Below is our translation of an analysis from RIA Novosti. Our translation indicates that an unwieldy debt bomb could explode at any moment and send the world economy into a tailspin. On the other hand, some expect the US monetary system to implode at any moment, although a thoughtful analysis at Southfront seems to indicate that the Fed can postpone a US-side economic crisis long enough for Trump to be re-elected in 2020 but after that, all bets are off.
The Southfront analysis does say that the trade war could trigger an event that even the Fed with its bag of tricks would be hard put to manage, but it also says that China and the EU probably have the means to deal with such “US-induced shocks.”
We shall see.
The bomb is about to explode: global debt has reached $ 246 trillion
Aug 2, 2019
MOSCOW, August 2 - RIA Novosti, Natalia Dembinskaya. World debt has reached $246 trillion. This is an absolute record, more than three times global GDP - the cost of all products and services on the planet. Economists have warned that when a multi-trillion bomb, planted under the global economy, explodes, the crisis will break out worse than in 2008. RIA Novosti reports why the situation under which the fuses have already been lit is close to critical and whether it will be possible to avoid a general collapse.
Where does so much debt come from?
As follows from a report published by the Institute of International Finance (IIF), in the first quarter, global debt increased by three trillion dollars compared to the same period last year and set another record: 246 trillion. This is almost 320% of global GDP.
In developed countries, the volume of liabilities increased by 1.6 trillion – to 177 trillion. The main contribution has traditionally been made by the United States, where debt reached 69 trillion. Of these, 22 trillion are government loans that continue to accumulate thanks to the irrepressible appetites of the federal government.
In July, the US Bipartisan Policy Centre (BPC) recalled that the United States faces default in September if congressmen once again do not raise the national debt ceiling. It was increased. And they delayed the following restrictions for two years - until July 31, 2021. That is, they allowed the government to easily acquire more debt. According to the calculations of the US Treasury Department, current borrowings will exceed a trillion for the second year in a row.
IIF analysts state that huge and uncontrollable debt is the result of irresponsible policies of central banks, addicted to printing money and the distribution of loans. Governments, companies and individuals borrow for economic development. And when growth does not occur, they borrow even more, aided by the low interest rates of the largest central banks. Even before the Fed eased monetary policy, some central banks of developing countries reduced interest rates.
Take it while it’s available
According to IIF, it was the countries with emerging markets that made the largest contribution to the increase in global debt – their debt load exceeded 69 trillion dollars, or 216.4% of GDP. The highest relative growth was recorded in Chile, South Korea, Brazil, South Africa, and Pakistan. Moreover, a significant part is accounted for by the corporate sector, which almost reached the aggregate GDP of 30 developing countries in terms of their debts – 92.6%.
Having obtained unhindered access to capital markets, over two decades, developing countries have increased their corporate debt by 50 percent.
"The problem is that this group of borrowers does not have sufficient experience in managing debts over several economic cycles. As the recession begins, companies are overwhelmed by obligations that are difficult for them to pay off," explain the Institute of International Finance.
The greatest concern is China, where the economy has been developing for more than a decade via new loans. As a result, debt has increased fourfold – to almost 300% of GDP. The corporate sector, dominated by state-owned companies, borrowed $ 21 trillion – 155% of GDP. This is almost two-thirds of total debt. For comparison, corporate debt is 100% of GDP in Japan, and 74% in the United States.
To assess the scale of the problem, just look at the corporate bond market. In 2018 in China, these securities were at 1.72 trillion dollars – an indicator second only to the US (5.81 trillion). This year, 42% of the emerging corporate debt of emerging economies was provided by Chinese companies, which dramatically increases the risk of default in the near future.
Already, many companies are defaulting on bonds, declaring themselves bankrupt. Last year, 18,000 firms went bankrupt in the PRC, and the level of defaults on bonds was five times higher than in 2015. In 2019, another record is expected.
The fact that China’s high and volatile debt level is threatening with massive corporate defaults was previously indicated by the Organization for Economic Cooperation and Development (OECD).
"The slowdown in growth and increasing financing costs complicate debt servicing and are fraught with defaults. This will negatively affect banks' profitability and lead to liquidity problems," the OECD said.
Economists are sure that the current state of affairs clearly indicates that the debt bomb under the Chinese economy has already begun to smoke. Excessive debt load amidst an economic slowdown is a clear precursor to recession. A similar picture, for example, was observed on the eve of the global financial crisis of 2008. At some point, the global economy simply will not be able to digest huge and uncontrollable debt. And the coming crisis, as the financiers predict, will be much more severe and will result in massive impoverishment, powerful geopolitical instability, social unrest and wars.
In the following is our translation of an analysis by Ivan Danilov from RIA Novosti.
Danilov, as well as other Russian analysts, focuses on the issues that Americans should also focus on but don’t.
Now, I want the reader to consider something absolutely vital to the West’s survival. It’s not the threat of communism or socialism because the Western economy is firmly in the grip of the predatory capitalists who control our minds with the msm and our pocketbooks with their Federal Reserve and its willing agents in Washington and Wall Street. It’s not immigration, though that is an important secondary issue. It is not abortion, because the most vocal pro-life activists are hypocritically oblivious to the routine murder of children by the IDF, which they support believing God wants them to (though the Bible does not contain a single passage to that effect). It’s not the Deep State and its persecution of their wonderful saviour Donald Trump (because the Deep State is the Israel-controlled warmongering Establishment, of which Donald is the ringleader). It’s not personal freedom because the US is not sovereign and without national sovereignty there is no freedom. It’s not the mythical “Russian threat” or “Chinese threat” because these two countries are the only ones based on sound economic principles and, ironically, will probably be the only fall-back allies when the dollar collapses (though US pols will, of course, blame them, not their own irresponsible policies, for the collapse).
No. It’s a set of issues no one in America wants to mention because every politician knows that honestly addressing these would be poison to his/her career because a coterie of agents, some of them even foreign, and not the voters, is in full control of US policies and msm. These issues include:
the eternal US wars and interventions (such as regime changes),
government overspending – particularly on arms the US does not need,
the debt-based US economy with no real backing, and
the unwieldy US debt that increasingly threatens to bring down America.
And yet, what is really crucial is not these issues themselves but the fact that that presidential and congressional campaigns come and go and yet no candidate (with few exceptions, such as Ron Paul, and recently, Tulsi Gabbard) dares to broach any of these subjects. Of course, on the campaign trail, Trump pretended to care about war but out of the other side of his mouth he was preparing us for war by telling us that Iran is the “biggest state sponsor of terror,” which was and is the biggest lie of our era because sentient Americans know that Saudi is the breeding ground of Wahhabist terror groups like ISIS and Al-Qaeda. The West has a serious case of cognitive dissonance. We know but we also know we don’t dare to know. America is a gulag without jail keepers. The people themselves are the prison guards.
So given the fact that voters are constantly distracted away from the most vital issues by far, it is absurd to speak of “American democracy.” The US and its vassals are the farthest thing from democracies imaginable and we need to stop pretending that the West is the free world. It is in fact a gulag. If you wonder whether that is so, then ask yourself why Julian Assange is in jail.
QUOTE from the article below:
“It is terrible to imagine what will happen to the currency reserves of those countries that are oriented solely toward the dollar if Dalio’s forecast of America’s future comes true.”
The issue addressed by Danilov below is one we reported on here. I had said that both left and right agree that the dollar should be devalued and that the excuses were:
on the right:
that this would enhance the US trade surplus.
on the left:
That this would somehow help the poor.
But these excuses were a diversion from the real issue, namely, that the Fed had run out of tricks to keep the unbacked dollar afloat and enable the US to pay down the debt, but that devaluing the dollar would also further impoverish the struggling American worker.
