Trump 'Close Friend' Unleashes Economic Reality Check: America Is "Lost In The Black Hole Of Entitlement"

On Monday, Thomas Barrack, a globe-trotting billionaire real-estate investor in Los Angeles who describes Trump as a "close friend," published a 12-page treatise on the economy. As Bloomberg reports, it doesn't mention Trump, but it's a kind of defense of Trump's critique of international trade.

The paper is in no way an official statement from the Trump campaign; it reflects only Barrack's personal views. But Trump, a real-estate developer and reality-TV star with no experience in public service, relies on friends and family for advice more than many politicians do. Barrack is scheduled to speak at the Republican convention in Cleveland this week where Trump will be officially named the party's nominee.

He contends the Western economic institutions -- the system of free trade agreements, the central banks -- were once effective but are now antiquated, contributing to growing inequality and resentment. He faults the U.S. for negotiating trade agreements like the Trans-Pacific Partnership to further national-security objectives while, in his estimation, ignoring the economic impact of lost jobs at home. He calls for the North American Free Trade Agreement to be renegotiated in unspecified ways. He says the current round of unconventional monetary policy is doing more harm than good, and that the U.S. government's debt is unsustainable.

"Opaque global monetary policies combined with unfocused, poorly negotiated international trade agreements are undermining the entire project of globalization as proponents of these policies face a growing backlash among voters," he writes.

Citizens everywhere are unhappy with their governments and angry with their leaders. They are no longer interested in a political rhetoric that they do not understand and that has no value in their lives. Monetary policy, trade policy technological disruption and the array of issues that make up globalization are simply a parade of unintelligible horribles to the average working class citizen.

 

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Until recent times, central bank activities were mostly technical, marginal, and unreported. Today central bankers utilize exotic new tools such as Quantitative Easing (“QE”) and massive asset purchases to manipulate markets to conform to macroeconomic mandates and political leaders' preferences. The driving force behind US economic policy is no longer the Secretary of the Treasury or Chairman of the President's Council of Economic Advisors; it is the new breed of central banker on steroids. Foreign exchange, QE, asset purchases and the printing of money unanchored to any external standard, and other technical monetary tools are today’s “super trade weapons.”

 

In the early stages of the financial crisis, central banks acted quickly, decisively and effectively to provide liquidity and help avert another Great Depression. These actions reinvigorated the payments and settlements system, established a floor on value and forced banks to restructure. Yet instead of curtailing emergency policies as economies recovered, central banks have all but monopolized the economy policies of many nations. As a result, investment has stalled and savings rates are pressing historic lows. Middle- and lower-income workers see no benefits from these policies, while the holders of capital, just as with globalization, enjoy burgeoning investment portfolios and bank accounts. At this point, central bank actions seem mainly to impact asset prices while only marginally influencing the true drivers of the economy, such as real investment, productivity expansion and job growth. We have reached the point where central banks – which are a lot better at emergency responses than steering long-term policy – have become the problem, not the solution.

 

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The dramatic swelling of Wall Street asset prices has not been accompanied by a revival of the real economy or rising middle class incomes. Unconventional monetary policy is not a reliable force for robust growth in a time of economic stagnation. Instead, it encourages riskier investment, compounding the rising wealth effects from expanding equity markets and real estate prices, which primarily benefit the affluent.

 

Policies like QE also favor net borrowers over net savers, again benefitting debt-burdened governments and corporations that have the ability to borrow, while middle-class workers with limited borrowing capacity stagnate. This is the primary reason why corporate profit margins and equity markets are at historic highs, while real wage growth remains historically low. Employment data show a resentful workforce feeling despair and doomed to irrelevance in a technologically advanced global marketplace, even as investors enjoy the bull run of the century.

 

In today’s globalized economy, elected leaders who decide fiscal policy, on which long-term economic growth is predicated, make little sustained effort to reform outdated personal or business tax policies or exercise spending restraints needed to reduce government debt. Monetary policy, for which elected leaders disclaim responsibility, leaving it to unelected central bankers, is king. Central banks are frantically seeking market share through currency devaluations, desperately hoping that lower nominal exchange rates will boost exports and reduce imports – part of a zero-sum rush-to-the-bottom.

 

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As the central bankers continue down their road without a GPS, no one knows what the effects will be: financial bubbles, a debt bust, an equity bust, a disorderly exit from the sale of trillions of dollars sitting on central bank balance sheets, emerging market capital outflows or increased inequality and disenchantment. Financial engineering by itself cannot achieve the kind of sustainable, inclusive growth that will extend economic benefits to America’s hard-pressed middle class. Opaque global monetary policies combined with unfocused, poorly negotiated international trade agreements are undermining the entire project of globalization as proponents of these policies face a growing backlash among voters.

 

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The world is moving at warp speed, as are all the things within it. In order to keep up, we too need to move and adapt or be lost in the black hole of entrenchment and entitlement. Many decades ago, Winston Churchill wrote a series of essays predicting the ever more dizzying pace of change in the modern world. It could not and must not be stopped, but he worried that mankind might have so much more, yet be unhappier than before. "Their hearts will ache, their lives will be barren, if they have not a vision above material things," he wrote. We need to be reminded about the "simple questions which man has asked since the earliest dawn of reason," about the meaning, purpose, and ends of mankind – in other words, the same kind of questions that led America's Founders to declare the self-evident truth that all human beings are created equal. As we question the status quo and chip away at the corrosion that attends old thoughts, ideas, and institutions, we must not fail to keep in mind the difference between material things that are always changing and the abiding truths that have made America great.

Full Economic Treatise below...

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