{"id":6568,"date":"2016-12-07T17:08:34","date_gmt":"2016-12-07T17:08:34","guid":{"rendered":"http:\/\/litci.org\/en\/?p=6568"},"modified":"2016-12-07T17:08:34","modified_gmt":"2016-12-07T17:08:34","slug":"testing-trumponomics","status":"publish","type":"post","link":"https:\/\/litci.org\/en\/testing-trumponomics\/","title":{"rendered":"Testing Trumponomics"},"content":{"rendered":"<p><em>Before Donald Trump was elected, stock markets went down every time he improved in the public opinion polls.\u00a0 Finance capital did not want him to win.\u00a0 But since his surprise election, stock markets have not slumped.\u00a0 On the contrary, they have risen substantially along with a strengthening dollar.\u00a0 It seems that \u2018the Donald\u2019 could be a good thing for Capital after all.<\/em><!--more--><\/p>\n<p><strong>By Michael Roberts.<\/strong><\/p>\n<blockquote class=\"wp-embedded-content\" data-secret=\"AXRnqJMkHv\"><p><a href=\"https:\/\/thenextrecession.wordpress.com\/2016\/11\/18\/testing-trumponomics\/\">Testing Trumponomics<\/a><\/p><\/blockquote>\n<p><iframe loading=\"lazy\" class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; visibility: hidden;\" title=\"&#8220;Testing Trumponomics&#8221; &#8212; Michael Roberts Blog\" src=\"https:\/\/thenextrecession.wordpress.com\/2016\/11\/18\/testing-trumponomics\/embed\/#?secret=JxZPbhDM3D#?secret=AXRnqJMkHv\" data-secret=\"AXRnqJMkHv\" width=\"500\" height=\"282\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/p>\n<p>&nbsp;<\/p>\n<p>Much of this optimism will turn out to be wishful thinking.\u00a0 But wishful thinking can work the markets for a while.\u00a0 The thinking is based on the policies that Trump is proposing: in particular, tax cuts for the corporate sector and personal income tax cuts that will benefit the top 1% of income earners the most.\u00a0 Also, he claims that he will spend up to $1trn on new infrastructure and investment projects around the country and deregulate the banks and reduce labour rights (what\u2019s left of them).<\/p>\n<p>The stimulus measures are music to the ears of Keynesian economics, despite the general distaste that the top Keynesian gurus have had for the attitudes and rants of \u2018the Donald\u2019.\u00a0 Indeed, if these policies are implemented over the next year or so, Trumponomics will be the next test of the Keynesian solution for the world economy to get out of this Long Depression.\u00a0\u00a0<a href=\"https:\/\/thenextrecession.wordpress.com\/2014\/10\/13\/japan-the-failure-of-abenomics\/\">Abenomics in Japan<\/a>, following similar policies of public spending, tax cuts and quantitative easing, has miserably failed.\u00a0 Japan\u2019s GDP growth has hardly moved, while wage incomes and prices remain transfixed.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6569\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/japan-gdp-300x140.png?resize=300%2C140\" alt=\"japan-gdp\" width=\"300\" height=\"140\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/japan-gdp.png?resize=300%2C140&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/japan-gdp.png?resize=150%2C70&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/japan-gdp.png?resize=696%2C324&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/japan-gdp.png?w=730&amp;ssl=1 730w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>But now some Keynesians are applauding Trump\u2019s approach as \u2018a break from neoliberalism\u2019.\u00a0 The great historian and biographer of Keynes,\u00a0<a href=\"https:\/\/www.theguardian.com\/business\/2016\/nov\/15\/trumpism-solution-crisis-neoliberalism-robert-skidelsky\">Robert Skidelsky\u00a0<\/a>tells us that \u201c<em>Trump has also promised an $800bn-$1tn programme of infrastructure investment, to be financed by bonds, as well as a massive corporation tax cut, both aimed at creating 25m new jobs and boosting growth. This, together with a pledge to maintain welfare entitlements, amounts to a modern form of Keynesian fiscal policy\u201d. \u00a0<\/em>So Skidelsky goes on:\u00a0<em>\u201cAs Trump moves from populism to policy, liberals should not turn away in disgust and despair, but rather engage with Trumpism\u2019s positive potential. His proposals need to be interrogated and refined, not dismissed as ignorant ravings.\u201d \u00a0<\/em>Well, liberals of the Keynesian persuasion may want to \u2018engage\u2019 with Trump and adopt Trumponomics, but those who want to improve the lot of Labour, the majority not the top 1%, will take a\u00a0 different view.<\/p>\n<p>Indeed, let\u2019s look at Trumponomics.\u00a0 Apparently, Skidelksy thinks that cutting corporation tax will create new jobs and raise growth.\u00a0 Well, there is no evidence that previous cuts in corporation tax have done so anywhere in the major economies.\u00a0 Corporate tax rates were slashed during the neoliberal period and yet economic growth has floundered.