Ebbing globalization, tearing the U.S. apart, global debt spiraling wildly, and countries stimulating economic growth seem to be the labels for the year 2020 just past.
In response to the Epidemic, global debt has skyrocketed wildly, and according to the International Finance Association, global debt will reach a record $277 trillion, or 365% of global GDP, by the end of 2020. Of this, total U.S. debt is expected to reach $80 trillion in 2020, up from $71 trillion in 2019.
The epidemic accelerated the debt accumulation; would there have been no debt accumulation without the epidemic? Why is the U.S. torn? Is the U.S. the only country in tears? Why is government debt spiraling wildly? Is it still possible to compress the fiscal deficit? Why do countries pursue even higher economic growth when the economies of industrial societies are already growing far faster than those of agricultural societies? Why is globalization repeatedly ebbing? , , and
All these questions, in fact, is a question!
1 root missing
The great prosperity of globalization cannot be separated from three important theories.
(1) Adam Smith’s “invisible hand” – argues the benefits of minimal government intervention in the market, pointing out that the market will find an efficient way to allocate resources.
(2) David Ricardo’s “comparative advantage”, which argues for the benefits of reducing trade controls and promoting global integration.
(3) David Hume’s “price-cash flow mechanism” – argues for the benefits of minimal intervention in monetary policy. Balance of payments imbalance – trade deficit – Gold outflow – falling prices – lower export costs –Exports increase –Balance of payments balance. In the era of gold as a monetary resource, trade is the main balancing force of the balance of payments, and the balance of payments has an automatic balancing mechanism.
However, the development of globalization did not go smoothly, and globalization always ebbed in stages. 1930s, 1970s, there were ebbs and flows of globalization. This shows that the theory is not perfect.
The theoretical underpinnings of globalization are currently seen to be missing at least two important elements.
1) Moral extension order. The book Soros on Globalization had clearly pointed out the lack of a unified moral basis for globalization. The moral order within the sovereign state can be consolidated by law and is uniform. Morality has a cost, in other words, moral costs are relatively equivalent within sovereign states. But globalization across sovereignty lacks a unified basis for moral order. Markets need a moral order for their foundation, but markets themselves are not moral. Instead, markets are always looking for the lowest price and will inevitably always try to minimize moral costs. If the moral basis is not uniform, in a finite number of games, the lower the moral hierarchy, the more price competitive the sovereign has. However, in an infinite repeated game, sovereigns with a low moral hierarchy are easily excluded.
2) Transformation of resource money into credit money. The theoretical basis of David Hume’s equilibrium mechanism is resource money. Resource money (gold) has been replaced by credit money (dollar off-anchor gold) since 1971. Monetary resources are limited, it mainly concentrates on serving trade and is rarely used for speculation. However, credit money can grow indefinitely and has now created a huge currency speculative power, which far exceeds trade and maximizes the balance of payments imbalance. Balance of payments imbalances can destroy the basis for cooperation among countries.
The absence of at least two theoretical foundations leads to the inevitability of the (phased) ebb of globalization.
2 The inevitability of social tearing
The most important basis for socio-economic development is to create a good environment for cooperation, and only cooperation can create 1+1>2 excess returns, while tearing and confrontation are obviously not conducive to social development.
Participation in global cooperation expands the basis of cooperation, and certainly makes the cake bigger. But the cake is not evenly distributed, where some people will profit more (mostly capital owners and senior technicians), but others will profit less or even suffer (mostly ordinary workers). During the rapid development phase, the problem will be covered up. But as the potential of rapid economic development is exhausted, the incremental distribution will become the stock distribution, and some people will be more profitable while some people will suffer.
