Economist Michael Hudson explains inflation crisis and Fed’s secretive $4.5 trillion bank bailout



Choo Choo



January 13, 2022



Economist Michael Hudson discusses the global inflation crisis and how the US Federal Reserve quietly (and apparently illegally) bailed out big banks in 2019 with $4.5 trillion of emergency repo loans

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I interviewed economist Michael Hudson to discuss what is causing the global inflation crisis, and also how the US Federal Reserve quietly bailed out big banks in September 2019 with $4.5 trillion of emergency repo loans that appear to have blatantly violated the law.


BENJAMIN NORTON: Hey, everyone. This is Ben Norton, and I’m joined by a friend of the show, one of our favorite guests, Michael Hudson, the economist. His reputation precedes him; many of you probably know him. You can go to and check out his excellent articles and his books.

We had him on a few months ago to talk about the new, third edition of his book “Super Imperialism: The Economic Strategy of American Empire.” And today we’re going to talk about the inflation crisis around the world.

In the US in 2021, there was inflation around 7%, and this has led to a lot of discussion about what is causing the inflation, why there’s inflation.

Professor Hudson has pointed out for many years that inflation in the US and other countries is often measured in a very strange way that doesn’t include housing prices, and it doesn’t include what he calls the FIRE sector: finance, insurance and real estate.

So today we’ll talk about the rising rates of inflation and what corporate media outlets are missing about the story.

But before we begin talking about that, Professor Hudson, another reason I wanted to have you today is to talk about a big story that went viral. It was just published, and it’s on the website Wall Street on Parade. It went so viral that the website actually went down, because it was being shared so much.

This is an article just published at I have it up in the archive because the website is down. And the article is titled, “There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.” And this is by Pam Martens and Russ Martens, published on January 3.

I’ll just briefly summarize the main point, and then I want to get your response, because I think this is obviously part of the discussion around the inflation crisis.

“The Federal Reserve released the names of the banks that had received $4.5 trillion” – that is trillion with a T – “in cumulative loans in the last quarter of 2019 under its emergency repo loan operations for a liquidity crisis that has yet to be credibly explained.”

So Professor Hudson, I’ll ask you in a second to explain what that liquidity crisis was. And they point out that, among the borrowers that received $4.5 trillion in loans from the Fed were JPMorgan Chase, Goldman Sachs, and Citigroup, “three of the Wall Street banks that were at the center of the subprime and derivatives crisis in 2008 that brought down the U.S. economy.”

“That’s blockbuster news. But as of 7 a.m. this morning (January 3), not one major business media outlet has reported the details of the Fed’s big reveal.” And they suspect there are some journalists under gag orders.

And then the other point to add here is that this borrowing was happening in September 2019, and it was actually before the first case of Covid was identified in the United States. They point out that the first Covid case was reported in the U.S. in January, and then the World Health Organization declared a pandemic in March 2020. This massive borrowing spree of $4.5 trillion was happening in September.

So there are a few things you can respond to Professor Hudson. Maybe we can start with, why was the Fed giving trillions of dollars to these large Wall Street banks. And why was there a liquidity crisis? That’s unexplained.

Why did the Fed refused to release the names of these banks? And was there a financial crisis before Covid that the U.S. government later was able to blame on Covid, but it was actually a financial crisis in the making?

MICHAEL HUDSON: There was actually no liquidity crisis whatsoever. And Pam Martens is very clear about that. She points out the reason that the regular newspapers don’t report it is the loans violated every element of the Dodd-Frank laws that were supposed to prevent the Fed from making loans to particular banks that were not part of a liquidity crisis.

In her article, she makes very clear by pointing out these three banks, Chase Manhattan, Goldman Sachs – which used to be a brokerage firm – and Citibank, that the Federal Reserve laws and the Dodd-Frank Act explicitly prevent the Fed from making loans to particular banks.

It can only make loans if there’s a general liquidity crisis. And we know that there wasn’t at that time, because she lists the banks that borrowed money, and there were very few of them.

