Jack Rasmus

With the Republican and Democrat party conventions in progress or upcoming, it has now become clear that the 2016 USA presidential election is unlike preceding elections in recent decades. Large percentages of those who consider themselves members of either party do not approve of their presidential candidates, for one thing. That includes more than a third of both Republican and Democrat voters. For another, both candidates have assumed positions on issues that in previous elections would have been considered anathema to the dominant ruling economic and political elites. For example, both candidates have been highly critical of US trade and free trade policies—especially Trump.

Trump’s more vehement criticism of US trade policies in particular has US elites concerned, to put it lightly. Almost hysterical might more accurately express their emotional state when the subject of Trump and trade is raised.

US Elites Nervous About Trump & Trade

For example, the president of the biggest and most influential US business lobbying group, the Business Roundtable’s John Engler, a former governor of Michigan, in a recent interview stated “There’s a great sense of frustration here”. Trump’s views on trade are ”diametrically opposite” and a “cause for great concern” to the Roundtable, whose corporate members collectively represent more than $7 trillion in annual revenues and employ 16 million workers. “Everything has been upended”, according to Engler.

Chicago billionaire, Penny Pritzker, current US Commerce Secretary, has voiced similar concerns, as has Obama—i.e. Pritzker’s protégé since his early days in the Illinois state legislature. While Obama the candidate in 2008 promised to rewrite the NAFTA free trade treaty if elected, as soon as he was elected he morphed into the biggest presidential advocate of free trade in US history—thus coming around to the view of Pritzker’s Chicago corporate clan of free traders. Most politically well-connected economists, and media mouthpieces in and out of academia—like Paul Krugman, Thomas Friedman, and a host of others—all defend free trade and therefore have joined the growing army of pundits attacking Trump’s positions on the subject. Christine Lagarde, director of the Washington-based and US dominated International Monetary Fund, IMF, has chimed in recently as well, labeling Trump’s trade proposals “disastrous” for the world economy. The presidents of the NAFTA economies—the USA, Canada, and Mexico—recently met in their ‘three amigos’ NAFTA summit in Ottawa, Canada recently and jointly reaffirmed their elites’ view of the benefits of free trade, and the dangers of ‘Trump-like’ trade protectionism.

According to the academic theory of free trade all countries involved benefit from trade. But do they? Free trade theory says nothing of how the benefits get distributed and to whom—i.e. to corporations, investors, and shareholders or to wage earners. If corporations and investors benefit on both ends of the trade exchange, the same is not necessarily so their respective working classes. Free trade theory conveniently ignores income distribution effects. However, that doesn’t deter mainstream economists treating it like a ‘holy grail’ of neoliberal economics nonetheless.

Trade and Working Class Incomes

The record of US free trade policies for working and middle class America reveals devastation, not benefit. For example, total US employment since NAFTA and China trade the past two decades has witnessed a loss of more than 6 million US manufacturing jobs. Perhaps as many as two thirds of which have been due to free trade alone, according to studies. Additional millions of jobs have been lost in communications, professional services, and other non-manufacturing industries. For the jobs that remain, moreover, wages in US companies that export more have risen less than wages have fallen in companies harmed by the rise in imports. The net result is that both jobs and wages—and therefore median working class incomes—are both negative. And that’s due to direct export-import effects. There’s more.

Free trade is also about money and investment flows, as well as goods and services net export-import flows. Read the provisions of NAFTA. It’s as much about terms and conditions for US corporations ease of US money investing into Mexico as about goods and services. With free trade enabled money and investment outflows from the US have come US investment offshoring and consequent US job offshoring. Job offshoring is thus an indirect, and no less significant, consequence of free trade. In the past 15 years, US households’ median wages and incomes have declined by more than 10%–much of that due to the above free trade direct and indirect job and wage effects.

In the past two decades, and especially since 2009, US workers have become more informed and conscious of the negative impact of trade on their jobs, incomes, and living standards. They see the wealthiest 1% of household take 95% of all the net income gains since 2010, while their wages and incomes decline. They see high paying manufacturing jobs disappear to other countries, while more than half of the jobs that have been created in the US since 2010 have been low paying, part time, temp jobs averaging less than $36k a year. And they sense even less opportunity for their children. Recent reports project that more than 90% of new jobs created in the next decade will earn about the same $36k a year. Due to all this, they are, legitimately, pissed off.