It is almost amusing to hear Americans complain that their country is becoming communistic or socialistic when in fact the name of the enemy is predatory capitalism. If the West were becoming more socialist, why pray tell, is the gap between rich and poor growing like a cancer?
Danilov does not mention it, but we need to consider the possibility that this coming initial devaluation, the concept of which has just recently been floated by the msm, may not be the last one. After all, there were 3 rounds of quantitative easing, whereby the Fed bought back its assets (for which no buyers could be found), so why not several devaluations? If devaluation of the USD became a trend rather than a one-off policy, the poor could multiply exponentially and at some point, the US could join the Third World. It may sound absurd, but then, at one time, people would have scoffed at the notion that the US debt could explode to well over GDP and US Treasuries would be hard to unload on the market.
American billionaire predicts dollar devaluation
July 20, 2019
American billionaires are usually big optimists in matters related to the US economy and the US currency. Perhaps the cause of this professional bias is associated with the presence of billions of dollars in personal accounts. Maybe this is due to an informal "social burden" in the sense that it is not seemly for a billionaire to create panic among the population and investors in American assets. However, rules are made to be broken, and Ray Dalio – a well-known financier, billionaire and founder of the large investment fund Bridgewater Associates (which manages assets of more than $ 124 billion) – published an op-ed in which he made several unpleasant predictions about the future of American economy, the dollar and world financial markets. The article evoked quite an emotional reaction from the business media, ranging from the American agency Bloomberg to the Australian Sydney Morning Herald. To reduce the position of the billionaire to several theses, Mr. Dalio’s forecast can be expressed as follows: the dollar will undergo a serious devaluation, the Western system of social guarantees (including pensions and medical care) will be glutted with depreciated money, social conflicts will sharply increase, and against the backdrop of all these crises gold will be a great investment.
Reading Ray Dalio’s article on the “changing paradigms” of financial markets, it’s hard to shake the sensation that it was not written by the influential American billionaire, but by a Russian or Chinese financial columnist, for Dalio rather unceremoniously points out those vulnerabilities of the US financial system and the Federal Reserve’s monetary policy about which opponents of the USA have been writing for many years, and supporters of more sane economic policy in the States themselves.
According to the founder of Bridegewater Associates, the reason for the US transition to the actual devaluation of its own currency is that all the methods of stimulating the American (and generally Western) economy have already been exhausted or nearly exhausted, and so much debt has been accrued that without devaluation, it can’t be eliminagted: “Since these forms of mitigation (monetary policy. - Note auth.) (that is, lower interest rates and QE [QE - the purchase by central banks of government and mortgage bonds]) stop working and there remains the problem of too many debt and non-debt obligations (for example, pension and medical obligations), other forms of mitigation (most obviously, currency depreciation and monetization of the [government] financial deficit) will become increasingly likely."
It is probably worth translating into a colloquial Russian technical term that Ray Dalio uses: “monetization of the deficit” is, in fact, a Venezuelan or Zimbabwean solution to the government’s financial problems, which assumes that the government does not pay pensions, benefits and salaries to state employees, or earn money (for example, by collecting taxes or dividends from public corporations), but simply prints money. And in very large quantities, which inevitably leads to the devaluation of the printed currency, because the money loses its purchasing power.
The future, in which the central banks of the western world (and above all the United States) transition to radical measures to support the economy (and in fact to efforts to contain a systemic crisis), such as negative interest rates, looks completely unattractive. The social sphere will suffer (since pensions and benefits will be paid with devalued money), and inflation will simply “burn” the savings of those who have them. The forecast of the American billionaire is unlikely to appeal to the next American president – regardless of whether it is Trump (who hopes to be re-elected in 2020) or one of the candidates of the Democratic Party. Ray Dalio predicts the American future for the next few years: “I think it’s very likely that sometime in the next few years 1) central banks will exhaust opportunities to stimulate markets in a weak economy and 2) there will be a huge amount of debt and other obligations (such as pensions and health care), which will have to be paid out and which will not be financed by (government) assets. In other words, I think that the paradigm we are in will most likely end when a) the real interest rate will be reduced so low that investors holding debt obligations will not want to hold them and will start to move on to something that they consider better, and b) at the same time a greater need for money to finance [government] obligations will contribute to [the so-called] “great contraction.” At this point, there will not be enough money to meet the needs, so some combination of large monetized deficits, a depreciation of the currency and a significant increase in taxes. These circumstances are likely to increase the conflicts between wealthy capitalists and poor socialists. Most likely, during this time, debt holders will receive very low or negative nominal and real yields in devalued currencies, which will effectively be a wealth tax."
The problem is this: Ray Dalio’s forecast emphasizes that the devaluation of the dollar will be a “wealth tax,” but this is only part of the consequences of the scenario he describes, and far from the most important. The fact is that a sharp devaluation of the currency (which, from the consumers’ point of view, looks like a sharp increase in prices compared to their income) is always primarily a “tax on the poor.” That is, for those who do not have real assets, for those who do not have passive income, there are no stocks, and there is only a salary and a hope of retirement.
There is a high likelihood that will be the Western social sphere will be sacrificed at the altar of the interests of the American and European governments, and the interests of the western banking sector as a whole, since the social obligations gained by Western governments in the era of economic stability will be paid by monetization. That is, by the payment of depreciated money. Consequently, formally, everything will be fair, but in fact the state will simply throw off the shackles of social obligations to the citizens.
As the main way to rescue savings and the best tool for investment in this black economic period, the founder of Bridgewater Associates offers the oldest tool for capital accumulation, ie, gold. The benefits of gold are obvious: it cannot be printed, it cannot be devalued by government decree, negative interest rates on bank deposits (which are already in some European countries and most likely in the whole Western world in the future) are not dominant, and against the background of negative yields on government bonds and other debt instruments (which Dalio writes about in his forecast) gold looks not only like a good savings tool, but also a high-return investment.
The American billionaire’s advice is equally applicable to both ordinary investors and to large investment funds. And is is even more applicable to government currency reserves. It is terrible to imagine what will happen to the currency reserves of those countries that are oriented solely toward the dollar if Dalio’s forecast of America’s future comes true. Against this background, the actions of the Russian Central Bank appear quite prudent and timely, increasing the amount of gold in Russian foreign exchange reserves at an accelerated pace. Each month, news agencies appear on the tapes of the Central Bank buying gold, and even the Western media (which often showed some scepticism about Russia's increasing gold reserves to the detriment of the US dollar) admit that, by and large, this strategy has already justified itself. In the sense that the price of gold (and hence the value of Russian reserves) is growing. as reported by the US agency Bloomberg.
Theoretically, Russia could put the screws to Washington simply by controlling oil prices. If Russia started pumping oil as fast as it could, this would drive down the oil price to below the limit required by the US shale oil operators that Trump is counting on to make America great again for the zillionth time (I’ve lost count of all the times it was great again before). It could pretty much wreck the US economy.
Although this would be bad for the Russian economy as well, the difference is that the US shale drillers need a sale price in the range of $50 per barrel on average, taking new well exploration and drilling into account, whereas Russia can get by on much less. I have idly wondered if this is not the reason Russia has chosen to be the plus at the end of OPEC+ rather than a full-fledged member. At any rate, Russia has turned down an offer by Saudi Arabia to head the organization and has made it clear it does not want to be tied into decisions made by its Middle Eastern friends in OPEC.
Investopedia explains the situation that would give Russia the power to put the screws to the US oil companies:
“According to Reuters, estimates put the break-even point for fracking at around $50 per barrel, but other estimates put it as low as $30 per barrel.” The $30 figure applies only to wells that are already up and running but discounts the costs of exploration and drilling new wells. But shale drillers do a lot of exploration and drilling and that is what eats up their cash.
