“This anomalous system has backfired to hit the US economy hard.”
When the neoliberals deregulated the currency, and equated that policy to one of economic liberation, they did it without understanding the nuances of inflation; why prices increase nor did they understand the intricacies about the supply and demand side of the economy. Quantitative easing or the printing of money was made arbitrarily to mangle the US economy to attain its political objectives.
In fact, the lending of treasury bills to sustain the deceitful policy of quantitative easing was taken from the reserve currencies of country-members of the World Bank and used by the US Federal Reserve to secure short mortgage loans, thus making countries like the Philippines, part of the consortium of unwilling lenders.
When the US decoupled the dollar from the gold standard, Nixon never thought his decision would principally narrow the budget deficit as agreed in 1946 at Bretton Woods Agreement. US’ arrogance exuded as it was the only industrial power not affected by war and holds more than 70 percent of the world’s total manufacturing output to dominate the world economy. Thereon, the US measured the value of the dollar to its GDP.
The shift to GDP in 1973 was caused by its involvement in the Vietnam War. The formula allowed the US a respite to experience financial easing only to relaunch another adventurism even as the Cold War with Russia has yet to be concluded. The neoliberals sought to revive the US economy relying on the validity of the unrestricted flow of capital. The theory was based on the strength of the US GDP, which then represented more than 70 of the world’s total manufacturing industries.
That was followed by their worldwide campaign for globalization or free trade through tariff reduction. Countries were forced to open their doors wider instead of just accepting the most-favored nation (MFN) clause. Many were enticed to join the World Trade Organization (WTO) after the US and its European allies made sure that their version of free trade was adopted.
Many underdeveloped countries joined, believing tariffs will be reduced. Instead, it resulted in the revaluation of their currency, thereby allowing the US to increase its imports while exporters decrease the value, not the volume, of their goods.
China was enticed to join the WTO and made to believe free trade will work to their advantage. The currency and wages were low, and the Chinese workers have the skill, efficiency and level of productive output acceptable to the US and European standard. China interpreted free trade to their advantage like giving socialism with the Chinese characteristics to economically move forward.
The neoliberals never anticipated the system of unequal trade would change not only in the value of the currency and goods because of the gradual improvement of the country’s exports viz. by the concomitant increase in the value of their currency. The neoliberals remained fixated to the tremendous profit through outsourcing.
When the ugly side of outsourcing and relocation of production plants began to affect their economy, like incurring enormous trade deficit, the US began to accuse China of violating trade patents and copyright laws, forcing foreign countries to reveal their trade secrets, increased their royalty fees, and unilaterally imposed trade sanctions for allegedly engaging in unfair competition or for defying its trade policy. The case brought against Huawei is rooted on fear that China is about to overtake the US in the field of 5G technology.
Globalization turned into a policy of US exceptionalism. The most appalling was the demand to devalue or revalue the currency. Consumers are required to pay more for their purchase while decreasing their exports. To avoid resistance from mostly wage earners, the neoliberals called the increase inflation, a normal situation in the economy that consumers should not worry about.
The decoupling of the dollar was followed by the deregulation in the prices of basic commodities including those classified as public utilities such as fuel, electric and water. The neoliberals even abrogated the local Anti-Usury Law.
Somehow, the US economy was able to slightly recover. The dollar shot up against other currencies. The monetarists called devaluation as “floating rate” to denote that the increase in prices is only temporary even if the policy was imposed against the will of the monetary authorities. The public had to accept more than 100 percent depreciation of their currency.
Some say the shift from gold to GDP initially contributed to increase the surplus capital and the US used it as their capital to invest and engage in the nefarious practice of outsourcing. What the neoliberals did not know is they opened the Pandora’s Box for the early demise of capitalism via the unique process of de-industrialization.
The neoliberals had their smile on the new economic order. The modus operandi allowed the US dollar to automatically increase their imports because of the declining value of foreign exports. Trade imbalance between the US and the underdeveloped countries immeasurably widened.
Many countries started looking for an alternative market that would give a good price to their exports to afford local consumers to purchase more imported goods, and allow a portion of their currency to save and help develop their economy.
This allowed China to rapidly expand its market to Africa and Latin America. It was not the Marxist ideology that enticed countries to orbit closer to China, but of the need to embrace one that can offer higher prices for their exports.
As the neoliberals increased the value of the currency, they overlooked that the domestic cost of labor cost and services, and cost of living would likewise move upward. The prices of imported goods put to naught the gains obtained through outsourcing.
To stave off the danger, the neoliberals again invented a new economic term called “real wage” to differentiate it from “nominal wage”. Critics of the neoliberal ideology like Jeffry Sachs, Richard Wolff and Chris Hedges are complaining that since 1973, US workers have not received a real wage increase. As the practice went on, the people realized they were shortchanged through years of their rightful income. The US economy was transformed to one of plutocracy with a handful deciding the economic policies while the vast majority of the Americans wallow in poverty.
Today, China has accumulated enough surplus starting with a low value of the renminbi. Slowly, it is inching its way to reach parity with the US dollar. The neoliberals committed a monstrous crime of financial injustice because the open valuation of the currency has backfired to make sure that the tenet of Marxist economics is in the creation of wealth through production.
President Trump applied his heathen nationalism of “America First” by slapping excessive tariffs on US imports mostly from China. But in his eagerness to offset the trade deficit, he in fact slapped tariffs on US imports. Tariffs increased the value of US imports which was added to the cost price.
There is no way the neoliberals and their monetarist cabal can escape from the trap they created. The system of de-industrialization of the US economy reduced their glamorous metropolis to city of tents, retarded intellectual growth due to unaffordable tuition fees, shortened the lifespan of the poor due to the high cost of medical service and hospitalization, proliferated the number of homeless, spiraled the sale of drugs and intensified racial discrimination and social unrest because of income inequality.
The disparity between the value of the US dollar and other currencies resulted in financial meltdown. Some call this “state of economic disequilibrium” like what happened in 2008. Often, this occurs when the investment does not tally with production and by the volatility of the currency. This anomalous system has backfired to hit the US economy hard.