[S10 E26] New
On this week's show, Prof. Wolff presents updates on "zombie" companies and their rapid growth in the US, The Federal Reserve "stress tests" expose risks, and weaknesses of major US banks. On the second half of the show, Prof. Wolff is joined by Greek economist, academic, philosopher and politician, Yanis Varoufakis on DiEM25, Europe's new internationalist left.
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Transcript has been edited for clarity.
Welcome friends to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives: debts, jobs, incomes, our own, and our children. And I’m your host, Richard Wolff.
I want to begin by a brief apology for the heavy information I’m about to present to you. It’s about the American economy and the news there is not good, but I assume you want to know what the truth is and that’s what I’m going to try to present.
So the first topic for today are something called “zombie corporations” or “zombie companies”. I didn’t make that up. That’s now a phrase used in the financial press. Here’s what a zombie company is: It’s a company that doesn’t make enough profit to pay the interest on its accumulated debt. The way it works is this: If a company has had at least three years, the past three years, during which the profits it earned were not enough to pay off its debts, we call it—that is the financial press calls it—a “zombie company”. It means that company is in such trouble that not only does it not make the kind of profit it needs, but the profit isn’t enough to pay off the debts. Well, then how do they pay off their debts? The answer is by borrowing more, which means you’re in a kind of a death spiral as a company, your situation is getting worse, you’re hoping for a miracle and that’s why you’re called a “zombie corporation”. I want to tell you about the growth of the zombie corporate sector in the United States. Recent companies that have been zombies are JCPenney, “small company”, you may have heard of it, is now in formal bankruptcy, which is where zombie-like companies often end up. Another one is AMC, that is the largest movie theater chain in the United States is now a zombie company on the way to bankruptcy. Today one in five traded companies, that is companies whose shares are traded in stock markets, is a zombie. That is double the number in 2013. So in less than seven years we have doubled the number of zombie companies in our society. In the first quarter of 2020—January, February, and March—businesses took on—get ready—another $3 trillion dollars in new debt, which is ten times the amount of extra credit they took on the previous quarter, that’s the last quarter of 2019. Debt is spiraling out of control. The number of corporations rated triple-C by the rating agencies, which is a company in deep trouble, is now, as of May 31st, 256. That’s an all-time high in the history. Here’s what this means to get you to understand it: It is no longer for most American large corporations a matter of making profits, that’s not how they survive, this is not anymore profit driven capitalism. Well, what is it then? It is debt-driven capitalism: What keeps the companies going is their ability to borrow money. That’s how they survive. Otherwise, if they relied on the profit they earned, they couldn’t pay their debts and they would then have to declare bankruptcy, which, of course, is what it actually is. Now you can understand why the Federal Reserve announced a couple of weeks ago that it is going to be regularly buying the bonds issued by corporations to raise borrowed money. So it’s not just that the zombies are no longer profit-driven, but credit-driven. But the credit, the borrowing is ultimately coming from the government. There is no more private enterprise. It’s all public now. Think about it. As these companies sink deeper and deeper into debt and to the dependency that debt puts a company on its creditors with or without government banking, which also cannot last forever.
The second topic has to do with our banking sector. The Federal Reserve completed on June 28th stress tests: 33 major U.S. banks and foreign subsidiaries in the U.S. of foreign major banks were tested to see if they could survive the kind of economic downturn—ughm—that we’re going through now. Could they? Would they? So shocking was the Federal Reserve’s finding, even though they said, “Well, the banks have reserves. They could cover problems,” which, by the way, they said, “could be as big as $700 billion dollars.” They could probably cover them, but the great fear is if the bank doesn’t have enough reserves to cover losses it would then have to dip into the money other people had deposited in the bank to take care of their obligations, which would mean the depositors would be at risk. Uh-oh. We all know where that can go, or we should. Banks can still panic and then the government would have to bail them out, you know, like it did in 2008. And that’s more evidence of system that isn’t working. Well, the Federal Reserve was shocked. So they said to the banks, “You are, therefore, forbidden to use any of your profits to repurchase your shares in the market.” That is something companies love to do so then they don’t have to pay out as much in dividends, because they own their own shares—they’re paying the money to themselves. And the Federal Reserve went further: They’re not allowed to raise their dividends to take their profits and give it to their shareholders. They’re not allowed to raise it. One member of the Federal Reserve Board of Governors, Lael Brainard, she said, “They shouldn’t be allowed to pay dividends at all. They should put that profits that they earned into the reserves they need to cover bank failures.” You know, when corporations can’t pay back, because the zombies have become bankrupt and therefore don’t pay anything back anymore. The Federal Reserve said the crucial thing is to preserve capital to have enough money that the bank itself owns, not its depositors money, their own money that banks profits accumulated to be able to cover losses, to make up for all those companies that can’t pay back. That’s where the bankers are these days—full of agony and anxiety that they don’t have enough so that one of the members of the Federal Reserve Madame Brainard says, “You shouldn’t be paying any dividends,” which most large banks are doing these days, “You should stop, preserve the capital so you can come to save the system from collapse.” So it’s not just the corporations that are becoming more and more “zombified”, but it’s also the banks they go to for borrowing that are becoming more and more stressed with insufficient, or the risk of insufficient, preserved capital to cover. If you have a corporate sector that is becoming “zombified” and banks without enough backstopping of their own capital to cover the failing corporations, you are in the late stages of economic disintegration. The next time someone tells you that the American economy is doing great again, it’s not just tens of millions of unemployed—that’s bad enough—it’s what I’ve just told you as well.
