Topic: History Reveals There Is No Going Back for the Economy - page 2. (Read 343 times)

I am the one who thinks that the end of the trade war is the beginning of a military war. The national interest of the United States of America lies in the interests of capitalism which rules the United States of America, namely maintaining global hegemony. Meanwhile, China with 1.4 billion inhabitants at present and whose population will grow in the next few years requires greater natural and energy resources to feed its people.

Not that it is not friendly to Europe, but the trade war with America made European countries realize that they began to act like America and reduce the portion of trade with China. The OBOR or BRI program is a grand strategy implemented by China to expand its territory non-physically. So all projects in the OBOR country belong to China, raw materials from China and labor from the labor level to skilled experts also from China. This means that most of the money is only and continues to revolve in China even though the project is in another country.

China also carried out a strategy carried out by the United States in the 2000s in China, but this time China-bound the OBOR countries so as not to escape the mistakes made by America against China. Investments are made in OBOR partner countries with the aim of being exported to other countries thereby increasing China's foreign exchange reserves. Meanwhile, torch partner countries only seem to have good growth due to a lot of development when in reality the money flowing is not too significant.

The 21st century saw a geopolitical shift from the Atlantic to the Asia Pacific. Australia and the United States have agreed to establish a US military base in Papua New Guinea, with the aim of compensating for the Chinese military in the Asia Pacific sea, especially in the South China sea. Where this region is rich in oil and mineral resources for renewable energy in the future which is predicted to be sufficient to overcome the problem of China's food security and reduce China's dependence on energy supply from other countries.

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China is a superpower, maybe not as powerful as the US, but they're still a global superpower with  MASSIVE amount of influence in the world. China won't be friendly to the west, and that is true. But China has FORCED its way into the global stage by leveraging their cheap manufacturing to take over the global stage.

Further, China is investing HEAVILY in other countries that are developing and are forcing their influence on these other countries later on. Here's a list I found online of Chinese investments - https://chinapower.csis.org/china-foreign-direct-investment/

I totally agree with the factual information you present, and some of it was implicit in my original piece.  

However, when the markets and economy are 'doing great,' I like to dig beneath the surface and see what forces are driving the prosperity on the surface.  A building can be close to collapse due to rotting from the core, or be totally sound.  It feels the same standing at the top, today.

The 'debt problem' you mention is one that eventually plagues all economies in the modern Western system.  There are way too many claims to wealth (financial assets) issued, as compared to real wealth (goods and services,) at current prices.  This state is prone to sudden collapse as holders of the claims rush to redeem them.  (The claims have been over-issued by the elites to benefit themselves at the expense of destabilizing the economy, but that's what the incentives of this system drive them to do.)

The only ways out of this condition are default and deflation, inflation, financial repression, and more imperial robbery, or a combination.  Somehow, the imbalance between the claims and the actual wealth must eventually be brought down.  Anyway you do it, there will be pain and disruption.

So it makes a big difference what stage this rot (i.e. imbalance between financial assets and real wealth) has reached.  Is it early days yet?  Or on last legs?  It looks much the same on the surface, because the politicians, top bankers, and corporate media want to project peace and prosperity in both scenarios, in order to help them maintain or inflate the bubbles that benefit them.

I don't really fear this scenario.  It takes a lot more than what China has to become the global superpower, and the US and its allies will make sure China doesn't achieve it.

When you can print the main global reserve currency, and other countries' economies are addicted to you buying from them with that currency, you have a lot of power.  Not to mention that you still have more soft power than China (even in the era of Trump!)

As I mentioned, the main reason the West will keep China out of world leadership is that China will not be friendly enough to help ease the West into its decline, in the same way the US helped Britain, and Britain helped the Netherlands in their respective periods of decline from superpower status.

Decline is unfortunately inevitable under this system, where, over the decades of unearned wealth and power, your cost structure has become too high, and your 'spoiled' people are too used to their money enjoying an artificially high value.  There's just no way for a country like this to maintain its comfortable status quo.  The only question is hard vs soft landing.

