Steve Bannon's Done - But It’s Way Too Late

by David Stockman, via Lew Rockwell:

Good riddance to Steve Bannon. The last thing America needed was a conservative/populist/statist alternative to the Welfare State/Warfare State/Bailout State status quo. Yet what Bannonism boiled down to was essentially acquiescence to the latter—even as it drove politicization deeper into the sphere of culture, communications and commerce.

Stated differently, the heavy hand of the Imperial City in traditional domestic, foreign and financial matters was already bad enough: Bannonism just gave a thin veneer of ersatz nationalism to what was otherwise the Donald’s own dogs’ breakfast of protectionism, nativism, xenophobia, jingoism and strong-man bombast.

By the latter, of course, we mean Trump’s essentially content free notion that America was falling from greatness mainly due to stupidity, corruption and a penchant for bad deals among Washington pols; and that the undeniable economic malaise, if not decline, of Flyover America was due to some kind of grand global zero sum-game.

That is, what rightly belonged to America was being stolen by immigrants, imports and the nefarious doings of foreign governments and globalist elites. What was needed to make America Great Again (MAGA), therefore, was a Washington-erected moat to hold back the tide of bad people and unfair foreign economic assaults and a new sheriff in the Oval Office with the “smarts” (with which he believed himself amply endowed) to start “winning” again.

In truth, Trump had it upside down from the beginning. The unfortunate arrival of Steve Bannon to his campaign in August 2016 only served to give the Donald’s disheveled basket of bromides, braggadocio and bile a rightist political edge and proto-intellectual rationalization.

The real problem, in fact, was not the evil flowing into the American homeland from abroad—whether imports, illegals or terrorists. Rather, it was the outward flow of Washington’s monetary and military imperialism that was gutting capitalist prosperity domestically and generating terrorist blowback abroad.

Needless to say, Bannonism never identified the real culprits: Namely, the Wall Street-enriching Bubble Finance policies of the Fed, which forced foreign central banks to buy dollars and trash their own currencies to keep exports “competitive”; the military-industrial-intelligence-foreign aid complex of the American Imperium; and the massively insolvent institutions of the Welfare State social insurance system (Social Security and Medicare) and prodigious spending on means-tested entitlements (Medicaid, food stamps EITC, etc.).

Consequently, the Bannonized agenda had no inkling, either, that fiscal catastrophe was imminent. And that the Trump administration had no real choice except the politically unpalatable path of cutting spending and/or raising taxes—-or eventually getting buried by the inherited fiscal tidal wave cresting at the end of a failed ((102 month old) recovery.

Nor did it grasp that the real cause of Flyover America’s distress is the Fed’s multi-decade regime of financial repression and Wall Street price-keeping policies which: (1) deplete the real pay of workers via the FOMC’s absurd 2% inflation target; (2) savage the bank balances of savers and retirees via ZIRP; (3) gut jobs, investment and real pay in the business sector via the C-suites’ strip-mining of corporate balance sheets and cash flows to fund Wall Street-pleasing stock buybacks, fatter dividends and M&A empire building; and 4) impale the bottom 80% of households on a unrepayable treadmill of (temporarily) cheap debt in order to sustain a simulacrum of middle class living standards.

At the same time, these pernicious monetary central planning policies did fuel the greatest (unsustainable) financial asset inflation in recorded history, thereby showering the top 1% and 10% with upwards of $35 trillion of windfall wealth (on paper). At bottom, Fed policy amounted to “trickle-up” with malice aforethought, and it was sponsored and endorsed by the beltway bipartisan consensus.

It is no wonder, therefore, that Trump’s flawed candidacy and pastiche of palliatives and pettifoggery appealed to the left-behind working classes of western Pennsylvania, Ohio, Michigan, Wisconsin and Iowa—as well as to the retirees of Florida and culturally-threatened main streeters domiciled in the small towns and countryside of Red State America.

In these precincts, the election was not especially won by Trump. Rather, the electoral college was essentially defaulted to him by a lifetime denizen of the Imperial City who had no clue that war, welfare and windfalls to the wealthy were no longer selling in Flyover America.

Then again, Bannon’s raw nationalism and the Donald’s walls and xenophobic expostulations were not remotely up to the task of ameliorating America’s economic, fiscal and financial ailments. There simply were no bad trade deals that accounted for the stagnation of median household incomes after 1989 or the 35% decline of real net investment by the business sector after 2000.

To the contrary, the vast off-shoring of American production and breadwinner jobs after 1987 was due to wage arbitrage fueled and exacerbated by the Fed’s chronic and increasingly egregious easy money policies. The latter resulted in an explosion of household borrowing that sucked in cheaper foreign goods and the sharp inflation of domestic costs, wages and prices, thereby curtailing US exports and encouraging massive import substitution.

By contrast, under a hard money regime on the free market, interest rates would have risen to premium levels after 1987. That would have triggered, in turn, a systematic deflation of domestic prices, wages and costs, thereby minimizing the gap between domestic production and the China Price for consumer goods, the Mexican Price for assembly labor and the India Price for back-office services.

That is to say, the theory of comparative advantage and universal societal welfare gains does work under a regime of hard money and free market pricing of money, debt and other capital assets. But under Bubble Finance, domestic inflation and subsidized debt-financed consumption simply result in the hollowing-out of the domestic economy and an alienated flyover electorate that, at length, apparently has no use for the nostrums of wizened beltway lifers.

In any event, the capture of American production, jobs and wages by the Mexican economy after NAFTA and the Chinese economy after Mr. Deng’s pivot to exporting in 1993 and its ascension to the WTO (World Trade Organization) in 2001 was due to bad money (from the Fed), not stupid negotiators at the USTR, Commerce and State.

Accordingly, one year has passed and the Donald has done virtually nothing to erect a trade moat: no quotas, high tariffs or serious attacks on foreign barriers to US exports.

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