“At less than a price point around $50 per barrel, oil and gas companies are less likely to explore and drill for new oil accessible through fracking, but existing operations may still be cash-flow positive.”
A look at the costs of producing Russian oil vs US shale oil shows that Russia could afford, in the short term, to pump more and hence lower its price without seriously hurting its economy.
According to this chart for 2016, the cost of pumping Russian onshore crude (non-shale) is $19.21 vs US shale, which is listed as $23.35 but with exploration and drilling costs subtracted. However, the Russian price is almost one-half (43.9%) taxes while the US shale price is only about one-quarter taxes, so if Russia wanted to drop the price badly enough just to pressure the US (for example, to stop toying with war on Iran), there is plenty of wiggle room. For example, if the Russians dropped to one-quarter tax as against cost, it would be able to sell for less and thereby doom the US companies. In fact, since the Reuters estimate is a break-even point of $50 for shale on average, including new drilling and exploration costs, the Russians could easily put US oil out of business in short order and then go back to a higher price once the damage to the US was permanent.
However, back in the real world, Russia is actually trying to get the best possible prices and it would take a huge political crisis to induce it to lower the price enough to threaten US oil companies.
Of course, a world war is about the biggest crisis anyone can imagine, and that is what the US is toying with at this moment, so who knows what Russia might do to pressure the US into behaving more sanely?
It seems unlikely, however, that the Kremlin would need to do much more to hurt the US oil business than what the US is doing to itself.
I showed in Oct 2018 why shale oil probably will never be profitable from a scientific and technological standpoint. Namely, the wells are nearly depleted after 2-3 years and new ones need to be located by exploration and drilled. There is no way this expensive operation can be made anywhere near as cheap as oil and gas extraction from conventional fields that do not require fracking and last several times that long. However, science means nothing to Washington and Wall Street, which is why they have accrued an unpayable debt, keep blowing money on wars and arms they don’t need, and act as if nothing could possibly go wrong.
By January of the next year se were able to report on the fulfilment of our October foreshadowing of a bust in the shale oil industry.
In that article cum translation, the Russian author, based on US reports, had stated:
“Meanwhile, according to a study by The Wall Street Journal, shale drillers are still lagging in productivity. After analysing about 16,000 wells in Texas and North Dakota, the publication came to the conclusion: the largest American companies produce significantly less shale oil and gas than they promised investors. Thus, the profitability of developing hydrocarbon reserves using the method of hydraulic fracturing was very much in question.” [my highlighting]
I recently wrote on Quora, based on the alarming kind of reports cited above, that the economic figures touted by Trump as his crowning achievement are not really indicative of a lasting trend, not even close. I redacted the Quora piece into the article published here. The problem is, writing anything negative about Trump’s wonderfulness on Quora brings out angry blowback from some of his many acolytes. I was told by one zealous supporter that since I only had written negatives about Trump’s economy, I was definitely bought and paid for by someone who was out to get him. I wonder who that would be and when my check will arrive.
The trouble is that too many Americans want the news media to be a cheering section, not a sober and objective transmitter of actual news.
But let me explain in objective terms why his positive economic results are not an indication of a lasting trend, not even close.
Experts like the ones cited above, from mainstream sites like oilprice.com and WSJ, for example, are showing with statistics (and not with figures that I made up out of spite) why the “new jobs” that Trump claims to be creating are illusory.
Just a few years ago, not a few economists were saying that the new jobs in the Trump administration were due mostly to shale oil.
A fairly recent glowing report from Forbes:
“With all-time records being set for total Americans in the labour force, energy continues to outpace the other sectors in terms of new hires.”
“Our shale revolution is revitalizing the U.S. economy and making us more competitive in the global marketplace.”
Well, if shale is leading the way, then the US is in for trouble.
Almost no one (except perhaps Mr. Forbes) is seeing a rosy future for shale oil at this point. The expert group Institute for Energy Economics and Financial Analysis (IEEFA) (which has scientists, not politicians, on its staff) reported:
“Stock prices of all 29 shale producers fell in 2018, pressured by volatile crude prices and stronger returns in other sectors. Only one of the 29, Cabot Oil & Gas Corp, traded higher at the end of 2018 than it did two years earlier.
“An investor who put $100 into the S&P 500 Oil & Gas Exploration & Production Index in 2013 would have had $58.99 at the end of 2018. Similar $100 investments were worth just $9 in Whiting Petroleum Corp, $33.51 in Apache and $38.88 in Devon, according to financial filings. By contrast, $100 in the S&P 500 grew to $150.33 over the same period.”
There is another analysis based on a WSJ report showing that new shale wells were consistently yielding significantly less than the oil experts had predicted, costing major oil companies to haemorrhage money. This is what happens when investors, politicians and media base their expectations on irrational beliefs related to their feelings about their favourite politicians and ideologies, instead of looking at the facts through scientific eyeglasses. This is the mentality that make true believers angry at people who report the facts without the rose coloured glasses.
But after all, if the US is taking a course leading to hell, shouldn’t Americans have enough objective reliable facts to change course before they get there, rather than on arrival?
Vince Dhimos answered a question at the Spanish-language sector of Quora. The following is a translation of the question and the answer.
What is Trump’s secret for maintaining a healthy economy?
If Trump were maintaining a healthy economy, we could speak of a secret by which he is doing so. But is he?
The US is nothing but a gigantic Ponzi scheme, with no attempt at actually building a real economy. Selling Treasury bonds secured by nothing but an endless string of naive buyers – does not make America rich. In fact, if you or I sold unbacked paper promising yields but paying the yields only by selling more unbacked paper to investors foolish enough to fall for the ruse, we would be guilty of perpetrating an illegal Ponzi scheme. We’d wind up in jail.
In fact, despite the hyped “indicators,” Trump has made America even poorer than before because he spent an outlandish amount of money on arms. These arms were not necessary because the US already has several times as much defence weaponry as all the other countries combined. And it uses its arms NOT to defend its people but to fight pretend enemies abroad. But of course, he tells us that he is making America rich in part by keeping the arms manufacturers working and giving people jobs. But the long term results of all these wars is clearly illustrated by the results of the Arab Youth Survey, which shows that, whereas this group once trusted the US most among all non-Arab countries and trusted Russia least, these young Arabs now trust Russia most and America least. http://www.asianews.it/news-en/Arab-youth-are-less-optimistic,-drawn-to-Putin,-and-increasingly-distant-from-the-US-40645.html. This loss of trust makes the American people much less safe. It could make them targets of attacks.
When Trump stops spending tax money to “create jobs,” then you can ask this question again and we can discuss it as a serious matter. At this point in time, however, it is a cruel joke, not a serious question, because much of the salaries paid to workers doing these “jobs” is being paid by the tax payer. And you can’t get rich by selling to yourself any more than you can lift yourself up by grabbing the soles of your shoes and pulling upward.
Let me give you some examples of how Trump has spent money to “boost the economy.”
He gave many very rich companies tax cuts. https://psmag.com/news/trumps-tax-plan-provided-massive-tax-breaks-to-the-oil-industry. In the case of oil companies, his tax breaks were given because most US companies were producing mostly shale oil, which entails higher production costs because: 1) shale contains much less oil than other types of petroliferous rock and therefore 2) the drill holes must be both vertical and horizontal to squeeze out the last drop, which requires hydraulic fracturing (fracking) to extract this scant amount of oil it contains. This implies that the oil will necessarily cost more than oil produced by conventional means, as it is in Saudi Arabia, Russia, Iran, etc. As a result, before the tax cuts went into effect, US oil companies were losing money or showing very low profits.
