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A Conspiracy of Greed: How Globalization Hollowed Out America’s Middle Class – and How We Can Fix It

7 | By Shah Gilani

Globalization, the long-armed henchman of financialization, is an insidious contributor to the widening income gap and wealth inequality in the U.S.

Globalization is, essentially, another nail in the coffin of America’s middle class.

Undoing its insidious effects will be hard, don’t get me wrong. There are years of damage and many powerful people who are profiting from the system being upheld just the way it is.

But it’s possible.

Here’s what we need to do to arrest and reverse this crony capitalist engineered nightmare…

The New Comparative Advantage

It used to be that “comparative advantage,” the concept in economics that a country that produces goods and services more efficiently at a lower opportunity cost (considering indigenous capital, labor and resources) will yield profitable global exports and drive revenue to importing other goods and services manufactured more efficiently elsewhere.

Now, the financialization of the U.S. economy (our shift from domestic manufacturing profitability to financial services profitability) gives America’s mobile mountains of capital a comparative advantage globally to finance manufacturing overseas and subsidize imports.

This new “financialized” twist on globalization results in domestic manufacturing losing its comparative advantage and jobs being exported. It also increases the profitability and further enrichment of capital exporters and importers of cheaply manufactured goods and services to be marked up and sold – likely debt financed – to Americans.

The Trojan Horse in Our Government

Successive Democrat and Republican administrations and individuals were steadily spoon-fed cash and campaign contributions by crony capitalist compatriots commanding armies of law-writing lobbyists. Starting effectively in 1980, they deregulated America’s banking and financial services industries so bankers could commoditize formerly low-yielding loans into the high-risk, high-profit, speculative tools of financialization.

The fruits of their efforts resulted in the banking and financial services share of corporate profits in America ballooning to more than 40% of all companies profits by 2006.

While the leveraging of American borrowers and profiteering of the economy (evidenced by debt-fueled speculative profits outpacing economic growth) was a prize in itself, domestic profiteering was augmented by an even wider global campaign… Going by the name of free trade.

The series of so-called free trade pacts that resulted was effectively a globalized push to lower regulatory barriers and was engineered to expand American credit into overseas markets.

Courtesy of the crony capitalists’ cash and credit manufacturing factory housed in the Federal Reserve, they successfully exported cheap American capital along with manufacturing and assembly jobs. The historical engine of American prosperity and food for a once expanding and aspiring middle class got “globalized.”

The ugly irony of free trade financed by cheap capital is that global competition has ultimately led to overcapacity and reduced profitability.

Bringing back jobs to the U.S. now would be even more expensive and eat into those corporate profits. All the while, global competition and overcapacity bring down labor costs and margins even in places like China.

The evisceration of America’s middle class and the widening income gap and wealth inequality in the United States aren’t the fault of free markets, or globalization in its unadulterated form. Our problems aren’t caused by the design of our money system.

They’re caused by how these systems get leveraged through financialization.

Four Simple Steps to Fix This Disaster

There’s only one way to right the sinking ship that was once America’s golden dynamic, its manufacturing prowess, its expanding middle class, the root of its entrepreneurship, and the backbone of it’s economic growth.

Here’s exactly what we need to do, and why…

  1. Replace the Federal Reserve System with a mathematical, automatic monetary expansion and contraction mechanism.

Thanks to acts of compliant Congresses, America’s private central bank has been ceded the extraordinary power it possesses. They have made possible the artificial manipulation of interest rates, the bailing out of the criminal enterprises America’s big banks have morphed into, and the centralized command and control of the economy.

The Federal Reserve System has to be exorcised from the body of American politics and our economy like cancer from a suffering soul.

  1. Break up America’s big banks by separating commercial banks from investment banks.

The big banks in America, even without the backstopping and financing of a central bank, would still coalesce to preserve their power over government and the economy and should be broken up.

Separating commercial and investment banking is fundamental to safe banking and doesn’t impinge one iota on the capital markets’ ability to convene capital, slice and dice financial products, and transfer risk through free market mechanisms.

  1. “Localize” the availability of capital

By localizing capital, borrowers of all stripes would have greater access to whatever they need and lenders would have a much better handle on risk aspects of the loans they make.