There were the big three that she mentions. There was also Nomura, that got one-third of the loans in that order that were taken out. I think, on balance, the repo loans were like $20 billion and Nomura got $10 billion of them. And Cantor Fitzgerald was also in there.

Well, what happened, apparently, was that while the Dodd-Frank Act was being rewritten by the Congress, Janet Yellen changed the wording around and she said, “Well, how do we define a general liquidity crisis?” Well, it doesn’t mean what you and I mean by a liquidity crisis, meaning the whole economy is illiquid.

She said, “If five banks need to borrow, then it’s a general liquidity crisis.” Well, the problem, as she points out, is it’s the same three big banks, again and again, and again and again.

And these are not short-term loans. She points out that they were 14-day loans; there were longer loans. And they were rolled over, not overnight loans, not day-to-day loans, not even week-to-week loans. But month after month, the Fed was pumping money into JP Morgan and Citibank and Goldman.

But then she points out that, or at least she told me, that these really weren’t Citibank and Morgan Chase; it was to their trading affiliates. Now this is exactly what Dodd-Frank was supposed to prevent.

Dodd-Frank was supposed to protect the depository institutions by trying to go a little bit to restore the Glass-Steagall Act that Clinton and the Obama thugs that came in to the Obama administration all got rid of.

It was supposed to say, “OK, we’re not going to let banks having their trading facilities, the gambling facilities, on derivatives and just placing bets on the financial markets – we’re not supposed to help the banks out of these problems at all.”

So I think the reason that the newspapers are going quiet on this is the Fed broke the law. And it wants to continue breaking the law.

And that’s why these Wall Street banks fought so hard to get the current head of the Fed reappointed, [Jerome] Powell, because they know that he’s going to do what [Timothy] Geithner did under the Obama administration. He’s loyal to the New York City banks, and he’s willing to sacrifice the economy to help the banks.

Because those are the clients of the New York Fed, the big New York banks. And that’s been the case ever since I was on Wall Street half a [century] ago.

And Pam [Martens] is trying to expose how these banks are crooked, and really what the whole problem was. She points out that the Fed is supposed to make short-term loans, but these are long-term loans.

And the banks are not structurally insolvent. Without them, they would have lost money. The FDIC could have come in and taken them over. And the depositors, the insured depositors, would have been OK, which is just exactly what Sheila Bair, who was head of the Federal Deposit Insurance Corporation, wanted to do under Obama, when she was blocked by Geithner.

She sat with Geithner and Obama, and he said, “Look, I’m backed by the banks; forget the voters. Banks are my campaign contributors.” And he bailed out the banks and sacrificed, pushed the whole economy into what is now a 12-year recession basically, that is not improving at all.

So what is happening now is part of the whole quantitative easing bit that has really been a disaster. And the crisis is the Fed is flooding the financial markets with credit in order to increase real estate prices, to increase mortgage lending, to enable the banks and the 1%, that own the private capital funds and the insurance companies and the banks, to continue making money.

And the reason that that these three banks were bailed out was they had made bad bets against, apparently, insurance companies, and foreign banks. Apparently MetLife, and Prudential, and other insurance companies made bets as to which way the stock market would go, and they won and Chase lost, Citibank lost, and Goldman Sachs lost.

And somebody else must have lost because in September of 2019, when all this was occurring, the overnight rate went up to 10%. Well, that means that someone had really made a bad bet and was technically on paper insolvent, and that nobody would lend to them.

For 10% overnight money, that means that nobody’s going to lend to you. Everybody knows that you’re insolvent. And that was all hushed up at the time. Not a word of it in the paper.

And this is such a touchy subject that, if the banks would begin to – if the newspapers and the media would begin to get into the explanation of how all this developed, that would sort of counter the whole Fed’s strategy, and the whole Democratic Party strategy, which is to support Wall Street, not the economy at large.

