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<DIV style="FONT: 10pt arial">----- Original Message -----
<DIV style="BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A
title=davidjohnson1451@comcast.net
href="mailto:davidjohnson1451@comcast.net">David Johnson</A> </DIV>
<DIV><B>To:</B> <A title=davidjohnson1451@comcast.net
href="mailto:davidjohnson1451@comcast.net">David Johnson</A> </DIV>
<DIV><B>Sent:</B> Tuesday, April 23, 2013 5:17 PM</DIV>
<DIV><B>Subject:</B> Economist Michael Hudson on the phoney Social Security
problem</DIV></DIV>
<DIV><BR></DIV>
<DIV><FONT face=Arial><FONT size=4 face="Times New Roman"><STRONG>Now joining us
to talk about all of this is Michael Hudson. He’s a distinguished research
professor of economics at the University of Missouri-Kansas City. His two newest
books are </STRONG></FONT><A title="The Bubble and Beyond"
href="http://michael-hudson.com/2012/07/the-bubble-and-beyond/"
jQuery17101566638660459761="16"><FONT size=4 face="Times New Roman"><STRONG>The
Bubble and Beyond</STRONG></FONT></A><FONT size=4
face="Times New Roman"><STRONG> and </STRONG></FONT><A
title="Finance Capitalism and Its Discontents"
href="http://michael-hudson.com/2012/12/finance-capitalism-and-its-discontents/"
jQuery17101566638660459761="17"><FONT size=4
face="Times New Roman"><STRONG>Finance Capitalism and Its
Discontents</STRONG></FONT></A><FONT size=4 face="Times New Roman"><STRONG>.
Thanks very much for joining us, Michael.</STRONG></FONT>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>MICHAEL HUDSON, RESEARCH
PROF., UMKC: Thank you, Paul.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: So first of all let’s
start with the New York Times quote, where they give a fairly apocalyptic sense
of where we’re heading in terms of debt and Social Security and Medicare,
Medicaid not being able to be paid for. What do you make of
that?</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: It reminds me of The
Hound of the Baskervilles, where Sherlock Holmes said the important thing is
that the dog didn’t bark. When the government printed $13 trillion to give to
the banks after the 2008 breakdown, nobody complained at all about the fact that
the government can simply print the money and pour it into the economy. Nobody
is complaining about the increased war spending that we’re doing, the waste that
the Pentagon itself is complaining to congress about.<BR><BR>Why is it that
these complaints focus on one particular small part of the budget, Social
Security and medical care and health care? And the reason is this is pure, naked
class war. There’s no other word for it. You can’t believe that people are being
honest when they don’t talk about the whole budget or the overall economy when
they’re single-mindedly tunnel-visioned, focused only on how do we pay retirees
less, so that we can give the bankers more when President Obama continues the
bank deregulation he’s sponsoring. The idea is to cut back Social Security in
order to gear up for the next big bank bailout that’s going to result from
current policies.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: So what do you make of
the prediction that deficit spending will lead to interest on the debt becoming
four times what it is now? Isn’t that some kind of danger?</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: Not necessarily, for
a number of reasons that the Obama administration is doing its best to obscure.
First of all, when advocates of cutting back Social Security lobbyists use scare
tactics to talk about the debt, they talk about a $16 trillion super-total. But
of this, about $4 trillion, is owed by the government to the Federal Reserve,
and another $2.5 trillion is owed to the Social Security fund. So for the $6.5
trillion the government pays interest to itself. This interest credit is a
bookkeeping accounting fiction. This is not really paying a penny interest than
the government receives as revenue on another part of its budget. It is not
paying interest to bondholders or into the economy. When people start by talking
about $16 trillion, you know that they’re not being honest.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: Is the argument they
would give that when the Fed gives money to the banks, as you were talking about
in the bailout, they do eventually get paid back, don’t they? And in a sense it
doesn’t create more debt. That’s the argument they give, whereas these payments
on Social Security ...</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: That brings up the
second point I want to make. Every government’s debt tends to grow steadily over
time. The Federal Reserve has rarely reduced its debt to the United States
Government apart from the World War I and II debt. The debt it holds does not
involve banks, you’re quite right. The Federal Reserve and the Treasury can
simply create money on their own computer keyboards, just like banks can do
electronically. It doesn’t cost a penny for them to create the money to pay
Social Security recipients. They could simply print greenbacks, to make a long
story short.<BR><BR>The debt is never paid back, but becomes in effect part of
the money supply. Over two hundred years ago, already in 1776, Adam Smith wrote
that no government ever has repaid its debt. So the debt doesn’t have to be
repaid. It’s not like a private-sector account book where, if you run into debt,
you have to keep paying the banks more on your credit card and your bank loan.
