Brexit Britain's Bridge To Nowhere - Part 18 of 27

Trump, in his own vulgar and perverse logic, is also, right that the EU was created to counter the US. It was, in the same way that small firms merge, in order to compete with existing large firms. Consequently, the hegemonic power of US imperialism, of the post-war period, found itself, from the 1980's, not only in competition with Japanese imperialism, but, also, EU imperialism. A crucial point came, in the 1980's, with Reagan. Reagan adopted a series of crazy economic ideas promoted by the likes of Art Laffer and Larry Kudlow, which George H. Bush termed “Voodoo Economics”. Trump and Truss have tried the same approach, and, in his first Presidency, Trump brought back Kudlow, as an economics advisor.

In the 1980's, as with the UK, there was a large transfer of US manufacturing to China, and other parts of Asia, as capital sought to address the problems of an overproduction of capital. The result of Reagan's policies, of large cuts in taxation was to turn the US from being the world's largest creditor, to the world's largest debtor nation. Reagan had sought, at the same time, to destroy the USSR by outspending it on arms, which were again financed by printing Dollars. Now, in the world of floating exchange rates, that meant that the value of the Dollar would fall. That was exacerbated by the Voodoo Economics, in which the tax cuts and supply side policies would, supposedly, unleash an avalanche of petty-bourgeois, entrepreneurialism, and investment, creating an increase in economic activity and tax revenues, but which, inevitably failed to produce any of it, as happened, also, with Thatcherism, and later with Truss.

The US saw its budget deficit soar, as a result of the tax cuts, money flowed out of the country to suck in imported consumption goods from Japan, and elsewhere, and so arose the twin deficits crisis of 1987, that was also the precursor to the 1987 global financial crisis. The US went from being the largest creditor to largest debtor, but, with the Dollar as world reserve currency, it could still get away with that. As Jim O'Neill pointed out, recently, a Balance of Payments is what it says, a balance, with the same on one side as the other. The Balance of Trade, i.e. the value of exports against imports, is only one part of this overall Balance of Payments.

The country might send gold, or foreign exchange to make up the deficit, or it might borrow the money to bridge the deficit, selling bonds to foreigners, which brings money into the economy in a similar way to the payment for its exports. In addition, countries like the UK and US that have been developed economies for around 200 years, also, in the past, exported capital. Capital exported in the form of multinational corporations, operating across the globe, each year, produces profits, and part of those profits returns in the form of dividends and interest to share and bondholders.

Similarly, over 200 and more years, countries like the UK and US simply loaned money themselves to other countries, which, each year returns to them as interest. Currently, the US has net foreign assets valued at $25 trillion. The net inflows from all of these foreign assets and investments constitute a significant element of the Balance of Payments of countries like the US.

After 1971, the extent of the devaluation of the Dollar became manifest as it fell from the official $35 an ounce to $800 an ounce of gold. But, it was not just the Dollar that had been devalued by this inflation of currencies. In a world of free-floating currencies, had it just been the Dollar that was devalued, it would have fallen not just against gold but against all other currencies by a similar amount. But, it didn't. The reality was that all currencies had been similarly devalued, as a result of their central banks inflating the currency supply, as manifest in the inflation of the 1970's, and early 80's.

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