By Nomi Prins
December 13, 2018
As we head
into 2019, leaving the chaos of this year behind, a major question remains
unanswered when it comes to the state of Main Street, not just here but across
the planet. If the global economy really is booming, as many politicians claim,
why are leaders and their parties around the world continuing to get booted out
of office in such a sweeping fashion?
One
obvious answer: the post-Great Recession economic “recovery” was largely
reserved for the few who could participate in the rising financial markets of
those years, not the majority who continued to work longer hours, sometimes at
multiple jobs, to stay afloat. In other words, the good times have left out so
many people, like those struggling to keep even a few hundred dollars
in their bank accounts to cover an emergency or the 80% of American
workers who live paycheck to paycheck.
In today's
global economy, financial security is increasingly the property of the 1%. No
surprise, then, that, as a sense of economic instability continued to grow over
the past decade, angst turned to anger, a transition that -- from the U.S. to
the Philippines, Hungary to Brazil, Poland to Mexico -- has provoked a plethora
of voter upheavals. In the process, a 1930s-style brew of rising nationalism
and blaming the “other” -- whether that other was an immigrant, a religious
group, a country, or the rest of the world -- emerged.
This
phenomenon offered a series of Trumpian figures, including of course The Donald
himself, an opening to ride a wave of “populism” to the heights of the
political system. That the backgrounds and records of none of them -- whether
you’re talking about Donald Trump, Viktor Orbán, Rodrigo Duterte, or Jair
Bolsonaro (among others) -- reflected the daily concerns of the “common
people,” as the classic definition
of populism might have it, hardly mattered. Even a billionaire could, it turned
out, exploit economic insecurity effectively and use it to rise to ultimate
power.
Ironically,
as that American master at evoking the fears of apprentices everywhere showed,
to assume the highest office in the land was only to begin a process of
creating yet more fear and insecurity. Trump’s trade wars, for instance, have
typically infused the world with increased anxiety and
distrust toward the U.S., even as they thwarted the ability of domestic business
leaders and ordinary people to plan
for the future. Meanwhile, just under the surface of the reputed good times,
the damage to that
future only intensified. In other words, the groundwork has already been laid
for what could be a frightening transformation, both domestically and globally.
That Old
Financial Crisis
To
understand how we got here, let’s take a step back. Only a decade ago, the
world experienced a genuine global financial crisis, a meltdown of the first
order. Economic growth ended; shrinking economies threatened to collapse;
countless jobs were cut; homes were foreclosed upon and lives wrecked. For
regular people, access to credit suddenly disappeared. No wonder fears rose. No
wonder for so many a brighter tomorrow ceased to exist.
The
details of just why the Great Recession happened have since been glossed over
by time and partisan spin. This September, when the 10th anniversary of the
collapse of the global financial services firm Lehman Brothers came around,
major business news channels considered whether the world might be at risk of
another such crisis. However, coverage of such fears, like so many other
topics, was quickly tossed aside in favor of paying yet more attention to
Donald Trump’s latest tweets, complaints, insults, and lies. Why? Because such
a crisis was so 2008 in a year in which, it was claimed, we
were enjoying a first class economic high and edging toward the longest
bull-market in Wall Street history. When it came to “boom versus gloom,” boom
won hands down.
None of
that changed one thing, though: most people still feel left behind
both in the U.S. and globally. Thanks to the massive accumulation of
wealth by a 1% skilled at gaming the system, the roots of a crisis that didn’t
end with the end of the Great Recession have spread across the planet, while the dividing line
between the “have-nots” and the “have-a-lots” only sharpened and widened.
Though the
media hasn’t been paying much attention to the resulting inequality, the
statistics (when you see them) on that ever-widening wealth gap are
mind-boggling. According to Inequality.org, for instance, those with at least
$30 million in wealth globally had the fastest growth rate of any group between
2016 and 2017. The size of that club rose by 25.5% during those years, to
174,800 members. Or if you really want to grasp what’s been happening, consider
that, between 2009 and 2017, the number of billionaires whose combined wealth
was greater than that of the world’s poorest 50% fell from 380 to just eight. And by
the way, despite claims by the president that every other country is screwing
America, the U.S. leads the pack when it comes to the growth of inequality. As
Inequality.org notes, it has
“much greater shares of national wealth and income going to the richest 1% than
any other country.”
