[ed. Which sounds like the good news if AI doesn't kill us all first.]
Michael Hudson and Radhika Desai examine the gap between Trump's promised economic boom and the reality of an economy sustained by asset bubbles rather than production. They show that the stock market's rise reflects cheap credit, buybacks, and speculation rather than profit, a Ponzi-scheme dynamic that cannot survive the oil shock triggered by Trump's war on Iran. His tariffs have not reversed deindustrialization, and his refusal to end that war guarantees the inflation he promised to kill. The result is a starkly K-shaped economy, in which the wealthiest 1% have seen their assets grow from $10 trillion to over $50 trillion in twenty-five years while the bottom half of Americans have gone from nothing to nothing, pushing the US toward a depression as serious as the 1930s and eroding even his own base's faith in him.
00:00 – Highlights
01:12 – Channel introduction
02:02 – Iran war escalation and the coming global oil/energy shock
06:56 – The dollar's shift from treasury-based to stock market speculation (Ponzi bubble) 13:56 – China's stabilizing role vs. the Fed's inflation-vs-interest-rate gap
25:06 – Inflation, GDP growth, and why "growth" numbers are largely fake (rents, fees) 34:00 – De-industrialization, manufacturing job losses, and shrinking labor force participation
42:06 – The K-shaped economy: stock market boom vs. wealth inequality, and Trump's collapsing approval ratings [...]
Radhika Desai:
Today we have decided to talk about the US economy under Trump. Now, of course, Trump is doing everything in his power to suck the oxygen out of the story about the economy. That includes continuing to escalate wars and all sorts of diplomatic and other shenanigans that he is constantly involved in, berating leaders of other countries and generally trying to make a big spectacle of himself... Anyway, all of these shenanigans are designed to distract attention from the biggest story, the condition of the US economy. Notwithstanding his unhinged and genocidal antics, the topic of the US economy simply will not go away. The world is settling down to summer before the midterm elections, and assessments of the US economy are proliferating. That is what we are going to talk about today, because the US voter votes on her economic condition, and her economic condition is not looking good at all. Michael, what are the headlines from your point of view?
Michael Hudson:
Well, the headline is really that the US economy is all about Donald Trump right now. The main thing, as you have just pointed out, is the war with Iran that he is escalating. Instead of rolling things back, he is bombing Iran. Iran has taken a response that is irreversible. It has closed down trade not only in the Strait of Hormuz but also in the Red Sea, with the Yemenis’ support, and it is bombing Bahrain’s port. It is absolutely certain that there is going to be a shutdown in the oil trade, and that is going to affect the entire world economy and push it into what I think is going to be as serious a depression as the 1930s. That is the US economy... It has been a huge expansion of financial wealth without any real expansion in living standards, real wages, or prosperity for most of the population. All of this financial wealth has been based on credit. Companies are not making more profits. The whole leadership of the stock market has been the seven AI companies linked to computers. AI is not making a profit; it is all speculation that we are going to expand and that there is going to be a huge market because everybody is going to use AI. But all of this market is dependent on computer chips that run on energy. We are going to see energy prices go way up, and that means electricity prices are going to go up. I want to briefly explain why the oil war is so important when we talk about the economy. [...]
Michael Hudson:
I want to explain just how that works. My whole premise in Super Imperialism is that after the United States went off the gold standard in 1971, all of this military spending, which is the major cause of the balance of payments deficit, ended up in foreign countries. The recipients took the dollars, turned them over to the central banks, and the central banks bought Treasury bonds and Treasury securities. What has happened in the last few years is that banks have stopped buying Treasury securities. The growth in international reserves has taken the form primarily of buying gold, not Treasury securities, and yet the US dollar remains strong. What has happened is that the private sector that has been receiving these dollars has not been turning them over to the government to recycle to the US as Treasuries, as you and I have been talking about. They have spent them into the US stock market. What has that done? It has inflated prices and ridden on the wave of the Federal Reserve supporting the banking system and creating huge asset price inflation, starting with the zero-interest-rate policy that Obama began. What has been creating all this financial wealth, making trillions of dollars for financial investors, has not been profits. It has been the ability to borrow at a low interest rate, including low interest rates in Japan, to buy US securities, bid up the prices of stocks, and create a huge credit overhead. So it is not a profit bubble; it is a Ponzi-scheme capital-gains bubble. It is a credit-creation bubble.
