To read the complimentary chapter 3, ‘The Emerging Markets Perfect Storm’, from my 2016 book, ‘Systemic Fragility in the Global Economy’–which describes the fundamental causes and dynamic of today’s growing crisis in Turkey and other emerging market economies (especially Argentina, Brazil, South Africa, India, and Indonesia)–go to my website for a free copy of the chapter at:



The global economy is again becoming financially fragile. Financial fragility is an indicator of increasing likelihood of the eruption of a major financial instability event–i.e. stock crash, bond market implosion, housing-commercial property price deflation, sovereign debt defaults, etc. (see my Systemic Fragility in the Global Economy, 2016, book for detailed theoretical analysis). Chapter 3 of the book described ‘The Emerging Markets Perfect Storm’, which explained how emerging markets economies would be destabilized and precipitate the next global economic contraction. The causation of the destabilization would lay in US and other advanced economies raising interests rates and would in turn cause the US dollar to escalate and emerging market currencies to plummet. That would provoke EME capital flight, to which EME central banks would respond by raising domestic interest rates that, in turn, would drive their economies into deep recession. That analysis, scenario and prediction was made in January 2016 in the book.

Global and US events delayed the process at that time. Fed rates stayed low and so did the dollar. In the past year, however, the scenario has begun to emerge, with Fed rates rising, dollar escalating, and an increasing number of EME currencies in turn crumbling and collapsing.

The current case of Turkey’s economy is at the center of this process, its currency having plummeted 40% to the dollar just this year. (It has temporarily stabilized this week, but the decline will soon continue once again).

But Turkey isn’t the only indicator, Other EME currencies are also in sharp decline at various stages: Argentina, Brazil, South Africa, Indonesia, and India. Russia’s Ruble is deflating and China’s Yuan, the strongest, nonetheless pushes against its lower band within which it too has deflated by 6-10%, prevented from falling further only due to China’s central bank massive intervention in money markets to prop up the value of its currency to prevent further devaluation.

Rising global financial fragility is rising due to obvious increasing contagion effects. The Turkish LIRA crisis is spilling over to other EME currencies, causing a further decline in those currencies in addition to the already significant forces driving down those currencies. Turkish dollarized debt payment obligations to Italian, EU and US banks are being noted in the business press. Italian bank debt is especially exposed, when Italian banks already sit on $500 billion in non-performing bank loans. The transmission mechanism to a broader European bank crisis might easily occur from Turkey to Italian banks to the general banking system. US banks like Citibank are also exposed to Turkish debt. Other indicators of growing potential contagion from the Turkish fallout are the global currency speculators (hedge funds, vulture investors, etc.) now plowing into short selling of the LIRA, further depressing its price, the rising interest rates on Turkey government and private bonds. The response of other EME central banks in raising their interest rates to try to stem the outflow of capital as their currencies follow the LIRA down. (Argentina being the worst case, as its central bank raises rates to 45%–thus ensuring that country’s current recession will collapse into an even more serious contraction, perhaps even depression). The first phase of the general contagion effects of the LIRA collapse have now occurred. A second ‘shoe’ will inevitably fall within weeks. Financial fragility is rising in the global economy–and will eventually impact the US economy in 2019, thus further ensuring a US recession sometime in 2019 that this writer has been predicting.

The following is an excerpt verbatim transcription of my August 10, 2018 Alternative Visions Radio Show, during which I stated my early analysis of the Turkey currency crisis now underway. A follow up print article is pending. (To read my analysis in 2016 of the now unfolding crisis, go to my website, for a complimentary copy of the Chapter 3: ‘The Emerging Markets Perfect Storm’, at http://kyklosproductions.com/articles.html. Reviews of the broader book, ‘Systemic Fragility in the Global Economy’, which addresses financial fragility in Europe, China, and elsewhere at the time, are available at that website as well at http://kyklosproductions.com/reviews.html.

HERE’S THE VERBATIM EXCERPT on TURKEY CRISIS from my August 3 Alternative Visions Radio Show:

Let’s take a look at some of the more important trends that have occurred in the past week here, in the US and global economy.

Well, what’s really erupted on the global economy stage has been the collapse of the currency in Turkey. Yeah, it’s getting a lot of news, particularly in the last day or so. What’s going on there? Why is the Turkish currency, called the lira, why is it in free fall? And yes, it is in free fall. It’s down 38% since March, 38% collapse of the currency. You know we’ve been talking about the importance of currencies in assessing the status, the ability of the global economy. And just to repeat my fundamental argument, the dollar is the driving currency in the world. And when the dollar rises, the currency exchange rates are always one currency in relationship to the other. If the dollar goes up other currencies are going to go down, all things equal.

[06:25] (dollar rising)
And of course, the US dollar has been rising, you know, it’s pulled back a little bit, but it’s been rising, and the dollar is rising because the Federal Reserve is raising interest rates. That drives up the value of the dollar. Why? Because, investors elsewhere in the world see rates rising in the US, and they want to buy into those Treasury Bonds and other US securities. So they sell their currencies which increases the supply of their currencies on the market, global money markets, which drives the prices of their currencies down. When they’re buying dollars it drives the demand for the US dollar up, and raises the dollar. So the dollar goes up, their currencies go down when interest rates rise in the US. And that’s what’s been happening, and will continue to happen according to the Federal Reserve. We’re going to get at least two more rate hikes, here, from the Federal Reserve this year, and maybe three next year.

We’re already at 2%, the benchmark federal funds rate, which drives all the other interest rates. When that rate goes up all the others go up. And, if they raise it two more time at .25%, or what they call 25 basis points each time, that’s two and a half. I’ve been saying for some time that once you hit two and a half percent in the benchmark rate that you’re getting close to a credit crunch. I do not believe that the Fed can raise much more than two and a half percent, maybe not even that. But if it does, not much more without precipitating a credit crunch, which means recession.

That’s why I’ve been predicting recession late next year, if the Fed continues raising rates. Which by the way is about half what it raised rates in 2008. Yeah, the Fed clearly raised interest rates to 5.25% in 2007-8 right into the obvious recession that was coming. And then of course, the financial crash exacerbated that, big time. Yeah, 5.25%. It won’t even get anywhere near that and the same thing’s going to happen this time. Because of changes in the economy and the overhang of massive debt, particularly corporate debt that exists in the US economy.

Ah but the Fed is pushing it (raising rates). Why is the Fed pushing it? Well because it’s got to attract borrowers for US Securities in order to finance the trillion dollar annual deficits that Trump has created because of his massive tax cuts, defense hikes, and other policies. The Fed is raising rates to fund the deficit and the debt. Which is going to be over $10 trillion dollars over the next decade, on top of the $21 trillion we already have. That’s why the Fed is raising rates. That’s why the dollar’s going up. That’s why Emerging Market Economies (EME), are going, their currencies are going down. And of course, Turkey is at the forefront of this collapse, 40%.

But there’s other country’s currencies that are not too much further off. You know Argentina down 30 some percent, forced Argentina to go get a loan from the IMF. Well, Turkey doesn’t want to get a loan, because if you get a loan from the IMF, the IMF says, “Okay, it’s austerity time, go squeeze your work force and your small businesses and average folks, hmm, raise your interest rates, create a recession.” Well, Argentina’s already in a recession, its GDP collapsed 6% the latest data. But they don’t care because these are the financial speculators under Macri government there, who took over that government with the help with the US, you see. And they’re just enriching themselves.

Okay, so it’s not just Turkey, you know, there’s Argentina, there’s South Africa, there’s Brazil, other major economies, Indonesia, India showing trouble with their currencies.

So raising interest rates in the US has this major impact on currencies. And that includes, China. Although the impact of the rising dollar under China is not as serious as on these other economies. But nonetheless, its forced the Chinese currency, the yuan, the renminbi, whatever you want to call it, uh, out to the edge of the band in which China allows its currency to fluctuate. In other words the devaluation edge of the band. And uh, Chinese central bank, The People’s Bank of China has been buying up the yuan/renminbi in markets, global markets, to keep it from devaluing further.

Well, as rates continue to rise it’s going to be harder and harder for The People’s Bank of China, its central bank, to continue purchasing, to prevent a devaluation. And at some point that devaluation is going to break out of the band. When that happens, the psychological awareness of,”Uh-ohh, even China’s currency is devaluing,” not just Turkey, Argentina, and so forth, that’s going to have a big psychological effect around the world.

A currency war. Yes, it will precipitate a currency war. I recently written on that, check out my blog, jackrasmus.com. And, what may push it over the edge there in China is Trump’s trade war with China. He’s trying to bully China like he’s done with all the rest of the trading allies, and they’ve pretty much conceded, and come hat in hand to Washington. He’s getting what he wants from them. Including Mexico and Canada very soon before the election, I predict.

