Thursday, July 21, 2016
Author's note: hyperlinks are an essential part of the narrative as they provide facts, figures, and in-depth coverage of the topic at hand—think of it as homework. That said...
The core message coming out of the Republican and Democratic national conventions is that only Trump can make America great again countered by Clinton's assertion that America is the greatest country in the world—there are no problems we can't solve. But the thing is: we live in a global economy, and how it goes, so goes the world. So, how goes the world?
At the onset of the Great Recession, Keynes, the so-called master, was called back into the game to fix things, to pull the global economy out of the recession as nations responded by priming the pump—pumping more demand into the marketplace in an effort to bring supply and demand back into equilibrium. Along with the global fiscal response there was a global monetary response as key central banks pulled out all the stops: lowering interest rates to rock bottom and instituting unconventional monetary policies—quantitative easing and negative interest rates.
At the same time global unemployment was soaring and revenues were plummeting leading to a huge buildup in national debt to GDP ratios. Looking at the U.S., it was hemorrhaging jobs at a staggering rate leading to trillions in lost revenue and a corresponding rise in budgets deficits. Trillions in lost revenues meant borrowing trillions of dollars to keep Social Security, Medicare and the military in play—to keep America in play. In the interim, its national debt has doubled by nine trillion dollars. That was the cost of keeping our heads above water. Globally, the added cost is probably around 60 trillion dollars.
Yet, despite all that, despite all that life-support, the global economy appears to be slowing down and as it does its raising fears
that another global recession is in the making—a mood of
uncertainty and agitation hangs over the global economy. And why is that? Well, according to Marx, it's a capitalist thing. There is that. But in reality, it's more of a Marxist thing.
In 1949, the communists overthrew the existing order in China only to inherit from the old China a ruined economy... an economy with virtually no industry... an economy in chaos.
These are Deng Xiaoping's words and with them he launched
socialism with Chinese characteristics onto the world stage as he took the capitalist road to build up its industrial base. In summation Deng concludes his narrative by saying: Well, those are our plans.
It was a hell of a plan—thirty-two years later they have not only achieved their goal to industrialize the nation, they have become the so-called factory to the world. Thanks in no small part to multinationals as they offshored factory jobs to China in their eternal quest for cheaper labor. The problem, however, is that when they nestled in socialist China, they tipped the scales and unbalanced the global economy creating a disconnect between and supply and demand—lost jobs in the U.S. and elsewhere, is lost demand—a zero-sum game; which should have led to global crisis.
But, history is full of buts: the dot.com boom and the housing bubble created enough demand to delay the crisis. But during the interim, China also became the demand engine for world as it set off on a path of urbanization that was unparalleled in history— setting off a commodities super cycle that coupled with the demand for goods and services, had the engine firing on all cylinders and so pulled the global economy along for the ride. And then, the Great Recession hit, the engine sputtered, and China stepped in with its own stimulus policy; staying focused on infrastructure and new cities. And despite their critics they put the pedal to the metal and sped up the development of new cities.
There's no statistics for the number new cities built post-recession, but a telling metric is that China consumed more concrete between the years 2011 and 2013 than the U.S. did in the last hundred. And while these new cities are perceived as ghost cities, it was these cities that pulled the global economy out of the Great Recession. Yet, given the drop in commodity prices, it seems that the construction boom, if hasn't come to a complete stop, has come to a crawl, hence, a slowing global economy wherein there are no signs of another demand
This is the world we live in: China's imports and exports are down while its GDP continues to contract. In the U.S. exports are falling and it's GDP continues a downward trend while the euro area continues to struggle; the World Bank has downgraded its global growth forecast from 2.9 to 2.4 percent while the debt clocks continues to tick up... things are looking grim.
Meanwhile, central banks are running out of ammo. So, the call goes out for more fiscal stimulus. Yet, if nations don't respond, or don't respond enough, a global deflationary spiral looms; leaving one last option: helicopter money.
Helicopter money (also known as money-financed stimulus policy) as a policy—say in the United States—would work like this: the Federal Reserve juggles the books and credits the Treasury's checking account at the New York Federal Reserve with the necessary funds to finance various stimulus projects.
Yet the taboo remains in place, simply printing money and throwing it in the wind carries the threat of inflation as currency markets respond and devalue the currencies of nations that do so. Here, inflation, printing debt free money, isn't the result of chasing too few goods; it's that a weakened currency drives up the cost of imports (think oil) that ripples throughout economy. But... for the most part, there is no threat of hyperinflation, as long as a nation is exporting goods and services, their currencies are required for trade. It could even be a wash, as a weak currency makes their exports cheaper— global consumers get cheaper goods. Think of it as grand bargain where nations agree to agree to simultaneously adopt stimulus policies that either neutralize currencies markets or their currencies fall in tandem.
It also within the purview of the International Monetary Fund (IMF) to control currency markets while acting as a prudent arbitrator,
controlling the amount stimulus according a nation's export
creditability. And no doubt, as the global economy begins to expand, the price of commodities will rise. But this is just a marketplace signal to produce and hire more.
So once nations agree to agree, the question is: what do they agree on? It just can't be about throwing money into the wind, sending people checks to buy more pizza or more stuff from China. Of course there is the ongoing chant to build and/or rebuild our crumbling infrastructure. However, given the severity of crisis, stimulus policies must be measured to meet the crisis. So consider this:
Using the United States as an example, it begins by subsidizing Social Security and Medicare (the mandatory payments that make up the bulk of our budget) to the degree where deficits are eliminated and surpluses are created and worries about the solvency of those trust funds simply disappear. Those surpluses can then be used to fund needed infrastructure projects, eliminate taxes for the bottom tier of workers, and even give a bump to Social Security benefits to those in need. And, subsidizing Social Security and Medicare does not add demand to the global economy, recipients are still spending the same amount of money. So, if currency markets were in play, why would they care?
Moving on, we have to move beyond oil. As the global economy begins to expand the demand for oil will rise. And as it does, it will have be countered with bio-fuels. Here, it would be hard to argue for anything else outside of algae fuel as the go-to fuel. So cash in hand, governments/central banks subsidizes its production (think Greece, Italy, Spain and Portugal) to the point where it is competitive with oil. So, as we wean ourselves off oil to power our cars, trucks, trains and planes, it puts us on path to clean energy independence, a corresponding decrease in greenhouse gases and increased employment and global trade. And more importantly, as the global economy begins to grow, angst and uncertainty begins to fade; neo-fascism begins to wither; the Cold War begins to cool, and rising prosperity reduces the ranks of ISIS.
But, all of this is no panacea, but it's a start to fixing things. By turning to the unconventional we have turned to practical reason— consciously, coherently, and purposely meeting the challenges imposed by our very being: that's Plan B.
It's like when all else fails, read the instructions: we are born free. And while the individual is free, it is the collective will that will implement the change. And while the above may seem as overreaching, it opens the discussion: what really are our options in a world spinning out control? So, it's not all about accepting Plan B, but challenging the status quo: thinking outside the box; the key word here being thinking. The problem is: politicians and economists are schooled in the old school and to step out of school is risky business. They lack the courage. And the legitimate news media, allegedly objective, just reports on the subjective. Until someone else steps with a better plan, then Plan B stands my itself. There are six degrees of separation... how long would it take to resonate and spark a revolution? It's that, or the world as it is. I think, therefore I am... if we don't think, here we are.
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