Prof Michael Hudson: Phony debt crisis lets Obama back GOP’s pro-rich plan

No 229 Posed by fw, July 26, 2011

“Obama really believes in trickle-down economics. He believes that Wall Street are job creators, not downsizers and outsourcers and foreclosures. That’s the tragedy of all this. The question is, how can a Democratic president put forth a Republican program? There has to be a crisis. Now, in reality, there is no crisis at all. In reality, the raising the debt ceiling has been done for a hundred years automatically. There is no connection between raising the debt ceiling and arguing over tax policy. Tax policy takes many years to work out. All of a sudden, Mr. Obama is going along with the charade of saying, “Wait a minute, let’s create a crisis.” As his former manager, Rahm Emanuel, said, a crisis is too important an opportunity to waste. And Wall Street doesn’t like real crises, so there’s an artificial non-crisis that Obama is treating as a crisis so that he can put forth the recommendations of the Deficit Reduction Commission to get rid of Social Security that he has supported all along. That’s the problem. He believes it.” — Prof Michael Hudson

The above passage is from an 18-minute interview with Michael Hudson, Distinguished Research Professor of Economics at the University of Missouri, Kansas City: Pushing Crisis GOP Cries Wolf on Debt Ceiling in Order to Impose Radical Pro-Rich Agenda, Democracy Now, July 22, 2011.

Although the 18-minute interview with Hudson is wide-ranging, broadly covering economic crises in the US and Europe, this post focuses specifically on Obama’s phony debt crises. To view the entire interview and download the complete transcript, click on the linked title in the proceeding paragraph.

You can watch an edited 14-minute version of the interview here. A transcript of those parts of the interview pertaining to Hudson’s views on the debt crisis follow the video.

EDITED TRANSCRIPT

Juan Gonzalez of Democracy Now sets the scene

President Obama and Republican House Speaker John Boehner are allegedly close to a $3 trillion deficit-reduction package as part of a deal to raise the federal debt ceiling before an Aug. 2 deadline. But the deal is coming under fire from both congressional Democrats and Republicans. Part of it calls for lowering personal and corporate income tax rates, while eliminating or reducing an array of popular tax breaks, such as the deduction for home mortgage interest. Some Democratic lawmakers expressed outrage on Thursday because the Obama-Boehner agreement appears to violate their pledge not to cut Social Security and Medicare benefits, as well as Obama’s promise not to make deep cuts in programs for the poor without extracting some tax concessions from the rich.

MICHAEL HUDSON ON THE SO-CALLED DEBT CRISIS 

Hudson alleges Geithner and Bernanke essentially said: “We have to save the rich first. We have to save the gamblers”.

Geithner and by the Treasury Department, and especially by Bernanke, who essentially said, “We have to save the rich first. We have to save the gamblers.” There was plenty of money in all of the banks to cover all of the retail vanilla deposits for businesses, families. What there was not money for was for all the cross-gambles that they had made on derivatives—that is, which way interest rates would go, which way currencies would go. And so, this was really a casino. These were bets. And people like the AIG couldn’t pay. And the question is, how are you going to get the winners in this casino to get money from the losers, who are broke? So these $16 trillion worth of loans were all for junk securities. They weren’t for the solid securities that did back out the deposits. These were all for junk gambles, having nothing to do with the real economy at all.

Hudson asks: If the Treasury and Fed can “create” $13tn to fund a government takeover of Freddie and Fannie why can’t they similarly fund Medicare and Social Security?

And the result was that, while many of the $16 trillion have been repaid, there has been a residue of $13 trillion added to the government debt since September 2008, when all of this began. All of this was created simply on a computer keyboard at the Treasury. So the question is, if they can create a $13 trillion on a computer keyboard, taking over Fannie Mae and Freddie Mac, and the Federal Reserve can simply give this money, why can’t they, over 50 years, pay the trillion dollars for the Medicare and the Social Security? It’s—obviously, it’s a charade.

The debt isn’t even paper money. It’s electronic.

