Dr. Jack Rasmus
Copyright 2018

What’s going on with Trump’s trade offensive? There’s a dual track policy underway: One a phony trade war with US allies; the other a potential (but not yet) trade war with China, that may also in the end prove less than a bonafide ‘trade war’ as well.

Trump’s trade team heads off to Beijing this week to attempt to negotiate terms of a new US-China trade deal. The US decision whether to continue the exemptions on Steel and Aluminum tariffs with the European Union occurs comes due this week as well. And this past week Trump also declared “we’re doing very nicely with NAFTA”.

So what’s all the talk about a Trump ‘trade war’? Is it media hype? Typical Trump hyperbole? Is there really a trade war in the making? Indeed, was there ever? And how much of it is really about reducing the US global trade deficit—and how much about the resurrection of Trump’s ‘economic nationalism’ theme for the consumption of his domestic political base in an election year?

One thing for certain, what’s underway is not a ‘trade war’.

Trump announced his 25% steel and 10% aluminum tariffs in early March, getting the attention of the US press with his typical Trump bombast, off-the-wall tweets and extremist statements. The steel-aluminum tariffs were originally to apply worldwide. But the exemptions began almost immediately. In fact, all US major trading partners were quickly suspended from the tariffs—except for China.

By mid-March, Canada and Mexico were let off the tariff hook, even though they were among the top four largest steel importers to the US, with Canada largest and Mexico fourth largest. Thereafter, Brazil (second largest steel importer), Germany, and others steel importers were exempted as well. And Canada, by far the largest aluminum importer to the US, accounting for 43% of US aluminum imports, was exempted for imports of that product.

South Korea ‘Softball’ Trade Template

The Trump administration’s signal to its allies was the US-South Korea deal that soon followed. The South Koreans were pitched a ‘softball’ trade deal. South Korea, the third largest US steel importer last year, was exempted from steel tariffs, now permanently as part of the final deal. So much for steel tariffs. Moreover, no other significant tariffs were imposed on South Korea as part of the bilateral treaty revisions. No wonder the South Koreans were described as ‘ecstatic’ about the deal.

What the US got in the quickly renegotiated US-South Korea free trade deal was more access for US auto makers into Korea’s auto markets. And quotas on Korean truck imports into the US. Korean auto companies, Kia and Hyundai, had already made significant inroads to the US auto market. US auto makers have become dependent on US truck sales to stay afloat; they didn’t want Korean to challenge them in the truck market as well. Except for these auto agreements, there were no major tariffs or other obstructions to South Korea imports to the US. Not surprising, the South Koreans were ecstatic they got off so easily in the negotiations. Clearly, the US-South Korea deal had nothing to do with Steel or Aluminum. If anything, it was a token adjustment of US-Korea auto trade and little more.

So the Korean deal was a ‘big nothing’ trade renegotiation. And so far as US trade deficits are concerned, steel-aluminum imports are insignificant. Steel-aluminum tariffs do nothing for the US global trade deficit. US steel and aluminum imports combined make up only $47 billion—a fraction of total US imports of $2.36 trillion in 2017.

The steel-aluminum tariffs were more of a Trump publicity tactic, to get the attention of the media and US trade allies. And if the tariffs were the signal, then the South Korea deal is now the template. It’s not about steel or aluminum tariffs. But you wouldn’t know that if you listened to Trump’s speech in Pennsylvania. Canada and Mexico import more steel to the US than South Korea. But in a final NAFTA revision they too will be virtually exempted from steel-aluminum tariffs when those negotiations are completed.

NAFTA as South Korea Redux

According to reports of the NAFTA negotiations, most details have already been negotiated with Mexico and Canada and the parties are close to a final deal. Typical of the ‘softball’ US approach with NAFTA—like South Korea—is the US recent dropping of its key demand that half the value of US autos and parts imported to the US be made in the US. That’s now gone. So a deal on NAFTA is imminent. Certainly before the Mexican elections this summer. But it will have little besides token adjustments to steel or autos. Trump threats to withdraw from NAFTA were never real. They were always merely to tell his base what they wanted to hear.

For what Trump wants from NAFTA is not a significant reduction of steel, auto, or any other imports to the US. What the US wants is more access for US corporations’ investment into Mexico and Canada; more protection for patents of US pharmaceutical companies to gouge consumers in those countries like they do in the US; and a shift in power to the trade dispute tribunals favoring the US. He’ll sell the exaggerated token adjustments to his political base, which will applaud his latest, inflated ‘fake news’—while the big corporations and financial elites in the US will silently nod their heads in agreement for the incremental gains he’s obtained for them.

In the most recent development concerning NAFTA negotiations, Trump has extended the deadline for a final revision for another thirty days—a development which means the parties are very close to a final resolution. The revisions will most likely look like the South Korean deal in many details—with quotas (not tariffs) on auto parts trade and more US access for US business investment and token limits on imports to the US.

Launching US-Europe Trade Negotiations: Macron’s Visit/Merkel’s Snub

After NAFTA comes Europe, later this year and in 2019. Like the NAFTA negotiations, Europe deadlines on steel and aluminum tariffs were just extended another thirty days. That’s just the beginning of likely further extensions. Europe will be less amenable to steel, aluminum or any other tariffs than the US NAFTA or South Korean partners. French president Macron’s visit last week to the US should be viewed as the opening of negotiations on trade between the US and Europe. But the European economy is again weakening and France, Germany, the UK and others are desperate to maintain export levels, which is the main means by which they keep their economies going.

Europe also wants to keep the Iran Deal in place, which means important exports and trade for it, while Trump wants to end the deal as he’s promised his domestic political base. A tentative agreement may have been reached between Trump and Macron during the latter’s recent visit to the US: Trump will formally pull the US out of the Iran Deal by May 12 but then will do nothing real apart from the announcement—much like the US withdrawal from the Climate Treaty. Europe will continue its trade deals with Iran. The US and Europe will then jointly try to negotiate an addendum with Iran. In short, France and Europe get to keep their business deals and Trump gets to pander to his political base before the elections in November. Like the Europe steel-aluminum tariff exemptions due this week, that announcement will soon follow as well within a week.

While Macron was treated like royalty by Trump during his visit to the US, German Chancellor Merkel, who followed within days, was treated more like a minor partner and snubbed. The snubbing wasn’t about trade, however. It was more about Germany’s refusal to participate in the Syrian bombings, as well as US dislike for the growing resistance in Germany to go along with extreme economic sanctions on Russia. Long run, what the US has always wanted from Germany is to substitute US natural gas imports (which the US now has a surplus due to fracking technology) for Russian gas and for Germany to stop building gas pipelines with Russia. Trump will likely focus on political concessions from Europe while seeking only token changes to imports from Europe to the US. In other words, the content of a US-Europe trade deal may differ from NAFTA of South Korea but the ‘form’ will remain dominated by token adjustments, with little net import reduction to the US.

The UK economy is slowing rapidly, German industrial production has slowed in the last three of four months. And signs are accumulating that globally trade, upon which Europe is especially dependent, is slowing once again. The UK in particular is an economic basket case. Brexit negotiations are in shambles. And the Conservative Party’s days are numbered. Trump therefore will not demand extreme concessions from the UK. Nor will he from the rest of Europe, also now slowing economically—though not as severe as the UK—and important to Trump-US interests in concluding any trade deal with China, providing cover for US policy in the middle East, and with regard to Russian sanctions and US support for a collapsed Ukraine. Politics will dictate token trade adjustments with Europe.

Trump’s Political Objectives

Except for the case of China, therefore, the Trump trade war is mostly tough talking trade for show. Trump wants some token concessions from its US allies trading partners. Token concessions he can then ‘sell’ to his political base in an election year. He’s playing to his ‘America First’ economic nationalist political base, agitating it for electoral purposes next November. He is in election mode, giving campaign speeches throughout the US as if this were September 2016 again. He may also be mobilizing that base in anticipation of the eventual firing of Mueller he plans and the political firestorm that may provoke from the traditional elites in the US. He’s given them massive tax cuts and now some gains from trade negotiations without upsetting the global capitalist trade structure he once promised to do.

