Michael Hudson on the historical roots of Western financial decline and debt dynamics
Glenn Diesen interviews economist Michael Hudson on the history of debt, banking, and the structural vulnerabilities of Western finance capitalism.
Summary
Glenn Diesen interviews economist and author Michael Hudson in a wide-ranging discussion on the history of debt, banking, and financial oligarchy from ancient Mesopotamia through to the present day. Hudson argues that the defining feature of successful civilisations — from Babylonia to imperial China — was the capacity of central authority to cancel or manage debt before it polarised society, a mechanism entirely absent from Western political tradition. He contends that the West's financial system is now in the grip of the same debt dynamics that destroyed the Roman Empire, with debt growing faster than the ability to pay and wealth concentrating in the hands of a financial oligarchy at the expense of industrial production and living standards. Hudson also traces the origins of modern international banking to the medieval papacy's use of North Italian bankers to finance crusading wars, arguing this created a template of creditor-dominated fiscal states that persists today. He closes by connecting these historical patterns to current geopolitical tensions, including Trump's tariff strategy, the dollar's declining role as a reserve currency, and the threat of an oil-trade breakdown centred on the Persian Gulf.
Key Takeaways
FULL TRANSCRIPT
Introduction and the historical frame
Glenn Diesen: Professor Michael Hudson joins us today. You have obviously written a lot of important books, especially on political economy, and in books such as The Collapse of Antiquity you address the history of finance as well. I wanted to discuss some of this history with you today because I feel it is extremely important to appreciate this history as the current financial crisis appears to be speeding up. The entire financial system evidently is not sustainable, and it appears that we may be heading towards a cliff. Throughout history, people always tend to assume that the current status quo is permanent, even though it always proves to be temporary. I thought that by looking at history we can understand some of the changes as well as the continuity in this system, and also the alternatives. That was my main thought — to take a step back and look at this history and get a better appreciation for where we are now. A very broad question: what is it that we can learn about the current system by looking back? What do you see as being the constants — for example, the oligarchic tendencies in the financial system?
Michael Hudson: Most of my work for the last 50 years has been writing a history of debt and banking. It was clear already at the end of the 1970s that the Global South countries were running a debt crisis, and that almost all of the Western economies were having what was called a business cycle — but it was something much more than a business cycle. Every recovery took place at a higher and higher debt level, and it was obvious that this was becoming unsustainable. I wanted to see how it began. That's why I spent 25 years heading a Harvard group writing the economic history of Mesopotamia, Egypt, Israel, and the ancient Middle East — now called West Asia — and seeing what made the West so different from everything that went before.
I think the best way to frame the answer to your question is this: today's political and financial rhetoric juxtaposes the United States and Europe as democracies against China and other countries not part of the US alliance, which are called autocracies. What they mean by autocracy is a mixed economy — which by the 19th century was called socialism. Government investment in basic infrastructure, subsidised rates, government anti-trust and anti-monopoly laws to prevent monopoly rents — the whole 19th-century drive by industrial capitalism in Europe and the United States to tax away economic rent, to prevent land rent from becoming the natural tax base, to prevent monopoly rent from developing, and ultimately to make money and credit itself a public utility. All of this was what financial capitalism wanted to do to lower its own cost of living, cost of doing business, the cost structure, and to be more efficient. The way to be more efficient was to prevent the privatisation of natural monopolies like railroads and communications — which is exactly what you saw in the wake of Thatcherite England. It really turns out that the US definition of autocracy is any role for government that is to the right of what Margaret Thatcher and Ronald Reagan did in the 1980s.
Ancient civilisations and the management of debt
Michael Hudson: When I looked at what made the West distinct from what went before, it wasn't democracy. Aristotle wrote a study of constitutions throughout the world that he knew about and said that all constitutions call themselves democracy, but they actually were autocracies. The whole West has really been historically unique — as it claims to be — from what went before: the Bronze Age societies that were primarily Asian societies from Mesopotamia and Egypt all the way to China.
