Apologies for lack of graphics to properly illustrate this article.

Over the six years I’ve had this blog, I have been writing on and off about the economic perils we face in the near term. I’ve posted multiple articles about the interaction between resource depletion and the precarious state of the world’s economic setup. I’ve been particularly worried about US economic fragility. Simply put, the US economy is now built on bubbles. The building and fortification of the real estate bubble that crashed with such force in 2008 was the result of a lot of years of what the then-Fed chairman Alan Greenspan called ‘irrational exuberance’. It was preceded by a massive tech bubble in the stock market that came a cropper when Clinton left the White House. The reason we don’t see it that way is that the events of 9/11 lead to a re-stimulating of the economy under W. Bush–rather than let the economy ride into a recession after the attack, he ginned up federal spending and the markets followed. 

But now we’re at another inflection point, this time over the lack of recovery from the 2008 crash. Oh, didn’t you know? Government-friendly media have been pretending everything’s back to normal since 2009. But we’re hardly in some happy, full-employment world rivaling 2006. The stock market’s recent surge has everything to do with the moneyed class having more money to put back into the market as a result of the Trumpian tax cuts. That means more corporate buy-backs of their own stock, which keeps the markets humming along. But on the employment front, the MSM have been touting the ‘record’ low unemployment rate. But anyone out here seeking work can tell you that’s all hooey. Last month’s ‘official’ unemployment rate dropped to 3.9%. In times past, that would’ve lead to higher wages, but (as any good student of Marx would tell you), the US labor market is besieged by the ‘shock army of the unemployed’. The reporting on last month’s ‘official’ rating of unemployment noted 164,000 jobs in April. The reporting did NOT note that at least 240,000 ‘discouraged’ workers dropped out of the labor market. And they didn’t note that many of those 164K jobs are part time no-benefits jobs of the ‘gig economy’. This is something that John Williams of Shadowstats has been reporting on for over a decade. ‘Gig economy’ jobs will not restart an economy in the age of Obamacare/Trumpcare, because there’s now a healthcare mandate. Economists have not factored in what it means if families now have to pony up over $12,000 a year out of pocket to cover the health insurance they used to get for significantly less from employers. And such costs also have other consequences, as I’ve noted here. The Trump tax ‘reform’ also eliminated deductions for healthcare costs, so that’s $12,000 real pre-tax dollars for every such family. Those families are stretched to the limit on other costs–gasoline is going up in price and won’t come down for a bunch of reasons, healthcare costs are going up without any attempt for government intervention, and housing prices have put even relatively well-compensated people in California and New York in desperate places. That’s not including the huge costs of student loans hitting the Millennials. Therefore, families will not have enough discretionary spending money to spend the US out of its rut. We could also talk climate change/global warming and its impact on the economy, but we won’t because this is already a complicated issue.

And Trump is an interesting case insofar as he quietly hinted during the election that he’d be able to ‘renegotiate’ the National Debt. This was borderline treason, but it’s also a common thread among the Tea Party hangers-on–that a default on the Full Faith and Credit of the US would allow the government to walk away from a lot of debts like Medicare and Social Security. I think it’s always been at the back of Trump’s very unfocused mind that he could walk away from US debt to the sound of Huzzahs from the billionaire class. There’s a perverse logic in this that has governed most of his professional life, summed up in this bromide popular amongst the caviar and Cristal Champagne set. “If you borrow a million dollars and can’t pay it back, the bank owns you. If you borrow ten billion dollars and can’t pay it back, YOU own the bank”. A default by the Fed would also be the end of entitlements, and the Baby Boomers would be eating cat food within a couple weeks of going without SS or Medicare. 

Which brings me to what should be a simple story about Trump intransigence over the desires of our client state Israel (though sometimes it’s difficult to distinguish who wears the leash and who holds the leash in this relationship). Trump just pulled out of our agreement with Iran. The JCPOA, also called the Iran Nuclear Deal, ends much of the hostile tension between the US and the Iranian government going back to the 1970’s. It offers Iran significant relaxing of trade and other sanctions in exchange for Iran giving up any ambitions it has toward acquiring nuclear status (for both peaceful uses and weapons). The deal was widely touted by our NATO allies and its flaws are relatively minor. Trump has withdrawn support for it. Our allies are furious, and the stock market has not responded favorably. There are plenty of ‘known’ reasons Trump might have pulled out of the agreement, but are there other factors besides distrust of Iranian intentions?

Meet Dmitri Orlov. I first became acquainted with his work 15 years ago when he was writing about the collapse of the USSR and its parallels with much of what the US was going through economically. Orlov, who expatriated to the US but traveled back and forth to Russia to watch its collapse and rebirth, was among the few who wrote about how close the Cold War was and to put forward the idea that the strains that brought the Soviets down were evident in American society and had not been addressed after the Wall fell down. I’d strongly recommend that you read his book REINVENTING COLLAPSE, which makes a strong case for a US collapse on the scale of what the Kremlin went through nearly three decades ago. 

Anyway, Orlov put forward the following thoughts about Trump’s withdrawal from the JCPOA, and in his mind, the action has little to do with fears of a militarized Iran. One of the less-understood provisions of the treaty is that the US has to return all of the government assets it seized at the height of the Iranian Hostage crisis. 

Following the Iranian revolution of 1978-79, Jimmy Carter froze Iran’s assets in the US. Ever since then, the US has been holding on to between $100 and $120 billion in Iranian assets, which have been accruing rent and interest. After the JCPOA, which stipulated the lifting of sanctions on Iran, Washington has been doing its best to drag its feet on releasing these assets, but they would have had to be returned to Iran sooner or later… unless the US pulled out of the deal, which it just did… It is very important to note that these frozen Iranian assets are US dollar-denominated. And what would be the first thing that the Iranians would do upon regaining control of them? Why, of course, they would convert them out of US dollars.

 Long story short, the dollar would take a likely hit of almost half a trillion dollars in terms of people wanting to dump them worldwide. Orlov does a beautiful job of summing up the predicament, so I’d send you to his blog for his longer explanation. But it isn’t that hard to understand, really–The US is broke. It is more broke thanks to Trump’s tax cuts, but it was broke before. And this isn’t the first time we’ve stiffed someone in the international arena–the Germans are apparently still waiting for their gold stored with the US during the Cold War years. Neither ‘Hope and Change’ nor MAGA fixes these very hard truths.

Happy Sunday!