Trump is betting that delivering on taxes and trade to the elite will keep enough of them at bay. While delivering on immigration, the wall, and hyped (but phony) trade deals with US allies will convince his ‘America First’ political base he’s delivering for them as well. The so-called trade war is phony because it is designed to produce token adjustments to US trade relations with allies, which Trump will then inflate, exaggerate and lie about to his domestic political base, as they fall for his economic nationalism theme once again.

Is China the Trade Target?

But where does that leave US-China trade? Certainly many believe that is headed for a ‘trade war’. Tit-for-tat $50 billion tariffs have been levied by both the US and China on each other. Trump has threatened another $100 billion and China has said it will similarly follow suit. Even the products to be tariffed have been identified—the US targeted a wide range of imports from China and China in turn targeting US agricultural products and other industrial goods from the US Midwest, and thus Trump’s political base.

Trump’s trade team is by now in Beijing. It represents the major interest groups of Trump’s administration: Treasury Secretary Mnuchin—the bankers and big US multinational corporations. Trade representative hardliners, Robert Lighthizer and Peter Navarro—the Pentagon and US war production industries. And Larry Kudlow the Trump administration’s economic nationalists. Will the Trump phony trade war apply to China as well? Or will it be an actual economic war? Is it really about reducing the US $375 billion annual trade deficit with China? Or about US bankers wanting more access and ownership of operations in China? Or is it about China’s attempt to technologically leapfrog the US in the next generation war-making and cyber security software capability?

The second part of this three part series will address the China-US element of Trump trade policy and strategy.

Jack Rasmus is author of the recently published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.
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Since the run-up to the election of 2016, the ruling elite in America who control the two wings of the single Corporate Party of America (CPA)—the Republican and Democratic Parties—have been battling it out with ‘right populist’ challengers over who will define US policy in the decade ahead. Thus far in 2017 the elite have been clearly winning.

The likely sacking this coming week of Breitbart News’s CEO, Steve Bannon—which follows his banishment from the White House earlier in 2017—is but the latest example of the elite’s post-election objective of bringing their right populist challengers to heel, and in the process herding Trump himself back under their policy umbrella.

The history of the traditional elite vs. right populist challengers goes back at least to the emergence of the so-called ‘Contract with America’ in 1994 followed soon thereafter by their effort to impeach then president, Bill Clinton. Clinton’s hard shift to the right after 1994 on economic, social and foreign policy deflated the challengers’ offensive, albeit temporarily. Then there was the so-called ‘Tea Party’ faction after 2001 that ran primary candidates and disrupted the elite’s Republican wing electoral strategy. With the assistance of the Business Council and US Chamber of Commerce, the Teaparty version of ‘right populist’ challengers were purged in 2014 from Republican primary races and candidacies.

The challengers were not defeated, however. With the financial and organizational aid of the power behind the so-called ‘populist right’—i.e. the Koch brothers, the Mercers, Adelsons, Paul Singers and other radical right big financial supporters backing them—they returned with a vengeance in the 2016 election backing Trump, who opportunistically welcomed their organizational, media and ideological support as the traditional elite consistently rejected him. They bet their Trump Card and gained the White House. The contest did not stop there, however.

In 2017 the contest with the Republican wing of the elite continued. The ‘right populist’ mouthpiece within Congress, the US House ‘Freedom Caucus’, was able to prevail over other Republican colleagues and launch a full frontal assault on repealing Obamacare, the Affordable Care Act. They recklessly rolled the dice on their first toss…and lost. Check one for the traditional elite right out of the box in early 2017.

Another subsequent 2017 ‘win’ by the Republican wing of the elite was to get Trump to go slow on reversing NAFTA and other free trade agreements. Another was the driving of Steve Bannon and his allies from their perch as White House advisers. Yet another elite 2017 success was to convince Trump to back off from campaign promises to reorganize NATO and reset relations with Russia, and instead to continue providing strategic weapons to east Europe and, most recently, the Ukraine. That policy shift is now in acceleration mode. Then there was the defeat of Moore for Senator in Alabama, who Trump and the right populists both endorsed. The Republican wing of the traditional elite—both in and out of Congress—abandoned Moore and joined with the Democrat wing to ensure Moore’s defeat. To have supported Moore would have signaled that the Republican elite’s strategy since 2014, a strategy denying right radicals from formal Republican (and Chamber of Commerce) support, was no longer in effect. A Moore victory would have brought even more radicals from the right demanding to run on Republican electoral tickets. The Chamber could not permit that again.

But the very latest event in the internal battle was last week’s public rift between former right populist Trump election strategist and White House adviser, Steve Bannon, and Trump himself. A rift that, this writer predicts, will almost certainly lead to Bannon’s sacking as CEO of the influential right populist media organ, Breitbart News, this coming week or soon thereafter.

The Bannon sacking will clearly reveal that Bannon is not the driving force behind Breitbart. Nor is the radical ‘right populist’ movement itself an independent force. Bannon and Breitbart are but a mouthpiece. For what? For the real force behind the Breitbart media outlet, Bannon, and similar media organizations and talking heads pushing far right political alternatives and economic policies—i.e. the billionaire money interests that fund them and make the strategic decisions for them behind the scenes. It is the billionaires who sit on the Breitbart board, and other boards of similar right populist organizations who fund the Breitbarts, the Bannons, and those like them that came before and will come after.

It is those billionaires in particular who have become super-wealthy since the 1990s by speculating in commercial property and trusts and shadow banking; the billionaires over-represented from the ranks of private equity firms, real estate REITs, hedge fund capitalists, asset management companies, etc. On the level of individual capitalists, it is the Adelsons, Paul Singers, the Mercers, the Mays, and others—all billionaires—who have been bankrolling the ‘right populists’ from the very beginning, giving them a public soapbox with which to promote their views, ideology, and mobilize public opinion. More traditional economic sector billionaires, like the Kochs, are also among their ranks, of course. But they are especially over-populated with speculators and financial manipulators (much like Trump himself) who want a more deregulated, winner-take-all kind of capitalism they see as necessary to compete with challengers globally in the coming decades.

These billionaires are the election campaign financiers that all the major candidates for national office trek to every election cycle, genuflect before, hold out their hats to for donations. And with their money comes a ‘Faustian’ bargain: they are allowed to define policies once their candidates get elected. They are the silent sources that Trump regularly calls in the early morning hours from the White House to ask their advice and input.

Late last week, the billionaire Mercer family, that bankrolls and finances Breitbart News let it be known it was breaking relations with Bannon. Bannon quickly and contritely offered a public statement supporting Trump and calling him a ‘great man’, which Trump just as quickly retweeted. The Bannon retreat followed a reported statement he made to author Michael Wolf, who in his new book out last week quoted Bannon as saying Trump was psychologically unbalanced and “had lost it”. Calls for Breitbart News to fire Bannon as its CEO quickly followed, and the Mercers statement was made public in turn.

So Bannon’s days are numbered and perhaps in hours not days. He will be gone, relegated to the speech circuit for right wing demagogues, joining the Glenn Becks, Rush Limbaughs, and others that occasionally over-estimate their influence with the capitalist ruling elite and their usefulness to them. And then find themselves on the outside looking in.

What the Bannon sacking will represent is that the ‘right populist’ movement will now ebb, albeit temporarily once more. It will be resurrected when needed, with another figure(talking)head replacing Bannon. The Becks, the Limbaughs, the Hannitys and the Bannons are all expendable, and replaceable with another cookie-cutter ideologue whenever the elite consider it necessary.

The Bannon development more importantly signals that more traditional Republican elite policies and legislation will now even further supplant the right populist initiatives in Congress. The Trump tax cuts just passed benefit clearly the wealthiest 1% and their corporations, and not the middle class, the embittered blue collar workers of the Midwest and Great Lakes, or any other voting constituency in America.