  1. Impose term limits on Congress

Finally, term limits would get the career crooks out of Congress and pave the way for representatives who are judged by what they do in the short time they’re given to do it, rather on the length of time they have to enrich themselves on the backs of their constituents while professing to fight for them against the ravages of big banks and globalization.

The American people can be unshackled from the Washington-financed and protected crony capitalist oligarchy that subjugates the economy and citizenry to its profiteering and unshackled free markets. American ingenuity and our once enlightened work ethic can be unleashed on the economy like never before.

We just have to make it happen.

Sincerely,

Shah

Editor’s Note: We spoke with Shah over the phone right before publication, and we asked him what investors can do right now. “Ride the tiger. This is the system, and you have to play it the way it’s constructed.” Until Shah’s prescriptions are administered – including eliminating the Fed and imposing Congressional term limits – absolutely nothing is going to change. On Friday, Shah will offer readers specific investment strategies to profit in the meantime – so stay tuned.

7 Responses to A Conspiracy of Greed: How Globalization Hollowed Out America’s Middle Class – and How We Can Fix It

  1. Elliott says:

    The big question: Will there be “blood in the streets,” a quote of A. Roteschild (later Rothschild)? He claimed to have made a fortune with blood of the aristocrats in the French Revolution. Hmmm….Ron Paul wanted an audit of The Fed. How many in congress backed him? Henry Gonzales (TX)? Wright (OH)? If an audit has never been conducted for public review, then elimination of The Fed, well, no one wants to die mysteriously, do they? ONLY massive numbers of protests, calls, votes, rebellion will throw The Fed into the gutters. Overwhelming force.Without The Fed we would not have had the blood-letting wars, only made possible with loans, bonds. Fed makes possible sports (distraction), pundits (well paid), cheap loans (quantitative easement); on and on and on. Did not the founders warn of foreign entanglements, of none other than gold and silver rather than fractional reserves, fiat currency, and my goodness electronic signals and algorithms for bread? So, bring it on, shall we? Will this be solved legally, peacefully? Or is there another A. Roteshild in the wings? What do you think?

  2. Andrew du Boulay says:

    Eliminating the Fed while not impossible will still be complex. Although the Fed should have never been allowed to exist in the first place, the mistakes of Woodrow Willson and the ignorant congress which existed back then (and still does today) forfeited US monetary sovereignty and handed it over to the Rothschild banking dynasty. Sadly what ensued for the next century compounded the problem and forced the US government and the American taxpayer into enslavement. The dumb politicians had no concept of money, so instead of taking advantage of the constitutional right of a government to print and coin its own currency, the US Federal Reserve Act of 1913 gave that power to a cartel of private banks (which were all tentacles of the Rothschilds) and allowed them to magically make money for the country. Mind you, even though the Fed could magically create credit for the US government out of thin air, the Fed still charged 6% for every dollar it lent and put into circulation. In 1914 the first world war broke out which eventually dragged in the US wherein the US government needed to finance its war budget. It borrowed money from the Fed and has never been able to pay it back because successive administrations have merely lifted the deficit ceiling every time they needed money. Shame on ignorant politicians for not understanding the concept of money and the ultimate sovereignty Congress has to control the supply of money to the US economy. The same mistakes happened in England and Europe where Rothschilds owned the central banks of Europe. The smart thing about France and England was after the second world war, those countries re-claimed their monetary sovereignty by nationalizing their central banks. Yes those countries took the control of their central banks out of private ownership and said, ‘thank you very much, the government will now issue the money for the nation’. It meant both governments of France and England had to buy out the existing owners of the central bank. Because of the shear size of the debts the governments owed to their central banks, it took twenty years for each government to buy back their right to monetary sovereignty. (Luckily inflation helped pay off the debt over that period anyway). So while may people argue for the elimination of the Fed, it is not that simple. First, the nation still needs a central bank to manage the supply of money into the economy and the prevailing interest rates for stable inflation and economic growth. Second, a government can just take something it does not own. An important constitutional safeguard for property is the Fifth Amendment’s Takings Clause, which states that ‘private property [shall not] be taken for public use, without just compensation’. It means the US government should properly compensate the existing owners (the big banks which share ownership of the Fed) and pay them out over the next 20 – 40 years just as France and England did. Third, history demonstrates that it is not a good idea to upset the bankers, they tend to create wars and overthrow governments when they don’t get their way. Eliminating the Fed is not an option, but an orchestrated buy-back in a civilized manner whereby the US government reclaims and fulfills it constitutional mandate to supply money for the great US of A is the country’s only choice.