This is zero-interest money. You’ve had Bill Black and my other University of
Missouri-Kansas City colleagues on your show explaining this.<BR><BR>When people
refuse to acknowledge what universities teach in their money and banking
courses, you know that they’re pulling a con job on you.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: There’s two sides to
this. There’s the side of the money the Fed just simply creates. And then
there’s the part where the government borrows money from outside sources. They
borrow money by selling T-bills. At the moment this borrowed money is costing
the government practically nothing, but that could change at a
point.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: It could, in which
case there would probably be a shift away from borrowing from the public to
simply monetizing it, which is what the U.S. government has always done in a
pinch, as have the British government and the Chinese government. Any government
that has a central bank has the option of doing that. So this to pretend that
the debts to the banks and the bondholders are the whole thing just avoids
looking at the real overall budget situation.<BR><BR>But to pick up your point,
it also assumes that, “Okay, we’re going to be paying the rich much more
interest.” Remember, the bondholders – the 1% – own maybe 75 percent of all the
bonds. So if the government pays them a lot more interest and doesn’t tax them
more, this is a pure giveaway to the 1%.<BR><BR>So what they’re really saying,
The New York Times and the others, is that we’re running a probability of giving
a huge amount of money to the wealthiest 1% in the future. In case we indeed do
have to pay them more, we have to screw the Social Security recipients, screw
the Medicare recipients, screw Medicaid. We have to squeeze the 99 percent more
to pay higher interest to the 1% that are the bondholders.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: Now, President Obama in
this budget proposal wants to raise taxes on the wealthy, he says. Anyone over
making more than $1 million he wants to pay, I think, a minimum of 30 percent
tax. Is that something?</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: Yes. It’s a fraud.
It’s doubletalk. Rich people don’t make income if they help it. To paraphrase
Leona Helmsley, income is for the little people. Rich people make capital
gains.<BR><BR>So they fill out your tax returns, they don’t say that they’re
earning income. They report capital gains, taxed at a much lower rate. So what
Obama is doing is flimflam. The Congressional Budget Office has shown that the
wealthy people get most of their rise in net worth by capital gains, not income.
He’s not making a peep about that.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: The other argument I
guess you hear from Obama supporters is that he’s dealing with a
Republican-controlled House. I think the New York Times headline of the coverage
of this was President Obama’s budget meant to engage the Republicans. So this is
more about the politics than about the economics.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: When they say “engage
the Republicans,” this means that Mr. Obama realizes that as a follower of
Rubinomics – Robert Rubin at Citibank – that he’s going to do something that
most Democrats don’t like, He’s advocating a policy that most voters don’t like.
So he’s trying to blame it on the Republicans. He’s “engaging” them simply in
order to put the blame on them.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: Just quickly dig into
this CPI chained cost of living. Why are people criticizing this, and what does
it mean?</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: It’s not really a
cost of living index. It’s a “cost of lower living standards” index. Yves Smith
calls it the catfood index.<BR><BR>Here’s what it does. Suppose that you have to
switch away from eating steak or eating meat or eating fish to eating canned
tuna fish or canned beans. That’s considered a price reduction.<BR><BR>If the
chained index is done “properly,” anti-labor economists can cut Social Security
by 50 percent. Here’s how. If people stop taking cabs and begin to take buses,
that’s considered a lower cost of living. Well, what if they buy a bicycle? All
Obama has to say is, “Look, folks! If you really want to save money, get a
bike.” That’s what Margaret Thatcher said. That was one of her campaign slogans:
“Get a bike!” So all of a sudden, the transportation in the cost of living goes
down to zero. </STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>People pay between 25 percent
and 40 percent of their income on rent. Let them live out on the street. Let
them live in a homeless shelter [crosstalk]</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: Because the point of
this chained ….</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: … about 15 percent of
their income is spent on medical care. Let them do what George Bush said: Go to
the emergency ward. That’s free. So the cost of living goes down!<BR><BR>If
living standards are ground down and down because people are poor, then the
government can say, “Because you’re getting poorer and poorer, your living
standards have declined, so we don’t have to pay you so much to live.” This is
no longer a price index. This is an index of declining living standards. Poverty
will cascade downward, and so will the chained CPI. This gives new means to the
working class being put in chains.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: And that’s because the
concept behind this chained CPI is that people are finding cheaper ways to do
things, ways that supposedly are not being reflected in the current
system.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON: That’s right. People
are having to walk to work instead of taking buses. They’re having to eat tuna
fish and canned beans instead of buying fresh food on the table. Of course
they’re finding cheaper ways. We call that declining living
standards.<BR><BR>The starting point for Obama’s budget “reform” is to find the
path of least resistance in screwing Social Security recipients, how can we pay
them less to pay our campaign contributors, the 1%, more? They start by putting
the class war back in business. They sugar-coat it by calling it a price index
instead of a catfood index or declining living standards index. This is the
politics of deception.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: All right. Thanks for
joining us, Michael.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>HUDSON:
Okay.</STRONG></FONT></P>
<P style="FONT-SIZE: x-small"><FONT size=4><STRONG>JAY: And thank you for
joining us on The Real News Network.
</STRONG></FONT></P></FONT></DIV></BODY></HTML>