get the economy moving again. This phenomenon cannot be explained without seeing that debt service is siphoning off revenue into the financial sector, which is not recycling it back into the production-and-consumption economy.”
Michael Hudson, let’s start by talking about Germany. Angela Merkel is to attend an important European Union meeting on September 7. What is going to be discussed?
The Bundestag is meeting to discuss how the German courts will rule on whether the European Central Bank (ECB) and the German government can bail out Greece and Portugal by buying the bonds of their governments directly, or whether the German Constitution prevents this. The European Union is having a similar discussion over what has become a constitutional crisis over whether the ECB should buy these government bonds.
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