Trump has identified and played to this discontent. That Trump is popular and leading in polls in states with a high concentration of white, middle age and up, male, non-college educated working class voters is not surprising, given his aggressive criticism of US trade policies and their devastating effects. Trump has embraced the trade issue in no uncertain terms, and his attack on US trade policies have resonated deeply with this working class segment—i.e. a voting bloc in key swing states and a group that cares little what Trump says on other non-economic issues, however outrageous, whether on race, ethnic, gender, foreign policy, or other subjects. Trump speaks to their ‘rage’ at being ignored by US political and economic elites now for decades, and especially since the 2008-09 recession, the recovery from which has mostly passed them by, as well as to their fears for future prospects for their children. The more that US economic elites, in whichever party, attack Trump the more this working class bloc is convinced he, Trump, must be for real because they’re attacking him.

Donald Trump: Populist or Panderer

The important question, however, is whether Trump is honestly serious about changing US free trade policies, or whether he is just cleverly pandering to the discontent of this bloc of working class voters. He has called for ‘tearing up’ the NAFTA treaty; imposing tariffs on imports from China and Mexico of 45% and 35% respectively; stopping China from manipulating its currency; and building a fence to stop immigration flows from central and Latin America.

But he won’t say what he means by ‘tearing up’, which therefore appears more a rhetorical appeal than a proposal. If he means it literally, treaties cannot be ‘torn up’ by Presidents in the US system. That’s potentially grounds for impeachment. Nor has any president legal authority to unilaterally raise tariffs, except temporarily for 150 days and no more than 15%, after which Congressional legislation is required, according to the 1974 trade act. Nor is Trump correct that China is a currency manipulator, since for more than a decade now China has pegged its currency, the Yuan to the dollar in a narrow trading band. Its Yuan has risen and fallen in synch with the US dollar. If any countries are currency manipulators, they are Japan and the Eurozone—both having made their currencies more competitive by 20%-30% to the dollar by monetary means in recent years in order to gain exports at US expense. But one hears nothing from Trump (or US elites) complaining about Japan or Europe currency manipulation. And Trump has said nothing about changing US tax policies that subsidize US multinational corporations offshore investing and therefore promote job offshoring. And he conveniently ignores the impact of hundreds thousands of high paying tech jobs being given every year to tech workers imported to the US on H1-B and L-1 visas, most of whom come from Asia and not Latin America. Asian tech workers take high paying jobs Americans want; Latin American immigrants mostly assume ultra-low pay service jobs that US workers generally don’t want. Does Trump maybe want to build a wall along California beaches and pacific coastline as well?

Certainly Trump and his advisers know all this. One can only conclude, therefore, that Trump is not really serious about attacking free trade. He is pandering to those with a legitimate and serious real concern who have been deeply harmed by US trade policies. Trump is in that great US presidential candidate tradition, promising voters what they want to hear and then, if elected, doing whatever the economic elites want them to do. US presidential candidates, of either wing—Republican and Democrat—of the Corporate Party of America, are habitual liars and cannot be trusted. We had our pseudo-populist from the ‘left’, Barack Obama, elected eight years ago promising to reform free trade treaties. And he became the biggest free trade advocate in US economic history. In Trump, we have our Obama analog, a pseudo-populist this time from the ‘right’, promising the same. And who then will do the same. To paraphrase an ancient saying, US voters now considering voting for Trump based on his anti-trade views would do well to ‘Beware of Billionaires Bearing Gifts’.

To listen to my Alternative Visions July 15 radio show on the above topic,

go to:

http://prn.fm/category/archives/alternative-visions/

or go to:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

A centerpiece of Trump’s campaign, that is gaining support for him among white working class voters in key swing states like Pennsylvania and Ohio, is his attack on free trade treaties from NAFTA to TPP. Today’s show examines the conditions behind the current stagnation of global trade the past 18 months, growing wage stagnation and income inequality in the US, and increasing US voters’ associating of their loss of quality jobs and declining wages with free trade. Dr. Rasmus briefly reviews policies in China, Japan, Europe, and the slowing of world trade. How US economic elites—from the Business Roundtable and others— are becoming terrified of Trump’s successful manipulation of voter discontent with free trade. The elements of Trump’s position on trade are discussed, including ‘tearing up’ treaties, imposing tariffs on Mexico and China, charges of China as currency manipulator, tax policy incentives encouraging job offshoring, and US visa policies. Jack critiques Trump’s positions and concludes that Trump—like Obama before and Hillary now—is simply pandering to the discontent and will reverse his promises on trade if elected. Pandering to the trade issue, however, may just provide Trump enough votes to win key states’ electoral majorities.