\u00a0 What has happened is a rise in the share going to the profits of capital at labour\u2019s expense and a rise in unproductive financial speculation.\u00a0Officially, the US has a 35% marginal tax rate on corporations but after various exemptions, it is effectively only 23%, among the lowest in the world.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6570\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/corp-taxes-300x166.png?resize=300%2C166\" alt=\"corp-taxes\" width=\"300\" height=\"166\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/corp-taxes.png?resize=300%2C166&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/corp-taxes.png?resize=150%2C83&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/corp-taxes.png?w=450&amp;ssl=1 450w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>Trump\u2019s infrastructure plan is badly needed.\u00a0 In my blog, I have often shown the terrible state of the public services and communications in the US.\u00a0 The average age of America\u2019s fixed assets is 22.8 years \u2014 the oldest in data back to 1925.\u00a0\u00a0 Infrastructure spending is at 30-year lows and bridges, roads and railways are crumbling before our eyes. According to the 2013 report card by the American Society of Civil Engineers, the US has serious infrastructure needs of more than $3.4 trillion through 2020, including $1.7 trillion for roads, bridges and transit; $736 billion for electricity and power grids; $391 billion for schools; $134 billion for airports; and $131 billion for waterways and related projects.\u00a0 But federal investment in infrastructure has dropped by half during the past three decades, from 1% to 0.5% of GDP.<\/p>\n<p>Undoubtedly, public investment in infrastructure would help the US economy and raise growth a little \u2013 Goldman Sachs reckons by 0.2% pts a year.\u00a0 But Trump\u2019s proposal of $1trn spending over four years is a fake.\u00a0 Most of this would not be public investment at all.\u00a0 The funds would come from private sources which would get incentives to provide money: the big construction companies and developers (like Trump Inc itself) will be offered tax breaks and also the right to own the bridges, roads, etc built with toll charges to the users of these.\u00a0 Direct public spending and construction will be limited.<\/p>\n<p>Moreover, as I have argued in many posts, t<a href=\"https:\/\/thenextrecession.files.wordpress.com\/2016\/11\/the-crisis-and-keynesian-policies.pdf\">here is little evidence that Keynesian stimulus programmes work<\/a>\u00a0to deliver jobs and growth. Skidelsky talks about the Roosevelt era of the 1930s.\u00a0 Actually, very few permanent or new jobs were created under Roosevelt.\u00a0 The unemployment rate stayed right up to the start of the war.\u00a0 As Paul Krugman, the American Keynesian guru, pointed out in his book,\u00a0<a href=\"https:\/\/thenextrecession.wordpress.com\/2012\/05\/27\/krugman-and-depression-economics\/\">End Depression now<\/a>, it took the war to deliver full employment and economic recovery.<\/p>\n<p>During the period of \u2018austerity\u2019, from 2009, when governments tried to run budget surpluses and wants to cut public debt after the Great Recession \u2013 a period we are still in \u2013 \u00a0we were told by Keynesians that the \u2018multiplier\u2019 of austerity was huge (i.e. growth was being reduced drastically by more than one-to-one by cutting budget deficits or government spending).\u00a0 Well, again in previous posts, I have shown that this \u2018<a href=\"https:\/\/thenextrecession.wordpress.com\/2012\/10\/14\/the-smugness-multiplier\/\">strong multiplier\u2019 is seriously open to question.<\/a>\u00a0 Indeed, there is little correlation between reducing or raising government deficits or spending and growth since 2009. \u00a0The best correlation with g<a href=\"https:\/\/thenextrecession.files.wordpress.com\/2016\/11\/profits-raise-investment-draft-f3r-1.pdf\">rowth is with profits, not government spending<\/a>.<\/p>\n<p>Recently, Nora Traum of North Carolina State University presented a paper titled\u00a0<em>Clearing Up the Fiscal Multiplier Morass<\/em>. \u00a0She found that<em>\u201cdifferent assumptions create different multipliers\u201d.\u00a0<\/em>\u00a0She asked nine modelers, using three different kinds of models, to predict the effect on growth of three different tax reform proposals. For one reform, predictions on growth varied from \u20134.2 percent to 16.4 percent in the short run, and from 1.7 percent to 7.5 percent in the long run.<\/p>\n<p>Recent research has shown that the best news for capital is cutting government spending rather than raising taxes to apply austerity.\u00a0 Reducing government spending gives more room for private capital than raising taxes like corporate taxes, which is much more damaging to capital and thus to growth.