However, if we want the oil companies to earn profits from the sale of their shale oil, these tax cuts cannot be just temporary, as they might be in the event they were merely an extra cost due to start-up. They must be permanent because the oil fields are short-lived and each time a patch is depleted, a new one must be found by expensive exploration and drilling. Thus there are are frequent start-ups. Therefore the tax cuts are in fact a kind of permanent subsidy and they are paid for by the tax payers, who are saddled with this expense for life. The working people lose money in two ways:
1—they are forced to subsidize rich oil companies, and
2—they must pay more for their gasoline at the pump. Gasoline prices increased by about 20% since the tax cuts went into effect.
Thus, America is parasitizing itself and that is not sound economics, just stupidity.
In fact, incidentally, the WTO has a rule that limits or prohibits the subsidizing of exports, and much of the hydrocarbons produced in the US is exported. Trump constantly criticises China for subsidizing its exports, but he himself is subsidizing many US exports by providing these tax cuts, and even tax credits, to US producers as stated above. At some point in time, an oil-producing competitor country could file a complaint against the US for this practice.
Although the middle class is forced to pay for the tax cuts to big companies, according to a government report, the CEOs of major energy companies are earning astronomical salaries.
“Exxon Mobil $17,495,119
Phillips 66 $23,677,209
Valero Energy $22,532,260
Marathon Petroleum $19,670,807
QUOTE from the above-linked paper:
“This unnecessarily low tax rate gave multinational oil companies a huge tax break. If Republicans had taxed offshore income at their new 21 percent domestic corporate tax rate, they could have raised over $800 million more in revenue from Fortune 500 oil companies.”
“Worst of all, the tax cuts did not help. They just transferred billions of dollars from the middle class to the very rich.
Another outlet reported:
“If the individual cuts are made permanent, the cost will rise to $2.3 trillion.
“Tax cuts aren't effective at boosting economic growth when the economy is already expanding. They also don't work well when tax rates are below the 50% prohibitive range.”
The United States has several sources of credit to keep its economy afloat, but living on credit alone is not a viable practice. Each person or entity that buys US Treasury bonds is a source of credit, and several countries, such as China, Japan and Saudi Arabia, buy bonds from the American government. The problem is that America constantly uses its currency as a weapon, imposing sanctions on countries that to not bow to Washington, ie, do not behave like good vassals. As a result, an increasing number of countries are sick and tired of being kicked around and are selling off their US Treasury bonds so that there is less and less money coming into the US Treasury as a result. Countries that have ditched significant amounts in Treasuries are China, Russia and Japan, as well as Saudi Arabia and India. Eventually, if enough Treasury holders ditch their holdings, there will not be enough money for the government to operate. This will result in a rise in taxes and a devaluation of the dollar.
Thus, while the United States is “creating jobs,” these jobs will only last as long as they are profitable, but as long as they require subsidies (tax cuts), they will not be profitable in a way that helps the average American. They will cause ordinary Americans to bleed cash.
But this failed tax cut scheme is not Trump’s only economic misadventure.
According to Deutsche Bank, his trade wars have so far cost the stock market $5 trillion.
The trade war has prompted China to resort to countermeasures. As a result, American soybean farmers are going out of business. To compensate these farmers, Trump has begun subsidizing them. But here again, the money for these subsidies comes from the American taxpayer and simply costs the people more money. It does not positively affect the bottom line. Not only that, but the subsidies are insufficient to keep the farmers in business and some have already sold their farms.
But there’s much more to this story. Shortly after Trump entered office, he had a discussion with China (back before he made an enemy out of the nation) and signed a memorandum of understanding with China for the sale of a large amount of natural gas. He neglected to mention to the press that this was a MOU, not a binding contract and had no legal effect. Consequently, because they believed in Trump, US natural gas companies built expensive facilities to produce large quantities of liquefied natural gas (LNG), as well as shipping terminals to hold all of this gas. Note that producing and storing LNG is extremely costly because it requires compression and cryogenic treatment (deep freezing) of the gas. Further, this gas is usually shale gas that requires the expensive hydraulic fracturing outlined above. Not only that, the exportation of this gas also requires building specially equipped ships with domes that can hold the gas on its way to China.
Well, since Trump suddenly began to abuse China using tariffs and embargoes, and even tried to ban the Chinese company Huawei, China decided to penalize the United States by not buying its gas. Just imagine, all the expensive facilities for liquefying, storing and shipping the gas to China were built in vain and most likely will never be used! Now it just so happened that at the time China made the decision to stop buying American natural gas, the Russian company Power of Siberia was almost finished laying a huge gas pipeline to China and now China no longer needs the American gas anyway. Yet the US economy is being touted as the work of a genius!
And there is still more. The United States decided in April 2018 to ban the sale of Russian aluminium by the company Rusal to the US. This was a decision made not only by Trump but also by the Congress, which harbours an irrational hatred of Russia. The problem is that American secondary aluminium companies had relied heavily on this Russian aluminium, which provided them with ingots from which they made sheets, tubes, forgings and other products. The American aluminium companies warned Congress and the president that without the Russian aluminium, they would lose money. But the US government does not care about the real world. It only cares about politics and votes. So for almost a year, the American aluminium companies were losing money, and finally, when the situation had become critical, these companies showed their dismal balance sheets to Congress, which finally, quietly, rescinded this terrible law. Even so, some Democrats and Russophobic Republicans in Congress were unhappy and fought to keep the disastrous law.
There is so much more to tell about the total mismanagement of the American economy, and all of this reflects very badly not only on Trump but on the entire US government, which seems hell-bent on destroying not only the world economy but also the United States economy, not only with tariffs and embargoes but also with demeaning treatment and coarse discourse toward friends and non-aligned countries alike.
At any rate, regardless of any ephemeral positive indicators, as long as the United States has a sovereign debt of $22 trillion or more, which is far higher than the safe limit recommended by economists, no one is justified in saying that Trump is in any way improving the economy. Remember what they say about sleight-of-hand artists: keep your eye on the other hand.
Vince Dhimos answered a question at Quora.
How much harm can Iran cause for American interests?
Vince Dhimos, Editor-in-Chief at New Silk Strategies (2016-present)
Answered just now
Iran can cause a lot of harm to the world economy by closing off the Strait of Hormuz to the oil trade. And if the US decides to use its military to open the strait again, it risks, for example, losing an aircraft carrier valued at billions of dollars, plus all the valuable aircraft on said carrier. That would put Trump’s re-election in grave jeopardy. Iran has also threatened to move against Israel and against Saudi oil production assets. Of course, all of this would raise the price of oil, and although Trump claims he wants low oil prices, he most certainly does not. (I am not saying he is a LIAR, just that he is not telling the truth). The US shale oil producers need high oil prices to survive, which is why Trump is not risking much to cut off Venezuelan and Iranian oil supplies. It indirectly helps US oil companies — but for how long, we don’t know. Besides, if oil prices skyrocket too much, that too would reflect badly on Trump.
But the biggest problem is not what Iran can do, it is what the US is doing to itself without apparently realizing it. All the sanctions against different countries, especially Iran, are causing a major backlash against the US dollar. Europe, generally eager to continue trading with Iran, has, with help from allies, developed a special purpose vehicle called INSTEX, which will enable Iran’s trading partners to settle in non-dollar currencies, ie, mostly euros, and the amounts spent will be hard to trace because they circumvent SWIFT, the system located in Belgium but controlled by the US Treasury. In other words, it will be hard for the US to impose sanctions for these unreported transactions.