But China’s another story. He’s not going to have it so easy. And China’s doing a tit-for-tat tariff response. But uh, China can only do so much tariff response because it doesn’t purchase that much from the US, compared to the US purchasing from China. So China’s gonna have to, if the trade war continues, if Trump keeps driving the trade war with China, China’s going have to respond in other ways. And I predict it’s #1 way is just let its currency devalue. You see, it doesn’t have to declare a devaluation, it just as to stop intervening in global market to keep the yuan from further devaluing. They say, “Well you know, this is global markets, we’re following the markets. We want to be a market society here, US, and there’s a, you’re putting pressure on us to follow the markets, that ‘s all we’re doing.” You see so, all they have to do is not intervene and the yuan will devalue. And then all these other currencies will devalue and faster.

But, let’s get back to Turkey, alright – 38% collapse. Well, is that all attributed to the dollar? No, the dollar’s a big part of it, set if all off. But global speculators pile in, you see, financial foreign exchange currency speculators. You know, hedge funds, and all those guys. Whenever they see a significant move in a price of any kind, and this is a price of a currency, the exchange rate, they jump in and they short it. In other words, they bet that it’s going to fall even further. Which drives it down even further.

And that’s what’s happening here. Global speculators are jumping in now and shorting the Turkish lira, which is causing it to decline even further and faster. On top of that Trump is fanning the flames of the whole thing. Well, how’s he doing that? Well, he just put more tariffs on Turkish steel, and I don’t know if they have aluminum, but uh, more tariffs on that (steel). And uh, in the press what you see is, “Oh, he’s making this demand that Turkey release this, uh, Christian pastor.” I forget his name, back to the US, release him. What Trump is doing is using the crisis in Turkey and its currency, is to leverage some political domestic appeal with the evangelicals in the United States. They want that pastor released, so, he’s willing to create a foreign relations issue in order to pander to the evangelicals in the US

But you know what’s really behind it is the US is sending a signal to Turkey, “Ah, you’re getting too close to Russia. You know you’re buying Russian, Russian military goods, you know, anti missile missiles, and uh, we don’t like that, you gotta buy it from us.” Well, Turkey says, “Russia’s cheaper, and besides, your CIA tried to throw me under the bus, pull off a coup, so why should I buy it from you, I’m going to buy it from Russia.” The US says, “Well, we don’t like that, and you’re getting too close to Iran, Turkey.” Erdogan is the president there, “Erdogan, you’re getting too close to Iran, we don’t like that, and you’ve gone to China to borrow from China, no, no, you’re supposed to borrow from the US, even if it costs more, you’re supposed to borrow dollars.” Well they have been borrowing dollars, and that’s part of Turkey’s problem. Most of their debt is rolled up in dollarized debt. They’ve been borrowing from the west, particularly US banks and European banks in order to finance their economic development. Which has been pretty aggressive. But they’re loaded up with debt right now, you see, dollarized debt.

Those Emerging Market Countries that are heavily, heavily exposed to dollarized debt, borrowing in dollars, are those whose currencies are collapsing the fastest. Because the dollar is rising. You see, when you have debt, and the value of the, the cost of the debt rises, right, and your currency is falling, you gotta spend even more of your currency to service that dollarized debt. In other words, service meaning paying the principal and interest. The cost is going up, but your ability to pay for it, in your own currency, is going down as your currency declines. So, what you gotta do is borrow even more to pay the old principal and interest. You know, and if the US doesn’t like your policies they simply prevent you from borrowing more, and then your economy collapses. And whoever is in power politically collapses.

That’s one of the ways, one of the many ways that the US exercises economic imperialism. The dollar is a weapon, a big weapon, and global interest rates that influences is a big weapon. Trade is another weapon, and the US employs these weapons very cleverly. And that’s what’s going on in Turkey, here. So this big global geopolitics behind this, uh, release this pastor appeal to the evangelicals, where Trump gets two bites of the apple then, right? And he fanning the flames, and the global speculators, hedge fund guys are jumping in and fanning the flames of the currency collapse. And then if the currency collapses, well then, inflation rises. Because most of these other Emerging Market Countries have to buy, in other words through imports, many essential staples. And if the value of their currency is down, well then, the cost of those staples goes up. You know, often times this is food stuff, this is medical supplies, etc.

You can see the very extreme impact of this in Venezuela. Where the US has essentially, for several years now, shut off Venezuelan access to dollars, and inflation has gone through the roof. That’s all part of destabilizing that economy there, which has really been destabilized significantly. But it’s all, you know, it’s about the US manipulating currency and so forth. Because the dollar is the global trading currency. You can buy anything with dollars, right. I mean, who wants to take Argentine pesos for their shipment of medical supplies to Argentina when Argentine pesos are collapsing in value. Well, you’ll just take a loss if you sell and allow them to buy in pesos. But uh, “Okay, Argentina, you want the medical supplies, well then you pay in dollars.” Well then, Argentina has to go out and buy the dollars with a collapsing currency, hmm. And if it doesn’t have enough dollars, what does it do? It goes to the IMF and says, “Give me some dollars, IMF.” And the IMF gave Argentina $50 billion. But, only with the understanding, it impose austerity, “Squeeze, and you pay us back, you squeeze it out of the rest of your populace.” And if you’re, you know, if you’re a big financial business man running Argentina, “Oh, that’s okay, as long as you don’t squeeze us.”

Okay, so Turkey perhaps has become the most indebted in terms of the most external dollar debt, than all of these Emerging Markets. Its borrowing dollars. Now that’s the key, because where did it borrow it from? Ah, from European banks and US banks. Banks got the dollars, that’s where they borrowed it. And, heavily from Italy, and Italian banks. Yes, the UniCredit, BVB, and a couple others there are really exposed to loans to Turkey. And if Turkey cannot pay the principal and interest on those loans then those Italian banks, UniCredit and others are in deep trouble. Well, they’re already in deep trouble, the Italian banks. They already have a half of a trillion dollars of non-performing bank loans from the crisis since 2008. A half a, $500 billion of non-performing. Non-performing means, they gave out these loans, usually to Italian companies and other companies, and they’re not paying it. Whoever borrowed it is not paying the principal or the interest, or both. So, they are non-performing they say.

Well, a lot of those loans from Italian banks, also were made to Turkey. So if Turkey collapses its currency, then it can’t pay its principal and interest on its Italian bank loans. Well then, what happens to Italian banks? Well, they’re in trouble, and the signs of their trouble is the collapse of the stock values of the Italian banks. And that’s going on right now!

So, this thing in Turkey, if it continues, and gets worse, will result in defaults in the big Italian banks. And that can have a bigger contagion effect. We’re talking about contagion effects in this Turkish situation. Now it spills over to European banks. Well you see European bank stocks declining here, and European stock market, and US stock market to some extent to. Because, probably City Group is exposed here. Alright, so other European banks, you see, the financial system is linked. They are all linked together. That’s why you get such contagion in crisis situations. One node in the contagion network, here, can’t service his debt, and that means the debt and losses are transferred to whoever it can’t pay. And then they can’t pay somebody else, and they can’t pay somebody else, you see, it just spills over.

The key problem here is the massive amount of dollarized debt that Turkey borrowed from the US and Europe that has to be repaid in dollars with a currency, the lira, that is collapsing. And it’s all traceable back to the Federal Reserve, the US Federal Reserve raising interest rates.

Now Turkey has, you know, massive, hundreds of billions of dollars in dollarized external debt, that has to be repaid, and with a collapsing currency. And one third of this debt that Turkey is due for payment next year – roll over. It has to be rolled over. In other words, rolled over means, you borrow even more to pay the old principal and interest on the old debt. That’s what they mean when they say ‘roll over.’ Hmm. Well, what banks, global banks are going to give Turkey anymore money to pay off its own debt when its currency’s collapsing? Not many. But that forces them to go to, IMF. Ah but, Turkey doesn’t want to go to the IMF. Turkey did that, went through that ringer about 15 years ago, as a lot of countries did, after 2001, and got stuck with IMF. And had to give up much of its national production to pay off the IMF. They don’t want to get stuck in that.

Now the Argentine, the Argentina finance capitalists, they don’t care, you know. As long as they protect their interests and value of their investments, they’ll squeeze the Argentinians, which they are doing. Same in Brazil. You know, they’re a bunch of bandits. They destroy their own economies, but they don’t care.