In conjunction with the Peninsula Peace and Justice group’s community TV project, Dr. Jack Rasmus is now presenting 10 minute Youtube interviews on topics of contemporary global economic and political importance. Below are the first three interviews in the series–on Greece’s debt crises, France workers protests against labor market reforms, and the economic origins of the recent UK ‘Brexit’ vote.

To access the Youtube presentation on Greece, go to the following:

To access the Youtube presentation on France Labor Protests against labor reforms, go to the following:

To access the Youtube presentation on the UK ‘Brexit’ referendum vote, go to the following:

To read this 5700 word feature article, pubished June-July 2016 in the European Financial Review of London, go to Dr. Rasmus’s website, kyklosproductions, at the following url:

http://www.kyklosproductions.com/articles.html

ARTICLE ABSTRACT

Dr. Jack Rasmus explains why mainstream economists typically fail to understand financial forces and variables and how they impact the real business cycle and long term growth. Their failure results in repeated mis-forecasting of major shifts in the global economy. The reasons lie in their training biases, insufficient general economic models, academic institutional biases, and other factors, it is argued. The failure to integrated financial variables properly leads to an over-emphasis on interest rates, central bank monetary policies, and traditional views of money and credit of declining relevance in 21st century global economy.

Listen to my latest analysis of the global contagion effects of Brexit, now beginning to emerge in the UK, EU, and beyond, from my Alternative Visions radio show, July 8, 2016, at the following:

http://prn.fm/category/archives/alternative-visions/

or:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Jack Rasmus takes an in-depth look at crashing financial assets in UK property funds and growing insolvent Italian banking system. Are these early signs of post-Brexit emerging financial instability? UK property funds are refusing investors their cash, Italian government is planning more ‘bail ins’ of depositors money to bail out its banks, now $400 billion in the red, UK and Euro currencies are falling, and financial asset prices are under growing pressure everywhere in Europe. Will (and how) might it spill over to the US economy? How political instability in Europe from ‘Brexit’ and spreading ‘Euroscepticism’ are being accelerated by growing financial and economic instability in the UK and Europe. Jack concludes with another take and critique of just released US jobs reports, showing how the two US jobs reports show dramatic different picture, how private job creation is being offset by public job losses, and why it’s impossible that involuntary part time jobs declined last month by 587,000. US jobs stats are increasingly unreliable, he concludes.

Listen to my June 1 Radio Show for my analysis of the economic and political consequences of the Brexit vote one week after. How the global new finance capital elite are, and may, react in response to the eventual breakup of the European Union, set in motion by the UK exit vote. To listen go to:

http://prn.fm/category/archives/alternative-visions/

or go to:

http://alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

“As predicted last week, June 24, the initial scenario for the Brexit vote is not an immediately global financial crash. The threat is more intermediate than short term. The analogy is not Brexit as a ‘Lehman Brothers’ event, the US bank collapse that ushered in the financial crash of 2008-09, but more similar to a ‘Bear Sterns’ event, the US bank that collapsed in the US early in 2008. Brexit is a warning shot fired across the bow of the global capitalist economy, not the precipitating event for another crash. Jack explains how global investors are waiting to see what happens next before dropping the other shoe. Jack reviews the likely intermediate effects of Brexit on global markets—currencies, bond rates, stocks, real investment, deflation, productivity, bank lending, consumption, and GDP. The relative effects of Brexit on economic regions are also covered: the UK, EU, US, China, EMEs. Recession in the UK will occur first, Jack explains. Europe will stagnate further. Japan’s recession will deepen, the US will enter recession in 2017 soon after the elections. China eventually will have to devaluate its currency with severe global consequences—i.e. the effects of Brexit on financial markets and real economies is just beginning. Political instability in the UK, in both conservative and labor parties is reviewed, with splits deepening in both. What Brexit also means for growing political instability for France, Spain, Netherlands, and Italy; how Brexit is penetrating the US election campaigns, as US elites and corporate push back on both candidates. Jack warns the weak spots of global capital today are Italy’s banks and Japan, where the most likely next ‘Bear Stearns’ event will emerge. Longer term, the UK currency and London as global financial center are finished as global players.

