9 August, 2020

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US Economic & Foreign Policy Woes

By Kumar David

Prof. Kumar David

All-bark and no-bite Trump tilts at windmills and charges at scarecrows: US Economic and Foreign Policy Woes

Impeachment in the US House of Representatives followed by the trial in progress in the Senate at this time of writing is not the worst of the viruses infecting American politics in this period. DJT will not be removed from office but damage has been done to his November 2020 re-election prospects. It is said he is idiosyncratic, unpredictable, unethical, given to rash mood swings, a nut case and a danger to world peace who he perches atop a huge arsenal, but his Neanderthal base remains stoic. Nevertheless, in truth, he is no threat at all to world peace; the pantaloon is all piss and wind, no substance. 

Consider his foreign policy record.

a) How many times has he barked like a mad dog and ended wagging his tail like a happy puppy?

Kim Jong Un, Venezuela, Mexico, China-trade and Iran many times. A barking dog that never bites.

b) Iran cannot afford to take on the US; the power disparity is too hefty. It’s game, local and long-term, is to creep forward step by step. Will it go nuclear? I don’t know when but eventually yes.

c) Trump has screwed US interests in the Middle East, Asia and Europe. It is out of Syria, on its way out of Afghanistan, not friends with Turkey and likely to be kicked out of Iraq soon.  All good for the Middle East and for the American people.

The link below (click here) explains how Trump’s blunders have taken pressure off Iran. “Iran has already declared the 2015 nuclear deal dead announcing that its nuclear program will now have “no limitations in production and enrichment capacity”. If Iran’s leaders believe that the US will seek to avoid committing the same strategic mistakes as Bush they may opt for bolder retaliation.” 

A hilarious clip of Trump damning Obama for an Iran cock-up that Obama never did but Trump himself did is at this site; visit it, a useful 30 seconds.

The next clip is typical of how American networks (except Fox) are having a field day taking the mickey out the President. The presidency now is burlesque!

Trump’s trump-card is the improvement in the US economy and statistics support him copiously. Unemployment down to 3.6%, approaching the theoretically lowest possible limit, inflation below 1.8%, real interest rates pegged at 1.5-1.75%, stock markets at record highs and housing “starts” in December at a high 1.6 million units. But real unemployment should include underemployed, the marginally attached, and discouraged workers. For that reason it is double the official rate. Health care occupations account for 18 of the 30 fastest growing occupations because of an aging population. Computer jobs and alternative energy production will grow rapidly. Three groups will lose jobs; production, administrative support and sales. These jobs will be replaced by IT and other technologies. Retail sales will lose out as e-commerce predominates and also increases jobs in transport and warehousing.

The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation accompanies lower unemployment and vice versa. However standard economic theory (Philips Curve included) is violated in that in that unemployment and inflation have remained determinedly low for several years in the US and the West. This is a bonanza for a president seeking re-election in normal times. With these employment and inflation numbers and a booming stock-market behind him would be a sure-fire winner. But these are not normal times. Three things contradict this picture; the US economy massive though it be, is not “an island separate unto itself”, second the spectre of Herman Minsky and the third exploding and uncontrollable debt enlargement. The first two require some care in explanation, the third is an obvious enough calamity.

Global Dependence

Familiar economic truisms, such as the Phillips Curve, or the rule that only two of the three variables, exchange-rate, balance of payments account and interest rates, can be controlled, or the renowned principle of comparative advantage, are all no longer true. In a pervasive global economic system the notion of a closed national economy, which underlies these and other traditional theories, is a myth. They are honoured as much in the breach as in the observance. International trade, capital flows and national and corporate debts, disturb domestic economic variables. The Phillips Curve can be violated in the US if global supply chains tie wages, exchange of goods, trade balances and inflation rates in the US with those in say China, Mexico or Vietnam. Instability in global supply chains spoil the rosy picture on which Trump’s re-election prospects ride. US imports, as a % of GDP, have averaged about 16% for the last 15 years. This is not a high percentage compared to other countries but the size of the US market influences global supply chains and hence keeps both inflation and employment low in Western countries. Rising debt will and theoretically must disrupt this equilibrium. Overall, prospects for the global economy remain bleak as the OECD’s November 2019 projections show.

DJT will be restrained by Congress, his Cabinet and the military from destabilising the world by further warlike antics. As the OCED stats project, the potential for growth in Europe, Japan and the US in the next two years are extremely fragile. More tomfoolery will not be permitted.