So in order to borrow more money, Turkey has to raise what it will pay in terms of interest, and, right now its bond rates are at 20%. In other words, buy Turkish bonds and Turkey will pay you 20% interest. As the currency collapses the bond rates go up and that’s when the speculators jump in, you see.

Turkey’s external debt, as we call this, the dollarized external debt, is 53% of its GDP. As I said, 1/3, has to be repaid next year. Well, Argentinas is 37%, South Africa 50%, Brazil 33%. That’s why these are the currencies that are collapsing, you see. Because interest rates are rising. The debt they borrowed, the massive debt they borrowed has to be repaid in dollars, and their currencies are declining. And that forces them to raise interest rates, and that causes them, domestically, that causes a deeper recession, you see.

So, you can trace this thing all the way to Trump. US deficits, a trillion dollars per year, gotta raise interest rates. Raise the interest rates, dollar goes up, currencies elsewhere go down. They have to raise their interest rates – deep recessions. And it all begins in Washington. Trump is depressing the rest of the world economically.

Readers of this blog, and audience of my weekly Alternative Visions radio show on the Progressive Radio Network have been asking me if my radio show can be transcribed and posted in print form on this blog. One of the regular listeners of the show has generously offered to provide a print version of my presentations. What follows is the verbatim transcript of my August 3, 2018, Alternative Visions Show that addressed the them of why Trump’s economic policies–taxes, trade, deregulation, etc.–represent an attempt by US elites to resurrect Neoliberal policies that nearly collapsed under Obama in the wake of the 2008-09 global crisis. Trump represents an attempt to resurrect a new, more virulent, aggressive and violent form of Neoliberal policies–a Neoliberalism 2.0. Here’s the transcript:



Greetings all you 99%er’s. This is your host, Dr. Jack Rasmus, this is Alternative Visions.

In recent weeks we’ve been talking a lot about taxes and trade and central banks, and we’re going to do it again, because they are all related.

The theme of this show would be:

Do We Have a NeoLiberalism 2.0 Emerging?

I think so. A new, virulent, more aggressive form of NeoLiberalism under Trump. Obama could not restore NeoLiberalism to a new aggressive track after the 2008-9 crash. You can think of Trump as an effort to restore the NeoLiberal policy trajectory that was set in motion in the late 1970s and accelerated under Reagan, and continued under Bush1, Clinton, Bush2, and then it hit a wall with the 2008-9 crash and Obama could not restore it fully. What we have here is a more aggressive form taking shape under Trump. I say a more aggressive form because it is even pushing the NeoLiberal elements more aggressively than had been before 2008.

Okay, so what are the major elements of NeoLiberalism? Well, obviously tax cuts for the rich – the wealthiest 1%, both their corporations and their individuals. The tax cuts necessarily involve a tax shift, in other words, you raise taxes on the other 95%, while you shift the tax burden and make it lighter for the wealthy. Of course we’ve seen this with Trump’s tax cuts at the beginning of this year. Five trillion dollars in tax cuts for investors and businesses and corporations. Offset by 2 trillion dollars over the decade coming, in tax hikes for the middle class, by eliminating exemptions, deductions and credits. So we get a net of 3 trillion. Then they argue, it’s only 1.5 trillion because, making phony assumptions about getting no recessions for the next 10 years means, according to supply side ideology, that tax cuts will raise tax revenues by 1.5 trillion, so that net is only 1.5 trillion. See the games they play, and the media picks it up and pushes it as well.

So, tax cuts and tax shift is a central element of NeoLiberal policy. So is accelerated war and defense spending, that’s a major development. Of course that’s been continuing, not only under previous regimes, but continuing here as well under the current regime.

We just had an announcement that the senate overwhelmingly approved another $85 billion increase in Pentagon spending for the next fiscal year. We’re going to get these $85 billion, it’s actually more than $100 billion, because the Pentagon is not the whole war spending defense budget, it’s the major element, but a lot of war spending, defense spending is stuffed away in other departments – energy department, atomic energy, veterans and so forth. So, $85 billion is really well over $100 billion per year. We’re going to see this piecemeal increase in war/defense spending every year, 100 billion.

Alright so, that’s the second major element. Both of these together are what we call fiscal policy, taxes and government spending. NeoLiberalism means that big tax cuts for the rich, tax shifting burden for the rest – accelerated war spending – and of course that fiscal policy creates massive budget deficits. This gives a good example and a good opportunity to go after social spending programs as well. But that can’t even come near, the cuts there, can’t even come near to offsetting the tax cuts, and that hit on the federal budget.

Now there’s an ideological element here, that says, ‘well, you know, if we cut taxes enough, cutting taxes will stimulate economic activity and generate more tax revenues, as a result.’ That’s what’s called supply side ideology. That’s an important ideological element in NeoLiberalism that’s been here ever since Reagan, well actually just before, 1978. Jack Kemp and Arthur Laffer and others put forward this ideological element to justify the tax cuts and the deficits.

If supply side were true, the massive $5 trillion in tax cuts to the rich that were just passed January would have resulted in more tax revenues, right? Well, tax revenues so far this year are down 40%. Corporate tax revenues are down 40%, four-zero. Hmm, well, the hell with that theory. Look at reality, it’s not true, and it’s not been true ever Reagan. Tax cuts do not stimulate more tax revenues, just the opposite.

But that’s ideology. There’s a lot of ideological element in mainstream economics. We’ll talk about those next week, or maybe one of these days. You know, the idea that tax cuts create jobs, hmm. Uh, how about free trade benefits everybody, hmm. How about wages are a function of one’s productivity, hmm, I could go on and on. There’s at least a dozen major ideological elements that are force fed to the public to make them believe that these policies that are really designed to enrich the wealthy and their corporations are really sound economic science – they’re not.

A lot of economics is bullshit ideology. I’ve been thinking for some time to write a book, Ideology and Economic Policy. I wrote an article a couple years ago attacking the whole notion that tax cuts creates jobs, and that free trade benefits everybody and other such nonsense. Maybe soon.

Let’s get back to the elements of NeoLiberalism. The accelerated war spending and the tax cuts result in massive budget deficits. This has been going on for some time, and annual budget deficits mean the national debt rises every year. Deficits cumulative, mount up to the debt. Under Trump we’re moving from a $20 trillion national debt to, after ten years, it will be at least $32-$33 trillion in debt. And of course you have to pay the interest on that debt. Which comes to 100’s of billions of dollars every year. And who gets the interest? Well, the wealthy people and corporations – US and global – who buy government treasury bonds, The debt.

Okay, so for years they’ve been buying the debt. As we’ve been running these huge deficits, because of NeoLiberal tax and war spending, they, meaning the wealthy in the US and globally have been buying up treasury bonds. So, where do they get the dollars to buy up treasury bonds, is the next question? They get the dollars from two sources. One, US corporations, sending the money abroad to buy up companies and start up operations and so forth, imperialism, economic imperialism, whatever you want to call it – that’s called foreign direct investment – which is subsidized by US tax policy. But, even more so, the trade deficits.

The US purposely, under NeoLiberalism, runs trade deficits with the rest of the world. In other word, the trade deficit means, we buy more of their products than they buy of ours. Well, if we’re buying more of their products, dollars, we’re using dollars to buy them, are flowing out of the country, out of the US and into the rest of the world. That’s been going on for decades now, and it has resulted in a massive amount of dollars floating around the world, which end up in central banks and banks. And, those central banks, banks, wealthy investors, and foreign corporations and so forth, recycle the dollars back to the US, by buying treasury bonds. So you see the trade deficit under NeoLiberalism is essential to financing the US budget deficit.

The budget deficit from tax cuts and war spending has to be paid for by selling treasury bonds, and approximately half of our deficits now are financed by foreign purchasers of treasury bonds, securities, notes and so forth. So we’re able to run a huge budget deficit because the trade deficit and the agreement with the rest of the world to recycle your dollars back to the US, enables us to finance the budget deficit. This is called the Twin Deficits Solution. This is central to NeoLiberal policy.

What I’m saying is of course, US fiscal policy, and US trade policy are connected at the hip. They are one and the same – one enables the other.

Oh, but we’ve got Trump on a trade rampage here, now. Will this upset the twin deficit solution? Well, it just may, but not yet. Because, as I’ve been saying, a lot of the trade, it’s mostly a trade war of words, particularly with US allies. We’ll get back to this in a minute.