The distinguishing feature of the first 3,000 years of economic civilisation was having a central ruler. Historians are not sure how to characterise these rulers — they call it divine kingship in Mesopotamia and Egypt, or emperors in Confucianism governing China. The role of the central authority — the king, the temple, or the emperor — was to maintain popular prosperity. That's supposed to be what democracy is all about. The West believes that democracy is achieved through the ballot box by people voting. But if you look at the constitutions of early Rome and Greece, the constitutions concentrated all political power in the hands of the aristocracy — the landowners and the creditors. You could vote, but whoever you voted for would be from the oligarchy, which became increasingly predatory, driving the rest of the population into debt. It was really the debt dynamics that ended up destroying the Roman Empire that had absorbed classical antiquity, and the same debt dynamics occur today.
What you find in the first few thousand years of civilisation — and that's what my book And Forgive Them Their Debts is all about, along with my Harvard studies and the articles I have in Temples of Enterprise — is that the whole idea that made the takeoff of civilisation throughout Asia, from Mesopotamia to Egypt to China, was the recognition that the great destabilising force was the growth of debt growing faster than the economy's ability to pay it. That was the basic political guideline of all rulers. What ancient literature all the way down through Aristotle and Plato was about was this tendency of debt to grow faster than the ability to pay. And when that happens, debtors tend to fall into clientage and bondage, or even slavery and serfdom, to the creditors. That's what happened to the West. And that same dynamic of debt polarisation occurs today.
Debt cancellation in ancient West Asia
Michael Hudson: What made Asian development so different — and what makes China's development and its takeoff so different from Western financial policy today — is the fact that it prevented a financial oligarchy from developing. When I went to school in the 1950s at the University of Chicago, one of the main books we had to read was Plato's Republic. The whole theme of Plato's Republic is Socrates saying: suppose you've borrowed a weapon from a very hostile person, and if you give it back, he's going to use it to kill people. Is it right that you have to pay him? That was his takeoff for saying: what if you owe debts to a predatory oligarchy and they use the money you pay them to indebt other people and reduce them to clientage? After a long discussion, Socrates said the solution is what we are told, translated as "philosopher king." But it wasn't a philosopher king at all. What Socrates said was: how are you going to cope with the main economic problem of our time — money-love, debt, wealth addiction — that money and wealth are a kind of economic and social power, and that's addictive? How are we going to avoid that? Socrates said the solution is to have a ruler who doesn't have financial wealth, who doesn't have property, and so hasn't become a money addict. Of course, that didn't happen, as we all know.
How did antiquity stop this? The whole principle of all of the literature we have from Mesopotamia to Egypt to China said the role of a ruler — whatever we call them — is to maintain economic balance and to keep the people prosperous and not unhappy. You want to prevent exploitation. You want to prevent people falling into clientage to their creditors and running away, because we need the population for our army and to build our walls and to build all of our public infrastructure. So the common denominator in all of the West Asian rulers was debt cancellation — all the way from Sumer and Babylonia, Hammurabi, all the way down through the Jewish Jubilee year of Leviticus 25. The wording was exactly the same. New rulers, or on some periodic basis when there was a drought or a flood that prevented crops from being cultivated, would prevent this buildup of debt that can't be paid from impoverishing society and leading to creditors lording it over the rest.
Every new ruler in Babylonia and Sumer — apparently Egypt for a while — started their reign by cancelling the agrarian personal debts. Not the business debts; those were all left intact. But the debts of citizens for arrears, the grain debts, were cancelled. The bond servants pledged to creditors were freed — not the slaves, but the citizens and their families pledged as labour to their creditors were liberated. The land that cultivators had pledged along with their crop rights under distressed conditions was returned to them.
That tradition was completely absent in the West from the very beginning. There was no way of establishing such a tradition without having a central ruler — a divine king, a pharaoh, an emperor — whose job was to oversee and act as a regulator to prevent debt from growing faster than the ability to pay and polarising society. That's just exactly what's occurring in the Western economies today. You've had this steady buildup of debt from the end of World War II on. The debts really are beyond the ability to be paid without impoverishing the rest of the economy. It's as if you're imposing an IMF austerity plan not only on the Global South countries, as was the case with most IMF borrowers, but on the developed industrial nations themselves. That's the problem we're in.
