The be-Muellered, bothered, and bewildered American public may find US-China trade talks about as interesting as a rain delay in an Orioles-Chisox game, but the Friday collapse of negotiations may be marked by historians as the day that the global economy died. The Big Box blue-light-special orgy of bargain shopping ran about thirty years, with China exuberantly pumping out cheap consumer goods to feed the US beast-of-Mammon. Americans happily payed for it all with IOUs based on long daisy chains of previous IOUs. Tom Friedman of The New York Times said it would last forever. Alas….
The paradigm kicked off for one simple reason: energy flows dictated capital flows. By the mid-1980s, the non-OPEC world was once again swimming in oil from the last great bonanzas of the oil age: The Alaska North Slope and the North Sea. Twenty years later, they were running down. Meanwhile, the USA had fecklessly “offshored” its factories in the mistaken belief that we had entered a shimmering new digital economy of virtual business were nobody had to make real stuff. China became the world’s workshop and the USA became the world’s financial bucket-shop, churning out endless swindles and frauds. The predictable result was the financial crisis of 2008, which coincided with oil prices rising to over $140-a-barrel (and six months later they crashed, with the economy, to under $30-a-barrel).
The “recovery” from that was based on Wall Street’s premier swindle: the shale oil “miracle,” based on high-risk lending to companies that couldn’t make a red cent even while accomplishing the majestic stunt of exceeding America’s old 1970 oil production peak of around 10 million barrels-a-day (now at around 12 million). Notice, too, that the final push to 12-million barrels occurred during the last two years: thus, Mr. Trump’s miracle economy. All that, to paraphrase the immortal words of Mr. Dylan, balances like a mattress on a bottle of wine.
The China-US trade impasse, if it stands for even a few months, will crash the US economy again and it will also crash the price of shale oil back to levels that destroy oil companies. You understand, of course, that the rise of shale oil was amazingly swift, ten years, and that its fall will be similarly fast and furious. The feds may have to either bail it out or nationalize the whole shootin’ match — and that will end up as just another rat-hole we pound sand into, along with our long-running campaign to build failed states overseas. Translation: not so good for the value of the US dollar.
We’re moving into a summer of grave discontent. I don’t believe that China-US trade relationship can be repaired. The disturbances we have set in motion will surely unleash the wicked animus against the USA that has been building among other nations since before 9/11/01. Even the Europeans, our old pals, have soured on us. The war hawks are steering our ship-of-state into reefy waters. The dithering Federal Reserve (America’s central bank) has painted itself into a corner with years of interest rate suppression and market manipulations. Bad weather in the American breadbasket portends rising food prices for us, and less to export (or give away) to the really hungry corners of the world. Less food makes for belligerent nations.
There is already enough tension in the world as it faces not just the end of a global trade fiesta, but a world-wide synchronized economic depression. This is the one from which there will be no “recovery” but only adaptation to lower standards of living and new arrangements for getting by. In other words, the contraction will be permanent. Our fantasies about the super high-tech nirvana of endless leisure with sex robots will dissolve with it. The dark apprehension of all this has already produced a psychotic break in US politics. We now live in a land where Nabisco uses transsexuals to sell Chips Ahoy cookies. Next to us, the old Weimar Republic looks like a Boy Scout camporee.
This economic meltdown will play into the worst insecurities of Mr. Trump, the Golden Golem of Greatness. His domestic political antagonists long ago declared all-out war on him. The perpetually rising stock market was all that tempered his behavior in the face of that obloquy. With the economy fizzling, he will fight back Golem-style, like a demon from the underworld. But for all of Mr. Trump’s Teutonic neuroticism, he holds an advantage in that battle: the documented facts appear to show that he was unfairly persecuted for two years by opponents who outsmarted themselves in actually breaking the law, and they are on the run before a gathering juggernaut of referrals for indictments. The craziness of their desperation is now on view for all to see in the antics of the House committees.
All this raises the question: can this country hold itself together? Mr. Trump would be a most unlikely figure to provide the necessary moral support. He’s no Franklin Roosevelt reassuring the immiserated masses with fireside chats over the radio, and he sure ain’t Fiorello LaGuardia, reading the Sunday funnies to people out of work and out of luck. But never forget that history is a trickster. Even the profoundly flawed sometimes strangely find themselves on the hero’s journey.