Having started my working career in the mid 1980s, I can truly say I have witnessed from the ground level the destruction of the American working class economy described in the recent CNN Money article - Yes, China has won big from U.S. trade. Back in the late 1980s, good jobs were plentiful as the tech and telecom sector were booming and Americans were the beneficiaries. Income growth was likewise very strong. And the internet as we know it today was not available.
But something happened after the Berlin Wall fell in 1988, and Bush I was elected as President. The U.S. foreign policy began to emphasize, more than ever before, the concept of “Globalization.” Simply put, the term is used to describe the processes by which people of the world are incorporated into a single world society. Bush I use of the term “New World Order” remains vividly etched in my mind to describe the opening of trade relations with the developing economic countries known as the BRICs – Brazil, Russia, India and China in the early 1990s.
The “New World Order” is now rapidly turning into disorder for the U.S. economically, and Donald Trump is capitalizing on the discontent. The “establishments” in both the Republican and Democratic parties have no intention of changing U.S. direction on this policy. They were commenced under Bush I, the Republican establishment, and perpetuated under Clinton and Obama, the Democrat establishment. In fact, the two parties are blatantly promoting the rules of their nomination process to favor candidates that will perpetuate the process. A growing number of American voters are now getting suspicious about what is actually happening, as 50% of voters are now saying the nomination process is rigged. The money trail into the campaigns is a likely at the root of voter suspicion, as international, not American interest are behind establishment candidates more than ever before, whether it is through the “Clinton Foundation” in the democratic race, or the large multinational business PAC money behind Cruz and Kasich.
What is the false promise of globalization? Simply put, there is no such thing as “free trade”, just as there is no “free lunch” in economics. The whole process being under-taken by the establishment in both political parties at the expense of the American people has a cost. And that cost has a price tag that is easily measured – it is the U.S. budget deficit of over $19.2T dollars, and a debt to GDP ratio of over 106%. In 1988 the U.S. budget deficit was $2.4T and the debt to GDP ratio was a reasonable 49.8%. And to top it off, it is foreign governments and multinational companies that are financing the tearing down of the U.S. middle class. In 1988 foreign direct ownership of the U.S. publicly traded debt was only 16.7% of market traded Treasuries (TLT) (SHY). Today foreign ownership of marketable U.S. Treasury debt is $6.2T, or 45.1% of the debt outstanding! (see graph)
The U.S. deficit, driven by large trade imbalances between the U.S. and its world trading partners, is only possible to correct if U.S. policies structurally defend the U.S. workers who pay taxes rather than continuing to finance the false promises of “free trade” on the backs of the U.S. taxpayer. Multinational corporations are expertly dodging their responsibility to pay their share and foreign governments assume no responsibility for U.S. financial problems. It is time for the U.S. represent its own interest in the global economy. Otherwise, the U.S. goes bankrupt and globalization dies a more horrible death.
Daniel Moore is the author of the book Theory of Financial Relativity: Unlocking Market Mysteries that will Make You a Better Investor. All opinions and analyses shared in this article are expressly his own, and intended for information purposes only and not advice to buy or sell.