  3. Roger Carmichael says:

    The Real Reason for demise of Middle Class is China SLAVE LABOR>
    JFK COUP was to put Nixon in power so he could “Normalize” relations
    w/China, then Corporate America could ship factories to China where
    Labor Costs were practially NIL> In our small town of Amalogordo, NM
    PRESTO, Corp mfg did electric skillets> A foreman on 2nd shift who made
    $14/hr trained a Chinaman for his job> The Chinese guy made $14/WEEK
    so U can guess where savings of 60 to 1 went> Corporate PROFIT> Unlike
    US workers doing 40hr weeks, the Chinese do 60hr weeks @ 25 cents/hr
    So every $13.75 saved per hour of labor went to the company OWNERS.
    Solution> Let ’em KEEP their Presto skillets in CHINA, not allowed to sell US
    FREE Trade is an Oxy-Moronic statement> It’s actually CROOKED Trade

  4. James says:

    I offer up another possibility that could compliment all of the above.

    What if we created “regional” trade zones where every product that is sold (there will be exceptions) is manufactured in the same trade zone by the same people who live in the zone.

    This will insure that everyone has a job and makes enough money to live a middle class life to the fullness of their efforts.

    Example: say I live in the southeast and FORDS made in the region are costed relative to the cost of living in the region.

    This would ultimately level the playing field and we could VOTE with our feet.

  5. Sailing New York City says:

    Once again, Mr. Gilani pens another spot on article. Unfortunately, as Elliot above points out, the average person is so self absorbed, focused on anti-social media, TV, etc. to care or even remotely understand the concepts discussed here. Panem et circensus indeed! Remember, people get the society they are willing to tolerate.

    Even here in New York City, city and individual revenues are down as jobs and people flee the overspending, ideological demigods in our Politburo and running our city. As the middle class continue to shrink, and the special interests continue to buy their special privileges, the cycle will only accelerate. For NYC, 1975 will come again. Eventually the imbalance will cause major issues and in fact, we’re beginning to see it now. In the past few years some 40 plus cities and authorities nationwide have gone bankrupt, and Hartford, CT is the latest imminent candidate, although there are plenty of others.

    It is definitely time to get rid of the Fed, separate the investment banks from the commercial banks, impose term limits, and move from “free” trade (really the cost is quite high) to fair trade.

  6. Lawrence Boros says:

    Since 1998 and renewal of MFN China, the trade deficit has been the main driver for the Federal deficit. The trade deficit sucks half a trillion dollars out of our banks every year. It eliminates more than 50 million jobs and makes our taxable economy too small. We boost bank reserves and pay for the Federal deficit with “quantitative easing” that is in fact an eventually fatal economic addiction. 50% of the trade deficit is from China, 8% from Mexico, 9% from Japan, 10% from Germany, and 24% from other countries. By commodity it is 43% clothing, 23% automotive, 19% energy, 11% electronics, and only 4% steel. We need a three to five year increased indexed tariff system on imports by country that exceed our exports until they are equal. Tariff free trade is only free when it is balanced. This is not protectionism of an industry or a business. This is protectionism of our economy that could collapse. Any idea of trade wars should be forgotten as irrelevant. Right now the accumulated Federal deficit is diving straight down in a fatal trajectory. If we do not turn it around, the result will be a global catastrophe of frozen liquidity for all transactions.

  7. Michael Kelzke says:

    Not so sure that its not just human greed in general that has contributed to this banking phenomena. When I grew up the average house in the burbs was 3 bedroom, one bathroom, on Kitchen/dining area, Small Living room, no garage and if lucky one car per household with 5 kids. Now the average household is 4 bedroom, 3 bathrooms, two living areas, a dining room, double garage, two cars, an alfresco area, one or two children etc. etc. Nobody is forced to borrow more money than they can afford from the banks just as we don’t have to overeat. It’s greed from top to bottom. Banks can’t force you to borrow money.

    In terms of manufacturing I believe that companies that go offshore to maximise an already profitable business are unpatriotic and at the pinnacle of corporate greed. In Australia the public purse propped up the car industry for many years but they are all leaving chasing bigger profits overseas, starting with who else but the American manufacturers.

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