We’ve come to the end of the first part of today’s show. Please remember to subscribe to our YouTube channel. Follow us on Facebook, Twitter, and Instagram, and be sure to visit democracyatwork.info to learn more about Democracy at Work shows, our union co-op store and the two books we’ve recently published: “Understanding Marxism” and “Understanding Socialism”. And lastly, a special thanks to our Patreon community whose invaluable support helps make this show possible. Stay tuned with us. We’ll be right back with our guest Yanis Varoufakis.
Welcome back, friends, to the second portion of today’s Economic Update. It is my great pleasure to welcome to this audience, both our radio and television audience, Yanis Varoufakis. He’s been a friend of mine and someone I’ve worked with on and off for years. He probably needs no introduction, but just in case I’m going to give him one anyway. Yanis, like me, was an economics professor for many years at universities around the world. In 2015, he was named the Finance Minister in the new Greek Syriza government, but when the leader of that government, Mr. Tsipras, did not pursue the results of the referendum against austerity imposed by Europe, Yanis resigned and he founded shortly later the Democracy in Europe Movement 2025. DiEM25 is a Pan-European movement against austerity, initially, I would suspect, the austerity of 2008 and now expanding to the austerity that is underway now. In 2018, it gave birth to a number of parties around Europe one of which, in Greece, was able in 2019 to win nine seats in the Greek parliament, if I’m understanding correctly, and Yanis is the general secretary of the Greek party that is part of this effort. Yanis has authored many books including “Talking to My Daughter about the Economy” subtitled Economics Made Easy, and “The Global Minotaur”, which was an important book for me when I read through it. His forthcoming new book available this coming fall is “Another Now”. It’s a science fiction and realistic utopia about a world in which the 2008 crisis was solved in a different way.
WOLFF: For all of you, it’s a pleasure for me to welcome Yanis to our microphones and our cameras. Welcome.
VAROUFAKIS: Thank you, Rick. It’s a great pleasure, honor, privilege to be here with you.
WOLFF: Okay. Let me start with a big question: Why did you and the others with you form this new DiEM25 movement and tell us a little bit about how the pandemic and the current crash have influenced its development?
VAROUFAKIS: In 2015, it was clear that an almighty class war was raging across Europe. On the one hand, we had the bankers, the financial sector that, just like in the United States and across the West, were bailed out by the little people and, on the other hand, you had the little people. The class war in Europe is—believe it or not—even fiercer than it is in the United States, maybe more known, but fiercer. Because unlike in the United States, we don’t have the instruments of the federal government to ameliorate some of the great wounds inflicted upon the population. So it became abundantly clear to those of us who were on the defeated side in the summer of 2015. We had a five-month insurrection here in Greece, we had a fantastic opportunity to change Europe. Unfortunately, our own sides, our own government was divided. My prime minister, as you put it, surrendered. And the rest of us left in tatters emotionally in every way. It was clear to us that we had been crushed by this alliance of oligarchs and finances. Since 2008 we’ve seen in the world all over, the bankers and the fascists are very good at uniting transnationally across frontiers, unless we do the same thing, at least within Europe, there is no chance that any nation state-based movement can defeat them. So we decided to do that, which the bankers did, to unite across borders to create a transnational force and to confront of class with the establishment in every country, in every village, in every region across Europe in our own communities. How did COVID-19 change that? Well, what it did was that, you see, there is all this debate about, you know, comparing and contrasting the 2020 crisis with 2008, as far as we’re concerned, as far as I’m concerned, it’s the same crisis. What COVID-19 did was to prick the huge bubble of liquidity that was produced by the mountain ranges of money that the central bank’s produced, some defying the corporate sector, creating an even greater degree of inequality as the asset prices were rising and investment in good quality jobs and in the green transition tanked. COVID-19 just deflated very quickly this huge bubble. In 2008 was a bubble in the financial sector. Today’s is the hole the of corporate sector, the hole of corporate capitalism is deflating as we speak. And the part that we hear in Europe, and I’m sure the United States as well, not wasting this fantastic opportunity for them to intensify the class war against the weak. It’s happening here in a pretty sorted way and we have to unite the peoples across Europe who are being divided by a north-south divide, which is completely disorientating. We have to unites as German workers, the Greek workers, the Spanish workers against the enemies who are very very united—they are solid as a rock.