Well, not even paper. It’s electronic. We’ve sublimated the whole thing. The Federal Reserve can create a deposit, just like a bank does. If you go into a bank, you sign an IOU, and the bank adds money to your account. It’s done on a computer keyboard. That’s what money—how it’s created these days. And the government can do exactly what the bank can do. They can create the money on their own computer keyboards. And that’s—usually, they do that by running a budget deficit. That’s why the economy needs a budget deficit to grow. When the government runs a budget deficit, that puts money into the economy and helps us recover from the recession.

Hudson claims that Obama created the debt crisis to get rid of Social Security

When he [Obama] appointed the Deficit Reduction Commission, he appointed opponents of Social Security to the commission: Republican Senator Simpson and Bowles, who was Clinton’s chief of staff. Obama really believes in trickle-down economics. He believes that Wall Street are job creators, not downsizers and outsourcers and foreclosures. That’s the tragedy of all this.

The question is, how can a Democratic president put forth a Republican program? There has to be a crisis. Now, in reality, there is no crisis at all. In reality, the raising the debt ceiling has been done for a hundred years automatically. There is no connection between raising the debt ceiling and arguing over tax policy. Tax policy takes many years to work out. All of a sudden, Mr. Obama is going along with the charade of saying, “Wait a minute, let’s create a crisis.” As his former manager, Rahm Emanuel, said, a crisis is too important an opportunity to waste. And Wall Street doesn’t like real crises, so there’s an artificial non-crisis that Obama is treating as a crisis so that he can put forth the recommendations of the Deficit Reduction Commission to get rid of Social Security that he has supported all along. That’s the problem. He believes it.

“Wall Street has a plan to really clean up now — get rid of Medicare and programs for the poor”

Well, you had this kind of debt ceiling come up, I think, maybe 20 times under Bush’s administration. It’s a non-threatening thing. It’s something automatic. It’s technical. It’s sort of like going to the corner and having a certified—somebody certify what you’ve done. It’s a technical thing that has nothing to do with the real economy or policy at all. They’re pretending it’s a crisis because they have a plan. And the plan is what Mr. Boehner has put forth. . . . Wall Street has a plan to really clean up now, to really put the class war back in business and get rid of Medicare, get rid of the programs for the poor, and say, “There’s no money for you. We’ve given it all away in the bailouts.”

Obama has other options including calling the GOP’s bluff to refuse to increase the debt

He could say, “This debt ceiling has nothing to do with policy. You want to argue about the tax policy? Fine, let the Democrats and Republicans do it under non-crisis conditions. But this has nothing to do at all with the debt ceiling. If you want to refuse to increase the debt and plunge the economy into disaster, maybe you’d better talk to your campaign contributors and see what they want, because I know what they say. Your campaign contributors, in the Republicans, are my campaign contributors. They don’t like crises.” And you’ll find that it’s all—the charade will—it’s just like pricking the balloon.

“Obama is a Wall Street Democrat, which we used to call Republicans”

What they’re pushing for really isn’t a default on the debt. They’re pushing for a crisis to let Mr. Obama rush through the Republican plan. Now, in order for him to do it, the Republicans have to play good cop, bad cop. They have to have the Tea Party move so far to the right, take a so crazy a position, that Mr. Obama seems reasonable by comparison. And, of course, he is not reasonable. He’s a Wall Street Democrat, which we used to call Republicans.

As Mr. Obama’s Deficit Reduction Commission said, we have to get rid of Medicare, we have to get rid of Social Security, put the Social Security funds into the stock market, create a stock market boom, create a new business for his—for Wall Street. He believes in trickle-down economics.

The phony debt crisis is part of a corporate strategy to privatize public assets

What’s happening across the world is an attempt by the financial sector to really make its move and say this is their opportunity for a power grab. And they’re creating this artificial crisis as an opportunity to carve up the public domain and to give themselves enough money. They’re taking the money and running, because they know that unemployment is going up. The game is over. They know that. And the only question is, how much can they take, how fast?

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