That, in
part, is due to an institution many in the U.S. normally pay little attention
to: the U.S. central bank, the Federal Reserve. It helped spark that increase
in wealth disparity domestically and globally by adopting a post-crisis
monetary policy in which electronically fabricated money (via a program called
quantitative easing, or QE) was offered to banks and corporations at significantly
cheaper rates than to ordinary Americans.
Pumped
into financial markets, that money sent stock prices soaring, which naturally
ballooned the wealth of the small percentage of the population that actually
owned stocks. According to
economist Stephen Roach, considering the Fed’s Survey of Consumer Finances, “It
is hardly a stretch to conclude that QE exacerbated America’s already severe
income disparities.”
Wall
Street, Central Banks, and Everyday People
What has
since taken place around the world seems right out of the 1930s. At that time,
as the world was emerging from the Great Depression, a sense of broad economic
security was slow to return. Instead, fascism and other forms of nationalism
only gained steam as people turned on the usual cast of politicians, on other
countries, and on each other. (If that sounds faintly Trumpian to you, it
should.)
In our
post-2008 era, people have witnessed trillions of
dollars flowing into bank bailouts and other financial subsidies, not just from
governments but from the world's major central banks. Theoretically, private
banks, as a result, would have more money and pay less interest to get it. They
would then lend that money to Main Street. Businesses, big and small, would tap
into those funds and, in turn, produce real economic growth through expansion,
hiring sprees, and wage increases. People would then have more dollars in their
pockets and, feeling more financially secure, would spend that money driving
the economy to new heights -- and all, of course, would then be well.
That fairy
tale was pitched around the globe. In fact, cheap money also pushed debt to
epic levels, while the share prices of banks rose, as did those of all sorts of
other firms, to record-shattering heights.
Even in
the U.S., however, where a magnificent recovery was supposed to have been in
place for years, actual economic growth simply didn’t materialize at the levels
promised. At 2% per year,
the average growth of the American gross domestic product over the past decade,
for instance, has been half the average of 4% before the 2008 crisis. Similar
numbers were repeated throughout the developed world and most emerging markets.
In the meantime, total global debt hit $247 trillion
in the first quarter of 2018. As the Institute of International
Finance found, countries were, on average, borrowing about three
dollars for every dollar of goods or services created.
Global
Consequences
What the
Fed (along with central banks from Europe to Japan) ignited, in fact, was a
disproportionate rise in the stock and bond markets with the money they
created. That capital sought higher and faster returns than could be achieved
in crucial infrastructure or social strengthening projects like building roads,
high-speed railways, hospitals, or schools.
What
followed was anything but fair. As former Federal Reserve Chair Janet Yellen noted four
years ago, “It is no secret that the past few decades of widening inequality
can be summed up as significant income and wealth gains for those at the very
top and stagnant living standards for the majority.” And, of course, continuing
to pour money into the highest levels of the private banking system was anything
but a formula for walking that back.
Instead,
as more citizens fell behind, a sense of disenfranchisement and bitterness with
existing governments only grew. In the U.S., that meant Donald Trump. In the
United Kingdom, similar discontent was reflected in the June 2016 Brexit vote
to leave the European Union (EU), which those who felt economically squeezed to
death clearly meant as a slap at both
the establishment domestically and EU leaders abroad.
Since
then, multiple governments in the European Union, too, have shifted toward the
populist right. In Germany, recent elections swung both right and left just six
years after, in July 2012, European Central Bank (ECB) head Mario Draghi exuded optimism
over the ability of such banks to protect the financial system, the Euro, and
generally hold things together.