The demise of Bannon also signals that Donald Trump, if he wishes to continue as president, will agree to continue his shift toward policies adopted by the Republican wing of the elite. He has been in synch totally with the recent passage of the Trump Tax Cut act—the elite’s #1 policy objective which is now achieved. Trump will now continue to back off of radical restructuring of free trade, especially NAFTA. He will fall in line with NATO and policies toward east Europe and Russia. He’ll provide more advanced weaponry to eastern Europe and the Ukraine. He will be satisfied with a token Wall and back off from disrupting immigration relations. And he will continue to soft-pedal his tweeting with regard to North Korea and support trade deals with China the elite want him to deliver.
This does not mean Trump’s troubles with the traditional elite are over, however. The events of the past year, culminating in the Bannon purge, only reflect Trump coming to terms with the Republican wing of the elite, as he tactically moves under their political protective umbrella. The Democrat wing of the elite will continue trying to build a case against him.

The Democratic wing of the elite will continue to exert pressure on Trump through its powerful media organs and its deep connections with and influence within the State bureaucracy (FBI, NSA, State and Justice departments, DEA, military intelligence arms, etc.). This second front against Trump and his former right populist allies is reflected in the on-going investigation into a Russia-Trump connection during the 2016 election cycle—which that wing of the elite hopes will lead, if not to outright collusion with the Russians, then to evidence of some form of obstruction of justice by Trump; or perhaps uncover in the process past criminal activity by the Trump business organization with regard to tax evasion or foreign bribes for contracts with Russian oligarchs and mafia. This second front has recorded some success over the past year, as former FBI director, Mueller, has been able to extract evidence from suspected principals, Michael Flynn, Paul Monafort, and Papadopoulos.

The second major development of the past week was the publication of the Michael Wolf book on Trump. With the publication a new issue has been thrown into the political hotpot: Now it is not just whether Trump has colluded with the Russians, or obstructed Justice to stop the Mueller investigation, or engaged in illegal bribes and deals with Russian oligarchs. Now the new mantra is Trump is psychologically unbalanced—as evidenced in his own Tweets and in the constant flow of leaked statements by his own administration about his basic ‘child-like character’(Senator Corker), his functioning at a level of ‘an idiot’ (Secretary of State Tillerson), or that he “has lost it” (Bannon).

In the months ahead the Republican wing—for whom Trump has nicely delivered in the form of tax cuts in the trillions of dollars and with whom Trump is now playing ball with regard to free trade—will circle the wagons on behalf of Trump. The Republican party wing of the traditional elite don’t want to drive Trump from the White House. They want him tamed and continuing to deliver their policy agenda. So they have already begun to circle the wagons on Trump’s behalf—and to launch a counteroffensive in his defense. The past week’s reopening of the investigation of Clinton’s foundation and demands to indict the author of the ‘Trump dossier’ published over a year ago are but two examples of the counteroffensive.

And watch what happens after Trump eventually fires FBI investigator, Mueller, should he provide evidence of obstruction of justice or, more likely, fraudulent Trump tax returns and/or bribes to Russian oligarchs. They’ll block the appointment of an independent prosecutor once Mueller is gone. And that means there won’t be any impeachment in 2018 regardless what Trump does. All that could change, however, should Trump’s historic low approvals slip still further and result in the Republican loss of either the House or Senate in November 2018. Then watch the two wings of the elite unite in efforts to push Trump out and replace him with their preferred man, vice-president Pence.

Jack Rasmus,
January 7, 2018

Dr. Rasmus is the author of the August 2017 book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network. His twitter handle is @drjackrasmus.

By Jack Rasmus
Copyright 2017

As this Thanksgiving holiday comes to an end and the Xmas season approaches, let’s not forget to give thanks to our richest 1% fellow Americans and their corporations. Thanks to all 1.25 million of you from the 130 million of us 99 percenter households.

Your stewardship of the US economy has allowed us to keep 5% of all the national income created since the last recession in 2009; while you wealthiest 1% got to keep the other 95% (see UC Berkeley economist, Emmanuel Saez’s annual income inequality analyses).

But the more you get to keep, the more you can ‘trickle down’ to the rest of us, right? So say your politicians, talking media heads, economists, and other assorted hirelings. So thanks very much for at least sharing something with us.
If not sharing wages equally, we certainly got more jobs to be thankful for from you—who lose no opportunity to proclaim you are the source of all job creation.

Since 2009, you ‘gave’ us millions of part time, temp, contract, on call, and gig jobs. True, mostly low paid, without pensions or benefits jobs. Better than nothing jobs. And while it took you 8 years to re-create the level of jobs we had back in 2007, better late than never, right? Even if our pre-2008, higher paid jobs were replaced mostly by lower paid after 2008, it sure beats unemployment benefits. So thank all of you 1% self-proclaimed job creators for all the low paid, no benefit, service jobs you eventually did create for us.

As owners of the system you certainly had a difficult task managing your complex, mega-corporation called the USA economy, keeping all those foreign competitors and troublemakers in line with the US economic empire. You know, those ‘russkies’ that just won’t lay down and play dead anymore, those too clever Chinese, and all those assorted ‘rocket men’. But that’s what our 1000 offshore military bases are for, aren’t they? Our trillion dollar a year defense budget is well worth it.

And getting us out of the worst economic crisis since the great depression of the 1930s in 2008-09 was no easy task for you, we know. So all of you 1.25 million wealthiest 1% households deserve every dollar you’ve diverted to yourselves in the process of economic recovery these past 8 years, including:

• The $6 trillion in stock buybacks and dividend payouts paid out to you from your corporations since 2008 (see Yardeni Research, November 2017);
• The nearly 400% increase in the value of your stock holdings (see the DOW, S&P 500 and Nasdaq combined market gains since 2008);
• The additional $ trillions in capital gains income you earned on bond interest and capital gains since the last recession;
• Your share of half of the $1.9 trillions in ‘pass through’ non-corporate business income net gains since 2007 (see US national income accounts);
• The unknown $ trillions more you earned from investing in derivatives in offshore markets that you don’t report, which even the US government cannot discover;
• The still additional $ trillions more you stuffed in your offshore accounts to avoid paying US taxes (see recent revelations from the so-called ‘Paradise Papers’);
• The $2 trillion cash your bank and non-bank US corporations are still sitting on in the US, and another $2 trillion your multinational corporations are hoarding offshore—together earmarked at least in part for your personal future distribution (see Moody’s Analytics).

That’s easily more than $15 trillion in cash, near-cash, and easily convertible to cash sources of income accumulated over the past 8 years (and excludes the earnings from real estate and real property)—to be shared amongst the 1.25 million of you.

In total wealth and assets, not just income, American households held $58 trillion in net worth in 2009; that has since risen to $105 trillion, according to the US Federal Reserve bank’s latest 2017 report. Since median US Households’ net worth is still 30% below 2007 levels—and 90% of all US households are still below 2007 levels (per the New York Times, September 28, 2017)—the lion’s share of that $47 trillion total gain in net worth must therefore have gone to you one percenters. Congratulations. (Can’t wait to get my trickle down share. Please send by way of this blog address).

Let’s not forget to thank in particular the bankers among you. While it’s true they gave us the 2007-09 financial crash that led to 14 million home foreclosures and $4 trillion in our lost savings, your bankers did allow us to offset our stagnant wages these past 8 years with more loans and debt.

So thank you bankers, for the $1.4 trillion in student debt, the $1.2 trillion in credit card debt, and the more than $1 trillion in auto loan debt. That’s $3.6 trillion! Who needs wage increases when we can borrow our way to prosperity!
And while we’re talking about banks, let’s not forget to thank our central bankers, Ben Bernanke and Janet Yellen, for buying up all bad investments you one percenters made before the 2008 crash. I mean the subprime mortgage bonds and other securities you got stuck with and couldn’t sell, that Ben and Janet generously bought from you at above market prices. That was another $5 to $6 trillion cash subsidy to your professional investor class.

By the way, I hear Ben is now making the speech circuit rounds, speaking to your bankers and companies for a fee of $200k per pop, and is serving on your corporate boards? And Janet has just announced she’ll soon also be leaving the Fed and joining him. Reward them well, Mr. and Mrs. 1%. They’ve done yeoman work for your banks, providing loans at 0.15% for 7 years, while the US government charged students 6.8% student loan rates and grandma and grandpa retirees lost more than $1 trillion in fixed income savings as result of near zero interest rates.