In response to my recent post on ‘Brexit as a rebellion against free trade’, a commentator to the piece raised an important, reasoned question, my response to which I’d like to share more visibly with readers of this blog. The question(s) have to do with the relative effects on wages and jobs between countries jointly involved in a free trade agreement. The question the commentator raised addresses the typical apologists of free trade argument that while some workers wages in some countries may fall due to free trade, workers’ wages in other countries rise. The net effect, according to the apologists’ argument, is that wages overall rise–i.e. wage benefits from free trade in the one region or sector rising more than it falls in the other country or region. This apology is a corollary of the general free trade theory argument that ‘all parties to free trade’ benefit from it. Here is my reply to that important question. First, is an excerpt from the commentator’s question (whose full response can be read at the end of my previous post on ‘Brexit as Working Class Rebellion to Free Trade’). That is followed by my own further comments on free trade and a critique of the apologists who argue free trade always benefits all parties at all times, and wages on net rise from it–declining in one or some country, but rising more in others so that the net effect is positive wage gains throughout the free trade zone.

Commentator’s Statement (excerpt)

“You sum up by saying: “Who benefits in terms of class incomes and interests? As the history of the EU and UK since 1992 shows, bankers and big corporate exporters benefit. Workers from the poor areas get to migrate to the wealthier (US and UK) and thus benefit. But the indigent workers in the former wealthier areas suffer a decline, a leveling.” Can you further give us your thoughts on “workers” or the indigent in the global south? Do you believe that free trade has basically immiserated everyone but the rich (with the exception of ‘poverty alleviation’ in China, which, as is often noted, does not necessarily have to do with free trade as such) in the south? Or would you say that part of its ‘distributional effect’ has been to partly redistribute some of the North’s previously greater working class prosperity to the South. I ask because your post otherwise seems to be saying something that left commentary seems generally to avoid wanting to say: that within the North, at least in part, working class animosity to free trade is legitimately rooted in the fact that “immigrants are taking our jobs.” .

My Response to the Commentator:

First, I’m going to assume his remarks re. ‘north’ and ‘south’ refer to two countries who are participants in a free trade treaty. My response does not assume it is just a question of north-south trade in general, where a free trade treaty is not in effect. Here’s my comment to the question.

“As I noted, free trade is not just about goods and services flows, but money capital flows as well. Read the NAFTA agreement and it’s clear US elite’s emphasized the right to invest directly in Mexico (foreign direct investment rights) and repatriate profits with minimal interference from Mexico’s legal system. As FDI and money flows from the north to the ‘south’, in this case, multinational companies that expand their operations in the ‘south’ often do pay higher wages and some benefits compared to the domestic businesses compensation packages. So wages in this select group of relocated companies (or expanded companies) do rise, but it is a relatively small proportion of the total work force. The booming economies (initially) in the south (say, Central AMerica, as example) from the massive money capital inflows also results in some additional rise in wages. But the wage gains are not significant in terms of longer term; they eventually dissipate and disappear when the business cycle turns down again. This is now evident in central america, again for example, as the money flows into the region reverse and return to the US as capital flight out of the emerging markets. So, yes, there is some wage gain in the south from free trade, but it is not significant as part of the total work force and tends to be temporary and reverses with the next cycle. Yes, defenders of free trade often cite this effect, but don’t provide data that shows how much free trade boosts ‘south’ wages. They typically assume all the change in wages is due to free trade, which of course is nonsense; and they always cherry pick the point in time when the wage increases rise the most and ignore the subsequent wage retreat that also occurs under free trade. Their argument is not an economic but a false moral one: free trade is good overall for workers everywhere because it rises for some in the south. Their data also does not compare the relative gains in the south to the losses in the north (which must include adjustments for price systems to be accurate). That free trade results in wage compression in the north is evident in what is called the ‘export-import wage differential’. THis has been compressing over time due to free trade. It means jobs and wages lost to free trade imports in the US exceed jobs and wages gained from an increase in US exports. The net result is a combined wage (and job) decline in the US. The US decline tends to be permanent, while the south gain tends to be temporary. Is this net US decline greater than the net south gain–in the longer run? is the key question. But I’ve seen no analyses by apologists for free trade to add up the data and evidence. In short, they make an assumption with little or no evidence, or evidence that is selective. That’s not economics, that’s economic ideology, which is what free trade is essentially about.”