This cycle is just the boom and bust business cycle that we've seen for hundreds of years now. Some years we're doing great, and other years there are financial problems. But you're calling these the weak years of the economy (your claim regarding 2000-2020) -- disregarding the fact that the stock market has been up 106 percent since 2000.  Unemployment (before the coronavirus) was the lowest it's been in awhile, businesses were thriving, pay was rising, etc.

Inflation hasn't been too bad during this period, I'd say the average for the last two decades is around 2-3 percent. Yes, debt had risen VERY largely and that is something countries must start to control. But I don't think we're in a weak phase right now (obviously disregarding corona)

Boom and bust is all this is.

Nationalism and isolationism are certainly on the rise now.  Also, when the monetary reset happens, prices in US, for example, will become cheaper and China more expensive, relative to today, and so there will be some movement to moving manufacturing back to the US.

However, for the longer term, just based on history, it's hard to see how trade and globalization won't be a good part of the landscape.  Going back even before the American century, to the British and Dutch empires, and the Renaissance Italian city states, a globalized money and trade system had always been a major support for the imperial system.  Value was generated by combining the financial expertise at the center, and the hard work and artificially cheap labor and/or natural resources at the periphery, of the imperial system.  To deviate from that, we'd have to have a dramatically different system as compared to centuries of imperial experience.

Now, it's possible that the flow of goods happens to go in the OTHER direction.  British imperial power, for example, worked to force exports of British goods onto India for a while, for example.  But however it's configured, globalization seems to provide a major piece of the imperial puzzle.

The current geo-economical, geopolitical condition is indeed completely erratic, marked by waning US hegemony and unilateral US foreign policy with the slogan American first and make America great again. Trump's unilateralism has provoked many countries to replace America's position in the regional economic and political arena.

Political constellation indeed leads to war escalation, almost all types of modern warfare have started from combatant wars, trade wars, currency wars, dominance wars, technological wars, media wars and finally bio-technology wars.

The injustice that occurs in the global economic system that causes the exploitation of some groups to other groups. The emergence of banks that provide loans with gold guarantees or gold ownership letters is the beginning of greed in a subtle way. The end of Bretton Woods is the key to the grip of capitalist hegemony throughout the world. A culture of debt for business and profit is made a culture by capitalism to encourage speculative action to flourish.



At present China only dominates trade, but has not yet dominated currency, hegemony, influence, and to legitimize all military forces is the most important thing. So for decades, China will remain a great power, it is still very difficult to shift the position of America as a superpower. India China will only take up the position the United States has left in the region as the new regional leader.

In the next few years, the political constellation in the Pacific region and Southeast Asia will heat up due to the emergence of new regional powers and the interests of many developed countries towards renewable energy sources in the region.

I don't really agree with it and that's a bigger risk for the countries to maintain their economic power. Post this pandemic, more and more countries will try to be self-dependent and focus on their internal market to maintain their finances, rather than focusing on global market. But that may have a disastrous effect on many countries who don't have a big internal market, especially smaller but technically advanced countries.

There's a big chance that China will try to become the world leader in exports post this pandemic. China will try to flood the international markets with their cheap and sub-standard quality goods. When the deep-pocket companies will see this happening, they will rush to China to open their factories so that they can continue with their business and take benefit from cheap labor force of China. We have already seen this happening in Mobile industry. All global mobile brands are manufacturing their phones in China only!

This will have a ripple effect on all markets and there's a good chance that China will become the next superpower of the world. That can in turn bring financial doomsday to many countries solely dependent on the global exports.

So becoming a nationalist is not a preferred choice you can make post this pandemic. Becoming aggressive in capturing the global business - must be the survival strategy post this time so maintain the finances. 

There is nothing to go back. I guess the normal that we will reach after this will be different from the normal that we once knew before this. We might make another B.C. as a new time label for this, Before COVID-19. But still, we are going to reach that normal stage sooner or later when this crisis will finally end. Yes, we are "in the middle of a major transition." The world after this will never be the same. Well, we are constantly evolving, anyway. I guess the new paradigm that will arise after this will be more nationalistic, more focused inward, on building a more independent country, rather than eyeing a more globalized position.   