And let’s not forget your great multinational corporations who’ve been offshoring our high paying jobs made possible by free trade treaties like NAFTA. You know, the tech companies, big pharmaceutical companies, auto parts and textiles, and all the rest. Now we can buy cheaper priced products at Walmart and Target from you that they make in Mexico, China, and Indonesia.

Like loading up on Loan debt, free trade is so much better than getting wage increases!

And this season let’s not forget to thank your politicians whose elections you finance. Thanks to George W. Bush for cutting taxes by $3.4 trillion. And Obama and the Democrats for cutting your taxes by another $1.1 trillion during the recession, and then extending the Bush tax cuts in 2013 for another decade by a further $5 trillion. Now their heir to the presidency, Uncle Donald, is proposing another $4.5 trillion tax cut for you one percenters, for yet another decade. I can’t wait for all the ‘trickle down’ that’s finally coming.

Your Republican party politicians (aka one wing of your Corporate Party of America) can’t take all the credit. Your Democrat wing deserves some.

So thanks to Nancy Pelosi and Chuck Shumer, for their current efforts to broker a deal with Uncle Donald to let the 800,000 ‘Dreamers’ kids stay in America—in exchange for agreeing to deport their parents and for funding the border Wall with Mexico.

I do hope that next year Nancy and Uncle Donald can revisit the repeal of the ACA-Obamacare Act. It will mean another $592 billion tax cut for you one percenters and your corporations, and maybe then even more trickle down to us 99%. All those single moms with kids, disabled persons, and mentally ill don’t really need the improvements in Medicaid they got from the ACA. They were doing just fine before. You one percenters need the tax cuts more.

In conclusion, I’d like to give special thanks to your most famous one percenter, Don Trumpeone, a member of the wealthiest .01% (or 12,600) super richest households within your ranks, whose income gains in 2016 averaged $65 million.

Thank you, Don Trumpeone, for keeping us 99% safe in 2017. We ‘kiss your hand’. This year not one American was killed by the North Koreans, or by the Russians in the Ukraine, or by those violent Yemenis and world domination seeking Iranians—even though 60,000 Americans have died from the Opioid epidemic (started by the big Pharma companies) this past year; another 38,000 of us died from guns made in the US (291,000 since 2007); and the USA has continued to fall below its 20th ranking in infant mortality among the advanced nations while our teen suicide rate has doubled since 2007.

We 99% have so much to be thankful for this holiday season. And you 1%–and your corporations, politicians, and media pundits—are largely responsible.

So God keep blessing America. Let’s all stand for the flag. And thank you, our wealthiest 1% fellow Americans, the richest and greatest generation the world has ever seen.

Jack Rasmus is author of the just published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com, twitters @drjackrasmus, and his website is http://kyklosproductions.com

This past August marked the second anniversary of the Greek debt crisis and the third major piling on of debt on Greece in August 2015 by the Eurozone ‘Troika’ of European Commission, European Central Bank, and the IMF. That 2015 third debt deal added $86 billion to the previous $230 billion imposed on Greece—all to be paid by various austerity measures squeezing Greek workers, taxpayers, retirees, and small businesses demanded by the Troika and their northern Euro bankers sitting behind it.

Studies by German academic institutions showed that more than 95% of the debt repayments by Greece to the Troika have ended up in Euro bankers’ hands.

But the third debt deal of August 2015, which extends another year to August 2018, was not the end. Every time a major multi-billion dollar interest payment from Greece was due to the Troika and their bankers, still more austerity was piled on the $83 billion August 2015 deal. The Troika forced Greece to introduce even more austerity in the summer of 2016, and again still more this past summer 2017, to pay for the deal.

Last month, August 2017, Syriza and its ‘rump’ leadership—-most of its militant elements were purged by Syriza’s leader, Alex Tsipras, following the August 2015 debt deal—-hailed as some kind of significant achievement that the private banks and markets were now willing to directly lend money to Greece once again. Instead of borrowing still more from the Troika—-i.e. the bankers representatives—-Greece now was able once again to borrow and owe still more to the private bankers instead. In other words, to pile on more private debt instead of Troika debt. To impose even more austerity in order to directly pay bankers, instead of indirectly pay their Troika friends. What an achievement!

Greece’s 2012 second debt deal borrowed $154 billion from the Troika, which Greece then had to pay, according to the debt terms, to the private bankers, hedge funds and speculators’ which had accumulated over preceding years and the first debt crisis of 2010. So the Troika simply fronted for the bankers and speculators in the 2nd and 3rd debt deals. Greece paid the Troika and it paid the bankers. But now, as of 2017, Syriza and Greece can indebt themselves once again directly to the bankers by borrowing from them in public markets. As the French say, everything changes but nothing changes!

What the Greek debt deals of 2010-2015, and the never-ending austerity, show is that supra-state institutions like the Troika function as debt collectors for the bankers and shadow bankers when the latter cannot successfully collect their debt payments on their own. This is the essence of the new, 21st century form of financial imperialism. New, emerging Supra-State institutions prefer weaker national governments to indebt themselves directly to the banks and squeeze their own populace with Austerity whenever they can to make the payments. The Supra-State may not be involved. But it will step in if necessary to play debt collector if and when popular governments get control of their governments and balk at onerous debt repayments. And in free trade currency zones and banking unions, like the Eurozone, that Supra-State role is becoming increasingly institutionalized and regularized. And as it does, forms of democracy in the associated weaker nation states become increasingly atrophied and eventually disappear.

Syriza came to power in January 2015 as one of those popularly elected governments intent on adjusting the terms of debt repayment. But after a tragic, comedy of errors negotiation effort, capitulated totally to the Troika’s negotiators after only seven months.

The capitulation by Syriza’s leader, Alex Tsipras, in July 2015 was doubly tragic in that he had just put to a vote to the Greek people a week beforehand whether to reject the Troika’s deal and its deeper austerity demands. And the Greek popular vote called for a rejection of the Troika’s terms and demands. But Tsipras and Syriza rejected their own supporters, not the Troika, and capitulated totally to the Troika’s terms.

The August 2015 3rd debt deal quickly thereafter signed by Syriza-Tsipras was so onerous—-and the Tsipras-Syriza treachery so odious—-that it left opposition and popular resistance temporarily immobilized. That of course was the Troika’s strategic objective. Together with Tsipras they then pushed through their $83 billion deal, while Tsipras simultaneously purged his own Syriza party to rid it of elements refusing to accept the deal. Polls showed at that time, in August-September 2015, that 70% of the Greek people opposed the deal and considered it even worse than the former two debt agreements of 2010 and 2012. Other polls showed 79% rejected Tsipras himself.

To remain in power, Tsipras immediately called new Parliamentary elections, blocking with the pro-Troika parties and against former Syriza dissidents, in order to push through the Troika’s $83 billion deal. This week, September 20, 2017 also marks the two year anniversary of that purge and election that solidified Troika and Euro banker control over the Syriza party—-a party that once dared to challenge it and the Eurozone’s neoliberal Supra-State regime.

The meteoric rise, capitulation, collapse, and aftermath ‘right-shift’ of Syriza raises fundamental questions and lessons still today. It raises questions about strategies of governments that make a social-democratic turn in response to popular uprisings, and then attempt to confront more powerful neoliberal capitalist regimes that retain control of their currencies, their banking systems, and their budgets–such as in the case of Greece. Even in the advanced capitalist economies, the message is smaller states beware of the integration within the larger capitalist states and economies–whether by free trade, central banking integration, budget consolidations, or common currencies. Democracy will soon become the victim in turn.

The following is an excerpt from the concluding chapter of this writer’s October 2016 book, ‘Looting Greece: A New Financial Imperialism Emerges’, Clarity Press, which questioned strategies that attempted to resurrect 20th century forms of social-democracy in the 21st century world of supra-State neoliberal regimes. It summarizes Syriza’s ‘fundamental error’—a naïve belief that elements of European social democracy would rally around it and together they—i.e. resurgent social democracy and Syriza Greece—would successfully outmaneuver the German-banker-Troika dominated Euro neoliberal regime that solidified its power with the 1999 Euro currency reforms.