BENJAMIN NORTON: And Professor Hudson, what you’re getting at here is that, these banks were engaged in very risky behavior. And essentially all of the indications appear to be that they kind of unleashed a financial crisis in late 2019.

And then with the pandemic, they could conveniently blame it in the pandemic. I’m not saying – obviously, they didn’t cause the pandemic. But I’m saying that it was actually, in some ways, it was actually a savior for them, a life saver, because then they could say, “Oh, well, we didn’t cause a financial crash; it was the pandemic.”

But we actually see signs that, in late 2019, before Covid even arrived in the United States – well, there’s even discussion about that, but before the first official case of Covid was identified in the United States – there was already a financial crisis, apparently, and the Fed was just trying to cover it up.

MICHAEL HUDSON: Well, the problem is that the Fed made sure that it didn’t have to release any of this data for two years, on the theory that after two years, nobody can remember what’s happening and it doesn’t matter anymore; it’s yesterday’s news.

And so the material only just came out now. We’re always going to be two years behind. And if you’re two years behind, then the thieves are going to have plenty of time to cover up what they’ve done, borrow even more money, and it’ll be too late to do anything.

The whole idea is not to make the Fed transparent, to make a wall of secrecy around the Fed, so that it can do with its pet banks, and bail out the banks that most Americans don’t think should have been bailed out by Mr. Obama in 2009, and certainly don’t think that they should be bailed out now, as long as the depositors and the regular companies in the real economy is kept safe.

But the Fed isn’t saving the real economy. It’s saving the gamblers.

BENJAMIN NORTON: And Professor Hudson, there’s an incredible line, an incredible paragraph in this article that I want to get up here, that says a lot about not just the US economic system, but also the media.

The last paragraph of this piece: “Why might such an outcome be a problem for media outlets in New York City? Three of the serially charged banks (JPMorgan Chase, Goldman Sachs and Citigroup) are actually owners of the New York Fed – the regional Fed bank that played the major role in doling out the bailout money in 2008, and again in 2019. The New York Fed and its unlimited ability to electronically print money, are a boon to the New York City economy, which is a boon to advertising revenue at the big New York City-based media outlets.”

I didn’t know – it’s pretty incredible. I knew that, obviously, the Fed is this kind of public-private, complex – whether or not it’s public or private, I know that people say it’s neither and both. So it’s confusing. Maybe you could explain that.

But I didn’t know that JPMorgan Chase, Goldman Sachs, and Citigroup are owners of the New York Fed.

MICHAEL HUDSON: Well, technically the Fed stock – all the banks have to own Federal Reserve stock; so it doesn’t matter that they’re owners. The ownership isn’t all that important for the Fed. Because the Fed is really a government organization. But the problem is that Wall Street has taken over the government.

And it has taken over the Fed not through its ownership; it doesn’t have shares to vote as to who is going to be the head. The heads are appointed in Washington; they’re appointed by Congress.

I talked to Pam [Martens] about that and she said because her site was so overloaded, she couldn’t get on it to write more last night, when it was up. And she has other theories.

I thought that it’s the tail wagging the dog to say, well, look, it’s about advertising. The banks don’t do that much advertising, and nobody is going to kill a whole big story like this for the ads.

And so, when we talked, she said she thinks part of the problem is margin loans. I mean, there are all sorts of problems that could have happened there.

And the banks have been, again, operating if not illegally, then, let’s say, stretching the envelope, by pretending that what really are margin loans to help people buy stock are really disguised, or somehow their lawyers have drawn up these contracts as derivatives contracts.

And a derivative you can lend 50% against, instead of just 15% for margin loans. So the banks actually have been working around the whole spirit of the law to make much larger loans than they should have.

And when the stock market, as you have been watching, back then is doing what it’s doing today; it’s zigzagging, up and down, and up and down in a zigzag. That’s how you make money: Push it up, computerized buying; push it down, computerized selling.

And one part of it was other banks venturing not only into derivatives but into the margin loans.