Class, nationalist, and ethnic elements are all involved in the Brexit vote in a complex integration of protest. Press and media emphasize the nationalist and ethnic (immigrant-anti-immigrant) themes but generally avoid discussing or analyzing the event from a class perspective. But that perspective is fundamental. What Brexit represents is a proxy vote against the economic effects of Free Trade, the customs union called the European Union. Free trade deals always benefit corporations and investors. Free trade is not just about goods and services flows between member countries; it is even more about money and capital flows and what is called direct investment. UK corporations benefit from the opportunity to move capital and invest in cheap labor elsewhere in Europe, mostly the newly added members to the EU since 2000, in eastern europe. Free trade also means the unrestricted flow of labor. Once these east european countries were added to the EU treaty, massive inflows of labor to the UK resulted. Just from Poland, more than a million migrated to the UK alone.

In the pre-2008, when economic conditions were strong and economic growth and job creation the rule, the immigration’s effect on jobs and wages of native UK workers was not a major concern. But with the crash of 2008, and, more importantly, the UK austerity measures that followed, cutting benefits and reducing jobs and wages, the immigration effect created the perception (and some reality) that immigrants were responsible for the reduced jobs, stagnant wages, and declining social services. Immigrant labor, of course, is supported by business since it means availability of lower wages. But working class UK see it as directly impacting wages, jobs, and social service benefits. THis is partly true, and partly not.

So Brexit becomes a proxy vote for all the discontent with the UK austerity, benefit cuts, poor quality job creation and wage stagnation. But that economic condition and discontent is not just a consequence of the austerity policies of the elites. It is also a consequence of the Free Trade effects that permit the accelerated immigration that contributes to the economic effects, and the Free Trade that shifts UK investment and better paying manufacturing jobs elsewhere in the EU.

So Free Trade is behind the immigration and job and wage deterioration which is behind the Brexit proxy vote. The anti-immigration sentiment and the anti-Free Trade sentiment are two sides of the same coin. That is true in the USA with the Trump candidacy, as well as in the UK with the Brexit vote. Trump is vehemently anti-immigrant and simultaneously says he’s against the US free trade deals. This is a powerful political message that Hillary ignores at her peril. She cannot tip-toe around this issue, but she will, required by her big corporation campaign contributors.

Another ‘lesson’ of the UK Brexit vote is that the discontent seething within the populations of Europe, US and Japan today is not accurately registered by traditional polls. This is true in the US today as it was in the UK yesterday.

The Brexit vote cannot be understood without understanding its origins in three elements: the combined effects of Free Trade (the EU), the economic crash of 2008-09, which Europe has not really recovered from having fallen into a double dip recession 2011-13 and a nearly stagnant recovery after, and the austerity measures imposed by UK elites (and in Europe) since 2013.
These developments have combined to create the economic discontent for which Brexit is the proxy. Free Trade plus Austerity plus economic recovery only for investors, bankers, and big corporations is the formula for Brexit.

Where the Brexit vote was strongest was clearly in the midlands and central England-Wales section of the country, its working class and industrial base. Where the vote preferred staying in the EU, was the non-working class areas of London and south England, as well as Scotland and Northern Ireland. Scotland is dependent on oil exports to the EU and thus tightly linked to the trade. Northern Ireland’s economy is tied largely to Scotland and to the other EU economy, Ireland. So their vote was not surprising. Also the immigration effects were far less in these regions than in the English industrial heartland.

Some would argue that the UK has recovered better than most economies since 2013. But a closer look at the elements of that recovery shows it has been centered largely in southern England and in the London metro area. It has been based on a construction-housing boom and the inflow of money capital from abroad, including from China investment in UK infrastructure in London and elsewhere. The UK also struck a major deal with China to have London as the financial center for trading the Yuan currency globally. Money capital and investment concentrated on housing-construction produced a property asset boom, which was weakening before the Brexit. It will now collapse, I predict, by at least 20% or more. The UK’s tentative recovery is thus now over, and was slipping even before the vote.

Also frequently reported is that wages had been rising in the UK. This is an ‘average’ indicator, which is true. But the average has been pulled up by the rising salaries and wages of the middle class professionals and other elements of the work force in the London-South who had benefited by the property-construction boom of recent years. Working class areas just east of London voted strongly for Brexit.

Another theme worth a comment is the Labor Party’s leadership vote for remaining in the EU. What this represents is the further decline of traditional social democratic parties throughout Europe. These parties in recent decades have increasingly aligned themselves with the Neoliberal corporate offensive. That’s true whether the SPD in Germany, the Socialist parties in France, Spain, Italy, Portugal, and Greece, or elsewhere. As these parties have abdicated their traditional support for working class interests, it has opened opportunities for other parties–both right and left–to speak to those interests. Thus we find right wing parties growing in Austria, France (which will likely win next year’s national election in France), Italy, Netherlands, and Scandinavia. Hungary and Poland’s right turn should also be viewed from this perspective. So should Podemos in Spain, Five Star movement in Italy, and the pre-August 2015 Syriza in Greece.