As you can imagine, the disadvantaged party will have the incentive to resist. In order to reduce the resistance of the disadvantaged party, the state can tax the profitable party and subsidize the disadvantaged party to a certain extent (transfer payments), so that both parties can benefit together. But unfortunately, the profitable party is highly mobile and a country that raises taxes on it may stimulate its exodus (capital and senior technical staff). Conversely, the injured party (the general public) rarely has the ability to be mobile (physical exit). In order to retain highly mobile capital and senior technical personnel, the government mostly provides them with various preferential mechanisms, but such preferential treatment comes at the expense of the disadvantaged party.
In this system, the strong are stronger and the weak are weaker. A moral or ethical question is, do people who happen to be disadvantaged for some reason deserve to suffer all or the largest share of the pain?
Since the end of the Cold War, global integration has accelerated and the degree of wealth disparity between countries has been greatly reduced, but the degree of wealth disparity between countries has deepened considerably, and with it the social tear. the tear between the two parties in the 2020 U.S. election has been extremely evident. However, the division between rich and poor and social tearing is not unique to the United States.
Tearing and confrontation are clearly universal in the context of globalization.
3 Why pursue high growth?
After World War II, a brief history of rapid global economic growth.
1) After the war, the U.S. gold reserves occupy half of the world, the U.S. export demand to pull the global economic growth, the U.S. is the locomotive of global economic growth, at the cost of exporting gold (asset reduction).
2) In the 1970s, the U.S. gold reserves fell by more than half, and could not continue to bear the heavy burden of locomotive. 1971, the U.S. finally withdrew from the gold standard, forced Japan and Germany to appreciate, trying to make Japan and Germany become the locomotive of economic growth. Unexpectedly, however, the U.S. withdrew from the gold standard so that dollar exports no longer consumed gold reserves, and the restrictions on dollar exports disappeared, leading to massive dollar exports. With the dollar depreciating significantly while exporting demand, the U.S. was actually still the locomotive driving world economic growth, but it was already a weak locomotive. Throughout the 1970s, economic growth was weak, but Inflation was extremely high.
(3) In the 1980s, a large amount of U.S. “petrodollars” abroad formed an important force for speculation, and the trade deficit no longer had a fundamental impact on the dollar exchange rate, and a large amount of petrodollars returned to the U.S., causing the dollar exchange rate to soar against the trend (trade). The massive return of dollars and the strong exchange rate provided a steady stream of bullets for U.S. export demand. Beginning in the 1980s, the U.S. trade deficit soared rapidly, but instead of weakening, the dollar appreciated sharply due to speculative dollar inflows. Thereafter, as long as there were still countries willing to be hungry for dollars, the dollar exchange rate stability was supported and the U.S. model of pulling the economic locomotive could continue, and the dollar demand export was stronger during this period than in the 70s. After the “petrodollar” in the Middle East, the “manufacturing dollar” in Japan and the “manufacturing dollar” in China alternately took over the baton of dollar return. While the size of the U.S. national debt continued to soar, it also continued to export demand, and the dollars earned by surplus countries flowed back to the U.S., which in turn provided support for the dollar exchange rate, forming an unstable equilibrium.
(4) 1985-1990, Japan violently leveraged up and shared the burden of the U.S. locomotive.
(5) In the 1990s, multiple factors such as the Soviet Union joining globalization after the collapse of the Soviet Union, the Chinese Communist Party joining globalization, the easing of the South American debt crisis, and the leverage of the four Asian tigers shared the burden of the U.S. locomotive.
(6) From 2008 to the present, the Chinese Communist Party has violently increased leverage and shared the burden of the U.S. locomotive.
After World War II, the world economy is no longer an economy in the traditional sense (division of labor in exchange), but an investment-led economic model in which the U.S. exports dollars (behind which is the export of demand) and stimulates countries to take turns to increase leverage. Only the rapid economic growth can cover up the social (rich-poor) tearing contradictions of countries due to globalization. But behind the locomotive-pull economic model is the continued deepening of dollar export flooding and leveraging by countries. Although the dollar decoupling from gold in 1971 made a quantitative breakthrough in dollar flooding export, it is still not a sustainable model.