\u00a0 If we are now to expect fiscal expansion not austerity from Trump (we shall see), then capital will like the tax cut but will not want government spending (except for those developers which get the contracts) especially if it directly interferes or replaces private investment.\u00a0 Such was the point against Keynesian stimulus made by<a href=\"http:\/\/delong.typepad.com\/kalecki43.pdf\">post-Keynesian Michal Kalecki himself.<\/a><\/p>\n<p>Marxist economics explains why.\u00a0 What really drives investment and in modern capitalist economies, where private capital investment dominates, is the profitability of projects.\u00a0 Private investment has failed to deliver because the profitability is too low, but even so the public sector must not interfere.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6571\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/investment-slowdown-300x227.png?resize=300%2C227\" alt=\"investment-slowdown\" width=\"300\" height=\"227\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/investment-slowdown.png?resize=300%2C227&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/investment-slowdown.png?resize=150%2C113&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/investment-slowdown.png?w=600&amp;ssl=1 600w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>That\u2019s the difference between Trump\u2019s plan and that of the Chinese government in its massive infrastructure and urbanisation investment since 2009.\u00a0 China has spent about $11 trillion on infrastructure in the last decade \u2014 more than 10 times what Trump is proposing. \u00a0This public investment, bankrolled by state banks and carried out by state companies, has weakened the private sector\u2019s growth in China.\u00a0 But as the Chinese state controls the economy, not domestic or foreign big business (much to the chagrin of the World Bank), such investment can go ahead and deliver 6-7% annual real growth during this Long Depression.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6572\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/china-infrastructure-300x166.png?resize=300%2C166\" alt=\"china-infrastructure\" width=\"300\" height=\"166\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/china-infrastructure.png?resize=300%2C166&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/china-infrastructure.png?resize=150%2C83&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/china-infrastructure.png?w=450&amp;ssl=1 450w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>So the likelihood that Trumponomics will work and take economic growth up to 4% a year, as Trump claims, is very low.\u00a0 It is ironic that when Bernie Sanders\u2019 advisers suggested that a program similar to Trump\u2019s be adopted and would achieve 4% or more real GDP growth, mainstream economists (<a href=\"https:\/\/thenextrecession.files.wordpress.com\/2016\/02\/romer-and-romer-evaluation-of-friedman1.pdf\">romer-and-romer-evaluation-of-friedman1<\/a>), jumped all over them, saying it was a pipe dream \u2013 correctly, in my view.\u00a0 But now Trump advocates it, financial markets and Keynesians find it attractive and even possible.<\/p>\n<p>Like Abenomics, Trumponomics is really\u00a0<a href=\"https:\/\/thenextrecession.wordpress.com\/2013\/06\/11\/abenomics-a-keynesian-neoliberal\/\">a combination of Keynesianism and neoliberalism.<\/a>\u00a0The new spending and tax cuts are to be paid for, apparently, by more deregulation of markets and labour conditions to boost profits. \u00a0\u00a0This is supposed to boost the growth rate in a \u2018dynamic model\u2019, or what used to be called \u2018trickle-down economics\u2019, where the rich get tax cuts and spend it on the goods and services so that the rest of us get some more income and jobs.\u00a0 The main incentive according to Trump\u2019s own economic expert is not from reductions in the personal or corporate tax rate, but from allowing businesses to write off their investments\u00a0<u>immediately<\/u>\u00a0instead of over time.<\/p>\n<p>What Skidelsky ignores in his paeon of praise for Trump\u2019s policies is the hallmark of Trumponomics:\u00a0<a href=\"https:\/\/piie.com\/publications\/piie-briefings\/assessing-trade-agendas-us-presidential-campaign\">trade protectionism and restrictions on immigration.<\/a>\u00a0 These policies are much more likely to be imposed than his Keynesian-style stimulus.\u00a0 Trump plans to drop\u00a0<a href=\"https:\/\/thenextrecession.wordpress.com\/2016\/07\/14\/brexit-ttip-and-ttp\/\">TTP (the regional trade deal with Japan and Asia)\u00a0<\/a>and TTIP (with Europe) and \u2018renegotiate\u2019 NAFTA, the regional trade pact with Mexico and Canada.\u00a0 The aim is to \u2018protect\u2019 American jobs and end cheap Mexican labour.<\/p>\n<p>As the Donald said last March:<em>\u00a0<\/em><em>\u201cI\u2019m going to get Apple to start making their computers and their iPhones on our land, not in China.