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War of Reforms. That Is the Question!
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War of Reforms. That Is the Question!

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USA — July 5, 2018

Usually, the end of a year is a good time to count results, but as Independence Day is a main American holiday, it is thus an appropriate moment to think about the country as a whole.

Donald Trump won his presidency by claiming that he would “make America great again,” but let's take stock of how far this slogan has gone in the real world.

First of all, he started a trade war with China. However, Trump is really opposing, not the Chinese, but the global American corporations which have transferred all of their manufacturing jobs off-shore and now deliver goods produced in China to the US market. This state of affairs represents the single biggest part of our trade deficit with Asian countries more than anything else because goods that were traditionally made in America are now classified as Chinese exports.

Six years ago Paul Craig Roberts wrote a book entitled: “The Failure of Laissez Faire Capitalism” that firmly proved that a minimum of 50% of American imports from China consists of American companies’ production that had earlier been transferred there.

Definitely, offshorization provided a lot of benefits to the American corporations due to a high labor cost or different norms. The corporate management gained more bonuses, and their shareholders witnessed explosive capital growth. Nevertheless, there are not many who truly benefited out of the scheme. But now our entire society is paying for it, especially America's working class.

According to Roberts, the US has lost 54,621 plants, and the industrial sector’s employment has been reduced by 5 million or more jobs. During the last decade, we have noticed a more than 40% reduction in the number of factories with 1000 or more employees. The number of American plants with 500-1000 personnel dropped by  44% as well. In addition, the industry lost 37% of companies that used to employ between 250-500 and 30% of those that employed 100-250 people.

Thus millions of Americans lost their jobs and middle-class incomes not because of unfair Chinese practices but due to the betrayal of American corporations which exported our jobs.

“To make America great again” means to fight with those corporations, not with China.

Another terrible effect from middle-class job losses is ruining people's hopes and expectations on the economy, disappointment in the financial stability of cities towns and states, the capability to satisfy pension and other social obligations, and provision of state services. The deep harmful effect was also felt in the areas of taxation, medical and social security.

Thus, the greedy corporate elite has enriched itself at a price of tremendous expenses for average Americans, and the economic and social stability of the United States.

The offshorization of the economy not only made an impact on mass job losses, but it has also significantly influenced the Federal Reserve's policy because tax revenues are now declining which will obviously lead to the stagnation of the US economy.

In order to maintain aggregate consumer demand, FRS, during Alan Greenspan's leadership, replaced the falling growth of consumer incomes with a wide expansion of consumer credit. Instead of salary growth Greenspan used to rely on the growth of consumer debts as the main driver of the economy.

Credit expansion followed by rising prices for real estate and combined with banking system deregulation, especially the cancelation of the Glass-Steagall Act, stimulated the bubble in the real estate market,  and encouraged frauds and mortgage-based derivatives. This finally resulted in the financial collapse of 2007-2008.

The Federal Reserve System responded to the collapse not by helping with consumer debts, as it should have been, but by saving its single most important client – large banks. To help them even more, the FRS allowed smaller banks to be decent and then to be purchased by the big ones.

Thus it has only resulted in increased financial concentration and the growth of the bookkeeping balance of the FRS for trillions of dollars. It has benefited only a very small quantity of large banks.

Never in US history, has any governmental body been so eager to serve the large owners’ class exclusively.

The FRS was saving the minority of large irresponsible banks, which otherwise would have gone for bankruptcy and further division. This was achieved by means of interest rate deductions and by increasing the prices for toxic assets deposited with banking records.

To elaborate on this point – interest rate and bond’s prices are moving in opposite directions. If the FRS reduces the interest rate by means of purchasing debt instruments, then prices for bonds and obligations are raised. When different debt instruments’ risks are moving together, the lower interest rate raises the price for all debt instruments, even very problem ones. The debt instruments price raising turned balances of big banks to be positives.

The Federal Reserve had to reduce its interest rates down to zero to hit the target, and official low inflation turned them even lower to negative positions. These low-interest rates led to destructive consequences. On the one hand, the low-interest rates generated different types of speculations, on the other hand, the low-interest rates deprived American pensioners of the interest incomes to help their pensions’ savings. The wrong official inflation level made it impossible for pensioners to get social security recalculations for life cost growth. It forced them to spend their pension capital.

The low-interest rates have also impelled corporate tops to borrow money and buy corporate shares. Such maneuvers increased the shares’ prices, and thereby the bonuses and share options for corporate tops, directors, and shareholders went up as well. In other words, corporations got to debt dependency for the sake of the short-term benefits of their managers and co-owners. The companies unwilling to participate in these fraudulent schemes were frightened to be exposed by the Wall Street.

The combination of FRS policy and offshorization has currently put us in a position where each aspect of the economy, like consumers, authorities of all levels, or business is debt burdened. The debt burden of American taxpayers is so high, and they are so poor that 41% of them are not able to gather 400 dollars without borrowing from family, friends, or selling some property.

A country with a debt-burdened population has no prospects for consumer market development. Without constant consumer market development, there is no economic growth. All of the GDP growth rate of our country exists due to the false digits produced by US officials, which do not take into account the real inflation and unemployment levels. And without economic growth, neither consumers nor local or federal authorities are able to properly service their debt or provide proper execution of their social obligations.

The FRS stays afloat due to a Ponzi scheme, which now should be called “The United States economy.” It means to print money to maintain financial assets prices. The rise of interest rates anticipated by the Federal Reserve System does not mean the growth of the real rates, because if the stock market meets a wide scale sale of shares, then the FRS actively buys the futures of the companies from Standard & Poor's list. Thus the real interest rates are going down, and the paper assets are going up again.

Under normal circumstances, the FRS printing such an amount of dollars combined with the high debt burden of the US officials, local authorities, consumers, businesses, etc. should lead to falling dollars. But it is not happening due to the following three reason.

First, there are three other central banks in the World printing reserve currencies (CB of Japanese, CB of UE and Bank of England.) They are still conducting QE programs, and it is compensating the number of dollars printed by the Fed. It maintains the dollar and keeps it from decline.

The second reason is the Federal Reserve’s capability to reduce the gold prices by means of shorting gold futures and placing naked contracts via FRS’s banks. This mechanism is applied when the market is prevailing suspicions regarding the true price of the dollar.

And finally, financial managers, private persons, pension funds, etc. rather want to make money than the opposite, and they will follow Ponzi scheme as long as possible. A Ponzi scheme declines when it is no longer possible to dump dollars on the exchanges.

That is the reason why Washington has to maintain its domination over Japan, Great Britain, and Europe. The firm domination is the only way to keep the thins going. The American Ponzi scheme will decline at the same moment some of those central banks cease maintaining the dollar. Other banks will follow the tendency, and it’ll be the end of the Ponzi scheme. Apparently, the US might lose its place amongst the World leaders if the prices for American treasuries and securities were to be fairly evaluated.

To keep the Ponzi scheme going America has to use warfare instead of economic reforms. There is simply no other way. It is the sad conclusion of the policies which are in place and, thus, our most likely future.

Author: USA Really