As the flood of dollars and the continued deepening of leverage across countries continues, it is hard to avoid that the momentum of the U.S. locomotive will grow weaker. As long as the market has doubts about the credit of the dollar (the new U.S. Treasury Secretary Yellen has said since taking office that she “does not actively seek a weak dollar”, which should be the biggest reason), or the U.S. tries to change the trade deficit pattern, global economic growth will decline sharply.
Rapid economic growth is increasingly unlikely, and it is expected that the world economy will grow more and more slowly in the future. Without high speed development to cover the contradictions, social tear contradictions will inevitably be gradually exposed.
4 The inevitability of deficit growth
Participation in globalization is indeed beneficial from the macro national level. However, it is not necessarily beneficial to the disadvantaged side of micro-individuals, but may be harmful, especially in the stock distribution stage.
In the stage of rapid economic growth, both the weaker and stronger parties can benefit from the rapid development, it is only a matter of more or less, and this defect is not yet obvious. But if the dividend is depleted and the economy enters a low growth phase, the incremental distribution phase enters a stock phase, and the tear and confrontation between the strong and weak parties then intensifies. A sense of inequity can lead to stubborn resistance from the weaker side (in the form of votes or distribution by farce). Once the tear forms a full range of confrontation, the basis for cooperation will be missing, and the stock will be unstable, and the economy will enter a phase of rapid decline (middle-income trap). In order to maintain the stock of the economy, the government faces an important problem: how to pacify the vulnerable parties to avoid serious social confrontation?
The most effective way is to tax the gaining side and subsidize the losing side, so that all people can benefit from the opening up and change the status quo where only some people benefit. But the high mobility of globalization makes it difficult for the state to tax the strong side (the gainers) to subsidize the weak side (the losers). Transfer payments in the form of national debt (fiscal deficit) to the weaker side are the only way out.
After the end of the post-war period of rapid development, The Japanese and European transfers (co-benefits) were a major cause of fiscal deficits, which led Japan and Europe to go further and further into the debt crisis and there was no turning back.
For the United States, the situation is a little more complicated. The dollar is the world currency and can be an implicit subsidy to prices (and a manifestation of the welfare of the population). The implicit subsidy to prices greatly enhances the spending power of the U.S. population, allowing the U.S. to continue exporting demand to the outside world, stimulating other countries to increase their inventories, creating a multiplier effect and thus pulling the world economy forward. The result of the world economic development is an increased demand for dollars, which allows the U.S. to subsidize the consumption of its own residents by imposing more minting taxes.
But once the process reverses (doubts about the credit of the dollar), the U.S. will not be able to export demand and the pulling effect on the world economy will disappear. Selling off the dollar would also push the US into hyperinflation, which happened once in the 1970s when markets doubted the creditworthiness of the dollar, resulting in a decade of stagnation in the Western world.
The rapid economic development of the CCP (incremental distribution) can cover up the problem of rich-poor divide (social tear) to a certain extent, but this rapid development also comes with a debt cost. And as the CCP economy enters a low growth phase, social support is needed to bridge the gap between the rich and the poor. Referring to the U.S., Japan and Europe, the CCP fiscal deficit gap can be expected to grow larger and larger.
At present, the post-war U.S. locomotive-driven economic growth model has clearly come to an end, the U.S. debt affordability and interest rates have been approaching the limit, the U.S., Japan and Europe in the debt problem has been extremely serious. But social contradictions can only be covered up by economic growth and transfer payments, and the continued expansion of debt has been the only available means. Knowing that it is toxic, we can only drink hemlock to quench our thirst.
If any country tries to stop debt expansion, the debt crisis will burst, which in turn will infect other countries burst, and no country can get out of it.
Money printing cannot be stopped automatically at all! One can only wait for inflation to climb higher to burst that least tough of these bubbles ……
Then, focus on detonating all the problems!
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