What we have today is a pandemic, economic depression, and world war, all rolled into one.  We may become nostalgic for the old days when they came one at a time.

(I say world war, because we have multiple conditions that resemble or simulate war.  There is a geopolitical battle between the US and China that runs barely in the background.  There is a suspension of trade.  Free-market economic forces are on lock-down, and we're being asked to unite, sacrifice, and work for 'victory.'  Extraordinary regulation, surveillance, and control by the government are now conceivable even in the West.  Last but not least, if you're careless or unlucky, you can become one of the casualties, anywhere in the world.)

The key reason to doubt a return to any 'normalcy' is that, just as happened across the two world wars of the past, the world system is in the middle of a major transition.

History may be viewed as a series of strong and weak phases of the US-led world system.  (This is a simple but IMO effective framework for people with limited inside information, that is, all of us.)  During a strong phase, the system is confidently leading and imposing its will on the world.  During a weak phase, the system must retrench, re-organize itself, and transition to something different in order to survive and thrive again.  During this phase, extremely 'crazy' things always seem to happen.

1918 - 1929: Strong Phase.  This was a period of fixed exchange rates, but with the dollar beginning to replace gold as global reserves.  The supports for the system were US growth and financial strength, with Germany having decidedly been neutralized as a threat to the system by World War I.  The results were renewed globalization and a general condition of prosperity and peace across the West.

1929 - 1945: Weak Phase.  Financial asset values and economic demand collapsed and the dollar had to be devalued against gold.  Even this had to be coupled with a ban on private gold ownership in the US to keep the system stable.  To keep peace with a shocked and suffering public in the US, fiscal stimulus on a large scale was used, with limited effect.  Globalization collapsed and political extremism took root abroad under even worse economic conditions.  All of this, eventually, took a second world war to resolve.

1945 - 1971: Strong Phase. Another period of fixed exchange rates, but with the dollar totally dominating global reserves.  A major factor of stability was that the world had decided to give unconditional love to the dollar, in concert with the Bretton Woods foundational institutions, whose terms were dictated by the US as the biggest victor of the war.  Another major support was pulling a Western middle class into the winning alliance, with advances in educational and other social-democratic benefits.  This formed a strong political consensus in favor of the West's dealings with the developing world and the Soviet Union.  Financial-institution excesses were contained by strong regulation.  Globalization proceeded economically but not financially (but this proved eventually unsustainable.)  Even with the Soviet Union as a constant threat to the system, the result was a prosperity in the West that reached the majority of the public.

(I chose 1971 somewhat arbitrarily as the end of this period.  The system had been gradually weakening during the 1960s.  The US, as is human nature, took advantage of its strength to live beyond its means via the dollar system and its trade with Western Europe and Japan.  1971 was a symbolic end-of-era because, that year, a run on US gold by European governments finally forced the US to default on the dollar's convertibility to gold at a fixed rate.)

1971 - 1982: Weak Phase. In effect, the dollar was vastly devalued against gold, and the West entered a floating exchange rate system.  Financial assets performed poorly.  Economic pain was shared between stagnation and inflation, as the system adjusted to the reality of yet another loss of faith in its foundation, the dollar.  Support from the new petro-dollar system forced on Saudi Arabian rulers and other oil producers proved insufficient, and eventually the US had to endure a serious bout of high interest rates and recession to restore faith in the dollar.  This decade of 'malaise' also saw the loss of the Vietnam War, as well as the peaking of educational attainment by the US public.

1982 - 2000: Strong Phase The dollar advanced or held steady against gold.  Advertised as a return to free-market policies, Western bankers were invited back into the winning alliance, and the Western middle class 'invited' out.  Also invited in are developing-world producers and governments, in the form of full-blown globalization, with a big US asset bubble as side effect.  The fighting and winning of the Cold War also became a major support and boost to the system.  In particular, China's vast labor pool and cheap currency became one of the great supports.  Inequality and financialization (the buildup of financial assets and their values) had begun, but this period is remembered for the 'goldilocks' conditions of low interest rates, low inflation, and high GDP, in the West.  Most Westerners were at least able to enjoy stable or declining prices, as a result of globalization.