On top of this, we find Russia off-loading almost all of its Treasuries, and other countries like Japan and China, as well as others cutting back on their holdings. (It is the sale of Treasuries that keeps the dollar afloat). Further, Russia and China have just inked a deal to stop using dollars in bilateral trade. One of the things floating the dollar has been its use in world trade settlements, but this Russia-China deal, the creation of INSTEX and many other factors are reducing this use in world settlements, which seems to be gradually causing various countries, including US allies, to shun Treasuries, expecting a drop in the value of the dollar.
Since the future of the USD is uncertain to say the least, the issue of how to pay down the US sovereign debt is becoming urgent. This is why both Democrats (eg, Elizabeth Warren) and Republicans are now floating the idea of deliberately devaluing the dollar – although they are using the excuse that this will supposedly boost US exports by making US products more affordable. (See our analysis of this strange turn of events here.)
Of course, no one is mentioning the very real possibility that the Chinese might also follow suit and adjust the value of the yuan accordingly, making this US policy futile.
What’s interesting is that no one asked the US public if they thought living solely on credit was a good idea for the American government. But of course, as we showed here, while Washington and a lot of NGOs are frantically promoting “democracy” abroad, there is absolutely no government of the people, by the people and for the people in America. And the Russians are by no means the culprits.
Below is our translation of an article from RIA Novosti with commentary and notes [in brackets] by Vince Dhimos.
Dmitry Orlov at the blog Club Orlov posted an insightful column reminding that empires eventually destroy themselves from within by incompetence, becoming corrupted by their own power, and their actions become less and less effective.
The US did a decent job of rebuilding Europe after WW II, where Germany and Japan eventually emerged as booming economies under US tutelage.
But then by the 50s, it was no longer feeling generous or helpful and did nothing for North Korea except bomb what was left of it into oblivion. In the 60s, the US was still simply grinding its foes into the dust, never helping Vietnam recover, for example. Of course, we must recall that the US did not win the Korean or Vietnam war. It was already becoming a decrepit empire at that early stage but only a few noticed that this was irreversible. Reagan floated his version of Make America Great Again to divert attention from the inevitable loss of US power and prestige. Nonetheless, the world now notices and MAGA II is not convincing any grown-ups.
We can take this a step further and apply this incompetence and corruption to efforts to remake the world through sanctions and embargoes, which were an even greater failure than military adventures because the US made the gargantuan mistake of using its precious dollar as a weapon. The lesson America never learned is that you can use a currency as a means of payment or you can use it as a weapon but you can’t do both for very long because the world will fight back, as it is doing now, with a worldwide dedollarization campaign. As we showed here, the US elites already see the dollar crash coming and are preparing an artificial devaluation, claiming that the aim is to boost US exports with a cheaper dollar. But that is not the real motivation. The elites know that the US debt has long reached a point of no return and is no longer manageable, so they want to devalue the dollar to enable repayment of the debt with cheap dollars – in other words, with a soft default, hoping investors won’t notice and will keep investing in Treasuries. The problem is, once the world sees this self-immolation of the currency, they will lose even more of the faith they once had in the USD and will buy even less US Treasuries. As our translated article shows, even old faithful allies and trading partners are reluctant to buy US bonds and the bond market reflects this, showing a low point in Treasuries sales. It is just a matter of time.
Day of reckoning: even US allies are ditching dollar assets
June 20, 2019
MOSCOW, June 20 - RIA Novosti, Natalia Dembinskaya. The share of the dollar in global currency reserves has fallen to a minimum since the beginning of the century. American government bonds on the balance sheets of the central banks of the world - the lowest amount in history. In April, amongst the record holders in the sale of treasuries was the closest ally of the United States - the United Kingdom. Why the world embraced dedollarization – from RIA Novosti.
To a minimum
In 2018, the dollar accounted for 61.7 percent of foreign exchange reserves of different countries. This is the lowest level in the last 20 years. As the European Central Bank notes in its June review, the dollar still remains the world's reserve currency, but its leadership has been significantly shaken.
Since the global financial crisis of 2008, when central banks held the maximum amounts of US currency in reserves, the share of the dollar has decreased by seven percentage points.
In 2018, US dollars were especially actively sold to developing countries. Argentina, China, Hong Kong, India, Indonesia, Thailand and Turkey jettisoned nearly 200 billion dollars’ worth of Treasuries. Some urgently needed cash dollars to stabilize their own currencies, others abandon US assets because of conflicts with Washington.
"The goal of many countries is to reduce dependence on the dollar in response to the American threat of sanctions," said the leading Turkish newspaper Sabah. “In Turkey, the US Treasury bond portfolio fell to a record low. Almost everything was sold off."
But the emergence of developed countries, including traditional allies of the United States, from dollar assets is a fundamentally new trend. For example, the United Kingdom in April cut US government bonds to 16.3 billion dollars all at once.
In general, China – the largest foreign holder of US debt (1.1 trillion dollars) – is taking the lead. Because of the trade war, Beijing got rid of 60 billion dollars’ worth of treasuries during the year, and sold another 20 billion in April, cutting stocks to a two-year low. Japan, the second largest lender to the United States, is not far behind: in April, Tokyo dropped its treasury notes by 11.07 billion.
Why China is preparing for the sale of US government debt and what will it lead to
The fear that China may withdraw from amongst America’s main creditors is growing. Analysts claim this scenario is unlikely. Inevitable in this case, a sharp devaluation of the bonds will cause more harm to the Chinese than to the Americans – and in general to the entire world economy.
However, as Bloomberg points out, Beijing can at any time reduce investment in these assets by several tens of billions for the sake of maintaining the yuan.
“If China starts selling US Treasury bonds, this will have less to do with new tariffs and much more with the regulation of its own currency,” Bloomberg quotes Columbia Threadneedle Investments analyst Gina Tannuzzo. When the capital drain becomes more intense, Beijing will have to protect the yuan and sell treasuries. "
Russia is considered one of the most active sellers of American assets. Back in 2010, Bank of Russia’s investments in US government bonds exceeded $ 176 billion. Since 2014, as Washington’s sanctions pressure increased, the Central Bank reduced its portfolio of treasuries, and by the beginning of 2019 only $ 14 billion dollars’ worth of these securities remained on the balance sheet.
According to the US Treasury, in April, Russia ditched another 1.6 billion dollars’ worth of US government bonds. Now the Central Bank has treasuries worth 12.13 billion dollars – at least since 2007. The Bank of Russia spent almost all the proceeds from the sale of dollar-denominated assets, on assets in euros and yuan.
"The share of the euro in Russia's foreign exchange reserves rose to 39 percent, the dollar fell to 27 percent, and the yuan jumped to 17 percent," a recent report by the European Central Bank says.
The same is happening in central banks of other countries. The International Monetary Fund recently pointed to a gradual decrease in the share of the dollar, along with an increase in the share of the euro, the yen and the Chinese yuan in the reserves of global central banks.
"Banks around the world continue to diversify reserves and divert them from the dollar," the IMF stated in a review of global trends.
As they jettison dollars, states are stocking up on gold. According to estimates of the World Gold Council (WGC), the volume of precious metals on the balance sheets of central banks increased by 651 tons over the past year - the highest figure since 1971, when the United States abandoned the gold standard. Almost half of this gold was bought by the Bank of Russia.
"Russia is quickly achieving results in an attempt to diversify the structure of gold and foreign exchange reserves, reducing the share of US assets," notes Bloomberg.
Now the gold reserve of the Russian Central Bank is estimated at 2,112 tons worth about $87 billion. This is a record for the entire post-Soviet history. Over the past ten years, the share of gold in the country's foreign exchange reserves increased from 3.5 to 18.6 percent.
“Gold is the hardest currency in the world, subject to only minimal natural inflation, and is good insurance against dollar fluctuations. It is a highly liquid resource, and large gold reserves strengthen investor confidence in the rouble,” points out the Neue Zürcher Zeitung.