Syriza and Tsipras continue to employ the same error, it appears, hoping to be rescued by other Euro regime leaders instead of relying on the Greek people. Tsipras-Syriza recently invited the new banker-president of France, Emmanuel Macron, who this past month visited Athens. Their meeting suggests Tsipras and the rump Syriza still don’t understand why they were so thoroughly defeated by the Troika in 2015, and have been consistently pushed even further into austerity and retreat over the past two years.

But perhaps it no longer matters. Polls show Tsipras and the rump Syriza trailing their political opponents by more than two to one in elections set to occur in 2018.

EXCERPT from ‘Looting Greece’, Chapter 10, ‘Why the Troika Prevailed’.

Syriza’s Fundamental Error

To have succeeded in negotiations with the Troika, Syriza would have had to achieve one or more of the following— expand the space for fiscal spending on its domestic economy, end the dominance and control of the ECB by the German coalition, restore Greece’s central bank independence from the ECB, or end the control of its own Greek private banking system from northern Europe core banks. None of these objectives could have been achieved by Syriza alone. Syriza’s grand error, however, was to think that it could rally the remnants of European social democracy to its side and support and together have achieved these goals—especially the expanding of space for domestic fiscal investment. It was Syriza’s fundamental strategic miscalculation to think it could rally this support and thereby create an effective counter to the German coalition’s dominant influence within the Troika.

Syriza went into the fight with the Troika with a Greek central bank that was the appendage, even agent, of the ECB in Greece, and with a private banking system in Greece that was primarily an extension of Euro banks outside Greece. Syriza struggled to create some space for fiscal stimulus within the Troika imposed debt deal, but it was thoroughly rebuffed by the Troika in that effort. It sought to launch a new policy throughout the Eurozone targeting fiscal investment, from which it might benefit as well. But just as the ECB was thwarted by German-core northern Euro alliance countries, the German coalition also successfully prevented efforts to promote fiscal stimulus by the EC as well. The Troika-German coalition had been, and continues to be, successful in preventing even much stronger members states in France and Italy from exceeding Eurozone fiscal stimulus rules. The dominant Troika German faction was not about to let Greece prevail and restore fiscal stimulus, therefore, when France and Italy were not. Greece was not only blocked from launching a Euro-wide fiscal investment spending policy; it was forced to introduce ‘reverse fiscal spending’ in the form of austerity.

Syriza’s insistence on remaining in the Euro system meant Grexit was never an option. That in turn meant Greece would not have an independent central bank providing liquidity when needed to its banking system. With ECB control over the currency and therefore liquidity, the ECB could reduce or turn on or off the money flow to Greece’s central bank and thus its entire private banking system at will—which it did repeatedly at key moments during the 2015 debt crisis to influence negotiations.

As one member of the Syriza party’s central committee reflected on the weeks leading up to the July 5 capitulation, “The European Central Bank had already begun to carry out its threats, closing down the country’s banking system”.

The ECB had actually begun turning the economic screws on Syriza well before the final weeks preceding the referendum: It refused to release interest on Greek bonds it owed under the old debt agreement to Greece from the outset of negotiations. It refused to accept Greek government bonds as collateral necessary for Greek central bank support of Greece’s private banks. It doled out Emergency Lending Assistance, ELA, funds in amounts just enough to keep Greek banks from imploding from March to June and constantly threatened to withhold those same ELA funds when Troika negotiators periodically demanded more austerity concessions from Greece. And it pressured Greece not to impose meaningful controls on bank withdrawals and capital flight during negotiations, even as those withdrawals and money flowing out of the country was creating a slow motion train wreck of the banking system itself. The ECB, in other words, was engineering a staged collapse of Greece’s banking system, and yet Syriza refused to implement any possible policy or strategy for preventing or impeding it.

For a more detailed analysis of the respective strategies and tactics of Syriza and the Troika in 2015 and after, and the role played by individual leaders and organizations, see the concluding chapter of Jack Rasmus, ‘Looting Greece: A New Financial Imperialism Emerges’, Clarity Press, October 2016, pp. 231-57. Dr. Rasmus is also author of the recently published, ‘Central Bankers at the End of Their Ropes?: Monetary Policy and the Coming Depression’, Clarity Press, August 2017.

The following is a review of Dr. Jack Rasmus, ‘Central Bankers at the End of Their Ropes?: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, by David Baker, which will appear in the October 1, issue of Z Magazine.

“Jack Rasmus has written a series of important books about the global economy; the critical question is, important or not, why would the general reader make the effort required to read any of them? The best answer comes from Noam Chomsky who tells us that we face two existential threats, nuclear holocaust and the environmental collapse called climate change. Those threats to tens of millions of people worldwide can only be mitigated by bringing back real democracy from the shadow of the empty political theater which we currently endure; but to bring back real democracy, we need to understand what destroyed it and what destroyed it is the collection of economic engines called neoliberalism. The most reliable guide to understanding neoliberalism is Jack Rasmus; his book, Central Bankers on the Ropes, examines the fundamental role of central banks in our new, savage global economy.

The word savage would puzzle Volker, Greenspan, Bernake, Yellen et al but it accurately describes neoliberalism’s impact on the world; the lower 90% are collateral damage in the service of the 1%. But the central banks have always served rulings elites; kings and princes historically have financed their endless wars with the help of the institutional ancestors of central banks; in more modern times, central banks provide trillions of dollars in cash, in various forms, to the financial industry which in turn have been used to prop up the stock and bond markets world wide; offshore jobs, gamble in financial instruments, and pour out dividends. The central banks are in effect a conduit straight to the one percent; as fast as legal tender is electronically printed, it ends up hoarded in their accounts, where it stays.

Jack Rasmus is excellent at peeling away the layers of economic deceit to demonstrate that the rivers of cash pouring out of the central banks does not bring prosperity to the lower 90%; the idea that prosperity is even trickling down is empty ideology. The way in which he peels away the layers of deceit is by examining each of the central banks, in turn, The Fed, The Bank of Japan, the EU Central Bank, and the Central Bank of China, and determines which if any is actually achieving their publicly announced goals. These goals include inflation at 2%; interest rate stabilization; money supply stabilization; bailing out major financial institutions during economic downturns, and increasing GDP.

With the exception of China, each central bank has failed in all of their stated goals. Since their publicly stated goals are not being achieved, we have to examine their actual outcomes to determine what their real goals are and ultimately after peeling away all the layers of deception, their real goal to help the one per cent, by propping up stocks and bonds, providing capital to offshore jobs as well as gamble in financial assets.

The case of China is of particular importance because prior to the 2008 collapse, China pulled out of economic downturns relatively quickly and easily and did achieve its announced goal of significant increases in GDP. What happened after 2008, is that China changed its mix of monetary and fiscal policy, conventional banking, and strict restrictions on capital flows. But because China wanted its currency used as a major trading currency, it was pushed by the rest of the world banking community to open up its economy to capital flows and allow non conventional banking, i.e. shadow banking to operate within in its borders. This was a huge mistake; once China made this shift in policy, it could no longer pull itself out of downturns easily and it is finding it harder and harder to maintain its GDP goals. It has fallen into the chronic subsidization trap of financial institutions.

It is this paradigm shift, the chronic subsidization of financial institutions by central banks world wide that is the key finding; it is why central bankers are “on the ropes.” Historically, one of the major roles of central banks has been to bail out large financial institutions when they fail. Which is exactly what the Fed and others did during the 2008-2009 collapse. But by 2010, the financial institutions were stabilized but the trillions of liquidity injections, quantitative easing and low or no interest loans, continued. Why? Because the banking industry and the one per cent were making so much money from what became chronic subsidization, a subsidization that continues to this day. And here is the problem. The central banks know that a serious downturn is coming; if they continue to generate trillions of dollars in world wide debt through the extension of credit then the inevitable collapse becomes greater; but if they stop, they also risk a huge collapse since the rise in financial assets worldwide has nothing to do with the real economy but is propped up by the central banks.