\u201d<\/em>\u00a0\u00a0And he wants to impose a 45% tariff on Chinese imports.\u00a0 It\u2019s been estimated this could drag down China\u2019s GDP by 4.8% and Chinese exports to the US by 87% in three years, according to Daiwa Capital Markets.\u00a0 Even if Apple finds enough workers to assemble in the US, the cost of making an Apple iPhone 7 could increase $30-40, estimates Jason Dedrick, a professor at the School of Information Studies at Syracuse University. Since labour accounts for only a small part of an electronic device\u2019s overall costs, most of these higher expenses would come from shipping parts to the US.\u00a0 If the iPhone components were also made in the US, the device\u2019s costs could climb up to $90. That means that, if Apple chose to pass along all these costs to consumers, the device\u2019s retail price could climb about 14%.\u00a0So Trump\u2019s trade policies would mean a sharp rise in prices of goods in the US for a start, even assuming there is no retaliation by China.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6573\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/value-added-chain-300x291.jpg?resize=300%2C291\" alt=\"value-added-chain\" width=\"300\" height=\"291\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/value-added-chain.jpg?resize=300%2C291&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/value-added-chain.jpg?resize=150%2C146&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/value-added-chain.jpg?resize=696%2C675&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/value-added-chain.jpg?w=700&amp;ssl=1 700w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>As John Smith has shown in his powerful book, I<a href=\"https:\/\/thenextrecession.wordpress.com\/2016\/03\/07\/imperialism-and-super-exploitation\/\">mperialism in the Twenty-First Century: Globalization, Super-Exploitation, and Capitalism\u2019s Final Crisis<\/a>\u00a0:\u201c<em>about 80 percent of global trade (in terms of gross exports) is linked to the international production networks of TNCs.\u201d<\/em>\u00a0 UNCTAD estimates that\u00a0<em>\u201cabout 60 percent of global trade . . . consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption.\u201d.<\/em>\u00a0\u00a0<em>A striking feature of contemporary globalization is that a very large and growing proportion of the workforce in many global value chains is now located in developing economies. In a phrase, the centre of gravity of much of the world\u2019s industrial production has shifted from the North to the South of the global economy.\u201d,\u00a0<\/em>as Smith quotes Gary Gereffi.<\/p>\n<p>Reversing this key feature of what has been called \u2018globalisation\u2019 can only be damaging to American corporations, while at the same time shifting the burden of any cost and prices rises onto average American households.<\/p>\n<p>Globalisation \u2013 the cross-border expansion of world trade and capital flows and the development of value-added chains internationally \u2013 has been an important counteracting factor to the falling rate of profit experienced after the mid-1960s up to the early 1980s in the major advanced economies.\u00a0 Deregulating labour rights, crushing trade union power, privatising public sector assets domestically went with global expansion by multinationals.\u00a0 Trump now talks about reversing this counteracting factor to benefit his supposed electoral support in the \u2018rust-belt\u2019 of mid-West America that has suffered the most from the movement of American multinationals to exploit cheaper labour in Mexico, Asia and Latin America.<\/p>\n<p>The irony (and the worry for capital) is that the Great Recession and the ensuing Long Depression seems to be ending globalisation anyway.\u00a0 Globalisation was already in trouble before Trump and Brexit.\u00a0 The global financial crash, the Great Recession and ensuing Long Depression (similar to that of the 1930s) since 2009 had brought the expansion of world trade to a grinding halt.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6574\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-trade-300x196.png?resize=300%2C196\" alt=\"world-trade\" width=\"300\" height=\"196\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-trade.png?resize=300%2C196&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-trade.png?resize=150%2C98&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-trade.png?w=450&amp;ssl=1 450w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>On a standard measure of participation in global value chains produced by the IMF, the rise in profitability for the major multi-nationals is now stalling.