Like the
Fed in the U.S., the ECB went on to manufacture money, adding another $3 trillion to
its books that would be deployed to buy bonds from favored countries and
companies. That artificial stimulus, too, only increased inequality within and
between countries in Europe. Meanwhile, Brexit negotiations remain ruinously
divisive, threatening to
rip Great Britain apart.
Nor was
such a story the captive of the North Atlantic. In Brazil, where left-wing
president Dilma Rouseff was ousted from power in 2016, her successor Michel
Temer oversaw plummeting economic growth and escalating unemployment. That, in
turn, led to the election of that country’s own Donald Trump, nationalistic
far-right candidate Jair Bolsonaro who won a striking 55.2% of the vote against a backdrop of popular
discontent. In true Trumpian style, he is disposed against both the very idea
of climate change and multilateral trade agreements.
In Mexico,
dissatisfied voters similarly rejected the political known, but by swinging
left for the first time in
70 years. New president Andrés Manuel López Obrador, popularly known by his
initials AMLO, promised to put the needs of ordinary Mexicans first. However,
he has the U.S. -- and the whims of Donald Trump and his “great wall” -- to
contend with, which could hamper those efforts.
As AMLO
took office on December 1st,
the G20 summit of world leaders was unfolding in Argentina. There, amid a
glittering backdrop of power and influence, the trade war between the U.S. and
the world’s rising superpower, China, came even more clearly into focus. While
its president, Xi Jinping, having fully consolidated power amid a wave of
Chinese nationalism, could become his country’s longest serving leader, he faces an
international landscape that would have amazed and befuddled Mao Zedong.
Though Trump
declared his meeting with Xi a success because the two sides agreed on a 90-day tariff truce,
his prompt appointment of
an anti-Chinese hardliner, Robert Lighthizer, to head negotiations, a tweet in
which he referred to himself in superhero fashion as a “Tariff Man,”
and news that the U.S. had requested that Canada arrest and extradite an
executive of a key Chinese tech company, caused the Dow to take its fourth largest plunge
in history and then fluctuate wildly
as economic fears of a future “Great Something” rose. More uncertainty and
distrust were the true product of that meeting.
In fact,
we are now in a world whose key leaders, especially the president of the United
States, remain willfully oblivious to its long-term problems, putting policies
like deregulation, fake nationalist solutions, and profits for the already
grotesquely wealthy ahead of the future lives of the mass of citizens. Consider
the yellow-vest protests
that have broken out in France, where protestors identifying with left and
right political parties are calling for the resignation of neoliberal French
President Emmanuel Macron. Many of them, from financially starved provincial
towns, are angry that their purchasing power has dropped so low they can barely
make ends meet.
Ultimately,
what transcends geography and geopolitics is an underlying level of economic
discontent sparked by twenty-first-century economics and a resulting Grand
Canyon-sized global inequality gap that is still widening.
Whether the protests go left or right, what continues to lie at the heart of
the matter is the way failed policies and stop-gap measures put in place around
the world are no longer working, not when it comes to the non-1% anyway. People
from Washington to Paris, London to Beijing,
increasingly grasp that their economic circumstances are not getting better and
are not likely to in any presently imaginable future, given those now in power.
A
Dangerous Recipe
The
financial crisis of 2008 initially fostered a policy of bailing out banks with
cheap money that went not into Main Street economies but into markets enriching
the few. As a result, large numbers of people increasingly felt that they were
being left behind and so turned against their leaders and sometimes each other
as well.
This
situation was then exploited by a set of self-appointed politicians of the
people, including a billionaire TV personality who capitalized on an
increasingly widespread fear of a future at risk. Their promises of economic
prosperity were wrapped in populist platitudes, normally (but not always) of a
right-wing sort. Lost in this shift away from previously dominant political
parties and the systems that went with them was a true form of populism, which
would genuinely put the needs of the majority of people over the elite few,
build real things including infrastructure, foster organic wealth distribution,
and stabilize economies above financial markets.
In the
meantime, what we have is, of course, a recipe for an increasingly unstable and
vicious world.
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