Alright, so the twin deficits – the budget deficits and the fiscal tax and spending, war spending, associated with the budget deficit, are integral parts of NeoLiberal policy. And of course, under Trump, the deficits from tax cuts and war spending have been accelerating. As I’ve been saying in recent shows, way over a trillion dollars, way more than a trillion. The congressional budget office says, about $900 billion. No, it’s way over a trillion dollars this year, more next year. And Trump, is now proposing a tax cut 2.0, that’s coming on top of the 5 trillion for the next ten years

Trump is now proposing, with friends in congress, Ryan and his buddies, he’s now proposing a 2.0 – Trump tax cut 2.0. In other words, they’re going to try to make these tax cuts, this 5 trillion, permanent. One way they sold it was it’s only for 10 years. Now they’re going to make it permanent. And, in the process give even more tax credits and tax shelters to wealthy individuals. Plus, they keep chipping away at the ACA, Affordable Care Act taxation elements. To pay for ACA $592 billion in taxes was raised, a lot of it on investors and corporations, medical device makers, insurance companies and so forth. They’ve been chipping away at that. The attack on ACA has really always been about the taxation element within it to pay for it. Okay, so they’re chipping away, item by item, on ACA, that’s part of 2.0 coming.

And now, just this past week Steve Mnuchan, Treasure Secretary, announced that they are looking at ways of bypassing legislation in congress and just using Treasury Department rules and guide lines to cut capital gains taxes by another $100 billion.

They’re cutting taxes any which way they can while they still have control. In other words, what they are doing is, at the expense of everybody else, they’re enriching themselves. And, congress and Trump are making it all possible. No wonder the rich folks aren’t that upset with Trump, he’s delivering for them. Who cares what his policies are with immigration and so on and so forth, ‘the guy’s delivering for us, let him go.’

Now, NeoLiberalism also has an industrial policy element associated with it. What do we mean by Industrial Policy? Regulations, industry regulations, and of course we know that was immediately being slashed left and right, and still is everywhere. A big financial boondoggle was announced this past week for the auto companies. Trump is trying to eliminate controls on auto emissions. In other words, companies won’t have to invest to get their auto mileage and emissions reduced by 2020 and 2025. That’s a big cost savings for them – deregulation everywhere.

Crush the unions. Well, they’ve crushed the private sector unions, they’re just a shell of what they were. They’re now going after public sector unions, and of course that was the Janus decision. Right to work is going after all of the unions, in other words, make it illegal to require to join a union. A lot of people will then be free riders, because the unions have to negotiate for everybody’s contracts. But workers won’t join and they won’t pay their fair share for the costs of negotiations, making it harder for the unions to organize. Keep the unions weaker. And what’s coming next in the attack on unions? I believe beyond the Janus decision, and beyond the right to work, they’re going to take away and make it illegal for unions to negotiate dues deduction from their members. In other words, the employer won’t gather the dues in the payroll check, and pass it on to the unions. They will impoverish the unions even more by requiring the unions to collect dues from their members, which means union representatives will be spending all of their time being dues collectors. Of course, that’s going to piss people off too.

Weaken the unions, destroy the unions, that’s what’s happening. They’re almost gone, and it really amazes me how union leadership has allowed this to happen. It’s allowed it to happen because ever since Reagan union leadership has thrown itself under the skirts of the democratic party, saying, ‘protect us, protect us’. The Democratic Party can’t even protect itself. DP has become inept and ineffective, it’s lost its base everywhere, except on the two coasts. DP has lost all of the governorships, and lost control of all, or virtually all of the state legislatures. DP is just a shell national electoral congressional party. But the unions thought they’d be saved by the DP. Take the easy way out, instead of fighting it. They thought, ‘well, our friends will save us.’ Well, the DP has done very little for the unions, first under Clinton, and then under Obama, and they won’t do much anymore, as well.

Okay, so Industrial Policy has crushed the unions, they’ve done that. Compress real wages, they’ve done that. You know, all of this data coming out, ‘Wages are rising, wages are rising,’ that’s BS, they’re not rising. Wages are rising for a small slice of the upper level of the wage structure, the top 10%, in tech and so forth, professionals. For the rest wages are not rising in real terms. Inflation is more than off setting the wage increases. Furthermore, when you read this data from the labor department, it talks about average wages – averages. The growth at the high end pulls the average up, which means the top 10% are getting wage increases of more than 2%. That means that the rest are getting wage increases at the median of maybe 1%, or less, if you’re below the median. And that’s in nominal terms, then you reduce it for real wages, and the real wages are still going backwards. And by the way, it’s not just average wages that they report, it’s only average wages for full time permanent workers. Read the fine print in the Labor Department’s statistics. If it’s only for full time workers, what about the 50-60 million people who are not full time permanent workers? Well, they make 60-70% of the median wage. Those figures, whether their wages are rising or not, and I believe they are not, even in nominal terms, would really drag down the total labor force, 60 million wage gains. So, the fact that its averages, the fact that it’s only full time, the fact that it’s not real wages, all of that negates the lies about wages are rising.

Alright, so that’s part of Industrial Policy, and then another element of Industrial Policy is to privatize social benefits, insurance benefits and of course that’s been happening ever since Clinton. As far as health care, employer provided health care, as contributions are concerned. It’s also been true for defined benefit pension plans, employer’s contributions, holidays and so forth. The pensions are in trouble, particularly muliti-employer pension plans, yes they are, because the employers aren’t making contributions, and they haven’t for over 20 years in many cases. Well sure, the pension plans are going to look like they’re in trouble. But they want them to go into trouble so they can dump them on the government – dump the pension plans on the Pension Benefit Guarantee Corporation, you see. A government agency that absorbs collapsed pension plans and pays maybe 50% of what the pension plan should pay. That’s a strategy ever since Clinton of NeoLiberalism. Let’s get out of these defined benefit pension plans, let’s crush them, let’s let them collapse, and we’re going to offer people 401k’s, which is privatized kind of a personal pension in which the stock market gets a big cut.

So all of these are elements of Industrial Policy, deregulation, crush unions, compress real wages, privatize insurances and retirement.

Another element of NeoLiberalism policy, on the monetary side, is to provide low interest rates. Low interest rates not only mean that bank loans are cheaper for businesses, even more importantly it means that businesses can issue corporate bond debt at virtually no cost. And then they take the bond debt, the corporate bonds and commercial paper they issue, and the money from that they then redistribute to their share holders in buy backs and dividend payouts.

Look at Apple, today, Apple announced it’s a trillion dollar company. Apple is sitting on 100’s of billions of dollars of cash. Apple issues corporate bonds at record levels, 10’s of billions of dollars, and then uses that money from the bonds to pay off it’s shareholders. Yeah, that’s why low interest rates are part of NeoLiberalism policy. And of course what happens when they do the stock buy backs, the value of their stock rises. In other words, the low interest rates subsidizes stock and bond prices. That’s been going on, especially under Obama, over a trillion dollars per year, every year. This year 1.3 trillion dollars in payoffs of stock buy backs and dividend payouts to the wealthy 1 or 2% that own all of these stocks. ***

So, monetary policy is really about subsidizing shareholders and stockholders. That’s the true role of the Central Bank, to subsidize other banks, and subsidize the wealthy investors. Well, isn’t tax cutting about subsidizing them as well? You betcha. So we have this fiscal and monetary policy game being played under NeoLiberalism, both are about subsidization of the rich. And we have Industrial Policy holding down, and compressing wage incomes. Well no wonder we got runaway income inequality. You see, they’re getting two bites of the apple, they’re holding down wages for the 90%, and they’re, as fast as they can, shuffling the money into the shareholders, the rich. In fact, the subsidizing through buy back and dividends and corporate profits, and other forms of corporate subsidy and so forth, far more contributes to the income inequality trends, than even holding down wages.

Alright, so low interest rates really mean a low dollar, a low dollar globally. That’s another element of NeoLiberalism Policy, a low dollar.

Again, to summarize:
Tax Cuts for the Rich, Accelerated War Spending, Industrial Policy, Low Interest Rates, and a Low Dollar Globally.

The low dollar is associated with Free Trade. The US likes free trade. Even before Trump got elected I said he’s a Free Trader, and he is. It’s not that he didn’t sign the TPP. He simply wants bi-lateral free trade and he said so himself. Why do you think he’s going around with his war of words, threatening Europe and NAFTA and all the rest with his trade tariffs? He wants to shake them up, come to the bargaining table and renegotiate, bi-laterally all of these free trade deals. He’s a free trader, he’s just not a multi-lateral free trader. And that plays into his ego, because, one thing he wants to do is to show that he’s a better negotiator than Obama and all the rest before him. He’s going to get better deals. Better deals for whom? For US corporations.

