Is serious left criticism of government’s share of GDP possible? (18)

Continued from here.

The economic events now unfolding before your eyes are being driven by such forces as make a backward, low-productivity country like China competitive with you: the requirements of producing, maintaining, supplying, and provisioning a military establishment capable of fighting wars as in Iraq and Afghanistan, and, simultaneously, “hedging and shaping” the global balance of power, vis a vis rising powers like China, to effect the Full Spectrum Dominance of American Capitalism over the entirety of the planet, as this goal has been stated by Defense Secretary Robert Gates.

Washington is planning 10 to 25 years ahead to assure itself the resources required to hedge and shape the behavior of China, Russia, and other possible competitors to its preeminent position in the global economy.

This planning is based on assumptions about the basic vulnerability of the United States to external forces, with a time line for when they need to be addressed.

The continuation of Full Spectrum Dominance, however, is impossible without the dollar remaining as the currency of international trade.

With it, Washington has access not only to the resources of this nation, but also of every nation engaged in international trade.

By issuing paper money, or bonds denominated in dollars, Washington can divert the resources of every nation to its program of military aggression – household products from China for the shelves of Wal-Mart, oil from Saudi Arabia for your Lincoln Navigator, or, my twin his-and-her Hummers, jalapeno peppers from Mexico for our tacos, etc.

As in the case of Argentina before devaluation, it is fairly difficult to find items on the shelves at Wal-Mart which are made in the United States rather than, for example, the People’s Republic of China.

But, this was not always true.

As the Congressional Budget Office report, cited earlier, showed, until the time the Truman administration promulgated the policies which carried NSC-68 into effect, the United States enjoyed a nearly unbroken string of trade surpluses, and was the only major world trade partner with an intact industrial infrastructure.

That relatively strong competitive position was squandered so completely by the pursuit of a Cordon Militaire around the Soviet Union, and, the numerous conflicts arising from that pursuit, so that by 1971 it began to experience persistent – and, in the long run, unsustainable – trade deficits.

As the CBO chart shows:

By 1999, this deficit was becoming a virtual black whole, descending parabolically into the dark mists of economic no-man’s land.

(Now, if we only had enough rhythm to tango gracefully, we could rename ourselves North Argentina.)

In case you were wondering, folks familiar with parabolic curves in the stock market usually refer to it as the precursor to blow off tops – or, in the case of a downside slide, a capitulation.

Minyanville.com define capitulation as:

[T]he absence of hope. A total and complete give up in the marketplace when sellers want to “get out” at any price. From a trading standpoint, very bullish–if you have the ability to take the other side of the trade…which, by definition, you won’t.

And, indeed it was – a capitulation to a long downward spiral which began almost the moment NSC-68 went into force.

In 1950, as the Cordon Militaire was inaugurated, with the incursion into Korea, the balance of payments dropped into the red.

In the mid-50s Eisenhower tried to slow the trend by imposing limitations on imports of oil and other items.

In 1963, Kennedy signed into law his now famous “supply-side” tax cuts in an effort to boost the failing trade surplus.

By now the decade-old global currency regime , the financial structure of containment itself, was faltering headlong toward collapse.

According to the Wiki:

In 1967, there was an attack on the pound and a run on gold in the “sterling area,” and on November 17, 1967, the British government was forced to devalue the pound. U.S. President Lyndon Baines Johnson was faced with a brutal choice, either institute protectionist measures, including travel taxes, export subsidies and slashing the budget-or accept the risk of a “run on gold” and the dollar. From Johnson’s perspective: “The world supply of gold is insufficient to make the present system workable-particularly as the use of the dollar as a reserve currency is essential to create the required international liquidity to sustain world trade and growth.” He believed that the priorities of the United States were correct, and, although there were internal tensions in the Western alliance, that turning away from open trade would be more costly, economically and politically, than it was worth: “Our role of world leadership in a political and military sense is the only reason for our current embarrassment in an economic sense on the one hand and on the other the correction of the economic embarrassment under present monetary systems will result in an untenable position economically for our allies.”

While West Germany agreed not to purchase gold from the U.S., and agreed to hold dollars instead, the pressure on both the Dollar and the Pound Sterling continued. In January 1968 Johnson imposed a series of measures designed to end gold outflow, and to increase U.S. exports. However, to no avail: on March 17, 1968, there was a run on gold, the London Gold Pool was dissolved, and a series of meetings began to rescue or reform the existing system. But, as long as the U.S. commitments to foreign deployment continued, particularly to Western Europe, there was little that could be done to maintain the gold peg.

Of course, what is left out in the above Wiki excerpt is the fact that Johnson – with John McCain’s help – was busily slaughtering the first installment of more than 7.8 million people in Vietnam.

Which, for your information, does not include the lives which would be lost throughout the rest of Southeast Asia in the following years.

Holocausts are very expensive.

The Wiki:

By the early 1970s, as the Vietnam War accelerated inflation, the United States as a whole began running a trade deficit (for the first time in the twentieth century). The crucial turning point was 1970, which saw U.S. gold coverage deteriorate from 55% to 22%. This, in the view of neoclassical economists, represented the point where holders of the dollar had lost faith in the ability of the U.S. to cut budget and trade deficits.

In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on August 15, 1971, Nixon unilaterally imposed 90-day wage and price controls, a 10% import surcharge, and most importantly “closed the gold window,” making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department, and was soon dubbed the “Nixon Shock”.

The surcharge was dropped in December 1971 as part of a general revaluation of major currencies, which were henceforth allowed 2.25% devaluations from the agreed exchange rate. But even the more flexible official rates could not be defended against the speculators. By March 1976, all the major currencies were floating—in other words, exchange rates were no longer the principal method used by governments to administer monetary policy.

The cost of the Cordon Militaire erected around the Soviet Union, and enforced through such adventures as Korea and Vietnam had eviscerated the American competitive position in the global market.

Hundreds of billion of man hours of potential output had been squandered on an open-ended militarization of the economy, adding such costs to the American economy it could no longer maintain its century long trade surplus – its competitively priced goods, while continuing to be exported, were being swamped by the imports from cheaper competitors.

The process of deindustrialization had set in.

Within years, the Midwest would be renamed, “The Rust Belt,” amidst the stagnant and awful economic environment of the 1970s.

The cries you heard during those woeful years was the sound of your living standard being adjusted downward to reflect the new reality.

By 1971, twenty one short years after the inauguration of NSC-68, Washington had driven the nation into a permanent, and thus far irreversible, condition of living off the subsidies of its neighbors.

Without a balance of payments surplus, the national income was no longer sufficient to maintain a balanced federal budget. Below is a chart showing the ever rapidly mounting debt accrued by the treasury to offset the declining income of the American People.

Taken from here, the red line shows the net public debt accrued by government as mounting deficits exploded from 1970 to the present.

The black line shows the real public debt, including that owed to you as future Social Security retirement payments – the iceberg we mentioned in an earlier chapter.

(You will notice the gap between the two expands rapidly after the mid-1980s, and there is an explanation for this as well which we shall offer in time.)

To be continued