Farther left more marxist-oriented socialist parties are meanwhile in disarray. In general they fail to understand the working class rebellion against free trade element at the core of the recent Brexit vote. They are led by the capitalist media to view the vote as an anti-immigrant, xenophobic, nationalist, right wing dominated development. So they in a number of instances recommended staying in the EU. The justification was to protect the better EU mandated social regulations. Or they argue, incredulously, that remaining in the free trade regime of the EU would centralize the influence of capitalist elements but that would eventually mean a stronger working class movement as a consequence as well. It amounts to an argument to support free trade and neoliberalism in the short run because it theoretically might lead to a stronger working class challenge to neoliberalism in the longer run. That is intellectual and illogical nonsense, of course. Wherever the resistance to free trade exists it should be supported, since Free Trade is a core element of Neoliberalism and its policies that have been devastating working class interests for decades now. One cannot be ‘for’ Free Trade (i.e. remain in the EU) and not be for Neoliberalism at the same time–which means against working class interests.

The bottom line is that right wing forces in both the EU and the US have locked onto the connection between free trade discontent, immigration, and the austerity and lack of economic recovery for all since 2009. They have developed an ideological formulation that argues immigration is the cause of the economic conditions. Mainstream capitalist parties, like the Republicans and Democrats in the US are unable to confront this formulation which has great appeal to working class elements. They cannot confront it without abandoning their capitalist campaign contributors or a center-piece (free trade) of their neoliberal policies. Social-Democratic parties, aligning with their erstwhile traditional capitalist party opponents, offer no alternative. And too many farther left traditional Marxist parties support Free Trade by hiding behind the absurd notion that a stronger, more centralized capitalist system will eventually lead to a stronger, more centralized working class opposition.

Whatever political party formations come out of the growing rebellion against free trade, endless austerity policies, and declining economic conditions for working class elements, they will have to reformulate the connections between immigration, free trade, and those conditions.

Free Trade benefits corporations, investors and bankers on both sides of the ‘trade’ exchange. The benefits of free trade accrue to them. For working classes, free trade means a ‘leveling’ of wages, jobs and benefits. It thus means workers from lower paid regions experience a rise in wages and benefits, but those in the formerly higher paid regions experience a decline. That’s what’s been happening in the UK, as well as the US and north America.

Free Trade is the ‘holy grail’ of mainstream economics. It assumes that free trade raises all boats. Both countries benefit. But what that economic ideology does not go on to explain is that how does that benefit get distributed within each of the countries involved in the free trade? Who benefits in terms of class incomes and interests? As the history of the EU and UK since 1992 shows, bankers and big corporate exporters benefit. Workers from the poor areas get to migrate to the wealthier (US and UK) and thus benefit. But the indigent workers in the former wealthier areas suffer a decline, a leveling. These effects have been exacerbated by the elite policies of austerity and the free money for bankers and investors central bank policies since 2009.

So workers see their wages stagnant or decline, their social benefits cut, their jobs or higher paid jobs leave, while they see immigrants entering and increasing competition for jobs. They hear (and often believe) that the immigrants are responsible for the reduction of benefits and social services that are in fact caused by the associated austerity policies. They see investors, bankers, professionals and a few fortunate 10% of their work force doing well, with incomes accelerating, while their incomes decline. In the UK, the focus and solution is seen as exiting the EU free trade zone. In the US, however, it’s not possible for a given ‘state’ to leave the USA, as it is for a ‘state’ like the UK to leave the EU. And there are no national referenda possible constitutionally in the US.

The solution in the US is not to build a wall to keep immigrants out, but to tear down the Free Trade wall that has been erected by US neoliberal policies in order to keep US jobs in. Trumpism has come up with a reactionary solution to the free trade-immigration-economic nexus that has significant political appeal. He proposes stopping labor flows, but proposes nothing concrete about stopping the cross-country flows of money, capital and investment that are at the heart of free trade.