Minsky Moment

Hyman Minsky (1919-1996), along with John Maynard Keynes (1883-1946), Piero Sraffa (1898-1983) and Michał Kalecki (1899-1970) was one of the four weighty economists of the twentieth century. None was awarded a Nobel Prize in Economics which lolly is reserved for pettifogging second-rate tinkers in econometric numbers. Their origins were American of Belarusian descent, English, Italian and Polish, respectively.  Minsky provided a theory of financial crises linking it to the fragility of financial systems. The gist of his thesis is that long periods of stability end in systemic instability because investors ignore that higher reward equals higher risk. They behave as if a new stabilising paradigm has appeared and take on increasing debt to finance ever more speculative investments. 

Crucial to his thesis was the insistence that liquidity is not the same as solvency. Central banks pump trillions in stimulus, making it absurdly easy to invest. But what happens when earnings from new investments become too low to pay interest on debt? This is what happened in 2008 and it is called a Minsky Moment. Today the Fed is belatedly reducing its $4 trillion in “Treasurys”, known as quantitative easing (QE). It also needs to increase interest rates but is in a fight with Trump who opposes this for fear that higher interest rates would jeopardise his election prospects. Trump wants investors to borrow to buy stocks and believes a high stock-market is a key to electoral success and will cement Wall Street loyalty. However, this mad commitment to pump up stock-markets brings the next Minsky Moment ever closer.

Source – http://www.new-normal.com/financial-events/will-stock-markets-see-a-minsky-moment-in-2020-2/

In the three months from 7 October to 3 January tech giant (Apple, Netflix, Facebook, Microsoft, Google and Amazon) stocks bubbled to dizzy heights adding credence to the premonition that Minsky’s spectre is being invoked. Even run of the mill bourgeois economists are steeling themselves for “the coming recession”. This is inevitable (but when?) and it may be as catastrophic as Minsky feared. To be fair I need to add that there is a small group of ‘radical’ economists who hold that an economic crash need not ever happen again. Snake oil vendors that we have seen umpteen times before. 

US national, private and corporate debt

The U.S. government’s public debt is now more than $22 trillion — the highest it has ever been and 110% of 2018 GDP. The new debt level reflects a rise of more than $2 trillion from the day DJT took office in 2017. Corporate debt is $16 trillion, 74% of February 2019 GDP and household debt, including mortgages, car loans, credit card and student debt is $14 trillion. This data comes at a time when the US Treasury groans that tax revenue is falling and federal spending continues to rise. US foreign debt is $6.5 trillion. The rest of the world is prepared to hold this mountain of US Treasury Bonds because the dollar still rules the world and foreigners are comfortable that they can always dump these bonds for dollars. But what will happen to the dollar if central banks and foreigners lose confidence in Uncle Sam? Gold was about $300 an ounce at the turn of the century, it is $1600 now. The world economy is altogether more unstable than at any time except critical moments like the Great Depression of the 1930s, the Dotcom Crash in 2000-2001 and the 2008-2009 Great Recession. As in all these cases the fragility remains concealed until the ghost of Minsky summons the demon.  

This column argues that in the midst of global economic and political instabilities – Brexit, anti-Muslim intolerance and undermining India’s secular Constitution by Modi, Putin’s dramatic proposals to transform the structure of the Russian state and Year of the Rat (remember the plague?) coronavirus – Donald J Trump is the worst possible US President both for the United States and for the rest of the world though he too fluffy a pussy to start WW3.

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    I think Kumar David argues anti-Trump and usual blame – game. My guess is even Obama tried to fulfill american deep state’s usual needs. The result was Obama got the results and he was humiliated, I suppose. TRUMP came to politics, my guess, honestly to support americans. It says even FBI worked against TRUMP’s election. I think Many initiatives that TRUMP began were sabotages by the deep state, at this time, it is mostly the democrats. Hilary’s trans-pacific trate treaty are all democratic. Obama also tried to bring legislation for trans national states in which multinational companies govern and maintained for trade and military dominance.
    $21 trillion loan holders are earning negative interest I heard. Think about $ 7 to 9 billion Forex Reserve that Sri Lanka is maintaining. They are holding because the SL govt is scared to USA officials. But, think about what would happen after the US election.
    Iran had helped USA fir decades since 1950s. They double crossed Moshade or the Iranian PM at that time. Some how, Iran is closer to France than US. Anyway, One Iran captured the US embassy in Iran. They found CIA center for middle east was Iran. They had published all those findings in 80 volumes. Even recently, very high profile US official said, we ate no way going to a war with Iran.
    Impeachment is a political process and is a joke. The way I understand it, TRUMP has ammunition for that. Every time Nancy Polosy said, UKRAINE has interfered in US elections. Who wants to believe that. UKRAINE is like Mahinda Chintana and YAHAPALANA govt. They are looking for out from their mess.
    Anyway, mu guess TRUMP is always trying to escape the deep state and do some good work for the country. But, deep state is always trying their best to sabotage Trump.