Rasmus also documents another element of the central banks dilemma; they can’t raise interest rates. The central banks want to raise interest rates, for many reasons but one important reason is because it allows them to lower rates when the inevitable financial bust comes. If they can’t raise rates now, they can’t lower them when the bust comes; likewise, if they can’t stop the cash distributions now, they have nothing left in their monetary weapons to use when the crash comes. Over and over again, throughout history, it was the raising of interest rates by central banks that plunged the world into either recession or depression. So we are truly looking at the abyss since the coming collapse will be more violent, due to the rising oceans of debt [over $20 trillion] and the central banks have no monetary weapons left, either cash or lowering interest rates.

Which brings me to the heart of the debate, what in the austere language of economics is called Fiscal Policy versus Monetary Policy. Progressive fiscal policy is what finally dragged the US out of the Great Depression; it is what Ronald Regan sneered at as “Tax and Spend”. For a progressive, you tax based upon ability and spend based upon need; and, during the 1950’s and 1960’s, the progressive tax and spend policies produced prosperity for all. If you think about it, taxes are the only way to generate capital without falling into the credit/debt trap. Not so with monetary policy.

Monetary policy is economic policy driven by the central banks who in turn serve the one percent. There are many tools that can be used in Monetary Policy, the most well known of which are electronically printing low or interest free loans as well as direct buys of stocks and bonds and raising and lowering interest rates. What Jack Rasmus provides is the insight that the one percent are not willing to wait for prosperity to “trickle up” from the lower 90%; they want instant cash now, as fast as the Fed can electronically print it. Even if it brings down the entire world economy. The lower 90% can wait, apparently forever.

Once again, China did provide an interesting contrast prior to 2008; it had a true fiscal policy, not the fiscal austerity that monetary policy demands. China made and continues to make enormous expenditures on infrastructure, on a scale close to the fiscal policies of the US during WWII. In sharp contrast, none of the other central banks or economies examined engage in this kind of fiscal policy; the case of the EU is quite extreme; they are prohibited by their enabling legislation from engaging in any fiscal policy other than fiscal austerity.

Extraordinary dangers require extraordinary measures. Jack Rasmus concludes with a proposed US constitutional amendment that would place The Fed under strict democratic controls such as nationalizing all banking, prohibiting shadow banking and casino capitalism, placing strict controls on capital flows, and making the explicit goal of The Fed the raising of household disposable incomes. There is a body of scholarly work that demonstrates that the US Constitution was designed to protect investor rights [see e.g. An Economic Interpretation of the US Constitution] so why not amend it and finally give the people control over their economy? One criticism of this proposal is that it really doesn’t go far enough; doesn’t global capitalism require global controls? Thomas Piketty in his groundbreaking work, Capital, proposes just that.

David Baker

The Gayle McLaughlin Campaign for Lt. Governor of California—Progressive Local Politics In Action – 09.08.17

To Listen to the podcast of the show go to:

http://prn.fm/alternative-visions-gayle-mclaughlin-campaign-lt-governor-california-progressive-local-politics-action-09-08-17/

Or go to: http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT

Jack Rasmus interviews Gayle McLaughlin, founding organizer of the successful grass roots independent political action movement in Richmond, California, former mayor of Richmond and current city council member. McLaughlin explains how the Richmond Political Alliance, RPA, has been able to take over city government despite intense opposition from oil giant, Chevron Corp., that previously ran the city. How the RPA’s strategy and tactics enabled real political action, outside the two wings of the corporate party of America (aka Democrats and Republicans), to become successful. Gayle describes the progressive improvements the RPA has achieved, how it started, its organizational innovations and direct community ties and how electoral action and direct action tactics were melded successfully. McLaughlin and the RPA are now undertaking efforts to extend progressive politics to the state level with her candidacy for Lt. Governor of California. For more information about her Lt. Governor campaign, go to her website http://www.GayleforCalifornia.org . For how the RPA became a successful grass roots movement, its strategy, organization structure and tactics, see http://www.RichmondProgressiveAlliance.net. And for local San Francisco bay area residents, check out her campaign’s next meeting at 747 Lobos St., Richmond, Calif., this Sunday, September 10 at 2-5pm.

(For a full history of the RPA from origin to present, Dr. Rasmus also recommends reading RPA member, Steve Early’s book, Refinery Town: Big Oil, Big Money, and the Remaking of An American City, Beacon Press, 2017. )

My just published book, ‘Central Bankers at the End of Their Rope?: Monetary Policy and the Coming Depression’, Clarity Press, July 2017, is now available for immediate purchase on Amazon.com, as well as from this blog. (see book icon)

The following is an excerpt from an article by the title of this blog post, that appears in ‘Z magazine’s September 1 issue–describing how central bank policies have become a major contributor to income inequality, subsidizing and boosting capital incomes, as well as now are a primary cause of recurrent financial crises.

“CENTRAL BANKS AS ENGINES OF INCOME INEQUALITY AND FINANCIAL CRISES, Z Magazine, September 1, 2017”

“This September 2017 marks the nineth year since the last major financial crisis erupted in 2008. In that crisis investment banks Bear Stearns and Lehman Brothers collapsed. So did the Fannie Mae and Freddie Mac, the quasi-government mortgage agencies, that were then bailed out at the last minute by a $300 billion US Treasury money injection. Washington Mutual and Indymac banks, the brokerage Merrill Lynch, and scores of other banks and shadow banks went under, or were forced-merged by the government, or were consolidated or restructured. The finance arms of General Motors and General Electric were also bailed out, as were the auto companies themselves, to the tune of more than a hundred billion dollars. Then there was the insurance giant, AIG, that speculated in derivatives and ultimately required more than $200 billion in bailout funds. The ‘too big too fail’ mega banks—Citigroup and Bank of America—were technically bankrupt in 2008 but were bailed at a cost of more than $300 billion. And all that was only the US. Banks in Europe and elsewhere also imploded or recorded huge losses. The US central bank, the Federal Reserve, helped bail them out as well by providing more than a trillion US dollars in loans and swaps to Europe’s banking system as well.

Although the crisis at the time was deeply influenced by the crash of residential housing in the US. Few US homeowners were bailed out, unlike the big banks, insurance companies, auto companies, and other businesses. More than 14 million US homeowners were allowed to foreclose on their homes. A mere $25 billion was provided to rescue homeowners, and most of that going to bank mortgage servicing companies who were supposed to refinance their mortgages but didn’t. More than $10 trillion conservatively was provided to financial institutions, banks and shadow banks, and big corporations, and foreign banks by US policy makers in the government and at the US central bank, the Federal Reserve. $25 billion for 14 million vs. more than $10 trillion for capitalists and investors.

The Federal Reserve Bank as Bail Out Manager

A common misunderstanding is that the banking system bailouts were managed by the US Congress passing what was called the Trouble Asset Relief Program, TARP. Introduced in October 2008, TARP provided the US Treasury a $750 billion blank check with which to bail out the banks. But less than half of TARP was used, and most of that went to the auto companies and smaller banks. Only half of the $750 billion was actually spent. By early 2009 the remainder returned to the US Treasury. So Congress didn’t actually bail out the big banks—the AIG, Bank of America, Citibank, investors in the subprime mortgage bonds that collapsed, etc. The real bail out was engineered by the US central bank, the Federal Reserve, in coordination with the main European central banks—the Bank of England, European Central Bank, the Bank of Japan.

The Central banks bailed out the big banks. That has always been the primary function of central banks. That’s why they were created in the first place. It’s called the ‘lender of last resort’ function. Whenever there’s a general banking crisis, which occurs periodically in all capitalist economies, the central bank simply prints the money (electronically today) and injects it free of charge into the failing private banks, to fill up and restore the private banks massive losses that occur in the case of banking crashes. Having a central bank, with operations little understood by the general public, is a convenient way for capitalism to rescue its banks without having to have capitalist politicians—i.e. in Congress and the Executive—do so directly and more publicly. Central banks take the heat off of the politicians, who otherwise would have to raise taxes to bail out the banks—and thus incur the ire of the general public even more so than they do for not preventing the crisis.