For my analysis and predictions of the coming consequences of yesterday’s Brexit vote, listen to my radio show, Alternative Visions, today, June 24, on the progressive radio network. Access the show at:

http://prn.fm/category/archives/alternative-visions/

or at:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Jack discusses the consequences and likely developments from the historic vote yesterday for the UK to leave the European Union. The deep origins of the Brexit vote are first discussed, including rising discontent with neoliberal policies of free trade by working classes, small businesses, and local producers everywhere, the overlay of fiscal austerity policies compressing incomes, and the almost total reliance in advanced economies on central bank monetary policies that boost financial asset incomes and corporate profits (and capital gains of investors and the rich) since 2009. How UK prime minister Cameron struck a ‘Faustian’ bargain in 2015 to win the election and now had to repay the ‘devil’ with the Brexit vote he thought he could control, but did not. The consequences of the vote for UK politics in the near term, and for forces—political and economic—behind the potential break up of the EU itself. Political party realignments underway everywhere, including EU and US. Implications for US November elections. Jack concludes with an assessment and economic predictions for the UK and EU economies, for currency volatility worldwide, stock and bond markets, real estate prices, and global commodity prices. Impact on the US dollar, interest rates, FED policies, and US recession for 2017. Severe results for emerging markets, especially Latin America (markets, capital flight, recessions) and for China’s Yuan eventual currency devaluation. (Read Jack’s latest published article on the PRN website and at jackrasmus.com)

Telesur English Edition
By: Jack Rasmus
Published June 22, 2016

“Global financial markets are churning and growing more volatile in expectation of a possible ‘Brexit’—a United Kingdom referendum to vote on leaving the European Union scheduled for June 23, 2016. Brexit has literally become the big financial blockbuster event of summer 2016! But it may very well prove a ‘non-event’—even if the vote on the 23rd is to leave the European Union (EU).

Over recent weeks global financial markets and investors have become increasingly focused, even obsessed, with the outcome of the Brexit vote and its potential, but still largely unknown, effects on the global economy that continues to slow.

In anticipation of a possible exit vote, global stock markets have been growing more volatile, alternately collapsing and recovering. Government yields on bonds have been plummeting, driving deeper into negative rate territory. Currency exchange rates—the pound, the euro, the yen—have been fluctuating wildly. Professional and institutional investors have, for weeks now, been moving their money to the sidelines, awaiting the outcome. Meanwhile, central banks in Europe and Japan stand primed, ready to jump in with still more money injection in the hope of stabilizing what might prove to be a major upheaval in their financial markets—while the U.S. central bank, the Federal Reserve, at the same time has begun back-peddling on raising interest rates in the U.S..

Global financial speculators have reaped trillions of dollars in profits and capital gains since 2009. In the U.S. alone, more than US$5 trillion has been distributed to investors and wealthy households by corporations in the form of stock buybacks and dividend payouts. Add in the rest of the global economy, and markets for derivatives, foreign exchange, real estate speculation, and the like, and the total is easily more than US$15 trillion.

Trillions more remain tied up in financial assets as investors await the Brexit—prepared to quickly cash in the rest if there’s a ‘leave the EU’ vote or to double down in financial speculation if the vote is to ‘remain’. In the worse scenario, June 23 could augur in a worldwide major correction in financial asset prices, with dire consequences for a global economy already in retreat along a number of economic fronts.

But then again, maybe not. Maybe nothing happens. Because a Brexit vote on the 23rd is just the start of a process, not the final event.

The Potential Consequences of Brexit

Should a vote to leave on June 23rd occur, the worst case scenario is that the current volatility in stock, currency, and bond prices would shift to a general more rapid decline in all the above. The British pound would drop precipitously, as would the Euro. Stock markets in the U.K. and Europe would likely experience a major selloff, and the contagion spreads to the United States, Japan and emerging markets. Negative rates on government bonds in Europe and Japan would fall further, and rates in the United States and U.K. would decline, approaching zero and eventually negative levels. To the extent that it is occurring, bank lending to businesses would thereafter tighten significantly and the collapse of financial assets would thereby transmit to the real economy, resulting in less real investment, production cutbacks, and eventually layoffs and wage decline.

With the global economy already slowing, with global trade volumes nearly flat, with productivity collapsing and prices trending toward deflation, with more than US$10 trillion non-performing loans to non-bank businesses, with global oil and commodity prices declining once again, it’s almost certain the consequences would quickly translate into another recession in the U.K. and Europe, and in the United States no later than 2017. Current recessions in Japan and emerging markets would deepen, and China growth would slow even more rapidly than it has been.