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6575\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/global-value-chain-300x196.png?resize=300%2C196\" alt=\"global-value-chain\" width=\"300\" height=\"196\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/global-value-chain.png?resize=300%2C196&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/global-value-chain.png?resize=768%2C502&amp;ssl=1 768w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/global-value-chain.png?resize=150%2C98&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/global-value-chain.png?resize=696%2C455&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/global-value-chain.png?w=977&amp;ssl=1 977w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>Sure, information flows (internet traffic\u00a0and telephone calls, mainly) have exploded, but trade and capital flows are still below their pre-recession peaks. \u00a0Global foreign direct investment as share of GDP is now falling.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6576\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/fdi-300x196.png?resize=300%2C196\" alt=\"fdi\" width=\"300\" height=\"196\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/fdi.png?resize=300%2C196&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/fdi.png?resize=768%2C502&amp;ssl=1 768w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/fdi.png?resize=150%2C98&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/fdi.png?resize=696%2C455&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/fdi.png?w=975&amp;ssl=1 975w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>And capital flows to the so-called emerging economies have plummeted.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6577\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows-300x164.png?resize=300%2C164\" alt=\"em-flows\" width=\"300\" height=\"164\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows.png?resize=300%2C164&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows.png?resize=768%2C419&amp;ssl=1 768w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows.png?resize=1024%2C559&amp;ssl=1 1024w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows.png?resize=150%2C82&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows.png?resize=696%2C380&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows.png?resize=1068%2C583&amp;ssl=1 1068w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-flows.png?w=1381&amp;ssl=1 1381w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>The G20 leaders met recently before the Trump victory and they could already see the writing on the wall for globalisation.\u00a0 They said they were opposed to trade protectionism<em>\u00a0\u201cin all its forms\u201d.\u00a0<\/em><em>\u00a0<\/em>As Deutsche Bank economists put it:\u00a0\u00a0<em>\u201cIt feels like we\u2019re coming towards the end of an economic era\u2026 and time is running out to prevent economic and political regime change given the existing stresses in the system.\u201d<\/em><\/p>\n<p>The strategists of capital are worried that Trumponomics will only makes things worse for profitability globally.\u00a0\u00a0<a href=\"https:\/\/www.ft.com\/content\/0c777dda-bed4-326e-b130-2ab08079e5a9\">Bin Smaghi, ex member of the ECB and leading strategist of finance capital<\/a>, commented:\u00a0<em>\u201cTrying to reverse globalisation can be damaging, particularly for the country that takes the first step. It is the advanced economies that are facing the greatest challenges in its most recent wave, which is why anti-globalisation movements are gaining support and governments are tempted to become inward looking. However, because their economies are so large, and so bound by the web of globalisation, they cannot reverse its course, unless emerging markets also retreat.\u201d<\/em><\/p>\n<p>And the risk is that the emerging economies could be driven into a slump as trade falls further and capital inflows dry up.\u00a0Emerging economies have been building up large amounts of debt (credit) raised from US and European banks to invest, not always in productive sectors.\u00a0 This has not caused any problem up to now because interest rates globally have been very low and the US dollar has been weak so that borrowing in dollars has not been a problem.<\/p>\n<p>But this is beginning to change, partly due to Trumponomics.\u00a0 Moody\u2019s Investors Service has issued 35 credit downgrades this year in countries including Austria, Turkey, and Saudi Arabia, while only issuing five upgrades. And 35 of the 134 countries assessed by the ratings firm currently have a negative outlook hanging over them.\u00a0 That puts at least $7 trillion of government debt at risk of a downgrade, according to data from the Bank of International Settlements for the end of last year. \u00a0This proportion of countries with a negative outlook from Moody\u2019s is the largest it has been since 2012, and it couldn\u2019t come at a worse time.\u00a0Interest rates on bonds, especially ones with longer maturities, are now rising sharply. If this is the end of a 35-year bull run in the bond market, governments, after years of low interest rates, might have to prepare for significantly higher borrowing costs.