WOLFF: Okay. Let me ask you derivative questions, if I could, and I’m going to put two of them together. The first is whether European unification has been accelerated/undermined? How has the project of a unified Europe been affected by all that has happened now and does the turn here in the United States towards a more nationalist economic policy under Trump, how does that affect both what’s go with European unification and the oppositional politics of your group?
VAROUFAKIS: Well, European capitalism has always been highly intertwined with American capitalism from the beginning. I keep telling my fellow Europeans—they don’t like hearing this—that the European Union was an American project of the New Dealers after the end of the Second World War. Of course, there was a great thirst in Europe for peace and unity, but the design of the European Union was very much an American affair. But let me answer your question directly. What has these recent crises and the crisis of the eurozone, in particular, from 2010 onwards is mislabeled as a debt crisis, but it’s not a debt crisis, it’s a systemic-run crisis in the European Union, especially the monetary area, the eurozone. That crisis, that began 2010 and which is now accelerating, is devastating the unification process. Europe is another at an advanced stage of disintegration. And every new initiative that you hear being triumphantly presented in Brussels and elsewhere is another nail in the coffin of unification. There is a lot of confusion, because even some progressives have been cubed into believing that some of the pronouncements, for instance, a large recovery fund involving a degree of common debt that is going to redistribute monies to the poorer nations of the eurozone, and it sounds like a Hamiltonian moment, it sounds like a moment of unification. But if you look carefully at the details, it is, unfortunately, precisely the opposite. And Donald Trump has been magnificent in, of course, a negative way taking advantage of Europe’s disintegration. And you know, strategically defeating Mrs. Merkel, Mr. Macron at every turn.
WOLFF: And do you take seriously that the United States is now going to become nationalist in its economics as opposed to globalist? Is this an argument that makes sense to you?
VAROUFAKIS: But in the slightest. There is a profound change in strategy. The question… Look, you will remember Henry Kissinger asking the poignant question around 1970 in one of the meetings of his inner circle, when he was still at the National Security Council before he became Secretary of State remember, he asked people like Paul Volcker and others who were in his inner circle at the time under Richard Nixon, “How do we maintain our hegemony now that America is no longer a surplus country and we have shifted from a trade surplus to a large trade deficit?” That was the question back then: How does the United States capitalist class had attained global hegemony? This is the same question now. And Trump has an answer—he’s had it since before he was re-elected. The way I understand it is this: From the 1940s onwards through different means, whether it was Bretton Woods or the financialization, multilateralism was the way in which the United States hegemony was being propagated. But you know, the Trump people are not as dumb as the Democrats like to portray them. They see that the share of global income that ends up in the United States is shrinking, has been shrinking for a very long time. So Henry Kissinger’s question has resurfaced. “How do we maintain our hegemony,” they ask, “given that now we may go below 10% of global GDP?” And Trump’s answer and the people around him—he’s a very interesting man, a very dangerous one, but very interesting one—he sees the world like a bicycle wheel, and the way to answer the question of how hegemony, U.S. hegemony, capitalist hegemony would be maintained is to treat the United States or turn the United States into the hub of the wheel and treat every other country like Germany, France, Britain, Japan, even China, as a spoke of the bicycle wheel. The hub is always going to be more powerful and have more bargaining power in relation to each one of the spokes. So destroy a multilateralism, the World Trade Organization, the G20, even the IMF or the World Bank, and place America First, turn it into the hub of the wheel, while at the same time retreating from the various wars that multilateralism required. This is my understanding of what Trump is all about, and not just Trump—Trump the frontman—this section of the American ruling class. This is not a retreat from globalism, is a way of maintaining hegemony, while the United States share of global GDP shrinking.