Europe and Japan central banks would respond to this scenario with further massive money injections into their economies. Global currency wars would re-ignite. The United States would back off raising short term interest rates for the next two years, at minimum, as U.S. long term rates and the dollar rose. China would be hard pressed not to officially devalue its own currency in response—sending further shock waves throughout the global economy.
This most negative scenario would of course not occur should the U.K. vote to ‘remain’ in the EU. In such alternative best scenario case, the response would be a surge once again in stock prices and bond rates. Central banks would hold off for a time from even more desperate actions. And the global economy would continue its otherwise slower, progressive shift toward stagnation that has been occurring since 2014. Brexit provoked financial instability would not accelerate the process of global decline as in the worst case scenario.

But what of a third scenario? A Brexit vote occurs but there’s no intensified financial instability and accelerated global economic decline?

Cameron’s Faustian Bargain

A possible Brexit only exists today because U.K. prime minister, David Cameron, and his conservative party injected it as a political issue in the 2015 U.K. national elections. Cameron hoped to appeal to British voters in the parliamentary election held last May 2015 by offering, if he were elected, to hold a referendum vote—a simple ‘yes’ or ‘no’—on whether Britain should remain in the EU.

Cameron struck what might be therefore called a ‘Faustian’ bargain with U.K. voters. In classic literature, Faust was a professor who made a deal with the devil for something he could not otherwise obtain himself without the devil’s help. The devil gave him his wish, but demanded his soul in payment. Cameron believed he could turn the growing discontent into votes for himself in May 2015, and thereafter control the consequences of a referendum vote once elected. He got his election victory in 2015; the devil granted his wish. But he now faces the consequences; now he has to pay up. The devil on June 23rd may now demand Cameron’s political soul.

After his election in May 2015, Cameron issued a set of impossible demands to the EU for keeping Britain in the union. They included a four year wait for immigrants already in the U.K. before becoming eligible for U.K. benefits, including healthcare, and even if they already were in the U.K. and had a U.K. job; limits on how many immigrants could come from eastern European countries and how fast they could enter Britain; a formal revision of the Free Trade treaty itself; the right of the British parliament to pass legislation that would veto EU provisions; plus other preferential trade treatment for British businesses at the expense of other EU businesses.

These proposals are non-starters. They would mean all the other 29 EU member countries would have to unanimously revise the Treaty, and thus cede to Britain various economic benefits. And there’s no way the 29 other EU states can or will ever agree to do so. All it takes is one eastern European state to veto such proposed EU treaty changes and Cameron’s proposals are DOA—dead on arrival.

Brexit Does Not Mean Leaving the EU

Should an exit vote occur on the 23rd the more likely scenario is that little will change in the short term. That is because a vote by the U.K. electorate does not mean an actual ‘exit’ follows. An exit requires a vote by the British parliament to leave. That would activate what is called Article 50 of the EU Treaty, the treaty’s hereto unused ‘exit’ clause.

It is highly unlikely the British parliament, with a Conservative party majority, would vote to exit as a follow up to the referendum. Conservative party members in parliament favoring Brexit at the moment most likely would be ‘convinced’ by party leaders to vote to remain. If they refused, it would likely mean a vote of no confidence and a fall of the Cameron government and that’s not likely to happen.

What is likely is Cameron and his government open negotiations with the EU and seek changes to create a preferential arrangement for Britain to remain in the EU similar to that provided to Norway at the present. Article 50 provides for a two year negotiation period and automatic renewal of EU membership thereafter. Notwithstanding EU leaders in France, Belgium, and Germany wanting to avoid negotiations dragging out that long, they have no way to avoid it.

In short, Cameron will try some way to negate the will of the U.K. voters should they choose to Brexit. The U.K. may vote to exit on the 23rd but Cameron, the ‘City of London’ bankers, the U.K.’s multinational corporations that profit from the U.K.’s 47 percent exports to the EU, and U.K. economic interests who have much to lose from an exit will maneuver to ignore the Brexit referendum should it occur. The Brexit vote will prove merely a tactic for U.K. elites to try to extract concessions from their EU capitalist competition.

Cameron may have struck a Faustian deal with the devil, but that doesn’t mean he ever intends to pay up.

Jack Rasmus is author of ‘Systemic Fragility’ in the Global Economy’, Clarity Press, January 2016, and the forthcoming, ‘Looting Greece: An Emerging New Financial Imperialism’, Clarity Press, July 2016. He hosts the New York radio show, Alternative Visions, on the Progressive Radio Network, and blogs at jackrasmus.com