<\/p>\n<p>At the same time, the US dollar has spiralled upwards in strength compared to other major trading currencies.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6578\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/us-dollar-300x164.png?resize=300%2C164\" alt=\"us-dollar\" width=\"300\" height=\"164\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/us-dollar.png?resize=300%2C164&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/us-dollar.png?resize=150%2C82&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/us-dollar.png?resize=696%2C381&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/us-dollar.png?w=730&amp;ssl=1 730w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>Global debt relative to productive investment has been sharply increasing.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6579\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment-300x197.png?resize=300%2C197\" alt=\"world-debt-and-investment\" width=\"300\" height=\"197\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=300%2C197&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=768%2C503&amp;ssl=1 768w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=1024%2C671&amp;ssl=1 1024w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=1536%2C1006&amp;ssl=1 1536w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=2048%2C1342&amp;ssl=1 2048w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=150%2C98&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=696%2C456&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=1068%2C700&amp;ssl=1 1068w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?resize=1920%2C1258&amp;ssl=1 1920w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/world-debt-and-investment.png?w=3000&amp;ssl=1 3000w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>And emerging economies\u2019 corporate sector debt to capital ratio has also risen sharply.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-6580\" src=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-debt-to-equity-300x196.png?resize=300%2C196\" alt=\"em-debt-to-equity\" width=\"300\" height=\"196\" srcset=\"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-debt-to-equity.png?resize=300%2C196&amp;ssl=1 300w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-debt-to-equity.png?resize=768%2C502&amp;ssl=1 768w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-debt-to-equity.png?resize=150%2C98&amp;ssl=1 150w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-debt-to-equity.png?resize=696%2C455&amp;ssl=1 696w, https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/em-debt-to-equity.png?w=977&amp;ssl=1 977w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>Low and slowing economic growth globally along with a rising cost of borrowing and stagnant trade, now threatened by Trumponomics, will increase the risk of a global slump, not avoid it.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Before Donald Trump was elected, stock markets went down every time he improved in the public opinion polls.\u00a0 Finance capital did not want him to win.\u00a0 But since his surprise election, stock markets have not slumped.\u00a0 On the contrary, they have risen substantially along with a strengthening dollar.\u00a0 It seems that \u2018the Donald\u2019 could be [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":6581,"menu_order":1535,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"litci_post_political_author":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3639,3498],"tags":[4210,6068,34,5954,4058],"class_list":["post-6568","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","category-usa","tag-donald-trump","tag-global-economy","tag-michael-roberts","tag-thenextrecession-wordpress-com","tag-united-states"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/trump-en-florida-770x470-1.jpg?fit=770%2C470&ssl=1","fimg_url":"https:\/\/i0.wp.com\/litci.org\/en\/wp-content\/uploads\/2016\/12\/trump-en-florida-770x470-1.jpg?fit=770%2C470&ssl=1","categories_names":["Economy","U.S."],"author_info":{"name":"litci","pic":"https:\/\/secure.gravatar.com\/avatar\/c5ccde5393ccb83747702c5ca92f55d8fdaf99be9432d0142571c6d437fbaadb?s=96&d=mm&r=g"},"political_author":null,"tagline":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/posts\/6568","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/comments?post=6568"}],"version-history":[{"count":0,"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/posts\/6568\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/media\/6581"}],"wp:attachment":[{"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/media?parent=6568"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/categories?post=6568"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/litci.org\/en\/wp-json\/wp\/v2\/tags?post=6568"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}