So, low dollar globally. The low dollar globally in free trade means big trade deficits, but it’s the trade deficits that finances the budget deficit. If the trade deficit gets larger, then they can run a bigger budget deficit. Which means they can cut taxes more and raise more spending more. So the trade policy is integral to the war policy, the tax policy, and the budget and debt policies. They are all integrated. But the big picture is that this Trump NeoLiberalism 2.0 is about asserting and insuring US global hegemony for another decade. That’s what this is all about. And not just economic hegemony, but political and military.

But we have a contradiction here that has emerged that is in the works, and that wrench in the works is that the Federal Reserve is not going along any further with low interest rates and low dollar. You see there’s a direct correlation between low interest rates and low dollar. And, conversely, if you raise interest rates you raise the value of the dollar. And the Fed is raising interest rates, isn’t it, yes, very fast. And the dollar is rising as a result. Well, if the dollar rises that means that other currencies, other currencies, are declining. It’s that inverse relationship between exchange rates – dollar rise, other currencies fall in relation to it, simply because there is an exchange rate. One goes up the other must go down.

Well, the Fed’s raising rates, and the dollar is rising, and Trump is now complaining. He has this big complaint about the Fed, saying, ‘Oh, you’re raising rates too much.’ Well, come on dummy Trump, how else you gonna finance your trillion dollar plus deficits if you don’t raise your interest rates to attract more buyers of treasury bonds? You see, the Fed’s raising interest rates has nothing to do with inflation, it never had. The Fed has to finance the trillion dollar deficits by raising rates, that’s why rates are going up. There’s no other reason, it has nothing to do with inflation, that’s just a cover to sell it to the public.

Okay so, raising rates causes significant problems. The dollar goes up, and when the dollar goes up other currencies devalue, and offset the tariffs that Trump is threatening to impose. ‘I can make foreign goods more expensive by raising tariffs on them.’ But if their currency devalues it offsets the tariff increase. So Trump is caught in a contradiction here, and the key is the Federal Reserve. The Fed continues raising rates, and other currencies devalue, and it offsets his tariffs.

[31:40] (China)
Well, let’s take a look at China. Trump has threatened 200 billion dollars of more tariffs on top of the on top of his $36 billion on Chinese imports to the US. It’s a threat, it’s not real yet. When you talk about trade war you have to distinguish between the war of words, the threat, the announcements of actual tariffs and the implementation of those tariffs. We had a lot of threats and war of words about tariffs, but the announcement and actual implementation has been pretty low. Only $36 billion on Chinese goods. Maybe $70 billion worldwide, mostly steel and aluminum tariffs, plus the China tariffs. This is on $3.6 trillion of imports to the US, that’s about 2.3%. In actual fact, there’s very little trade war if you just talk about tariffs. Trade war is not here yet, but it may come.

I’ve been saying and writing about the two track trade war. One, Trump’s trade war with everybody except China, and then Trump’s trade war with China. Well the former is phony. You could see in recent weeks he totally backs off his threats to Europe to put tariffs on autos. Junker, the president of Europe comes over here and they agree to put everything off. Junker announces, ‘well, we’ll buy more soy beans and natural gas from you if you don’t slap auto tariffs on us,’ maybe, in the future, nothing for real. And now we have a deal that’s going to be announced imminently with Mexico. What’s holding the Mexico deal up is that Trump introduced, unilaterally a few months ago, a sunset clause, saying, ‘oh, we’re going to renegotiate this deal NAFTA every 5 years. And we don’t want you, secondly, to go after US corporations under the deal in the courts.’ They had a deal with NAFTA, with Mexico at least, months ago, and Trump held it up, but now it’s imminent. It’s going to be released before the November elections.

So, no real war with Europe here, and about to resolve the issues with token adjustments, which Trump will exaggerate and misrepresent to his base, and claim that his economic nationalism is working. That’s about to happen soon. The South Korea trade deal was a softball template for it all. So Europe, and Asia, and NAFTA and so forth, no trade war. A lot of hoopla and threats. The media loves it, picks up on it, Trump loves it that they pick up on it. But, no trade war going on with US allies.

Ah but, China is another question here. China is the real target. Not yet a trade war but getting close to it with China. Both sides have slapped $36 billion of tariffs on each other, but it’s still minuscule in the bigger picture. Ah but, China won’t come to the bargaining table anymore. You see they had a deal back in May. Steve Mnuchin went over with a trade team and they had a deal.

As I’ve said before, and it’s worth repeating, the US wants 3 things from China, 1. more market access, 2. wants China to buy more agricultural goods, 3. and it want to stop the tech transfer going on.

US corporations being forced to share their technology, particularly next generation technologies associated with cyber security, 5g wireless, and artificial intelligence. The US, in particular the pentagon and the defense establishment, is getting worried that China may use these next generation industries and markets also to leap frog the US, or to come to parity with the US on military capabilities. That’s what it’s all about. The US says, ‘Oh, this is intellectual property.’ Well, it’s software, military important software intellectual property. That’s what it’s all about when the US say IP, intellectual property.

Okay, so that’s gonna be, that third element of what the US wants out of China is the sticking point. China’s already agreed massive increases in US access, and has agreed, and signaled, it will buy $100 billion more per year in US agriculture. But what’s holding it up is the US tech transfer issue, that’s going to be harder. While Trump was able to intimidate with threats, the other weak US trading allies, including Europe, NAFTA, S.Korea and others – they’re at a big disadvantage economically and politically with the US, and they cave in. They’re becoming economic Setrapes, in the old Persian Empire they had governors who ran the regions called Setraps. These other region’s goal, integrated with the US economic empire are like Setraps. They don’t really control their own fate anymore. The US can easily bully them into submission, economically and otherwise, and that includes Europe now – Japan, Europe, NAFTA – they can all be brought around to NeoLiberalism 2.0, the future, and that is occurring.

[38:23] (China)
China’s another story. China won’t even come to the bargaining table now. After the $36 billion in mutual imposition of tariffs, Trump, trying to force China to the bargaining table said, ‘well, uh, I’m going to slap another $200 billion on you,’ – 10% on $200 billion of goods imported to the US. China said, ‘well, we’re going to do the same.’ That kind of pissed Trump off, and he said, ‘well, I’ll make it $500 billion.’ [chuckles].
China sits back and says, ‘okay, Mr. Bluster, just continue, we’re not going to come to the table while you’re trying to brow beat us, we’re not Mexico, you can’t do that.’ And they’re (China) sitting back there, dangling some nice bait to US bankers and multinationals saying, ‘we’re going to give you 51%, 100% access ownership of companies in China and we’ll buy a $100 billion more of your agricultural goods.’ Ooh, US interests like that, right. But it’s being held back, as I said, by the military establishment in the US and the defense companies.

Okay, so that’s the big sticking point here, and China’s not falling for the threats. And, what can China do? Well, China could slow its purchase of US Treasuries, they’re a big buyer of US Treasuries. Nah, I don’t think they’ll do that, because that will probably cause a collapse of the trillion dollar plus treasury assets that they hold. They could start boycotting US goods in China. In another words, a campaign, ‘Buy China, or, don’t buy US.’ China could introduce various kinds of non-tariff barriers to US companies. They’re imposing counter tariffs that are targeting agriculture in the US midland. But most likely, I think, they will allow its currency, the Yuan, the Renminbi, globally they call it, to devalue. Think about it, if Trump slaps a 10% tariff on $200 billion dollars of goods, it raises the costs of Chinese goods. But if China allows its currency to devalue by 10% it negates that 10% tariff.

Since the beginning of the year, since this trade war tiff with China began, the yuan has devalued 10% against the US dollar, 6% in the just last 2 months. So we already have a 10% devaluation. Maybe that’s why, in the last few days, Trump increased his threats and said, ‘well, before I said 10% tariff on $200 billion of goods, I’m going to raise it 25%, if you don’t come to the bargaining table, China.’ Well, he has to raise it to 25% because the 10% has already been negated by the devaluation of the yuan.

Now China tries to keep the yuan within a trading band, they say, between 6.2 to 6.8-9 yuan to the dollar. China’s been entering the markets buying and selling yuan in order to keep it within that band. Well, it’s at the end of that band, at the edge of that band, 6.8-6.9, and the next move will have to be to break that band to allow the yuan to devalue further. Well, if Trump imposes 25%, you bet China will allow the yuan to depreciate, to devalue by another 10-15%.