The second largest buyer of precious metals is China, with a gold reserve of 1,853 tons worth 76 billion dollars. At the end of last year, Beijing, after a more than two-year break, sharply increased purchases, which led to a rise in price of gold to a semi-annual maximum of $1,300 per ounce.
Analysts explain: gold is also insurance against default of a US default. China and Russia are well aware that it will be very difficult for the States to pay off their debt obligations and, ultimately, the purchase of treasuries will be useless. The collapse of the American debt market is very likely, so Moscow and Beijing prefer to invest in gold.
Donald Trump and Elizabeth Warren agree to devalue the dollar, but not to worry, poverty is good for America
Presented below is our translation of an article by Ivan Danilov on the looming devaluation of the dollar. Commentary and notes [in brackets] are by Vince Dhimos.
Russian, Chinese and, even US, analysts have been talking about this possibility for years, but their conviction was that the dollar would drop spontaneously under the weight of the sovereign debt. But now politicians and Establishment-connected economists are finally getting around to softening up the public to accept a government-induced devaluation and are telling them everything will be just fine. Prominent influencers, writing, for example, in NYT, are batting around a figure of 27% for the devaluation. This will definitely make living even more expensive for the struggling little guy. It could push gas prices up by about that percentage, although domestically operating oil companies could possibly lower that a tiny bit (but not by much because shale producers need higher prices to offset their overhead). Part of the narrative is that a cheaper dollar will drive US exports, but the ulterior motive is certainly to achieve a soft default on the debt. You won’t hear Elizabeth Warren or Donald Trump mention that though! The coming devaluation is designed for the rich.
In case you missed the news of this bipartisan push for dollar devaluation in the US press, here is a pertinent article in CNN.
Further, a Fox Business article linked here explains how the US government and Fed can benefit by devaluing the dollar in order to resolve the sovereign debt issue. BTW, this article is certainly part of the msm’s sales campaign to soften you up to accept this idea. I don’t recommend swallowing this article’s view whole. The author, whose target audience is rich investors, is focused on cutting entitlements (which may be necessary, of course) but never mentions military spending, which is catastrophically high and unjustified because only the Pentagon and NATO think the Russkies are coming to invade your home and raid your fridge, and Congress doesn’t dare cut spending on arms procurement because they are wedded to arms peddlers, who are among their biggest donors (a marriage that undermines national security and ought to be punishable under criminal law!). That unwholesome lawmaker-arms dealer relationship is a structural defect in our body politic that won’t go away on its own, so in the final analysis, the US is wedded to profligate spending, even if the currency is devalued. In fact, barring a miracle, this marriage between Congress and arms sellers (and with Israel and Saudi as well, of course) will drive further currency devaluations ad infinitum until the middle class moves down to join the legally poor. This is why the US, barring a miracle, is ultimately doomed to fall off the cliff. Of course, if the US is forced to close most of its foreign bases and stop playing world cop, it could join the rest of the world and become a responsible productive economy. Then Washington and Wall Street could stop playing these reckless games with your currency.
The Fox News article linked above explains the mechanism of the soft default:
“A hard default, where the government simply refuses to pay its debts, would cause a global economic meltdown. Dollar-denominated Treasuries and federal reserve notes are the lifeblood of the global financial system. But a soft default – a one-time devaluation of the dollar which enables the government to pay back its debts in full, albeit at a lower intrinsic value – needn't be catastrophic.”
But Fox Business is part of the media campaign Ivanov tells us about, and is selling fiction here because the enterprising US Congress will always find a way to overcome the “one-time” restriction. Once the dollar is devalued, nothing will prevent a second, third, and on up to umpteenth devaluation any more than the Fed could have pulled off a one-time qualitative easing. Free money is too big a temptation.
At any rate, Danilov, based on his reading of the US economic press, warns that this is no longer a dress rehearsal. The devaluation, according to the US financial and economics press, is on the way, sometime during Trump’s tenure, but not to worry. The economic experts, for example, at NYT and Bloomberg, will make you feel good about paying considerably more for necessities and becoming even poorer than you are now.
“Save the US – devalue the dollar!”: New ideas on American restructuring
June 22, 2019
A ghost haunts American media, the ghost of restructuring. This is the only way to explain the general interest in the idea of the need for radical reforms of the fundamental principles of the American economy and politics. And this fad is affecting all parties to the intra-American political conflict, that is, both Trump supporters, and supporters of the Democratic Party.
Moreover, judging by the latest news releases in the most authoritative American media, both sides even offer similar radical solutions, and the only difference between them often comes down to the difference in colour and the tone of the ideological package in which they are inserted by prominent media propagandists. This similarity is noticed not only abroad, but even in the USA itself. And now The New York Times - the main political publication of the country - writes that the proposals for rescuing the American economy, which are being put forward by President Donald Trump and one of his main opponents from the Democratic Party, US presidential candidate Senator Elizabeth Warren, miraculously coincide. [sorry to interrupt this excellent analysis by Danilov, but I was wondering if you have noticed the subtle trick of the pols and their pals in the msm, namely, selling an idea or plan as “bipartisan,” suggesting that both left and right are for it. This is invariably a con because it is Congress’ way of pulling the wool over your eyes to do something that the people don’t need or want. “Bipartisan” means that the political class and msm are ganging up on you the people.] Since The New York Times is a publication with an unequivocally leftward ideological tinge, the ideological packaging for this coincidence is chosen so that readers can see the struggle for social justice in the radical measures that President Trump and his opponents are both promoting in their own way. This is a logical approach, because it is the only way to “sell” to (or to call a spade a spade, “foist” on) voters the idea of the need for a radical devaluation of the American currency.
"(Senator. - Ed.) Warren and Donald Trump agree, at least on one thing: American currency problems are detrimental to American workers," the influential economist (associated with the Democratic Party) said in The New York Times "think tank" Economic Policy Institute Policy Centre, Robert Scott (Robert E. Scott).
The so-called currency problems are such an elegant euphemism coined to describe harsh reality. The problem resides in the fact that both political forces in Washington believe the US dollar is too expensive, and for the sake of common (American) prosperity it urgently needs to be devalued. Mr. Scott immediately tries to reassure the reader, stating: “The new idea that the United States can achieve greater domestic prosperity by revaluing the dollar sounds unclear and a bit risky. Who would want to interfere with the workings of our currency? But the reality is that China and about 20 other countries are already doing this."
And then on the pages of the premier print publication of the United States there appears, just for reference, a recap of the theory on the world conspiracy against American workers, in which China and other 20 countries - "currency manipulators" – participate. Here we must make an important clarification: the list of potential manipulator countries (to which the author of The New York Times refers), compiled by the US Treasury, in addition to China also includes Russia, and several times in the American media, such as Bloomberg, there were inserts about high-ranking officials who threatened to give Russia the official status of a" currency manipulator,” which opens up the possibility to subsequently slap sanctions on our country.
The essence of the very "conspiracy" in which the non-Establishment Republican Trump and ardent Establishment democrat Warren (and also the author of The New York Times who sided with her) believe (surprisingly) is that foreign exchange manipulation by foreign governments has made American exports more expensive all over the world. And this made products made in China and other countries cheaper (than American ones. - Ed.). This is the main reason that America’s trade deficit has increased dramatically over the past 20 years, destroying almost five million production jobs, about 90 thousand factories and the livelihood of thousands of farmers in the country, Wall Street did not object to the appreciation of the dollar. This led to a flow of cheap imports and huge profits for companies that sell them, especially Walmart, Amazon, Nike and Apple. It also led to lower wages for 80 million American workers competing with countries, whose workforce was cheapened by these undervalued currencies. "
The leading economist of the Economic Policy Institute thinks (or pretends) that the decision is obvious: “devalue the dollar,” and he even mentions the specific dollar devaluation figure relative to all other currencies of the “manipulator countries”: 27 percent. But such a devaluation it will only work if the governments of other countries do not take retaliatory measures and start a so-called currency war – which will require repeatedly renewed US dollar devaluation measures.