China's alternative model
Michael Hudson: When you look at China's takeoff, what makes China so exempt from all of this? China has kept money and credit creation in the hands of the government — the People's Bank of China. It has never had an independent financial class that plays the role that Western banks play: financing corporate takeovers, lending to buy property, buying assets instead of investing in factories and machinery and tangible capital formation. The whole role of what finance lends for in the Western economies has been largely unproductive. It creates financial wealth by debt leveraging — by lending people money to buy real estate or stocks or bonds whose prices are built up by creating more and more money to buy more real estate, more stocks and bonds at higher prices.
That's why almost all of the growth in the US economy since 2009 has been financial in character. It hasn't taken the form of industrial tangible investment. It hasn't taken the form of rising living standards for labour as a whole, much less for the middle class. All of this financial wealth has been concentrated in the hands of the wealthiest 10% of the population, especially the wealthiest 1%.
What has made the more successful economies ever since the start of historical records 5,000 years ago — what's made societies and economies successful — is avoiding this financial polarisation and making wealth financially in the form of debt claims on debtors. Creditor wealth — property ownership, stocks, bonds, real estate — is a claim on renters, a claim on debtors. It's economic rent. If you look at what Adam Smith, John Stuart Mill, and the whole 19th-century doctrine of industrial capitalism tried to do, it was essentially to say: we want to make sure that all of the money is created to increase the ability to pay the debts and make a profit on it, with the profits being reinvested in more long-term research, development, and tangible capital formation — more factories, more hiring. That was the whole doctrine of classical economics. And the whole world seemed to be going in that direction until World War I.
World War I, the post-war settlement, and the IMF
Michael Hudson: World War I changed everything. The peace settlement of German reparations and inter-allied debts was all pro-creditor, and it ended up not only impoverishing Germany and many of the European countries — Britain had a great general strike in 1926, France had its own hyperinflation — but setting the stage for the next crisis. After World War II, the United States was pretty much in charge of designing how the post-war economy would be run and structured. It said: okay, no reparations this time, no inter-allied debts, but we're going to have pro-creditor rules again.
There was a whole debate between the American negotiators and Keynes. Keynes said: if you don't want the post-war economy to end up looking like Europe did after World War I, you've got to have some way of wiping out the debts of countries that run a constant balance-of-payments deficit through their trade deficit and through owing more and more money to pay their foreign debts. You've got to write down the debts of these countries. You need a new international bank with the power to write down the debt claims of countries that continually run a surplus — like the United States — and to wipe out the debts of countries that run a deficit, as Britain was expected to do. Keynes worked for the British Treasury. Well, the Americans turned it down. Instead of Keynes's bancor — his proposed bank — they had the International Monetary Fund, which imposes creditor-oriented rules and austerity on debtor countries.
By the late 1990s and early 2000s, you had countries trying to avoid having to go to the IMF like the plague, because they knew that imposing an austerity programme does not enable you to really pay off the debts at all. It cripples the economy. It diverts your income away from new capital investment and means of production — agriculture, industry, transportation, and infrastructure — to pay creditors, and is therefore destructive.
What was only subjected on the Global South countries in times past is now being subjected on the US and European economies, and they're being impoverished by the same dynamic. All of a sudden we're in the same age-old dynamic that has occurred again and again as debts grow faster than the ability to pay and have to be written down. If you don't write down the debts to the ability of your citizens, the labour force, the companies, and the government to pay, you're going to have the same kind of stagnation that you saw in the 1920s.
The problem Keynes pointed out was not only that this debt overhead impoverishes the debtors, but that the money paid to the creditor country — like the United States — is used simply to make money financially. It fuels a stock market boom, and that ends in a crash that wipes out the creditors just as well.
