Breaking the System

Analyst Vasiliy Koltashov on which president could save the American economу.

The U.S. presidential race presents two fundamentally different scenarios for the economy. Which of them could save the country from the economic crisis that American economists talk about so often?

The U.S. Federal Reserve has been messing around for six months already: It’s holding everyone in suspense about the new interest rate that is supposed to come any minute, then gets delayed indefinitely. The truth is that the post-crisis growth of the U.S. has ended, and the leadership simply cannot raise the interest rate any longer. If credit gets more expensive, the economic situation will quickly begin to worsen and a banking crisis will ensue. The budget just cannot take the national debt not being paid.

If the Fed maintains the low interest rate (raised by .25 percent to only .5 percent), another possible outcome is a weaker U.S. dollar. This monetary policy will definitely continue if Hillary Clinton is elected president. Even if the U.S. dollar is stronger than other currencies, a worldwide economic crisis is unavoidable.

It is unfair to say that Barack Obama’s team didn’t try to avoid disaster. In early 2016, the U.S. pushed for a devaluation of the Chinese yuan, which could have potentially increased the flow of capital into the American economy. The collapse of the yuan was long overdue because of the problems in its internal markets, but the Chinese government prevented it. In spring, however, the euro and the pound started to weaken, and so far, this favors the dollar. But Europe’s problems are bound to repeat in the United States.

The American financial system never emerged from a dead end after 2008. In early 2015, it seemed like the U.S. was about to restart the world economy: capital from around the world was flowing into the U.S. and was going to be redistributed from there. The American financial elite tried to weaken the BRICS countries by taking control of their markets.* With this same “benevolent” goal in mind, Obama fought for the Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership, and the subordination of Ukraine and the European Union, but these efforts did not achieve the desired result.

In 2015, the second wave of the financial crisis was already affecting the U.S: Corporations posted negative profits in the middle of the year. What followed was a collapse of oil prices and a purposeful falsification of U.S. gross domestic product growth.

The Democrats are now faced with handing over the reins to a successor, and the fate of the U.S. economy and the value of the dollar depends on the result of the presidential election. If Clinton, the candidate of Wall Street, gets into the White House, then U.S. economic policy will not change. That means the Fed’s soft monetary policy will not prevent a financial crisis in the U.S., or in the rest of the world. The BRICS countries, the epicenter of the second wave of the economic crisis, are too significant. And if back in 2009-2011, Brazil, Russia, China, India and South Africa helped stabilize the financial situation in the U.S. with their growth, this time “Clinton and company” have neither the motive nor the opportunity to show any gratitude.

The second wave of the economic crisis in the U.S. has the same cause as the first: bubbles in both the stock market and in the real estate market, Americans are mired in debt, and there are far fewer good employment opportunities available than in 2007. Obama’s re-industrialization can no longer increase demand, since it turned out to be insignificant. But banks can still rely on easy money from the Fed, even while it is harder than ever to achieve profit in the real economy. Then there is the dangerous and smothering national debt, which exceeds 100 percent of GDP.

Donald Trump’s nomination, as a man with protectionist economic views, was possible under these conditions. If Clinton tries to prevent the existing financial system from collapsing by cutting social programs and giving cheap credit to banks from the Fed, while at the same time increasing the national debt, it seems that Trump will be able to break the system. If the system is not broken, then it will still collapse, somewhere between 2016 and 2018. The stock market and the dollar will weaken like in the 1970s. But Wall Street is unwilling to understand this; it isn’t advantageous to them.

It is quite possible that we will see the events of 2008 repeat themselves if Clinton is elected. Due to the outflow of capital, the Fed will have to lower interest rates to put out the fire in the banking sector. The dollar will weaken, speculators will panic, and political pressure will rise. The new president might not even have time to take his or her turn in the foreign policy game. If Trump is elected, it might turn out differently.

It is doubtful that Trump has a clear economic plan or thoroughly understands the problems that caused the 2008 global financial crisis. However, by refusing to have an excessively open market, he is prepared to foist the problems of the American economy on its competitors. It is also important that he will need to stop giving out money to the banks and bring the Fed itself under control. It is imperative to relieve the pressure of the national debt, which is partially in the hands of the Fed, and to not maintain the current rate of the U.S. dollar. The wave of currency devaluations around the world demands a responsible weakening of the dollar; otherwise, U.S. exports will collapse.

The dollar will probably weaken under either president, but only Trump will try to change America’s economic situation. His call to build a wall on the border with Mexico only seems crazy; it would be a boon for construction companies. Radical measures could also cause industry to return to the U.S., if imports from China and other countries decrease. Still, all of this is not a rescue plan.

A strong social welfare state must be revived for stable growth. Trump will probably not be up for that, so the fight against an economic crisis must be continued by someone else. The U.S. economy is either on the brink of an economic catastrophe or has an opportunity to be rescued. This is a more interesting dichotomy than in 2008. Where the dollar is concerned, it will be strong only if the economy is stabilized.

Vasily Koltashov is the head of the Center for Economic Research at the Institute of Globalization and Social Movements.

*Editor’s note: BRICS is an acronym for an association of five major emerging national economies that include Brazil, Russia, India, China and South Africa.