The problem is what happens when there aren’t the profits to support the stock buyback programs and the dividend payouts that have enabled borrowers to carry the debts they have taken on to bid up the stocks. If the credit begins to be rolled back here, and two weeks ago we talked about how Warsh and Bessent want to roll back the Federal Reserve’s balance sheet, they want to begin selling the Federal Reserve bonds that they have been buying in recent years to help liquefy the economy. The economy is going to be made much less liquid, and all of a sudden it is like a Ponzi scheme. A Ponzi scheme requires more and more people buying into it to provide the revenue to pay off investors. If interest rates go up, there is no more recycling of all this money into the stock market to help support things, and there is going to be a huge write-down. When that happens, stocks begin to fall. With higher energy prices, higher food prices, and higher costs of doing business, companies will go out of business. The Financial Times and main business sites have been saying the real problem is private equity. They have borrowed money from the banking system to buy companies, and now some of these companies are going to be running losses and closing down operations because it is not profitable to operate with high oil prices, high energy prices, and high electricity prices. Once they close down operations, they will not be able to pay the debts they have taken on, creating the same snowball effect that people expected in 2008–2009, when Obama decided on a bailout of the banks and decades of asset-price inflation to keep the bubble going and save the banking system. We are talking about the dynamics set in motion by the oil war, the rise in energy prices, and the AI demands for electricity that cannot be met because there is no electricity supply. All of this hopium has evaporated, and the result is going to be the serious depression we have been talking about all along. Yet the stock market idles along as if everything is all right. Our point is that these changes are irreversible. You cannot reverse a debt-inflated economy without wiping out the debts. How does that happen? Companies go bankrupt. There is not going to be a Brady Plan for the American economy. It is going to be companies going broke, and there will be a capital flight out of the dollar, not into the dollar. The whole world balance is being thrown out of kilter in a way that, unlike 2009, there is no monetary solution to a problem of actual physical supply of energy, electricity, oil, and chemicals not being available. This is the grand interruption that we are going to be talking about.
Michael Hudson:
Well, the headline is really that the US economy is all about Donald Trump right now. The main thing, as you have just pointed out, is the war with Iran that he is escalating. Instead of rolling things back, he is bombing Iran. Iran has taken a response that is irreversible. It has closed down trade not only in the Strait of Hormuz but also in the Red Sea, with the Yemenis’ support, and it is bombing Bahrain’s port. It is absolutely certain that there is going to be a shutdown in the oil trade, and that is going to affect the entire world economy and push it into what I think is going to be as serious a depression as the 1930s. That is the US economy... It has been a huge expansion of financial wealth without any real expansion in living standards, real wages, or prosperity for most of the population. All of this financial wealth has been based on credit. Companies are not making more profits. The whole leadership of the stock market has been the seven AI companies linked to computers. AI is not making a profit; it is all speculation that we are going to expand and that there is going to be a huge market because everybody is going to use AI. But all of this market is dependent on computer chips that run on energy. We are going to see energy prices go way up, and that means electricity prices are going to go up. I want to briefly explain why the oil war is so important when we talk about the economy. [...]
Michael Hudson:
I want to explain just how that works. My whole premise in Super Imperialism is that after the United States went off the gold standard in 1971, all of this military spending, which is the major cause of the balance of payments deficit, ended up in foreign countries. The recipients took the dollars, turned them over to the central banks, and the central banks bought Treasury bonds and Treasury securities. What has happened in the last few years is that banks have stopped buying Treasury securities. The growth in international reserves has taken the form primarily of buying gold, not Treasury securities, and yet the US dollar remains strong. What has happened is that the private sector that has been receiving these dollars has not been turning them over to the government to recycle to the US as Treasuries, as you and I have been talking about. They have spent them into the US stock market. What has that done? It has inflated prices and ridden on the wave of the Federal Reserve supporting the banking system and creating huge asset price inflation, starting with the zero-interest-rate policy that Obama began. What has been creating all this financial wealth, making trillions of dollars for financial investors, has not been profits. It has been the ability to borrow at a low interest rate, including low interest rates in Japan, to buy US securities, bid up the prices of stocks, and create a huge credit overhead. So it is not a profit bubble; it is a Ponzi-scheme capital-gains bubble. It is a credit-creation bubble.
