Week 21 of the Quarantine
SAN MARTIN, ARGENTINA – “The U.S. Empire Is Ending?” asks Global Research, citing German resistance to U.S. sanctions against Russian gas.
Meanwhile, China is trying to avoid U.S. sanctions too – by moving away from the U.S.-controlled banking system. Reuters:
Chinese banks urged to switch away from SWIFT as U.S. sanctions loom
So, who’s #1 now? The Gallup Blog:
Since 2017, Germany’s leadership style under longtime Chancellor Angela Merkel has earned it higher approval ratings around the world than those for the U.S., China and Russia…
Except in military spending, where the U.S. reigns supreme, America has slipped in nearly every category.
Not that that matters to us. But it helps us understand what is going on.
That is, maybe the slippage is not just because of COVID-19… or last quarter’s economic figures… or the Donald J. Trump administration.
Maybe it’s part of a much longer, deeper pattern…
Keep reading. First, a local update…
Last Days in Calchaquí?
The latest word around here is that the airports and borders are opening Sept. 1. We’re booking a flight now… but not without some hesitation.
We’ve enjoyed our enforced idyll, shipwrecked here in the Calchaquí Valley for the last four and a half months.
The sun shines every day. We make a fire in the fireplace in the office in the morning… and one in the wood stove in the bedroom at night.
Alone on this side of the river… we live in splendid isolation…
“Maybe we should just stay here,” came the question from the distaff side of the family. “Our friends keep writing to tell us how lucky we are since we’re not back in the U.S. Makes me wonder…”
We wonder, too.
Magical Money Tree
Last week came word that the U.S. economy shrank by a third in the second quarter – its worst contraction ever… and that more than a million people lined up for unemployment benefits, for the 19th week in a row.
Alas, the $600 weekly federal bonus expired on Saturday. That bonus meant that the average person without a job was earning more than most people with a job – in many cases, twice as much.
People had lost jobs. They worked fewer hours. Salary and wage income (from creating real goods and services) dropped.
But “transfer payments,” directly from the Federal Reserve’s Magical Money Tree (MMT), went wild. It was as if the feds couldn’t count.
At one point, they were putting nearly four times as much money into the revenue stream as the Lockdown was taking out.
This helped keep consumer spending – at Amazon, especially – alive, and gave the impression that the economy was healthier than it really was.
Therein hangs the important difference between the U.S. economy when America was #1… and the U.S. economy today.
Today, a much larger portion of the money people spend comes from the government’s “printing press” – not from working.
We began our career in Washington in 1973 – just two years after the new “paper” money was introduced.
Until then, the only way to gain wealth – other than robbing a bank or going into politics – was to earn it.
You had to provide goods or services that others were willing to pay for. You had to satisfy your customer.
This necessity focused the whole economy on Main Street output – goods and services… real wealth. Automobiles. Machine tools. Clothes. Corn. Television sets.
“We make,” said the sign on the Trenton bridge, “The world takes.”
But Trenton doesn’t make much anymore.
And the part of America’s incomes that comes from producing goods and services has dropped from almost 90% in the early ’70s… to a record low below 67% in the last quarter.
That’s right: In the second quarter of this year, for the first time in history, the feds pushed so many “transfer payments” into the hands of consumers, that more than a third of their money came from the printing press – not from creating real wealth.
Dead Man’s Curve
Yes, of course, the last quarter was unusual. After all, how many times do the feds shut down an economy?
Like holding your breath until you turn blue, it’s not something you want to do often.
But as odd and rare as the shutdown was, the rise of transfer payments – money from the government – was not as flukish as most people believe.
That is, the appearance of the COVID-19 virus might have been unexpected… an “exogenous shock” as the analysts say… and the Lockdown response may have been a once-in-a-lifetime over-reaction…
…but the track had already been laid… the train had left the station… the conductor was already drunk… and the train was heading to the “dead man’s curve” that wrecked so many other nations and empires in centuries past.
A Trend, Not a Fluke
Already, by the second year of Donald Trump’s time at the engine controls, transfer payments were running at their highest level in history.
In 2017, people earned only about 67% of what they spent compared to 90% in 1973. (We are talking here only of wage and salary incomes… the money rich people got from stock and bond markets was a different, but similar, story.)
That is to say, the economy was already producing less and spending more.
It was already rolling along, hauling a large number of railway bums… some enjoying fine wines and champagne in the dining car, and some huddled on the hard seats…
…all the while tossing the wealth of the past (and the future) into the boiler just to keep going.
If this is a trend… and not just a fluke… can we look ahead and see where it leads?
Maybe. Stay tuned.
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