WOLFF: Tell me, Yanis, why in organizing your Democracy in Europe Movement you did not, you know, join forces with socialist, communist, anti-capitalist existing political organizations or, if my question is wrong, have you in fact joined? What’s your relationship to the traditional left in Europe?
VAROUFAKIS: A very friendly one. We wanted DiEM25 to be a broad church of Marxists, ecologists, traditional left-wingers, even some progressive liberals who, you know, reject the idea of huge tax-financed bailouts for the bankers. And in the first, almost couple of years of our existence, we didn’t even plan to enter the electoral system to, you know, to field candidates in elections. Our dream was to become the infrastructure that other existing progressive forces would use in order to come together and create that which they lack—a common program. Because, you see, the Troika—the bankers, the financiers, the Central Bank, the European Commission—they have a common plan. They have a toxic class war-based austerity-driven plan. The bankers have a plan. Only Progressives don’t have a plan. And we wanted to create, we called it “The Green New Deal for Europe” back then, before the Green New Deal was even fashionable in America or elsewhere. And we tried to bring them around the table to agree on a common program, because unity is not enough. You need unity and coherence. You need to be able to tell the same story when journalists asked the questions: “How are you going to fund the green transition? Where will investment come to create good quality jobs? What are you going to do with non-performing loans and home requisitions?” You have to have one answer in Germany, in Spain, in Greece, in Italy. Because, you know, our opponents do have a single answer: It’s, you know, liquidation, liquidation, liquidation of the working class, of small holders and so on. And we managed to do it, you know, we did bring them around the table, not all of them, but a lot of them: People from Podemos in Spain, DIE LINKE in Germany, members of the Communist Party in France and so on and so forth. And, you know, we put together a pretty convincing and comprehensive plan—The Green New Deal for Europe. But then we realized that those that worked with us to produce it, were not willing to take it back to their own parties and fight for that program to be the program with which we run across Europe. Why? Because of factionalism. In the end, we realized that nation state-based parties, even when, you know, those of our friends, Progressives and so on, in the end, are bureaucratic machines. And they prefer to not rock the boat within their organization than adopt a common program across Europe. We despaired when we realized that and we despaired because, you know, without coherence, without a coherent message across the continent we will be decimated. Take the European Party of the Left, which is a kind of confederacy of the Progressive left-wing forces across Europe. It contained Tsipras who had buckled to the establishment and was imposing the worst austerity in the world in Greece. It contained Jean-Luc Mélenchon in France who was proposing the exit of France from the eurozone—that is a completely different point of view. In the same party in Germany, our comrades in DIE LINKE, you had anti-European central Europeans. So effectively, you know, they were all running together in the European Parliament elections. But the differences between were so gigantic that it was impossible to have a common policy agenda. And, you know, I really can’t run in elections supporting, you know, a confederacy, whose differences are so gigantic that the only thing that they can have in common is platitudes. So we decided: “Okay. Well, we will do what we believe in.” We created this Green New Deal for Europe all together. And we’re going to run with it. And of course, it was somewhat futile, because we had no money and we run in different countries with no money, and no organization, and no media coverage. Still, we’ve got one and a half million votes. We elected some MPs in Greece and we are maintaining the struggle.
WOLFF: All right, Yanis. We have very little time left. Tell me: What would you say to an American audience, which is much of what we have, about the possibilities of those who agree with what you’re saying here in the United States to collaborate in some ongoing way?
VAROUFAKIS: Well, we owe a great deal of gratitude to Bernie Sanders (I-Vt.) for having fired up Democratic Socialism in the United States. That movement, together with our movement, together with emergent movements in Africa, in Asia, we need to join forces in the context of the Progressive International. Because, unless we do that, we are going to become the victims and the losers of history again, and again, and again. It is about time Progressives in the United States reach out to us, we reached out to you, all of us reach out to the Asians, to the Nigerians, to the Indians, to the Chinese, to the students in Hong Kong to produce and forge an Internationale for the first time really, because we had them before, but they were confederacies we can’t afford to have another Confederacy. We need to have one program for the planet. We have to have one Internationalist New Deal, Green New Deal for the planet and its people.
WOLFF: Yanis Varoufakis, thank you very much for your time and for all the work you do. It is an honor for me to be connected to you and I hope that our audiences both here in the United States and around the world think carefully about all you have said today. Thank you again.
Transcript by Aleh Haiko
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