In this episode of The Hudson Report, we speak with Michael Hudson about the implications of the flattening yield curve, the possibility of another global financial crisis, and public banking as an alternative to the current system.
‘The Hudson Report’ is a Left Out weekly series with the legendary economist Michael Hudson. Every week, we look at an economic issue that is either being ignored—or hotly debated—in the press that week.
Paul Sliker: Michael Hudson welcome back to another episode of The Hudson Report.
Michael Hudson:It’s good to be here again.
Paul Sliker: So, Michael, over the past few months the IMF has been sending warning signals about the state of the global economy. There are a bunch of different macroeconomic developments that signal we could be entering into another crisis or recession in the near future. One of those elements is the yield curve, which shows the difference between short-term and long-term borrowing rates. Investors and financial pundits of all sorts are concerned about this, because since 1950 every time the yield curve has flattened, the economy has tanked shortly thereafter.
Can you explain what the yield curve signifies, and if all these signals I just mentioned are forecasting another economic crisis?
Michael Hudson: Normally, borrowers have to pay only a low rate of interest for a short-term loan. If you take a longer-term loan, you have to pay a higher rate. The longest term loans are for mortgages, which have the highest rate. Even for large corporations, the longer you borrow – that is, the later you repay – the pretense is that the risk is much higher. Therefore, you have to pay a higher rate on the pretense that the interest-rate premium is compensation for risk. Banks and the wealthy get to borrow at lower rates.
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