There's been a lot of research on how these post-war arrangements began. An example is the Franco-Prussian War settlement of 1871, when Germany insisted that France pay reparations for losing the war. Germany moved to gold, adopted the gold standard, and let other countries follow — that was when the gold standard really spread from Britain, which had adopted it early in the 19th century, to others. Germany's market became very prosperous and ended up in a railroad and stock market bubble that then crashed itself. So this buildup of debt not only destroys wealth in the debtor countries but in the creditor countries themselves. That's the situation we're in today.
The mechanisms of collapse and consumer debt
Glenn Diesen: You said it's now reaching an end, but what are the mechanisms that are making this all come to an end? What will the consequences look like if there is no elimination of debt — if, as you said, it hurts the debtors but also eventually wipes out the creditors as well?
Michael Hudson: 40% of the American population, according to the Federal Reserve, doesn't have any savings at all. They're living from paycheck to paycheck. As a result, they're living off their credit cards, and credit card interest starts at 19%, with penalty rates even higher, pushing the actual interest rate to over 30%. The consumer debt — just to borrow money to make ends meet, just for basic subsistence survival — doubles every three years, but wages haven't. Having to pay these debts has forced consumer spending in the United States, for most of the population, to be scaled back.
The Fed reports that half of the increase in consumer spending has been by the wealthiest 10% of the population, and it's luxury goods — imports of Italian fashions, cars, yachts, and things like that. But the domestic market for wage earners has shrunk because they can't afford to spend the income they get after paying their taxes, their health insurance, and their debt service to the credit card companies, to the banks for their mortgages, and for automobile loans. They don't have enough to buy the products produced by American and foreign industry. The result of this tendency of debt to grow faster than the economy is de-industrialisation, because income is spent on debt service, not on buying the products of what they produce — in the circular flow that's supposed to be reinforcing and steadily increasing economic prosperity and growth.
The origins of international banking: the Church and the Crusades
Glenn Diesen: I also wanted to ask about what you've written about the relationship between war and modern banking, because this is also quite an interesting and relevant link.
Michael Hudson: I have a book that will be published in a month or two on the history of how international banking developed from the Crusades to World War I. What I found is something unique. It was the Church itself — the Roman Church — that created international banking and sponsored the international banks, thereby reversing all of the Christian anti-usury teachings. Rome essentially tried to inaugurate a religious and political fight against countries that resisted its control. The Crusades began already before the formal Crusades by fighting against Germany, and later fighting against France. The Crusades were against other Western Christian countries that resisted Roman control.
The problem for Rome and the papacy was that they didn't have much money to hire troops. They didn't have an army, as Stalin quipped about the popes after World War II. What were they to do? They recruited Norman warlords beginning in the 11th century — William the Conqueror of England was such a warlord. They said: we will back you and sanctify your rule if you conquer England and pledge fealty to us, and promise to pay us tribute in the form of Peter's Pence and other tribute, and to let our church appoint bishops throughout your realm. Bishops were in charge of church financing, and the church was the largest landowner and rent recipient throughout Europe. William agreed and essentially made Britain a fief of Rome.
Just a decade or so before, Rome had made the same contract — and we have copies of the contract, which I discuss in my book — with the warlord who conquered southern Italy and Sicily. "We'll make you king of Sicily, Robert Guiscard. We'll back your kingship. You have to sign fealty to us. You will obey our direction, and we will appoint the bishops — the right of investiture — for control of the church finances in your territory." That's how there were kings. By the end of the 11th century, other countries began to oppose this, and so there were two popes. The Roman pope, as opposed to a German-backed pope, tried to say: let's help support Byzantium, the Byzantine Empire threatened by Turkish invasion. Let's save it, and let's save Jerusalem from the Muslims. Through a great public relations victory, they organised the kings of all the European countries to go fight. The actual aim was to conquer Constantinople and the Byzantine Empire.
They looted Jerusalem first when they went there. Jerusalem didn't need protection from the Muslims for the Christians, because the Muslims permitted Christian churches and had no anti-Christianity at all. By the 13th century, the Crusaders looted Constantinople itself and essentially tried to absorb it into the Roman Church. The Eastern bishops opposed all of this. And so you had the split between the Roman Church and Eastern Orthodox Christianity — the four of the five major bishoprics: Constantinople, Antioch, Jerusalem, and Alexandria all resisted.