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      What a load of bull. Where did you get these half baked lies? From Conspiracy websites? Trump IS the deep state. He is up to his neck in scandals and investigations, and has control over the Republicans in Congress, the State Department, and even the NOAA, the water bureau, where Trump got them to change scientific data to suit HIS lies. That impeachment is NO joke. Credible witnesses testified UNDER OATH, to support the charges against Trump, and he was impeached in the House, while the enablers in Congress, the Republicans, are running the hearings under the command of the criminal himself. Why do you think Trump has prevented his officials from testifying under oath? Why do you think he is refusing to release documents? He claims he had a perfect call, so WHY ISN’T HE ALLOWING HIS OFFICIALS TO TESTIFY AND CLEAR HIM….think hard now. Trump’s sick loyalty to Putin makes him his puppet, and keeps blaming Ukraine for the interference. TRUMPS OWN STATE DEPARTMENT AND HIS OWN INTELLIGENCE AGENCIES DISAGREE WITH HIM.
      Good work for the country? Trump is looking after his own personal interests, and his own pockets, like the rest of his family who are enriching themselves from the White House.
      You want to believe a man who has been FACT CHECKED and found to be lying over 16,000 times? Get real.

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        Here’s more on those lies:
        “President Trump has made 16,241 false or misleading claims during his three years in office, according to The Washington Post’s Fact Checker.

        In 2019, Trump reportedly more than doubled the number of false or misleading claims he made compared to his first two years in office combined. Trump made 8,155 suspect claims in 2019, surpassing his 7,688 from 2017 and 2018 combined, the newspaper reported.

        It added that the president averaged more than 22 false or misleading claims a day in 2019.

        Nearly 1,000 of the false and misleading claims last year dealt with Trump’s comments about the investigation into his dealings with Ukraine, which were the subject of his impeachment, according to the Post. Nearly 70 times, Trump claimed a whistleblower complaint about his call with Ukrainian President Volodymyr Zelensky was inaccurate. The Post, however, notes the report captured the content of the call and other details of the report have been confirmed.

        The Post added that the president claimed nearly 100 times that his phone call with Zelensky was “perfect,” a claim deemed false or misleading due to alarms raised by White House officials.

        Other common false and misleading claims are about economy or jobs, which the Post’s Fact Checker found made up one in five of Trump’s suspect comments. About one in six are about immigration, according to the Post.

        Nearly 20 percent of Trump’s false and misleading statements stem from his tweets, according to the Post.” The Hill

        Trump is an ethically and morally corrupt man. Found to be ripping off Tax payers when playing Golf in his own properties and charging tax payers for everything. He is a con man, who knows nothing about being president, and thinks he knows more than all the experts.
        He has played out students, and contractors, who had to sue him to get their money back…..go on google it all, and learn.

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    Thanks to Prof. Kumar David. As a layman I read more valuable information on world economic woes from a reputed Engineering Prof. turned journalist.

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    I watched the video where President Trump tells “our President will start a war with Iran because he feels that is the only way he could be reelected”. Who is this ‘our President’, is it him? Is he criticizing him? I am a bit confused can anyone clarify this, please?

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      That was Trump once again criticizing Obama, and accusing him of what Obama never did, but what Trump ended up doing himself. He killed an Iranian General, and took the US into the brink of yet another Middle East War, just to impress his base and get re-elected this year.
      He has hounded Obama, harassed him, and his family, and has lied far too many time about him, and also taken credit for what Obama achieved. He is envious of the Black president, because he had NO scandals or investigations for the 8 years in office, and left with high approval ratings at home and abroad. Trump is racist, and cannot stand him, that is why he has vindictively destroyed all Obama’s achievements, including health care for Americans, and the Iranian nuclear deal. Trump has lied over 16,000 times, beating all Presidents when it comes to lying. Hope that it is clear.

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        Manel
        Some of the biggest whoppers these are not from Trump by Obama.