From Bail Outs to Perpetual Bank Subsidization

But central banks since 2008 have been evolving toward a new primary function. No longer just bailing out the banks when they get in trouble. But providing a permanent regime of subsidization of the banks even when they’re not in trouble. The latter function is new, and has become a permanent feature of the capitalist global banking feature in the post-2008 period. For the US banks were fully bailed out by 2010. But the US central bank, the Federal Reserve, as well as other major central banks, have simply kept the flow of free money, often just printed money, into the banking system even after the banks were effectively bailed out. In other words, since 2010 the Federal Reserve has continued to provide free money to the banks and continued to buy up the collapsed subprime mortgage bonds from banks and individual investors. In short, it has been subsidizing the profits of the financial system for the past nine years.
With the Fed in the lead, in 2008-09 the central banks of the advanced capitalist economies simply created money—i.e. the dollars, the pounds, euros and yen—and allowed banks and investors to borrow it virtually free. That is, the Fed and other central banks simply opened electronic accounts for the banks within the central bank. Banks were then allowed to borrow that money that was ‘electronically printed’, at essentially no interest. It was free money.

But free money in the form of near zero interest was still not the full picture. The Fed and other central banks were also pro-active in providing money to the banks. The Fed and other central banks went directly to the banks, as well as other institutional and even private investors, and said: ‘we’ll also buy up your bad assets that virtually collapsed in price as a result of the 2008-09 crash. This direct buying of bad mortgage and government bonds—and in Europe and Japan, buying of corporate bonds and even company stocks—was called ‘quantitative easing’, or QE for short. And what did the central banks pay for the assets they bought from banks and investors, many of which were worth as low as 15 cents on the dollar? No one knows, because the Fed to this day has kept it secret how much they overpaid for the bad assets they bought from individual investors, bankers or corporations.

But the QE and the effectively zero interest rates continued for nine years in the US and the UK. And in 2015 it was accelerated even faster in Europe. And since 2014 faster still in Japan. And even in China after 2015, when its stock market bubble burst. Central banks of the major economies after 2008 have thus opened a ‘fire hose’ of free money to their private banks and their investors. And in the course of the past nine years, the private capitalist banking system has become addicted to the free money. They cannot ‘earn’ profits on their own any longer, it appears. They are increasingly dependent on the free money from their central bankers. This is a fundamental change in the global capitalist economic system in the past decade—a change which is having historic implications for growing income inequality worldwide in the advanced economies as well as for another inevitable global financial crisis that will almost certainly erupt within the next decade.

The $25 Trillion Banking System Bailout

In the last financial crisis of 2008-09, central banks rescued their private banks by ensuring zero interest rates at which they could borrow funds. But central banks went a step further. The Fed and others pro-actively went directly to banks and investors and bought up their collapsed subprime bonds and other securities as well. But we do know the total amount of ‘bad assets’ they bought? The total was more than $20 trillion—i.e. in free money provided at zero rates and by central banks buying the ‘bad assets’ from the banks and investors by paying them more than the collapsed market prices at the time for those mortgage bonds and securities.

In the US, the Fed officially purchased $4.5 trillion in ‘bad assets’ between 2009 and 2014. But it was actually more, perhaps as much as $7 trillion. That’s because as some of the Fed purchased bonds matured and were paid off, the Fed reinvested the money once again to maintain the $4.5 trillion. So US banks and shadow banks got free money loans at 0.1% interest rates for nine years, plus the Fed directly bought up additional securities from investors in the amount of around $7 trillion. The cumulative totals from the zero rates and QE bond buying are likely more than $10 trillion for the US alone. That’s how the US banks got ‘bailed out’, not by the US Congress and the TARP program.

But the same occurred by other central banks of the advanced economies. The 2008-09 crash was global, so the Fed was not the only central bank player is this massive money printing and bailout scam. The European Central bank, as of 2017, has bailed out Europe banks via its QE and other programs to the tune of $4.9 trillion so far. The Bank of England, another $.7 trillion. And the Bank of Japan as of mid-2017 by more than $5 trillion. The People’s Bank of China, PBOC, did not institute formal QE programs. But after 2011 it too started injecting trillions of dollar in equivalent yuan, its currency, to prevent its private sector from defaulting on bank loans, to bail out its local governments that over invested in real estate, and to stop the collapse of its stock markets in 2015-16. PBOC bailouts to date amount to around $6 trillion. And the totals today continue to rise for all, as the UK, Europe, Japan, and China continue their central bank engineered bail out binge, and in the case of Europe and Japan are actually accelerating their QE programs.

Conservatively, therefore, the total bail outs from QE and QE-like programs among the big central banks globally—US, UK, Europe, Japan, and China—amount easily to more than $25 trillion. That’s $25 trillion of money created out of thin air.

Contrary to many critiques of rising debt levels since 2009, it is not the level of debt itself that is the problem and the harbinger of the next financial crash. It is the inability to pay for the debt, the principal and interest on it, when the next recession occurs. So long as economies are growing, businesses and households and even government can ‘finance’ the debt, i.e. continue to pay the principal and interest some way. But when recessions occur, which they always do under capitalism, that ability to keep paying the debt collapses. Business revenues and profits fall, employment rises and wages decline, and government taxes collections slow. So the income with which to pay the principal and interest collapses. Unable to make payments on principal and or interest, defaults on past incurred debt occur. Prices for financial assets—stocks, bonds, etc.—then collapse even faster and further. Businesses and banks go bankrupt, and the crisis deepens, accelerating on itself in a vicious downward spiral. That’s a great recession—or worse, a bona fide economic depression.

Think of it another way: the $25 trillion plus is what the central banks transferred in bad debt from the balance sheets of the banks and private corporations to their own central bank balance sheets. In other words, the private corporate debt at the heart of the last crisis has not been removed from the globally economy. It has only been shifted, from the business sector to the central banks. And this central bank debt has nothing to do with national governments’ debt. That’s a totally additional amount of government debt, as is consumer household debt which, in the US, is more than $1 trillion each for student loans, auto loans, credit cards, and multi-trillions for mortgage loans. Ominously, moreover, in recent months defaults on student, auto and credit card debt have begun to rise again, already in the highest in the last four years in the US.

Finally, it’s not quite correct, moreover, to even say that the $25 trillion injection of money into the banking system since 2008 has successfully bailed out the banks globally. Despite the total, there are still more than $10 trillion in what are called ‘non-performing bank loans’ worldwide. Most is concentrated in Europe and Asia—both of which are likely the locus of the next global financial crisis. And that crisis is coming.

In the interim, the central banks’ free money and bank subsidization machine is generating a fundamental dual problem within the global economy. It is feeding big time the trend toward income inequality and it is helping fuel financial asset bubbles worldwide that will eventually converge and then burst, precipitating the next global financial crash.

The Fed as Engine of Income Inequality

In the US, the US central bank’s $4.5 trillion balance sheet—and the nine years of free money at 0.1% rates—have been at the heart of a massive income shift to US investors, businesses, and the wealthiest 1% households.

Where did all this $4.5 trillion (really $7 trillion), plus the virtually free borrowed money at 0.1%, go? The lie fed to the public by politicians, businesses, and the media was this massive free money injection was necessary to get the economy going again. The trillions would jump-start real investment that would create jobs, incomes, consumption and consequently economic growth or GDP. But that’s not where it went, and the US economy experienced the weakest nine year post-recession recovery on record. Little of the money injection financed real investment—i.e. in equipment, buildings, structures, machinery, inventories, etc. Instead, investors got QE bail outs and banks borrowed the free money from the Fed and then loaned it out at higher interest rates to US multinational companies who invested it abroad in emerging markets; or they loaned it to shadow bankers and foreign bankers who speculated in financial asset markets like stocks, junk bonds, derivatives, foreign exchange, etc.; or the banks borrowed and invested it themselves in financial securities markets; or they just hoarded the cash on their own bank balance sheets; or the banks borrowed the money at 0.1% from the central bank and then left it at the central bank, which paid them 0.25%, for a 0.15% profit for doing nothing.