So the Romans — it's called the Imperial Papacy — said: we're going to have to fight Germany and other countries that are resisting our control. How are we going to get the money? The Norman warlords had an army, but they didn't have the money to wage war. So it was the Vatican that supported North Italian bankers and bankers just over the Alps — the Cahorsins, in Cahors — and the papal legates would bring bank contracts to kings such as King John's son Henry III of England and say: we'll make your son the king of Sicily, because the Germans and the Byzantine church have dominated the cities in Sicily and South Italy. Will you do it?
There was a whole fight by the barons who had already opposed King John for trying to tax them in 1215. The Magna Carta was a fight by the barons against the king levying taxes to go to war — taxes that would essentially have been funded by borrowing from banks. The pope excommunicated the barons who were backing the Magna Carta on the grounds that they were trying to block interest-bearing debt being made to the king.
Fifty years later, you had the same fight — the barons' fight against Henry III, who was trying to levy taxes to obey the popes. There was a civil war in Britain, and again the pope at that time excommunicated the leaders of the civil war opposing all of this, and essentially sanctified debt and opposed the opponents of debt — just inverting all of Christian anti-usury doctrine — in order to create an international banking class of North Italians and other international bankers to make loans to kings that Rome supported in fighting the religious-political war against other European countries and ultimately against the Byzantine Empire itself.
The Church's strategy of fiscal control
Michael Hudson: The Church had already begun in the 11th century to solve a problem that the popes wrote a whole strategy about. The strategy was: if we have the right to rule over secular kingdoms, we have to make the governments of these kingdoms an arm of the Roman Church. How do we do that? We do it financially. We do it by taking control of their fiscal policy. The fiscal policy is basically determined by the Church in the first instance, and secondly by having kings pledge loyalty to follow the fiscal policy that we support — to get tribute from these kingdoms in order to pay the armies of the warlords, mainly the Normans, whom we've hired to fight our wars.
So for the next few centuries, you had the development of international banking that was very different from antiquity. What made all of this international banking different from everything that went before anywhere in the world was that before credit, there wasn't really banking even in classical antiquity. Although there was a financial oligarchy, it was considered an antisocial act to make money by usury. There was no distinction between usury and interest — any charging of interest was called usury — and to make money by mercantile activities was recognised as being very exploitative. So the leading aristocratic families all delegated all of their financial operations to their freedmen or slaves or someone outside of themselves externally. You had whole towns like Puteoli where you had freedmen acting as bankers for the wealthy, but you had no banking class. Most of the lending was either for mercantile trade or just consumer usury, especially to wealthy members of the aristocracy who wanted to support their luxurious living conditions, and also to the poor who needed money to get by.
What happened during the Crusades and onward in Europe was completely different. The loans that the international banks made were not — although many of the banking families had made their money through trade financing — made by money lending in the old sense. And when they began to make loans, it wasn't to the poor and it wasn't to other merchants. It was to kings to wage the wars to conquer other realms.
The rise of the fiscal state
Michael Hudson: After the Crusades ended at the end of the 13th century, the Church no longer was really in control of all this, but the international banking and the secular kings achieved independence from Rome. The French king Philip IV appointed an anti-pope, and the pope moved the papacy to Avignon in France away from Rome after Philip captured Pope Boniface and replaced him. The kings themselves took over and remained dependent on these international banks to lend them the money to fight wars — especially between England and France. That was most of the wars. But you also had other realms and new warlords and kings all borrowing money to fight. So you had money being lent not to the poor but to the wealthiest sectors of society — to the kings and to the Church.
Later, as you had individual cities lending money — paying the kings to achieve their own communal independence, like Florence, Genoa, or Venice — you had these local city parliamentary or communal states becoming the prototype for modern governments. The advantage of Florence, for instance, was that unlike royal budgets, kings had real difficulty paying their foreign debts to these bankers because all they had was their own royal domain, and they were blocked from taxing the economy as a whole because their aristocracy — the barons — wouldn't go along with it. So they kept defaulting. In England they kept pledging and losing the royal jewels over and over again.