2000 - ?: Weak Phase. The dollar was 'devalued' against gold several fold.  Competitive devaluations among major currencies occurred (especially after the 2008 crisis.)  Major declines of asset values occurred in 2000-1, 2008-9, and 2020.  On the surface, low interest, low inflation and decent GDP numbers were maintained in the US, but without the energetic zeitgeist of the previous period.  Economically it's been a period of muddling through, with Western central banks loosening money to stave off crisis and buy time, while blowing serial bubbles.  Geopolitically and politically, the US-led system suffered a series of setbacks, as against Iran and Russia, with China eventually becoming hostile (though after helping with post-2008 crisis management) and with unhelpful nationalist and isolationist populism growing in the West itself.  In 2020, a coronavirus global pandemic shut down the entire economy.

Since this is the stage set for the 2020 pandemic, it's hard to see how things can 'return to normal' after it completes its course.  At best, the authorities will patch things up as they did in 2001 and 2009, for some more muddling through.  But this will only further increase the imbalances currently in the system (one of which is that inequality and financial instability have been reinforcing each other,) and set the stage for an even bigger crisis, perhaps a decade down the road.  (We note that each crisis has been worse than the previous one during this period.)  Since part of the core nature of the Western system is that the elites are incentivized to destabilize their own system, the more imbalance there is, the more perverse the incentives will become, and the bigger the next crisis.

However, an alternative outcome after 2020 is that an entirely new global order will emerge.  Any economic pain and authoritarianism necessary to transition to this world can be blamed on the pandemic.  With China, Russia, and other more or less independent centers of power likely still standing, the new arrangements will likely be negotiated rather than dictated.  I can only speculate that the following are possible features of a new 'strong phase:'

For the economy, technology will take center stage as the new engine of growth.  This will both preserve the West's pre-eminent seat at the economic table and have the 'desired' side effect of enabling more regulation and control by the state for maintaining the system (see below.)

For money and finance, there will be a big move towards a cashless system in the West, which will enable meaningfully negative interest rates -- a major new tool for authorities to deal with crises in the future.  In addition, it's possible that the totally fiat money system since 1971 will be blamed for the financial instability since then, and overt exchange-rate targets (or ranges) will be set against non-state monies by Western central banks.  Either way, there should be a big 'devaluation' against these monies to stabilize the system to start with.

In politics, surveillance and regulation by the state (to keep the system stable) will become stronger and will be rationalized as necessary for avoiding economic pain from a crisis (as evidenced by the severe economic pain from the pandemic.)  This will be stronger in China and Russia than in the West, but all countries will go in this direction, with the West having 'private' entities like Google and Facebook do this work.

Geopolitical developments are difficult to predict at this time.  The only guess I can make is that major rivals of the West will be handled more or less peacefully for a number of decades, until India has matured enough to take over as the new superpower while allowing the US and Europe to have a soft landing.  All efforts will be made to avoid Chinese world leadership, as it will likely not be friendly enough to the West to allow a gentle decline.

So, a century's pattern reveals that the system is inherently unstable.  When the system is strong, it tends to allow itself to be exploited by its beneficiaries, until eventually it becomes unstable and weak.  At those times, it tends to try out different things or bide its time, until it finds the right winning alliance and becomes stable again, for now.  Thus, not only does it alternate between strong and weak phases, but each period has quite different features from all the others (even when comparing one strong phase against another.)  The severe dislocations we're experiencing now strongly suggest we are at a key transition point.  In any case, this will be a good opportunity for the system to make a transition to a new, stable phase, since any economic pain of the transition can be blamed on the virus.  Certainly, the serious imbalances of 2019 and the decade before did not make for stability.  There's every likelihood that we will not return to that period.