As additional or alternative measures, sanctions are also proposed in the form of tariffs and attempts to force the main US trading partners to sign the new version of the Plaza Accord agreement, through which the Reagan administration solved a similar problem in the late 1980s. The problem is that Trump is not Reagan (although he wants to be like him), but China, the European Union (including Germany) and Japan clearly do not want a repetition of the situation 40 years ago, when the Reagan administration saved the American economy through crises in the rest of the world.
It is easy to see that discussions about the need to drastically devalue the dollar, at least by 27 percent to begin with, look rather strange in terms of real incentives for American re-industrialization – for only naiveté verging on stupidity could make anyone believe that after “balancing” the exchange rate of the dollar, production plants exported from the United States, would suddenly return to America on their own, especially if we consider that the purchasing power of American consumers will receive a rather sensitive “currency” impact.
By and large, devaluation (as well as accompanying or subsequent inflation) is beneficial not to the American workers, who are allegedly baked by Trump, Warren and The New York Times, but rather to American business and the government. Let's look at the situation from the outside, that is, through the eyes of competent, but unbiased observers from the Japanese business agency Nikkei: "Growing US business debt, already at a historical level, represents a potentially huge risk for the global financial system and the global economy, causing concern among market participants and politicians. Experts are becoming increasingly concerned about both the quality and quantity of debt in the US corporate sector, because loans to borrowers with lower credit ratings and already high debt levels are increasing."
In modern realities, such debts (corporate plus government) can only be resolved in three ways: through explosive economic growth (located somewhere in the sphere of unscientific fantasy), through mass defaults (possible, but very painfully, especially for the economic elite) and by devaluing the currency in which the debts are collected (to make it a little less disturbing, you can present it to the voter as a concern for social justice).
Conclusion: incontrovertible economic logic and political calculation indicate that the stars favour devaluation, although there are still chances for other scenarios.
Judging by the fact that the proposition “devalue the dollar, and Americans will be just fine” is being promoted openly through the mainstream left-wing media, and Donald Trump is publicly pressuring the management of the Federal Reserve to lower interest rates (which also reduces the dollar exchange rate), the idea is out there. True, this approach will have a major side effect, namely, it is unlikely the dollar will be able to retain the much-needed US status of a world currency.
But it may well be that Donald Trump has his own opinion on this matter, and the White House will try to make (yes, even by force) the whole world continue to use green paper even after a sharp drop in its value. It will be much better for the whole world if this fails.
We present below our translation of an analysis from gazeta.ru with commentary by Vince Dhimos.
As I was editing this translation, I received a push notice from Haaretz to an article on Trump's speech in Orlando yesterday pointing out the untruths and exaggerations in the speech. It fits in nicely with today’s translation.
However, this is not about Trump. It is about a US economy that is less and less equitable and social problems that signal deep trouble.
Here is the saddest detail:
“A survey conducted by the World Economic Forum at the beginning of this year showed that poor Americans no longer believe in the opportunity to get out of poverty on their own – only 10% of respondents believe that they will be able to realize their “American dream” if they work hard. More than two thirds of the respondents are sure that it doesn’t matter whether you work well or poorly, because you still cannot achieve a high degree of well-being.”
Poverty and drugs: how Americans actually live
Americans do not have enough money, education and equality
Olga Timirchinskaya June 16, 2019
The US economy has demonstrated steady growth in recent years, overcoming external and internal difficulties without visible losses. However, impressive macroeconomic indicators do not mean that the country's population is booming – in this case, just the opposite is happening. According to official statistics, about 45 million Americans live in poverty, despite record-breaking low unemployment. And they also have other problems.
The US economy continues to show steady growth – the latest review of the International Monetary Fund (IMF) shows that according to the results of 2019, the real GDP of the United States will increase by 2.6%. Analysts say that the effect of fiscal actions taken in 2017-2018 (tax cuts and increased costs) will then pass, after which the US economy will stabilizes to about 2% per year, but even this figure exceeds the achievements of most countries of the world.
US President Donald Trump said at the end of May that he would pick up 70-75% of the votes in the next elections thanks to economic success alone (for example, “victory over poverty”) and would easily remain in the White House. However, these triumphant reports and vociferous statements also have a flip side, which people prefer not to speak about from high tribunes. In addition, politicians are prone to beautiful speeches that only partially reflect the reality that exists – for example, after Trump's February speech to Congress, the Washington Post found in his speech 26 false statements and exaggerations in various figures.
Then Trump said: “Salaries are rising, and blue-collar wages are growing faster than expected, and 5 million Americans have stopped receiving food stamps. The economy is growing twice as fast, unemployment has reached a low level since a quarter of a century. ”
And according to the same IMF survey, the US macroeconomic achievements over the past 10 years have not had a significant impact on the lives of ordinary Americans – on the contrary, a number of social indicators look depressing, and positive changes in this direction are not expected.
Life expectancy in the United States is falling and this indicator is significantly lower than other G7 countries, although in the 1980s the USA occupied a middle position among the largest economies in the world.
A significant contribution to the drop in this social indicator was made by the increased suicide and death from drug overdose.
As analysts of the IMF calculated, the income of the average American family, taking into account inflation since the 1990s, has increased by only 2.2% - and this despite the fact that over the same period, real GDP per capita increased 23%.
There is another problem: the distribution of incomes in the country is becoming increasingly polarized.
According to statistics, the net assets of 40% of the poorest households are now lower than they were in 1983, and a growing share of the population earns less than half of the average income in the country. As a result, the level of poverty remains close to what was observed immediately before the onset of the financial crisis.
Recent studies show that nearly 45 million Americans are currently living in poverty.
Similar data in April of this year were given by one of Donald Trump’s main competitors in the 2020 presidential election, Senator Bernie Sanders. “Some politicians say that the minimum wage of $ 15 per hour is “too radical.” Here's what's really radical: in the richest country in the world, 40 million people live in poverty, and 40% of our citizens cannot afford even the most necessary things,” the politician wrote on Twitter.
A survey conducted by the World Economic Forum at the beginning of this year showed that poor Americans no longer believe in the opportunity to get out of poverty on their own – only 10% of respondents believe that they will be able to realize their “American dream” if they work hard. More than two thirds of the respondents are sure that it doesn’t matter whether you work well or poorly, because you still cannot achieve a high degree of well-being.
As the IMF notes, over the past decades, socio-economic mobility has been destroyed in the USA – in particular, half of young professionals now earn less than their parents at the same age (40 years ago, this figure was only 10%).
Moreover, despite the fact that a substantial part of the state’s revenues is spent on education, this did not help to reverse the situation with the knowledge level of Americans - American students consistently receive a lower score in math and reading than their peers from other G7 countries, the report says. Many US residents drop out of college without having completed their studies, and as a result, less than half of Americans aged 25-34 have a bachelor's degree. In addition, due to a significant increase in the price of education, the amount of student loan debt also jumped.
Existing problems in late March were also acknowledged by US Secretary of Education Betsy Devos. The official said that spending on education over the past 40 years increased by 180%, reaching $ 1.2 trillion, but no progress in terms of its quality is observed.
“We are still 24th in reading, 25th in science and 40th in mathematics compared to the rest of the world. I am sure that new investments will not bring results either,” said the secretary.
Devos proposed to reduce the total amount of funding for educational programs by 10% ($7.1 billion), but at the same time allocate additional funds for the development of schools.