In Florence and other city-states — especially in the cities that became the Dutch Republic — you had the ability of these communes to tax the entire population and essentially to act as collection agents for the bankers. They said: if you lend to the kings of France or Spain or Austria, they're going to keep defaulting because they can't raise the money to pay you. But we can pledge the wealth of all of our citizens as collateral, tax everyone, and we'll put payment of our foreign borrowings — which we need to make to go to war to defend ourselves against the autocratic Catholic kings — first. We'll act as collection agents for you.
Historians call these the birth of the fiscal state — a state that is governed above all by its fiscal policy, which is dominated by the banking class itself. So you had the banks — the international bankers — essentially taking over the supranational, Europe-wide control of governments that the Roman Church had put in place in the 11th, 12th, and 13th centuries. All of this was secularised in the hands of bankers and the fiscal states that were able to run up debts far beyond what royal autocracies were able to do.
The financial oligarchy and de-industrialisation today
Glenn Diesen: What are the lessons of this? Where, based on this past, would you advise structural changes? Obviously the status quo won't last much longer.
Michael Hudson: You have a situation today where the financial class pretty much is in charge of political policy and law-making, especially in the United States since the Citizens United ruling by the Supreme Court, which said that corporations — that PACs — can finance the election campaigns of politicians running for office in the primaries and the general election, who pledge themselves to represent the economic interests of their financial backers. You've essentially privatised the political voting process in the United States and turned it over to the billionaire class — not only creditors, but now Silicon Valley, the oil industry, all of the special interests, the monopolies, the financial interests. These are the very interests that industrial capitalism in the 19th century tried to get rid of, to lower the cost of producing goods and services and to help industrialise and become a more competitive economy.
All of that has been replaced by the very classes that industrial capitalism sought to phase out. Industrial capitalism was revolutionary. It wanted to free economies from the landlord class inherited from feudal times, from the monopolies created by international bankers to help kings raise money that could not be controlled by Parliament, to pay their war debts, and to essentially industrialise banking and make banking serve industrial capital formation — as was happening in Germany in central Europe in the late 19th century, in contrast to England, where banking was much more short-term and mercantile than part of a national development strategy.
What you're having today is essentially a financial oligarchy taking control of politics — just as Socrates warned, as Aristotle described. Their interest is in enacting laws that serve their own search for yet more financial wealth, instead of trying to develop society's production while increasing the standard of living of the labour force and increasing tangible capital investment. The West, led by the United States, is de-industrialising. China is not de-industrialising. The reason for this de-industrialisation is financialisation — instead of having industrial capitalism as all of the classical economists expected in the 19th century, what we have is finance capitalism that creates wealth financially, not industrially. In fact, the financial wealth accumulation, by indebting the economy at large, tends to impoverish it, polarise it, and de-industrialise it, and therefore make it less competitive compared to economies like China that are following basically the same classical economics that Adam Smith, John Stuart Mill, Marx, and the American economists all developed — to prevent a financial oligarchy from writing laws in its own interest at the expense of the industrial and agricultural economy at large.
That's the big picture. The books I've written about antiquity and the feudal period and the transition to modern fiscal states explain all of this, and it's all the same basic principles that come out. You need a central authority to oversee the financial system and make sure that money and credit are created to fund tangible capital investment in the means of production, to provide public infrastructure, to support the basic needs of the labour force. By making healthcare, education, and all sorts of other basic needs — subsidised transportation, subsidised communications — inexpensive, you make your economy less expensive for employers to hire and to make a profit, because the expenses of labour are not simply paid for out of labour's wages but by the public subsidies of all of this that the industrial employer class doesn't have to pay. That was the strategy of industrial capitalism, and that's what classical economics is all about.