        “More young black men languish in prison than attend colleges and universities across America”
        “If you like your health-care plan, you can keep it”
        “The day after Benghazi happened, I acknowledged that this was an act of terrorism”
        Republicans have filibustered 500 pieces of legislation”
        “90 percent of the budget deficit is due to George W. Bush’s policies”
        “We signed into law the biggest middle-class tax cut in history”
        “I didn’t call the Islamic State a ‘JV’ team”
        “The Keystone pipeline is for oil that bypasses the United States”
        “We have fired a whole bunch of people who are in charge of these [VA] facilities”

        And while you at it you may want to read
        “Intellectual yet idiot by Nazeem Talabi”

        Pro: K.D. was under strain since he caught “Trump Derange syndrome” that has afflicted the Left and Pseudo Liberals. Very soon there will be a vaccine for Cornoavirus ALAS same can’t be said about “T.D.Z” it will hit its maximum derange level if Trump wins a second term which seems very likely with Democrat’s toying with Hunter Biden’s King of gaff dad forgetful uncle Joe. Bernie Sanders who took his new bride to USSR for 10 day honeymoon and fell in love with communist and in his heart never left Russia or Pocahontas Lizzie Warren the Native American without DNA to prove, but with high cheekbones like her papi.

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          Here are some of the president’s most frequent falsehoods: U.S. Steel is opening six plants (it’s not); Barack Obama’s administration had the same policy as Trump’s of separating children from adults at the border (it didn’t); Trump signed the largest tax cut in history (Ronald Reagan, among others, has him beat); a caravan of migrants was stirred up by Democrats offering health care and food benefits paid for by taxpayers (not quite); other countries owe the U.S. a lot of money for nato (this is false); the building of a wall at the U.S.-Mexico border is well under way (nope). None of this is true.

          “At the end of 2018, PolitiFact curated Trump’s most politically significant falsehoods and came up with a list of 10 substantive statements, from disputing Puerto Rico’s death toll after a devastating hurricane hit the island to saying how much Saudi Arabia was spending on American-made weapons. The Washington Post has a project to document every false or merely misleading thing Trump has said; it is at more than 7,000 misstatements and counting. Factcheck.org has dubbed Trump the “King of Whoppers” for his repeated falsehoods.”

          All politicians lie, but Trump, has been dubbed the “King of Whoppers” (make that over 16,000 lies to date). Be proud.

          .

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            Manel
            You just trying to prove President Trump once he got to White House start flowing the foot steppes of Obama by telling Pokies and you are so upset because?

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    Kumar David’s equal partner, Rajan Philips, has been missing for two weeks. I wonder whether that’s because he ignored my comment some weeks back to refrain from writing on Sri Lanka politics and instead concentrate on world affairs. The comment was made after the new dispensation took hold. Someone please assure me he is only hiding, not disappeared as other scribes have.

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    KD: the US will never leave Afghanistan because Aghanistan bases are needed for the war on Russia and China. It is strategically essential for the biggest Rogue State in the world whose imperial ambitions have crashed in the face of the rise of China.

    As part of its the ‘American Pivot to Asia’ policy begun by Obama, to de-stabize and sink the Rise of Asia as it is now the global economic and power center, while US and EU are increasingly back water regions, US has unleased Maritime hybid war on Sri Lanka as at Easter Sunday, Biological warfare against China with the Corona VIrus, and killed Iran’s General Sulaimani in Iraq.

    Seems that KD has not heard of the US pivot to Asia! This pivot to Asia is also evident as NATO with France (recall its corrupt Airbus Industrie) taking over the Indian Ocean, with Fake aid to the Fisheries sector and Harbour development in Lanka.
    (led by France, P3 US-UK-France leading), NATO is taking over the Indian Ocean that has been re-named the Indo-Pacific, while Modi is distracted with destroying India with the CCA , as the Indian Security establishment is totally under the sway of CIA and its ISIL narrative and Islamophobia. So India has forgotten the Ocean that bears her name with the US puppet Modi playing pucks!
    ISIL is a CIA project to justify 800 plus US military bases all over the world and the
    and the US military Business industrial complex will NEVER LEAVE AFGHANISTAN! as it refuses to leave all its other illegal military bases – from Guantanamo to Okinawa. US is a dangerous Rouge State desperate to regain its crashed empire!

