A Half Century of Financial Extraction: How Our Political Class Exploited Our Producer Class
Here’s how it works. The U.S. government spends more than it takes in, lots more. So how do we keep interest rates low? Our central bank creates money and lends it to The U.S. Department of the Treasury. Okay, so then how do we avoid hyperinflation from all that money creation? Foreigners buy and hold our dollars. Dollars held in Saudi banks don’t create domestic US inflation. Okay, then how do we get foreign governments to hoard those excess dollars of ours? Simple, we use military pressure – we tell the Saudis that we’ll give them military aid if they play ball, and won’t if they don’t.
If you take this complex system and reduce it to one big picture, it is that the US political class have been throwing industrial workers under the bus for decades. The financing system which they have created REQUIRES large trade deficits. It requires a stronger dollar than market forces would create on their own. The only way for the government to keep massive spending increases and massive borrowing going without creating massive inflation is to pressure foreigners to absorb the excess dollars. As Nobelist Robert Mundell has pointed out, and economist Jacques Reuff before him and Henry Hazlitt, too: our trade deficits funded our budget deficits. When you take out all the intermediate steps, what it amounts to is that US industrial workers were sucked dry by US government. Our rulers extracted value from our workers via a complex financial mechanism which even very few economists understood. Trump tapped into the anger over this raw deal, but without understanding the true roots of the problem and the true solution. The true solution is an international gold standard, and a real one, not a mix of paper dollar and gold or pound sterling and gold. Just gold, no gold/fiat hybrid. No room for manipulation. When currencies are tied to gold, there’s no reason at all to hoard one currency over another, because dollar, yen, pound, etc. are just different names for coined gold.