Experts note that a lot of effort will be required to bridge the growing gap between the achievements of the real US economy and the life style of the majority of Americans. In particular, the political tools that can help solve the problem are paid family leave, helping families in need care for children and patients, increasing the minimum wage and the availability of social support programs. In addition, according to the IMF report, it is necessary to develop the health care system, especially for the poor, by financing those programs that showed the best results at the federal or state level. A more targeted approach is to support education, in particular, to pay special attention to the early education of children, and to the development of programs in the field of science, technology and mathematics. Experts believe that these measures will help cope with the current situation in society that are of serious concern.
The following is our translation of an article from rueconomics.ru with commentary by Vince Dhimos.
The discussion below arose in the context of the Saint Petersburg International Economic Forum, which is a huge assembly of investors from a large number of countries. The 2018 SPIEF had over 7000 attendees from 143 countries. With the American stock market in an obvious fragile bubble and with a loss of $5 trillion thanks to Trump’s trade wars, it is natural that some folks would like to escape to a more tranquil and stable investing environment in the country that, as I have shown here, has the healthiest and most stable economy in the world. But don’t be surprised that SPIEF gets short shrift in the West. For instance, if you look it up on Google, you find on the first page of results, ten mentions, only 2 of which are to articles published in the Western world. We often hear Russia accused of being isolated, but no country anywhere does a better job of isolating itself than the USA.
To be sure, this year's SPIEF is being boycotted by some US investors in protest of the arrest of a US investor on fraud charges. Which may be trumped up. Or not. But then, have we forgotten about poor Maria Butina, who has been jailed for joining and promoting the NRA? Oh, wait. Maria is Russian. So that would be inflitrating, not joining. When ordinary people join the NRA, they are joining. But when Russians do that, they are infiltrating. We can come up with a whole host of sinister sounding words for Russians, can't we? After all, Russians are born of bad seed. All of them. Yeah. They must all be jailed for being from a country that is not a country, but a gas station. After all, John McCain was a war hero. Failure to hate Russians sufficiently is disrespectful of his memory.
It is natural to wonder how the Venezuelan people are doing these days, with all the sanctions intended to hurt them by starvation and denial of medical care. Of course, Western msm rarely talk about the pain inflicted by their governments on the people they falsely portray as enemies. Due to the constant propaganda, we need to be reminded that these are people just like us and that the pain inflicted by the US is real pain and not an abstraction as it relates to their everyday lives. The Washington Establishment would like to have us think they deserve the pain for electing officials who are not dyed-in-the-wool American style predatory capitalists, or for not allowing the US vulture and its puppet Juan Guaidó to swoop in and grab their resources. But their political systems are like ours in that the little guy has no control whatsoever over the list of candidates available to them and they, like Americans, are generally confronted with a lot of bad choices come election time. Thus they don’t deserve punishment for choosing the lesser of an array of evils.
That’s one of the many reasons why sanctions are immoral, as I reminded you here. Another is that the US Establishment simply has no moral authority to demand that other nations comply with its wishes.
The author of our translated article is no doubt writing for the political base back home, which is naturally concerned that their tax money may be wasted on charity, an accusation that surfaces at times with relation to Russia’s relationship with Venezuela. So the author’s interlocutor reminds us that there is money to be made by Russia from Venezuelan oil because it is discounted due to sanctions and to the associated risks to the investor.
Ideally the Russians will be able to help Venezuela earn income from its oil while also making a profit for its efforts. That’s the way it always was, back when free trade was legal. Oh, that’s right. It’s still legal, just not allowed.
Finally, here we have just another example of the impotence of US sanctions. As the saying goes: the dog barks and the caravan moves on.
Russia will play the role of mediator in Venezuela’s oil exports
June 06, 2019
Cooperation between Russia and Venezuela in the oil sector, from an economic standpoint, is associated with a certain risk, says Vyacheslav Kulagin, director of the Center for the Study of World Energy Markets at the Institute for Energy Research, Russian Academy of Sciences.
Venezuelan Oil Minister Manuel Quevedo at the St. Petersburg International Economic Forum (SPIEF) said that Caracas is going to replace the American oil market with the Russian one, and noted that this is the main line of Venezuelan policy.
At the same time, Russia is one of the largest oil exporters in the world and does not need supplies of Venezuelan energy resources, if only because of the territorial remoteness of this country. Such deliveries, of course, are technically possible, but they will cost dearly.
“As for Russia, we have certain economic interests in Venezuela. So, only on this basis is our country interested in stability in this Latin American state. If we take the issue of direct deliveries, then Russia is naturally not the country that needs to import energy resources, not to mention deliveries from Venezuela,” Kulagin sums up.
Russia has enough of its raw materials, but the oil market leaves us with options for cooperation. After all, if one of the suppliers of oil is experiencing difficulties with sales, then, as the expert observes, he begins to sell his goods at a discount, and this really arouses interest.
“In this situation, those companies that play on the difference between discounts and market prices can make money on such a deal. This gives some potential for oil deals with Venezuela, but this is not a matter of theory, but of practice,” states Kulagin.
Moreover, this is not about Russia, as a state, but about individual Russian companies - whether they want to participate in Venezuelan projects, or whether they have no interest in such undertakings. And so, oil traders may well earn on such oil operations.
“On the other hand, all of these preferences, which Venezuela can give to the Russian entities, are an opportunity to make money but carry specific risks. It is necessary to soberly weigh the situation and understand who is ready to go and for what. And here we must not forget that a number of Russian companies have long-term agreements with Venezuela,” concludes Kulagin.
Accordingly, the return of Venezuelan debts, and they are quite large - for example, to Rosneft itself, can take place in the form of supplies of Venezuelan oil, which will immediately be resold on the world market, and not go to our country.
“By the way, such deliveries do not fall under the sanctions impact from the United States and its allies, so there is a prospect here, even though this does not mean physical deliveries of oil from Venezuela to the Russian market,” Kulagin summarizes.
Russian entities may receive oil payments from Venezuela, which will then be resold by them on the world market, but this is a deeper issue, and it cannot be said that such operations are simple - there are a number of nuances.
Venezuela may change the direction of its exports
Notably, Quevedo also stated that Venezuela wants to diversify the direction of its oil exports and place bets on such states as Russia, India and China. This is not surprising, since these countries will not comply with US sanctions against Venezuela, and India and China are the largest importers of oil in the world, which need more and more raw materials every year.
Only India and China are very far from Venezuela, and the nearest sea route to them passes through the Panama Canal, the "neutrality" of which is vigilantly guarded by the United States. Accordingly, there is a question whether there will be problems with such exports.
“In fact, oil can be delivered by sea anywhere that someone is ready to receive it, and there are no transport restrictions per se. Oil is transported in liquid form and the cost of its transportation in the final price is rather small. So, all the leading global companies freely trade in crude on the global oil market,” states Kulagin.
According to Vyacheslav Alexandrovich, oil transfer occurs between regions without any special problems, although there is a US factor here, but they are unlikely to deal with the detention of such goods from Venezuela, because the interests of third countries are also involved.
“The main issue is the quality of the oil, because refineries in different regions of the world are tuned to certain brands and grades, and if the parameters of the crude deviates, then it requires the application of technical operations,” concludes Kulagin.
For example, by mixing Venezuelan raw materials with fuel from the United States, American importers managed to achieve a product that is optimally suited for their national refineries. This is logical, because the Venezuelan oil is very dense.
“Accordingly, in the current situation, Venezuelans will have to trade according to special schemes. These schemes may not imply a situation where American sanctions could be imposed on companies that participate in them,” Kulagin said.
However, in any case, despite all the enthusiasm of the Venezuelans, selling oil is now much more difficult for them.
Author: Dmitry Sikorsky