The problem is what happens when there aren’t the profits to support the stock buyback programs and the dividend payouts that have enabled borrowers to carry the debts they have taken on to bid up the stocks. If the credit begins to be rolled back here, and two weeks ago we talked about how Warsh and Bessent want to roll back the Federal Reserve’s balance sheet, they want to begin selling the Federal Reserve bonds that they have been buying in recent years to help liquefy the economy. The economy is going to be made much less liquid, and all of a sudden it is like a Ponzi scheme. A Ponzi scheme requires more and more people buying into it to provide the revenue to pay off investors. If interest rates go up, there is no more recycling of all this money into the stock market to help support things, and there is going to be a huge write-down. When that happens, stocks begin to fall. With higher energy prices, higher food prices, and higher costs of doing business, companies will go out of business. The Financial Times and main business sites have been saying the real problem is private equity. They have borrowed money from the banking system to buy companies, and now some of these companies are going to be running losses and closing down operations because it is not profitable to operate with high oil prices, high energy prices, and high electricity prices. Once they close down operations, they will not be able to pay the debts they have taken on, creating the same snowball effect that people expected in 2008–2009, when Obama decided on a bailout of the banks and decades of asset-price inflation to keep the bubble going and save the banking system. We are talking about the dynamics set in motion by the oil war, the rise in energy prices, and the AI demands for electricity that cannot be met because there is no electricity supply. All of this hopium has evaporated, and the result is going to be the serious depression we have been talking about all along. Yet the stock market idles along as if everything is all right. Our point is that these changes are irreversible. You cannot reverse a debt-inflated economy without wiping out the debts. How does that happen? Companies go bankrupt. There is not going to be a Brady Plan for the American economy. It is going to be companies going broke, and there will be a capital flight out of the dollar, not into the dollar. The whole world balance is being thrown out of kilter in a way that, unlike 2009, there is no monetary solution to a problem of actual physical supply of energy, electricity, oil, and chemicals not being available. This is the grand interruption that we are going to be talking about.
by Radhika Desai with Michael Hudson, Naked Capitalism | Read more:
Image: YouTube
***
From Larry Johnson in The US Faces a Strategic Crisis with Iran…The Rapid Depletion of US Battlefield Missiles: [...]
These are not just the numbers currently in the hands of US CENTCOM (i.e., the US military command in charge of the war against Iran), these are the total numbers available to all of the US military commands. If these missiles are allocated evenly to the other two critical commands — i.e., EUCOM (European Command) and PACOM (Pacific Command) — then you begin to understand the gravity of this deficit.
Let’s take the case of the Tomahawk missile. Let’s assume there are 3,000 left (I believe that is a generous over estimate) and the remaining number are divided evenly among CENTCOM, EUCOM and PACOM… That means each command gets 1,000. Does anyone want to argue that in the event of a hot war with Russia or China that EUCOM and PACOM respectively would be able to sustain combat operations for more than four weeks? Hell, CENTCOM fired 850 of them during the first four weeks of EPIC FURY.
Here’s another major problem: All eight missile systems rely on rare earth elements — there are no exceptions among modern US precision-guided weapons. The dependence is nearly universal because rare earth permanent magnets are irreplaceable for the high-performance actuators, guidance motors, and seeker gimbals that make these weapons accurate. And who controls the supply chain of these rare earth minerals? China!…
The supply chain isn’t just about mining — it’s about processing, separation, and magnet manufacturing, which China controls:
Mining: China ~60% of global rare earth oxide production
Refining/Separation: China ~91%
Sintered NdFeB Magnet Manufacturing: China **~94%**
Refining/Separation: China ~91%
Sintered NdFeB Magnet Manufacturing: China **~94%**