You see how this trade war can easily slip into what’s called a currency war? That’s the real indicator of a trade war. Not this tariff spat going on, which isn’t that significant anyway, yet. That’s why US business interests are only now becoming a little concerned about Trump’s trade war. If you look at the facts, it’s mostly huff and puff and smoke and threats and war of words, tariffs of words by Trump, which is so typical. And it only brings to the table, his threats and his belligerence, only brings to the table the weak players. This allows him negotiate a deal, which he’s timing these deals right before the November elections. It allows him to negotiate a deal that makes him look good. ‘Oh, see what I did, bi-laterally I renegotiated these agreements that were so terrible, free trade deals, now I have a better free trade deal, see I’m a great negotiator.’ And of course, he’ll misrepresent it, and blow it out of proportion, and lie about the terms and conditions, and the economic effect for his political base. That’s the politics at the heart of all this trade hullabaloo, at least with the allies.

Technology and military are at the heart of the China/US trade dispute.

I recently wrote a piece on my blog, Will Trump’s Trade War Become A Currency War? – jackrasmuss.com – Also some other blogs picked it up, The World Financial Review…. A lot of this stuff I say in more detail, numbers and so forth, go read it on the blog. It’s my third in my series on Trump NeoLiberal trade policy.

Okay, so, China will devalue I predict. Now, a devaluation will set off a global trade currency war. Already emerging markets are in a crisis, as their currencies are already devaluing against the dollar as the Federal Reserve raises interest rates. They’re already devaluing, already collapsing. I mean Argentina, Turkey, Brazil, now Indonesia and India are beginning to look like they’re being effected by this. As the dollar goes up, and it will continue to go up, because rates will continue to go up, their currencies will continue to decline. Well now, when their currencies decline that means the value of profits earned by US multinational corporations in those countries decline. Their earnings, for example, US corporations in Argentina and other places are earning incomes in the currencies of those countries, as they operate in those countries. But then if they want to bring the money back, it buys fewer dollars. That’s why you’re not going to see a lot of this repatriation bullshit ideology they’ve been talking about with the Trump tax cuts. They have to bring it back in dollars. They buy fewer dollars, i.e., the profits in dollar terms declines because the currencies in those countries decline, and the currencies decline because you have a trade war that’s going to spill over into a currency war.

Okay, see how all of this is linked? And if have currency in the EME, Emerging Market Economies, where currencies are falling, that means those countries then raise their interest rates, domestically, in order to prevent the capital flight out of those countries that occurs because their currencies are declining.

If you’re an investor in Argentina or Turkey or places like that, you don’t want to keep your investment in those countries as your profits are being eliminated as the currencies collapse. You want to sell those investments and convert them to a higher currency, or a more stable currency, like the Japanese yen, and sit out the profit collapse because of the currency collapse.

Well, when you do that you sell your Argentine peso, which means you dump more pesos on the market, which means the currency declines even more. So they raise interest rates in order to keep the money in Argentina. Instead of repatriating it out of the country as capitalist investors, both US and domestic will do, they raise interest rates, which at least keeps the money in the country.

Well, raising interest rates deepens the recession in those countries. Why do central banks do that, why do they raise interest rates? Because central banks everywhere have their primary objective to protect the values of the wealth of the wealthy. Even if it means recession. Raise interest rates to protect the values of their bonds, and their stocks. Even if means slowing down the country, and even if it means higher import goods inflation, which devaluation also means.

So the working class, those who don’t own stocks and bonds get hit big time with recession and joblessness and simultaneous rising inflation due to import prices. This is all a consequence of collapsing devaluations and currencies in the EME’s. Now this is already going on because the Fed is raising interest rates, but if China then devalues it will have a reverberating effect across all these emerging markets, and devaluations will occur even further. Thus recessions and inflation will recur even further in those emerging markets.

Argentina’s one of the worst cases, maybe 30% devaluation of its currency already. Turkey, their lira, even more so. They’re on the cusp of a big crisis, you see.

A crisis made in the China/US trade, and mostly the US federal interest rate hikes going on – raising the dollar. And why is the dollar going up, because the hikes are going on. And why are the interest rates going on? Because the deficit is getting bigger and bigger. And why is the deficit getting bigger and bigger? Because they are giving more tax cuts and more defense spending to the wealthy in the US.

This is the big contradiction for Trump. How does he get NeoLiberal monetary policy back on track with low rates and low dollar? Well, he’s attacking the Fed, and he’s going to continue to do that. But it’s going to be very hard for him to do something about the Fed. Unless of course he can stack it with his own people, which of course, he’s trying to do. A lot of positions were left open in the Fed on the board of governors and he’s filling them. And his Boy Powell may play the game, and go along with him. But not yet, you see, it’s not so clear that the Federal Reserve will bow to pressure from Trump. Because they’re really there to protect the corporate capitalists’ interests in this country. And, so far, it looks like they’re doing it by raising interest rates. They know a recession is coming, and when they had interest rates at a quarter of 1% there was nothing the Fed could do if there was another recession. So now, they are desperately trying to raise interest rates to give themselves a cushion for the next recession, which I say is coming late next year, 2019. And of course they have to somehow finance the deficit and debt.

Well, we’ll see how that works out, keep a close eye on that. But if this provokes a deeper crisis in emerging markets it’s going to have a psychological contagion effect across all of these markets. Not only on emerging markets, but it will have an effect as well on advanced economies.

[52:40] (England)
Well, what’s happening with central banks elsewhere, in the advanced economies, in Europe, Japan, North America – other than the Fed? This past week, the Bank of England indicated its raising its interest rates. How much more proof do we need that the Central bank has nothing to do about insuring economic stability, but it’s really about subsidizing the assets of the rich, than this recent Bank of England increase? The British economy is heading fast towards stagnation. Its growth rate, I think, is less than half percent now, and moving further down. And, the Bank of England raises interest rates in the midst of this, which will slow down the economy even more? Well, why do they raise interest rates? Once again, because they need to keep the value of the pound, the British pound, up. Because if it devalues that means the wealth, the stock and bond wealth of the rich will decline, because of the devaluation, you see. On paper it will decline. So, keeping interest rates up, as the US raises rates, the British, the BoE, raises rates as well. Also, they need to keep the pound value up, because if it continues to fall, or if they allow it to fall, like emerging market currencies, it will really complicate their Bexit negotiations right now. It will put them in an even weaker negotiating position with the rest of the European Union. So they have to keep the value of their currency up, that’s why they’re raising rates. But it’s going to slow their economy. The British economy, 6 months from now is going to be in a recession, no doubt.

So, it’s very clear, central bank policies are about subsidizing asset values. Not stabilizing the economy, or getting growth going, or slowing inflation. No, no, that’s what they sell to the public, that’s the ideology of central banks, ‘oh, central banks are about stabilizing the economy.’ Central banks destabilize the economy by subsidizing asset values, causing bubbles in financial assets that lead to crashes. And then they step in and clean it up, and create the same, next round of financial bubbles.

[55:28] (Europe Central Bank)
Well, what about Europe, the European Central Bank? They’ve been pumping money into their bankers and their corporations by buying up the bad bonds and so forth. Not just government bonds, but in Europe they’re buying up corporate bonds. Most of which is going to northern European banks, by the way, and at zero interest rates, near zero interest rates – subsidizing. Well, they were supposed to, recently say, ‘okay, we’re going to reduce and end this whole problem of subsidizing QE,’ which means, buying up bonds, 10’s of billions of dollars per month, I think 30 billion, or something like that. They’re supposed to do that. But they recently decided, ‘nah, we’re going to hold off on raising rates.’ So Britain is raising rates and the ECB says, ‘we’re going to not raise rates, we’re going to keep subsidizing,’ because their economy is even weaker.

And, Japan, which is the weakest of all, says there is no change. They are going to continue buying massive amounts, not only of corporate bonds, but stocks, massive amounts of stocks with zero interest.

So central banks continue to subsidize, around the world. Except in the US which is raising rates, and to some extent, the Bank of England, raising rates. But they have to raise rates to finance the budget deficit, the trillion dollar plus budget deficit if they want to continue tax cutting for the rich and defense spending increases.

And now Trump is going after China which may totally undermine this twin deficit solution. This is the big danger for the US NeoLiberal policy. Finally, we have trade policy coming in contradiction with domestic fiscal monetary policy. So he hasn’t really reestablished NeoLiberalism Policy 2.0 yet, only part of it. And if he doesn’t, we’re going to have big problems in 2019 and 20. We’ll have big problems anyway.

NeoLiberalism 2.0, to summarize, is really about restoring and reasserting US economic hegemony for another decade. It’s about preventing and slowing China’s military progress. It’s about crushing US domestic opposition and resistance, here domestically as a new harsher 2.0 is introduced – attacking unions, reducing voting rights, stacking courts, attacking islands of opposition within the US bureaucracy, attacking the media, the 4th estate with fake news and all this nonsense, and controlling public opinion.