This massive money injection, in other words, was then put to work in financial markets and multiplied several fold. Behind the 9 year bubbles in stock and bond markets (and derivatives and exchange as well) is the massive $7 to $10 trillion Federal Reserve bank money injections. And how high have the stock-bond bubbles grown? The Dow Jones US stock market has risen from a low in 2009 of 6500 to almost 22,000 today. The US Nasdaq tech-heavy market has surpassed the 2001 peak before the tech bust. The S&P 500 has also more than tripled. Business profits have also tripled. Bond market prices have similarly accelerated. The 9 year near zero rates from the Fed have enabled corporations to issue corporate bonds by more than $5 trillion in just the last five years.
So how do these financial asset market bubbles translate into historic levels of income inequality, one might ask?

The wealthiest 1%–i.e. the investor class—cash in their stocks and bonds when the bubbles escalate. The corporations that have raised $5 trillion in new bonds and seen their profits triple in value then take that massive $6 to $9 trillion cash hoard to buyback their stocks and to issue record level of dividends to their shareholders—i.e. the 1%. Nearly $6 trillion of the profits-bond raised cash was redistributed in the US alone since 2010 to shareholders in the form of stock buybacks and dividends payouts. The 1% get $6 trillion or more and the corporations and banks sit on the rest in the form of retained cash.

Congress and Presidents play a role in the process as well. Shareholders get to keep more of the $6 trillion plus distributed to them as a result of passage of legislation that sharply cuts capital gains and dividend taxable income. Corporations gain by getting to keep more profits after-tax, to distribute via buybacks and dividends, as a result of corporate taxation cuts as well.

The Congress and President sit near the end of the distribution chain, enabling through tax cuts the 1% and shareholders to keep more of their distributed income. But it is the central bank, the Fed, which sits at the beginning of the process. It provides the initial free money that, when borrowed and reinvested in stock markets, becomes the major driver of the stock price bubble. The Fed’s free money also drives down interest rates to near zero, allowing corporations to raise $5 trillion more cash from issuing new corporate bonds. Without the Fed and the near zero rates, there would be nowhere near $5 trillion from new bonds, to distribute to shareholders as a consequence of buybacks and dividends. Furthermore, without the Fed and its direct $4.5 trillion QE program, investors would not have the historic excess money to invest in stocks and bonds (and derivatives and currencies) that drive up the stock and bond prices to bubble levels.

The Fed, the central bank, is thus the initial enabler of the process, i.e. of the accelerating stock and bond prices that transfer so much income to the 1% when the buybacks and dividend payouts kick in. The Fed, as well as other central banks, is an originating source of the runaway income inequality that has plagued the US since late 1970s decade. It is not coincidental that income inequality began to accelerate about that time, which is also the period of which the Fed, and other central banks, themselves began to provide massive money injections to bankers and investors.

Income inequality is a function of two things. One the one hand, accelerating capital incomes of the 1% as a result of buybacks and dividend payouts that generate capital gains for the 1% which constitute nearly 100% of the 1%’s total income. On the other, stagnating or declining wage incomes of non-investor households. Inequality may rise if capital gains drive capital incomes higher; or may rise if wage incomes stagnate or decline; or may rise doubly fast if capital incomes rise while wage incomes stagnate or decline. Since 2000 both forces have been in effect: capital incomes of the 1% have escalated while wage incomes for 80% of households have stagnated or declined.

Mainstream economists tend to focus on the stagnation of wage incomes, which are due to multiple causes like deunionization, rise of temp-part-time-contract employment, free trade treaties’ wage depressing effects, failure to adjust minimum wages, high wage industry offshoring, cost shifting of healthcare from employers to workers, reduction in retirement benefits, shifting tax burdens, etc.. But they engage little in explaining why capital incomes have been accelerating so fast. Perhaps it is because mainstream economists simply don’t understand financial markets and investment very well; or perhaps some do, and just don’t want to ‘go there’ and criticize runaway capital incomes.

Central Banks as Source of Financial Instability

The fire hose of money that central banks still continue to provide the capitalist banking system provides the basis for the growing financial asset bubbles that have been occurring worldwide once again since 2009.

The zero interest rate and direct QE money continue to inject massive money and liquidity into the banking systems, at a rate far faster than investors can choose to reinvest it in real investment projects that produce real things, that hire real people, and provide real wage incomes that stimulate economic growth. As previously noted, the massive money injections are not flowing through the private banks into real investment and growth. The trillions of central bank provided money is flowing out of the advanced economies and into emerging economies; or it is flowing through the banks into the financial asset markets—i.e. stock markets, bonds, derivatives, etc.—driving up asset prices and creating bubbles in those markets; or it is being distributed in stock buybacks and dividend payouts; or it is just being hoarded in the trillions of dollars, euros, etc. on balance sheets of private corporations.

As a result of Fed and other central banks’ money injections now for decades, and especially since 2008, there is a mountain of cash—virtually trillions of dollars—sitting ‘on the sidelines’. That money is looking for quick, speculative capital gains profit opportunities. That means for reinvestment short term in financial asset markets worldwide. The mountain of cash moves in and out of these global financial markets, creating and bursting bubbles as its shifts and moves. Periodically a major bubble bursts—like China’s stock market in 2015. Or a housing speculation bubble here or there. Or junk bonds or consumer debt in the US. Or the bubble in US stocks which is nearing its limit.

A new global finance capital elite has arisen in recent decades, having directly benefited from and controlling this mountain of cash. There are about 200,000 of them worldwide, mostly concentrated in the US and UK, some in Europe, but with numbers rising rapidly in Asia as well. They now control more investible assets than all the traditional commercial banks combined. Their preferred institutional investment vehicles are the global ‘shadow banking system’. Their preferred investment targets are the global system of highly liquid financial asset markets. This system of new finance capitalists, their institutions, and their preferred markets is the real definition of what is meant by the ‘financialization’ of the global economy. That financialization is generating ever more instability in the global capitalist system. But it would not exist were it not for the decades of past central bank injection of free money into the global economy—an injection which has been accelerating since 2008.

Will the Central Banks Retreat?

In 2017 a minority of policymakers in the Fed and other central banks have begun to recognize the fundamental danger to their own system from their providing free money and QE bond and stock buying money injections. The injections have not succeeded in stimulating their real economies, they have not raised prices for goods and services which continue instead to slow and stagnate, they have not sufficiently reduce unemployment (when contingent jobs are considered), and they have not raised wage incomes while bloating capital incomes instead. They have been creating financial bubbles.

So led by the Fed, the central banks of the major economies are now considering raising interest rates from the zero floor and trying to reverse their QE buying. Central bankers will meet in late August 2017 at their annual Jackson Hole, Wyoming gathering. The main topic of discussion will be raising rates and reducing their QE bloated, $15 trillion cumulative balance sheets.

But as this writer has argued, they will fail in both raising rates and selling off their balance sheets. Just as they failed in generating real economic recovery since 2009. For the banking system has become addicted and dependent therefore upon their free money injections and their firehose of central bank bond-stock buying QE programs. Should the central banks attempt to retreat, they will provoke yet another financial and economic crisis. The global capitalist system has become dependent on the permanent subsidization of the banking system by their central banks after 2008. Bail outs and lender of last resort functions by central banks have transformed into a permanent subsidization function. The global capitalist system entered a new period after 2008, changing in ways fundamentally. One of those ways is a greater dependency on the capitalist state to maintain and expand levels of profitability. One of those ways is for their central banks to continue to provide free money.

But the contradiction is that continued free money provisioning is driving further income inequality as well as fueling the next financial crash.

Jack Rasmus is the author of the just published book, ‘Central Bankers at the End of Their Ropes?: Monetary Policy and the Coming Depressions’, Clarity Press, July 2017. He blogs at jackrasmus.com. For more information see http://claritypress.com/RasmusIII.html. The book is now available for order on Amazon.com.