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      The world should be aware the new axis of evil – US, Israel, Saudi Arabia, UAE, and India. Where there are civilians being killed, bombing, bloodshed, deadly weapons, and proxy wars being fought, you will them involved in some form or the other. Some instigate the people to rebel, organize protests to topple governments, start race wars to sell their weapons, and some occupy, steal lands, and kill civilians, aided and abetted by others. Let me name some of those nations or people – Myanmar, Palestinians, Iraq, Afghanistan, Libya, Syria, Yemen, minority Muslims, and they are hoping, Iran. Without the interference, and arms supplied by some of these countries, the world would be a better place.

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        Manel: what I think the Impeachment becomes joke of the century and if proceeds TRUMP shows what else UKRAINE has told to his Lawyer. So, the democrats just will save their skin and will not go further. Trump will win the election and he might change at least part of the way they see out.

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          It will be a” joke” for people who are ignorant. Obviously you don’t know the procedure, and get your information from the conspiracy websites, and right wing liars. The same source the 16,000 lies President gets his from. I have given you information from credible sources, but like all Trump supporters you have been brainwashed to reject the facts. Trump will not win the elections, he lost the last two elections, losing the House, and many seats, has low Approval ratings, and polls show he is getting beaten by the top Democrats. Those are facts. You can (foolishly) keep hoping though.

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    CT has found a picture of Dr.KD from his younger days, the dapper, bow-tied socialist!

    Anyway, even though Presidents like to take credit for any good economic condition, their policies have little impact because economic cycles take a life of their own, unless they inject massive amounts (say a trillion) of infrastructure spending. Tax cuts cause an economic sugar high but vanish soon, especially when it is biased toward the rich.. So Trump cannot take any credit for the seemingly better economy. Indeed, the growth rate has slowed to 2.3% from close to 3% because of the Trump tariffs but stock markets haven’t reflected that.

    The coronavirus is likely to have more impact, by affecting the tech industry’s supply chain in China as well as tourism and transportation. Trump’s election showed the stupidity and irrationality of significant segments of the American electorate. It is possible that Trump can still be reelected, but the energy in the opposing camp is high enough to stop that, so it is going to be a close race again.

    The latest news from the grapevine is that Biden has strong support among Catholics, so he is likely to get the support of moderate Catholic swing voters.

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    I don’t care for Trump personally, however I disagree with the outcomes proposed by Kumar. Let’s start with the impeachment. These proceedings were a publicity stunt by the Democratic Party, as they knew the trial would be over when witnesses were rejected. This is the 2nd time the Democrats have failed in a big way to discredit Trump; the first time was with Mueller. Trump will point to the strong US economy and say he is managing the country well while Democrats are wasting time with these useless trials. The Democratic contenders are also rather weak. The leading ones (Warren and Sanders) are proposing very strong socialist reforms in education and healthcare, which the Americans are not used to and equate with government interference, which they reject. Regarding Iran, on the surface it looks like Trump is losing. In fact, it is a clever strategy. If Iran enriches uranium and trys to build an atomic bomb, Trump will have the support of Western European countries to attack. If Iran does nothing in regards to uranium enrichment, they are still economically isolated. In any case, Trump will win the 2020 election in a landslide. Simply because of the perception of a strong domestic economy. There are counterarguments to all this, e.g. that the economy is being pumped via Central Bank liquidity injections, that Trump has no coherent foreign policy, that US deficit spending is growing exponentially, etc. But these are long-term outcomes and the popular perception is fixated on the short-term.

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    Another article from Sri Lanka’s very own Jeremy Corbyn!
    *
    As is frequently the case – Professor Kumar David gets it wrong again!
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    You shouldn’t expect too much from a man who describes himself as an “Unrepentant Marxist” and has openly supported China against the Hong Kong protestors. He’s also suffering from stage 4 TDS (Trump Derangement Syndrome).
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    President Trump was elected by the people. He has been attempting to carry out the policies that he promised. This goes against the wishes of the Deep State (who have exposed themselves – they really do exist) and the Democrats. As such they have spent the last 3 years doing everything possible to block anything he tries to do.
    *
    Despite all the rhetoric the border wall is being built – despite the Left trying everything to stop it.
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    Impeachment was a complete farce – which is why it failed. 2020 will be a Trump landslide victory and will complete the destruction of the Left. The candidates they are running are so extreme that nobody will vote for them.
    *
    The really serious issue is the Corona virus which will overwhelm the medical system worldwide and decimate the global economy. The figures published by the Chinese government are false – some of the news escaping the Chinese censors paints a very different picture than the official narrative.

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