This Is What NeoLiberalism 2.0 Is All About!

[58:50: OUTRO MUSIC]


New revelations of Trump’s Commerce Secretary, Wilbur Ross, financial shenanigans reveal the latest shady dealings and wheeling-dealing of members of Trump’s cabinet. I call them the new ‘Grifter Faction’ of the US elite, cut from the same cloth as Trump himself.

To listen to my 11 minute interview on Loud & Clear Radio GO TO:

(3rd in a series on Trump trade policy)

In recent weeks Trump threatened $500 billion in tariffs on China imports, escalating his prior threat to impose $200 billion on China. He then threatened hundreds of billion in tariffs on world auto parts imports, targeting Europe. But Trump’s threats and announcements do not constitute a trade war. Threats and even announcements of tariffs are one thing; the actual implementation of tariffs another. But even the current scope of tariff implementations do not yet represent a trade war. Bona fide trade wars occur when tariff fights spill over to currency devaluations and generate currency wars.

To date, only $34 billion in tariffs on China industrial imports to the US has been actually implemented, plus another $2-$3 billion in intermediate steel and aluminum products. In response, China has so far imposed an equivalent $36 billion in tariffs on imported US agricultural goods, targeting US soybeans, port, cotton and other grains produced in Trump’s political base of the US Midwest agricultural belt.

Elsewhere around the globe, earlier in July Trump threatened to escalate a trade conflict with the European Union, threatening to impose $200 billion on Europe and global auto part imports to the US. But to date there’s only been US tariffs implemented on Europe steel and aluminum imports. And the response from Europe has been a mere $3 billion in counter tariffs on US imports. Ditto for trade with Mexico-Canada. US steel-aluminum tariffs on imports from Mexico-Canada have elicited a token response of $15.8 billion in Mexican and Canadian tariffs on US imports.

Total actually implemented US import tariffs to date—mostly levied against China—amount to only $72 billion, or 2.3% of a total of $3.06 trillion imports into the US annually. US trading partners have responded tokenly in kind, with their own 2.3% in tariffs on US exports on the total $2.58 trillion US exports worldwide. Tariffs of 2.3% hardly represent a tariff war, let alone a trade war. Bona fide trade wars are never limited to tariffs. Trade wars involve not only tariffs but also non-tariff barriers to trade. Even more important, bona fide trade wars occur when tariff spats escalate and precipitate currency devaluations.

Should Trump follow through with threats of $200-$500 billion more tariffs on China imports, the US and China will likely slip into a currency war as China allows its currency, the Yuan, to devalue further. And that devaluation will almost certainly quickly go global— given the current significant decline in currency exchange rates already taking place throughout various throughout key emerging market economies (Argentina, Turkey, India, etc.). Other emerging market economies will have no choice but to follow China’s devaluation lead. Nor will advanced economies like Japan and Europe be immune from having to devalue, as they try to offset Trump tariffs in order to maintain their share of global trade that Trump policies are clearly attacking.

Trump’s Dual Track Trade War

Trump apparently believes he can control the response of US trading partners to his threats and intimidations, and that he can conclude token trade deals, if necessary, to avoid falling over the trade cliff of currency devaluations. While he might be able to backtrack and quickly close trade deals with NAFTA partners and Europe—just as he settled a quick, token deal with South Korea early this year—the settling of a quick trade deal with China may not prove so easy. And the longer the tariff conflict with China continues, and escalates, as appears likely, the greater the likelihood or the current US-China tariff spat descending into a currency war.

A Trump two track trade policy has been underway since early 2018. One track is with US trading allies. Here Trump will prove flexible and eventually settle for minor adjustments in trade terms, just as he did with the South Korea trade pact earlier this year. Trump will then exaggerate and misrepresent the dimensions of the deals with allies, selling it all as great achievements benefitting his domestic US political base and confirming his US ‘economic nationalism’ policy that proved so politically valuable to him in the 2016 elections. Much of the trade war with allies is really about US domestic politics and the upcoming US November midterm elections.

US-Mexico Deal Imminent

Unlike China, where trade negotiations are currently frozen and no discussions are underway, both Europe and Mexico in recent weeks have been signaling they are amenable to a quick deal with Trump if he will settle for relatively minor concessions. Mexico president elect, Lopez Obrador, sent his trade negotiator to Washington DC this past week to explore concessions with Trump. A deal was negotiated last spring by US and Mexican trade representatives but was subsequently scuttled by Trump. Trump introduced a new demand in US-Mexico negotiations that any trade deal would have to ‘sunset’ and be renegotiated every five years. Trump did not want a deal too early. Trump wants a deal closer to the US November elections so that he can tout it to his domestic political base as proof his ‘economic nationalism’ policy works. The current differences between the US and Mexican positions in negotiations currently are otherwise not significant; should Trump drop his sunset demand, which he will do when the timing for his domestic politics is appropriate—that is, just before or soon after the US midterm elections—a deal with Mexico (and thereafter similarly with Canada) will be concluded quickly. And according to US Commerce Secretary, Wilbur Ross, just last week, an agreement between the US and Mexico will soon be announced.

Hiatus in Trump ‘War of Words’ with Europe

The same Trump flexible approach was evident in the just announced ‘deal’ with European Commission president, Jean-Claude Juncker, who also came to Washington this past week. Juncker’s goal was to get Trump to back off his threats to impose tariffs on Europe auto part imports. Not actual tariffs, in other words, but to get Trump to retract his threat to perhaps introduce them. Trump and Juncker then announced a ‘deal’. The so-called deal is merely verbal and indicate objectives the parties, US and Europe, hope to maybe achieve, at some point undefined in the future. It was not actually a trade agreement. Just a mutual statement they would negotiate toward a deal. Trump backtracked from his threat to impose tariffs on autos. In exchange, Juncker offered to buy more US soybeans and US natural gas at some point in the future. In terms of actual tariffs, or any other ‘trade’ measure, the Trump-Juncker announcement was mostly a public relations stunt for both parties designed to placate their domestic critics.

The US trade war with Europe is just a war of words, as it has been thus far with NAFTA. What exists in fact is just a couple billion dollars of actual tariffs on steel and aluminum imposed by the US on Europe and a similar amount of token tariffs implemented by Europe on select US imports to Europe. The so-called trade war with NAFTA and Europe is still phony. Not so the case, however, with China. And while negotiations continue with NAFTA and Europe, no further discussions are underway with China and will likely not occur soon.

What the US Wants from China—And Won’t Get

Unlike NAFTA and Europe, a quick settlement with China is not in the works. The US wants concessions from China that it is not demanding from NAFTA, Europe and other allies. The US wants concessions in three areas from China: more access to China markets by US banks and multinational corporations, including 51% and then 100% US corporate ownership of their operations there. Second, the US wants China to purchase at least $100 billion more in US goods, mostly from Midwest US agribusiness and manufacturing. Third, it is demanding stringent limits and reductions in China’s current policy requiring US nextgen technology transfer from US businesses operating in China. What has the US defense and intelligence establishment especially worried is China plans to leapfrog the US in nextgen technologies like 5G wireless, Artificial Intelligence, and Cybersecurity. These represent not only the source of industries of the future, but threaten a quantum leap in China military capabilities. The US refers to the nextgen technologies as ‘intellectual property’ since they are fundamentally software based. But what the US really means is nextgen military-capable software intellectual property.

When negotiations opened with China this past spring, China cleverly offered major concessions to the US. It announced it would grant 51% ownership rights for US multinational corporations doing business in China, and signaled it could agree to 100% as well. That delighted US bankers and multinational corporations. Their representative on the US trade negotiating team, US Treasury Secretary, Steve Mnuchin, publicly declared a deal with China was therefore imminent. China also signaled it could purchase $100 billion more a year in US agricultural products. But it would not budge on the tech transfer issue. A deal was close but was then upended by US defense-intelligence-war industries US negotiating faction. Through their friends in Congress, they aborted any prospective trade deal with China. Trump then followed up by threatening to impose an additional $200 billion of tariffs on China in response to China matching US tariffs on China imports by implementing an equivalent $34 billion on US exports to China, especially targeting US soybeans, pork and other grains. And when China declared it would match the US further threat of another $200 billion in tariffs, Trump doubled down by threatening a further $500 billion on China imports. While Trump’s threats of more tariffs and intimidation tactics have proven successful eliciting the response he wants from Europe and NAFTA partners, it has not to date proved similarly effective with China. Nor will it likely.

