Our No Trump Contract

At this critical moment in human history it is important to recognize that Trump is in charge of very little. Every President struggles to overcome the basic inertia of large systems, entrenched bureaucracies, and a media and media owners with their own ideas on policy. Even when a President is intelligent and engaged with the information there are severe limits on their ability to exert change. When the President is instead like Trump these limitations become even more restrictive. Imagine him as the card you sluff in a no trump bridge contract when you are short suited and without the lead. A trick the Democrats are trying to turn and the Republicans may allow if the 2018 House races go badly enough.

The important high impact policies being enacted at this time were crafted some time ago by long serving Republican politicians like Paul Ryan and Mitch McConnell. Having a majority in both Houses guarantees these proposals being passed into law. Sure Trump can say yes to firing missiles, and agitate for a travel ban, talk about a wall, tweet at all hours, and that gets a lot of publicity. Deservedly, high wire acts are entertaining after all. These are all however penny ante in terms of their impact.  For the Republicans who are in charge of the high impact bills being passed Trump is a godsend. For one he provides a massive smoke screen that obscures the hard right agenda they are enacting. For another when the grievous harm to the population arising from these policies comes to pass the blame will be deflected on to Trump.  America has after all made quite the art form of blaming individuals instead of systems, Trump just makes the whole process easier and more fool proof.

There is however a financial trap that these Republicans have not anticipated. By passing a massive tax cut in conjunction with raised military spending and Trumps planned infrastructure investments they will explode the deficit. At the same time they are pressuring China to increase the value of their currency which will slow China’s economy. This will in turn force the Chinese government to sell U.S. Treasuries in order to replace shrinking receipts from the economy. This will be occurring at the same time that the U.S. is increasing their sale of U.S. Treasuries in order to finance their enlarged deficit. The resulting glut will necessitate policies like higher interest rates that will plunge the U.S. economy straight back into recession further exacerbating the deficit. With both China and the U.S. economies faltering the world can’t but help follow leading to even more pressure on the U.S. current account deficit and the need to print more Treasuries. Once off to this kind of race no one can tell the landing point.

I’d say that even the Republicans don’t want that were it not for the fact that the 2008 crisis and its aftermath showed that there are no economic activities or outcomes that the Republican and Democrats will not allow as long as they increase the opportunity for personal fortunes. Exhibit A being Clinton allowing the Republican House to repeal the Glass Steagal Act. Exhibit B being that Obama’s department of justice sent no one to jail for the greatest epidemic of financial fraud of our lifetime. Far from disciplining the market institutions he used trillions in public funds to rehabilitate them. Exhibit C being the Republicans recent repeal of the Dodd-Frank Act. The feedback multiplier from these mutually reinforcing factors cannot end well for the majority. The very slight good that might come from this is the further disillusionment of the U.S. electorate. Which one can hope might lead to the election in 2020 of a President with a sufficiently powerful mandate to begin making the very significant changes that this moment in history requires of every country. Most especially the most powerful and wealthiest country in the world

The economic and political world we live in today owes pretty much exactly nothing to Trump. It began with Nixon’s revocation of Bretton Woods. A move he made when the Vietnam war contributed to the end of America’s economic surpluses. The U.S. current account slipping for the first time in the post war era into negative territory in July 1969.  Before this time America presided over the world’s greatest economic boom by recycling its surpluses into the rest of the world economy. The loss of this perpetual current account surplus in combination with ever rising deficits and debt was handled by the U.S. through the ‘Volcker Shock’ in 1979. I.e. The raising of U.S. interest rates to stratospheric heights causing a tsunami of capital to flood to the U.S. From that time on there has been on the order of $5 billion a day flooding from the rest of the world into U.S. banks, U.S. Treasuries, and Wall Street. The U.S. continued to be the manager of the world economy, but now instead of recycling their own surplus they have been recycling the surpluses of the rest of the world. This is the era when America became known as the “Buyer of last resort”.  What this meant is that the U.S. consumer absorbed many of the surplus goods of the world economy while the U.S. government papered over its current account shortfall and deficits with the sale of U.S. Treasuries. The government squared this non-virtuous circle by the constant raising of the U.S. debt ceiling. Currently standing at $20 trillion. No other country in the world can perform this magic trick of turning debt into wealth because no other country in the world can count on a daily flood of foreign capital. Because no other country in the world is the petro-denominated currency of OPEC. Because no other country in the world is the reserve currency for global trade and capital.

The crash of 2008 ended this thirty year period and the financial crisis in Europe was a direct result. With the Democratic control of all three branches of government under Obama there was a chance to pass policies that could face this new reality.  Obama chose to reinflate the U.S. financial system. Piling $4 trillion on to the Federal Reserve’s balance sheet. He also continued to pump tax dollars into U.S. corporations spending more on the military every year than W. Bush did any year. The only positives to be drawn from his policies is that at least he did not cut taxes, and during this period the U.S. current account deficit was halved. For the majority however very little was gained as the U.S. elites accrued 95% of all new wealth. Also with the holes in their balance sheets repaired Wall Street reestablished itself as the recycler of global capital. With all three branches controlled by the Republicans today there is that same chance.The Republicans have seemingly decided that this return to prominence allows them to double down on the very same policies that led to the 2008 debacle.  Like Reagan they are going to explode the deficit through a combination of tax cuts and military spending. Like Bush they are going to ratchet up their military involvement in the Middle East with more troops on the ground and a major increase in military sales to allies like Saudi Arabia. Even the tiny statelet of Qatar was drawn into this game this week promising to pony up $12 billion of scarce public resources to help subsidize American corporations. Presumably to atone for the sin of having backed the Arab Spring and having created Al Jazeera. Finally with the repeal of Dodd-Frank the Republicans have returned the U.S. financial system to the wild west days ushered in during the Clinton’s Presidency.

It is as difficult to imagine Trump penning the above summary of events as it is to believe that he is in control of them. The world has moved from the Bretton Woods era to the Volcker Shock to the 2008 crisis. Given the demands of climate change, pollution, inequality, resource depletion, the refugee crisis, and increasing terrorism, it is critically important that we create a new financial global architecture that allows us to allocate the funds necessary to meeting these challenges. Trump will be no help to this effort. He need not however be much of a hindrance either. The true hindrance is a financial system that has resulted in the greatest savings in the history at the same time as the lowest investment rate in decades. The true hindrance is a global power structure addicted to military spending, military engagements, financial speculation and fossil fuels. On these fronts Trump will if anything be a help by discrediting the current system and heightening our already desperate appetite for a new way forward.

Trump was not responsible for ignoring the message inherent in the limits to growth model created in 1972. Trump was not the one who failed to meet the aspirations set out during the Rio Earth Summit in 1992. Trump did not invade Iraq in 2003. Trump did not refuse to reign in Wall Street after 2008. To return to our bridge metaphor. These are all no Trump failures. The result of which is that we have landed ourselves as a global civilization in need of landing a 7 No Trump contract while missing the ace known as time. Yes Trump is a terrible President. No we can’t count on him delivering even one good trick. All true. But what Trump is not responsible for is our current troubles and despite him they are all tricks we are going to have to land.

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