That's the main reason the academic curriculum in the United States no longer discusses the history of economic thought — because that thought is the antithesis of Margaret Thatcher, Ronald Reagan, Milton Friedman, and the whole Chicago School of anti-government economics. When you have this broad perspective, you see that what's happening today has happened again and again throughout history, and the dynamic is always the same: how is society going to deal with its debt overhead in a way other than simply having banks create the money to lend to debtors to pay their interest, running up yet more debt that earns yet more interest, that requires yet more loans to keep solvent, and turns the economy into a vast Ponzi scheme?
Glenn Diesen: One should not just look at democracy as putting up the ballot boxes, but rather as preventing this transfer of power to the oligarchy. I want to thank you for taking the time. Do you have any other thoughts?
The dollar, Trump's tribute strategy, and the Persian Gulf crisis
Michael Hudson: We could go another hour. I could go into much greater detail on all of this. What's going to be the future of the dollar? That's something we've talked about. The governments themselves are debtors in this new system. There was basically no government debt in previous times. This is the first time that governments have really run into debt. The post-crusading economies and the takeoff of international banking led governments into debt — not only to their own creditors but to international bankers.
Right now, despite the fact that the United States supports pro-creditor rules for the International Monetary Fund and against its own labour and industry, the debts have to be paid. The government says: well, we don't have to — there's no way that we can pay all of our US government bonds and other debts that we've issued. Why don't you just use these government IOUs as your money? And this money isn't to be actually cashed in for gold — there's nothing really behind it — because we're just spending our balance-of-payments deficits for war spending, for foreign investment. We're just spending it into the economy. It's our dollar but your problem, as Texas Governor John Connally put it right after the United States stopped converting the dollar into gold.
Other countries see this, and so almost all of the growth in international reserves has taken the form of gold, foreign currencies, and even cryptocurrency instead of US government IOUs. The European Union now holds more of its monetary reserves in gold than in US dollars.
How is the United States going to respond to all this? This is where we get into the political dimension. Trump is trying to impose tribute on Europe's economy and other economies by his tax policies — saying: you're going to have to pay for access to the American market, you're going to have to pay heavy tariffs, you're going to have to give us all sorts of give-backs. He has stated that he wants Europe to pay for all of the military costs of the overhead that in the past America has paid, and European fiscal policy is now basically turned into a branch of NATO in terms of its tax policy. The same thing in the Middle East — Trump has said: I want the OPEC countries to pay for all of the cost of our war there.
That's the fight. That's why there's been a breakdown in the oil trade that's leading to probably an international depression by the end of this year. Trump says: we can't let Iran take control of trade in the Strait of Hormuz and charge transit fees. I, Donald Trump, want to take 20% of OPEC's oil trade as a payment for the war that we're paying to defend it. Well, the Persian Gulf countries are now saying: wait a minute, you're not defending us. Because if you attack Iran through us, then Iran's going to attack our oil production and close us down. Your military bases here and the war you're paying for are not protecting us — they've already destroyed a lot of our oil production and stopped our oil trade. This is the impasse you're seeing between the United States and the Persian Gulf countries.
Iran's position is: if the United States blocks our exports of oil, there's not going to be any oil exported from the Persian Gulf. Iran is saying: it's now up to foreign countries — it's up to Europe and Asia, which consume this oil and need it for their own economies — to stop Trump's oil war against us. That's shaping the whole issue now. A lot of this is framed in terms of America's foreign diplomacy: are other countries going to continue to hold their debt in US Treasury bonds and IOUs that fund this war, which has ended up stopping the oil trade and threatening to push Europe and Asia into economic depression as 25% of the world's oil trade, fertiliser trade, helium, and related trade is all cut back? That's the crisis you have today. It's a different kind of crisis — a debt crisis we've had before — but that's basically the context.
Glenn Diesen: As always, thank you so much. It's always educational, and I will recommend that viewers go and look at your website and follow your work — both the written work and the videos you post there, which are excellent.
Michael Hudson: Good to be here. I know what I've been saying is very academic, but that's the only way of providing a historical perspective on all of this, which is what you asked me to do for today.