While China will allow significant US corporate access to its markets, and will agree to purchase hundreds of billions more of US exports, especially agricultural, China shows no signs of bending on its technology development objectives. And while US bankers, multinational corporations, and agribusiness-farmers appear willing to cut a trade deal on market access and US exports purchases, it appears that the US defense establishment (Pentagon, Intelligence agencies, defense contractors), together with its friends in Congress, will not allow a deal with China without major concessions by China on technology.

From Tariff Spats to Currency Wars

Trump believes his intimidation tactics—thus far proving successful with NAFTA and Europe—will work as well with China. He believes he can close token deals quickly when he chooses with the former two, which is true. But he can’t do so similarly with China. And the longer the tariff spat with China drags on, and deteriorates, the more likely a US-China tariff war will escalate into a bona fide trade war involving currencies and US dollar-Yuan exchange rates. And that is the prospect US and global business interests are particularly worried about.

A currency war between the US and China will reverberate across the global economy that already shows signs of slowing and, in some key sectors, is already descending into recession. Tariff spats involve two trading partners and may affect their mutual economies, but currency wars quickly spread across all economies in a chain-like contagion of devaluations.

This potential scenario is approaching, as Europe’s economy is slowing rapidly and tending toward stagnation once again. Japan is already in another recession. A growing number of emerging market economies are contracting—the worst case scenarios being Argentina, now in a 5.8% economic contraction, but Brazil, South Africa, and others are continuing to slip further deeper into recession. Turkey’s currency is now collapsing rapidly, a harbinger of real economic contraction on the near horizon. Meanwhile, India and other south Asian currencies and economies are also growing more unstable. In short, the global economy is growing more fragile in terms of both trade and production. A trade war involving currency instability between China and US will almost certainly tip the balance.

But Trump clearly believes China’s economy can be destabilized by the US trade offensive. That China has more to lose than the US, since it has benefitted from US trade more than the US has from China trade. But this is a naïve and simplistic analysis, typical of Trump and his advisors. Typical of a financial speculator mentality, Trump believes that so long as the US stock markets are doing well, the real economy is strong and can weather an intensification of a tariff war. For Trump, ‘tariffs are great’. Just raise them further to intimidate trading partners and force concessions from them to the benefit of US corporate interests and the economies of his domestic political US base.

China has already begun to ‘dig in’, however, in anticipation of a longer, protracted contest with the US over tariffs and their economics effects, and US demands to restrict China technology development. It has just announced another major fiscal-monetary stimulus to its economy this past week, in anticipation of slower growth from exports and trade with the US. A massive money injection to spur bank lending, tax cuts, and more government investment are planned to offset any export slowdown. It is also aggressively pursuing other trade deals with Europe and other economies to offset any decline in US trade. China also has various measures it can employ in a Trump trade war escalation. It can slow its purchase of US Treasury bonds. It can impose more non-tariff administrative barriers on US companies in China and those exporting to China. It can launch a boycott of US made goods among China consumers. These are likely measures of last resort, however. More likely is China may allow its currency, the Yuan, to devalue against the dollar—thus even offsetting any Trump tariff effects. And ironically somewhat, the devaluation of China’s currency will be allowed to occur due to market forces, not any China official declaration of devaluation, since the US policy is already causing a devaluation of the Yuan.

Trump’s trillion dollar annual US budget deficits have resulted in the US Federal Reserve central bank raising interest rates. The Fed must raise rates to finance Trump’s now estimated annual trillion dollar deficits for the next decade (caused by Trump’s $3 trillion in tax cuts and trillion dollar hikes in defense spending; with trillions more tax cuts and defense spending in the Congressional pipeline before year end 2018).

To pay for the multi-trillion dollar deficits, the US central bank, the Fed, is rapidly raising interest rates. Rising interest rates are driving up the value of the US dollar. That dollar appreciation in turn is causing an inverse decline in the value of emerging market economy currencies—and that includes China’s Yuan currency. The Yuan has devalued by 10% since the US tax cuts, deficits, and interest rate hikes in 2018. A seven percent Yuan devaluation in just the last three months. The Yuan is now at the edge of its trading band at 6.8 to the dollar. Should it slip further, which is inevitable as US interest rates and the dollar continue to rise, a devaluing Yuan will set off a chain reaction of devaluations throughout the global economy—i.e. a currency war will have arrived. And as currencies devalue, Trump’s tariffs will have been offset, neutralized, negated.

Trump has declared ‘tariffs are great’. But Trump’s tariffs will have been negated in turn by a currency war set in motion by Trump’s own domestic fiscal and monetary policies that are causing the US dollar to rapidly appreciate worldwide. Trump is betting his intimidation approach can produce quick results before his tariff war precipitates a currency war and a severe global economic contraction. He is rolling the economic dice. He and his advisors clearly believe if it gets too serious, he can call off the tariff disputes with NAFTA, Europe and other trading allies quickly. He probably can, by backing off and getting token agreements which he’ll misrepresent and exaggerate. But the scenario for a quick resolution is quite different with China. It will not back off so easily. The US-China dispute is far different than the US-trading allies (NAFTA, Europe) trade war of words.

Some Conclusions

Thus far, Trump’s trade wars with allies are phony. A NAFTA deal is imminent. A hiatus even in the trade war of words with Europe has been declared. And a further escalation with China has not yet occurred. Trump will announce token and fake deals with Mexico and Canada before the US November elections for purposes of touting the success of his ‘economic nationalism’ to his US domestic political base. He will likely make more outrageous threats to China while perhaps trying to lure them back to negotiations with sweet-talk about China President, Xi, and possibilities of a deal . But China knows his game by now, and most likely will not negotiate until it sees what happens with the US November elections and the Mueller investigation of Trump.

At some point China and the US will negotiate. When they do, the key to whether a real trade war emerges thereafter—and that will only be with China—will depend whether Trump follows through with his threats to impose another $200 billion in tariffs on China imports to the US and whether the Pentagon and US defense industry lobby agrees to soften its demands on US technology transfer. US-China negotiations have already reached tacit agreement on China purchases of US exports and more US banker-corporate access to China markets in the future. How China will respond to more US tariffs and technology transfer is the crux of any US-China trade agreement—or trade war.

Trump and his advisors believe China cannot match tit-for-tat an equal $200 billion since it doesn’t import that magnitude of goods from the US. They think therefore they have the advantage in a dispute with China. The US has a bigger ‘tariff stick’ than China has is the thinking. But that view is naïve. China has other measures, which it has signaled it is prepared to employ (without yet revealing the details). A devaluation of its currency would be high on its agenda of possible responses should Trump implement $200 billion more in tariffs. China’s currency is already pushing the edge of its band, at 6.8 to 6.9 to the dollar. China thus far has been intervening in money markets to keep it there. All it needs to do, however, is stop intervening and let the Yuan devalue beyond the band, driven by market forces. It doesn’t even need to declare a devaluation. As the dollar rise, as it will continue to do so as the Fed raises interest rates further, the Yuan will devalue without China intervening to prevent it. (In other words, US policy is ultimately driving the Yuan devaluation). A Yuan devaluation will allow China to offset Trump tariff costs by an equivalent amount, thus negating Trump’s tariff actions. Contrary to Trump’s bombast, of ‘Tariffs Are Great’, he will find that tariff wars typically fail.

At that point the skirmish on tariffs between the US and China will morph into a currency war and signal that a true trade war will have begun. It will be a China-US trade war—with significant repercussions for other global currencies as a contagion effect of currency devaluations follow. Global currency exchange rates will adjust downward even lower than they have to date already throughout emerging markets, as well as in Europe and Japan. The general competitive devaluations will sharply slow global trade and, in turn, global economic growth.

Jack Rasmus, July 31, 2018

Dr. Rasmus is author of the book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, and the forthcoming, ‘The Scourge of Neoliberalism: US Policy from Reagan to Trump’, also by Clarity Press. He blogs at jackrasmus.com and tweets @drjackrasmus.

Listen to my 12 min. interview with Loud & Clear radio yesterday, July 25, on Trump’s tariff threats on Europe, his proposed $12 billion in aid to US agribusiness to offset farm losses from China tariffs, and how the present tariffs tit for tat could lead to a full blown currency war Trump cannot control.


Listen to my analysis on ‘Loud & Clear’ Radio, Washington DC, on Trump’s latest announcement to impose tariffs on Europe auto imports. Why Trump rhetoric and threats amount to only actually 2.3% US tariffs on $3.06 trillion of imports to the US. Why Trump’s trade offensive is about playing to his domestic US political base. My predictions re. Trump trade war: a deal will be reached with NAFTA within 6 months; with China (maybe) in 2019; and with Europe only after the UK ‘Brexit’ is resolved. But lots of Trump bombast, threats, and insults in the interim.