I don’t think the ownership can control management. It’s not that Citibank and Chase can say, “Well, we own the majority stock in the Fed, so we’re just going to appoint one of our own guys as manager.”

They don’t have to. They’ll give money to the Biden administration, and Biden will appoint their people.

So the Fed is really controlled by the government, and all you have to do is give a campaign contribution to the government, and you get whatever you want.

And I think Pam [Martens] would agree with that analysis. So that really should be the emphasis, not the banks, not that the New York Times is after more advertising money from Chase.

I think there is more bank advertising on television than there is in the newspapers.

And also, I think the the older reporters that used to know how to read a financial balance sheet, they’re all retired or they’re not working anymore.

Or if they get too close, too embarrassing, and write columns like Pam [Martens] does, all of a sudden, they’re not working for the same organization anymore.

So I think people just don’t understand what a repo is, how it’s connected to the money supply – and it isn’t – how it’s connected to quantitative easing. There is just a general economic illiteracy.

Because if you get an economics degree in academia, they don’t talk about money, or debt, or credit. None of this appears. None of this is in your money in banking course. It’s all sort of a Mickey Mouse

Walt Disney Happy World, where nothing like this occurs.

And so how is a reporter going to know how to do the research that Pam goes into year after year? Taking apart all these balance sheets and doing all the analysis you have to do to net out what’s actually happening from the whey.

When IBM was fighting an antitrust suit – this must have been 50 years ago – and the government wanted some information from it, IBM through, “We’ve got to give the government information. What are we going to do?”

So it gave two huge storerooms of hard printout of information that would have taken five years to go through.

Well that’s what the Fed did with these statistics. It gave such a mass of information that you had – it was like looking for a needle in a haystack in order to find it.

And as newspapers have been run more like profit-making companies, they have cut the costs. They don’t have the time to do the research to find the needle in the haystack.

And since Pam [Martens] doesn’t work for a newspaper that’s under that cost constraint, she knows just what she’s looking for and goes right to it.

BENJAMIN NORTON: And Professor Hudson, let’s talk about the inflation crisis and if this is related to it.

We we had you on in early 2020 to talk about the CARES Act, and the so-called bailout, that was, as you said, basically a multi-trillion-dollar giveaway to the financial sector.

And I believe that’s an addition to the $4.5 billion in the repo loans that we’re talking about.

MICHAEL HUDSON: Yeah, that wasn’t the Federal Reserve; that was Treasury spending, not the Federal Reserve. They’re completely separate.

BENJAMIN NORTON: Exactly. So we’re talking about over $10 trillion, between the two, over $10 trillion that went to the financial sector in the span of less than a year, in six months or so, from late 2019 to early 2020.

Do you think that that is one of the main reasons for the inflation?

I want to preface by saying that a point that you often stress, which I think is important to keep in mind, is that, the way inflation is measured frequently, at least in the United States, is that it doesn’t include things like the housing sector.

And you have often pointed out for years that there has been a lot of inflation over the past several years in the FIRE sector. And real estate prices are a clear example of that. But that’s not considered the consumer price index.

So go ahead.

MICHAEL HUDSON: It actually is included, but in a very moderate way, modest way. I’ve looked at the Fed statistics on rent as a portion of income and mortgage payments as a portion of income. And in the last 30 years, there’s been zero change, according to these statistics. Absolutely flat.

So they decided what the percentage was; they haven’t changed it at all. The consumer price index doesn’t recognize the increase in either rental costs or mortgage costs as housing prices have risen. So they’re under-reported.

But more important, people have had to change what they’re eating and what they’re buying.

But it’s certain, the money that the Fed gave to individual families under the CARES Act, almost all of that was used to pay down debt.

Because the way the Treasury made the payments was to credit either their credit cards or their bank accounts. And that most Americans are overdrawn on their bank accounts, or they owe money on their credit cards.

And the money went right out of their hands to reduce the volume of debt they had. And essentially, it was a debt rep…

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