By Glen Reaux

The 2008 Great Recession resulted in the government declaring that certain corporations, including banks, were too big to fail. So, the government bailed them out and left the rest of America to suffer the devices of the very same banks that caused the Great Recession.  But, what if Too Big to Fail the Sequel happened and the government could not bail the perpetrators out.  You might ask, how is that possible.  How could the government fail to prevent America’s banking system and major corporations from going bankrupt?  The Answer is simple.  In this article, “Too Big to Fail the Sequel Part II” is the explanation of why the infamous “corporate welfare program” of 2008 would not be possible in the future and what the nation would look like in such a dire economic situation is explained.  Despite the low unemployment rates of recent years, another depression like that of the 1930s is possible and maybe just over the horizon.  Sadly, our government knows it and is doing nothing to prevent it.  In fact, the Republican-led government is the culprit that is planning your demise.  You must ask the question, why is that?  The answer is simple, the 1%.  Your elected officials don’t work for you.  They work for the 1%.  It is evidenced by the most recent wealth grab, the Tax Cuts and Jobs Act of 2017.  You must also answer the question of why would our nation’s leaders do something that would cause a recession.  And once again, the answer is the 1%.  Why? Because after every major economic downturn, recession or depression there is an amazing transference of wealth.  The rich get richer, the poor get poorer and most of the middle-class also suffers severely.

In bankruptcy courts throughout the world, a bankrupt entity cannot bail out another or multiple bankrupt entities.  This is the realization that in global economic situations, a negative plus a negative does not make a positive.  In common sense terms, this would be like expecting your bankrupt and poor uncle with bad credit to go to a bank, get a loan and then give you the money so that you can pay your bills.  This will not happen.  Thanks to Donald Trump and his Republican cronies, Uncle Sam, your government is broker than ever.  You would be expecting a man, Donald J. Trump, that according to recent reports, due to rising expenses and failing revenues, after losing 1.2 billion dollars in ten years, to be able to make sound fiscal decisions and save the nation from economic ruin.  Unfortunately, that is exactly what the Republican Party and so-called-president Donald Trump is telling you.  According to them, that is what the result will be from their 2017 Tax Cuts and Jobs Act (TCJA).  Reality check: a bankrupt nation does not have the money to bail-out bankrupt banks and corporations.  Also, a six-time, bankrupt, failed, want-to-be businessman cannot make sound financial decisions or make successful economic policies.

To put it in perspective, unlike 2008 when the government had the money to bail-out the nation, thanks to declining tax revenues caused by the new Republican Tax law the money will not be there.  In other words, Donald Trump, a tremendous business failure that lost on average $100 million a year for ten years ^{1}, a person who has filed 6 corporate bankruptcies, has used according to him, his “big brain” to pass the Tax Cuts and Jobs Act of 2017 to save the nation from economic ruin.  No wonder he does not want you to see his tax returns.

On top of that, add the fact that his new tax law which follows in the footprints of Trump’s business practices has reduced the nation’s tax revenues by hundreds of billions of dollars a year.  If you believe that Trump is your messiah, “I have a bridge in Brooklyn to sell you.” – George C. Parker, convicted conman.  Welcome to Trump-land and your economic future.

It is common knowledge that for any business to be successful its revenues have to exceed expenses and the business has to have good enough credit to borrow money.  These basic principles are also needed for any government to be able to function.  This was the case when the Obama administration without any Republican Party support, saved the nation from the 2008 Great Recession.  As noted in Part I of this article, the conditions that created the 2008 recession were created by the deregulation policies of the Republican administrations of Ronald Reagan, George H. W. Bush and George W, Bush along with a great deal of assistance from Democratic President William Jefferson Clinton.  This economic madness now continues under Donald Trump, and to quote Trump, his “big brain.”  After all of this, would you trust your economic future and that of your children and grandchildren to a man that has 6 corporate bankruptcies and proudly says “Sorry losers and haters, but my I.Q. is one of the highest -and you all know it! Please don’t feel so stupid or insecure, it’s not your fault”? (May 8, 2013).

During a recession or depression, the principal effects are a loss of wealth by the poor and middle-class, people go hungry and many people suffer because of a loss of access to effective healthcare.  Aside from not having the money to bail-out financially distressed businesses, this is exactly what will happen as tax revenues continue to decline.  By design, this is what the Tax Cut and Jobs Act of 2017 (TCJA) will do.  This will dramatically increase the nation’s deficit which in 2018 (the year that the law went into affect) increased by 17% or $113 billion.  According to the Republicans, the only way to prevent the coming economic disaster is to reduce government spending and the favorite targets of the Republican party have always been social programs such as education, Medicare, Medicaid, social security and other safety nets that were designed to help America’s most disadvantaged, the poor, the elderly and children.

According to a report ^{1} “Rising Deficits, Falling Revenues, The Fiscal Damage Caused by the New Republican Tax Law“, published by the nonpartisan Center for American Progress: ”Regrettably, the law increased federal borrowing while addressing none of the nation’s most pressing challenges. In particular, after decades of growing income inequality and stagnant real wages for working-class Americans, the law conferred its largest benefits on the wealthiest Americans.”

1. The law will increase deficits by about $1.9 trillion over 10 years, according to the nonpartisan Congressional Budget Office (CBO). This increase would constitute major fiscal damage. If core features of the law are extended, the TCJA would increase deficits by another $650 billion over 10 years and add roughly $3 trillion to deficits over the second decade after enactment.
2. The law has already drained revenue and thus hiked deficits. Indeed, the TCJA was the biggest contributor to the large increase in the deficit for the fiscal year that ended in September 2018.
3. The law could cost much more than official estimates because it includes numerous fiscal time bombs, including expiring tax cuts that future Congresses could extend and delayed tax increases that future Congresses could further forestall. The law is also replete with loopholes that are already being exploited in ways that were not fully recognized during the bill’s hasty consideration.

“These are not unintended effects of the law. The tax law was part of a deliberate strategy to increase budget deficits and thereby raise pressure to cut programs such as Social Security, Medicare, and Medicaid.  And the aspects of it that will likely cost more than advertised are, for the most part, also the result of a deliberate strategy: Congressional leaders rushed the bill through Congress with no hearings and little time for public scrutiny in order to obscure its effects. Wealthy individuals and corporations are the law’s biggest beneficiaries, and it is no coincidence that they will have many opportunities to stretch the law’s myriad loopholes even further and press Congress for even more tax breaks.”

It is obvious by the evidence provided which include data from the Congressional Budget Office (CBO) that even if extreme cuts were made to social programs to offset the loss of tax revenues, the nation will have to borrow more money to function, thus further increasing the deficit.  And like with any business or personal loan, there is a cost to borrowing the money.  That cost is called interest or as referred to in financial terms “debt service.”  Suspiciously, the debt service estimates are left out of all CBO estimates relating to the cost o the TCJA.  Why is the debt service mysteriously left out of the costs of the TCJA?  It’s obvious.  It’s bad news and will paint a truer picture of the TCJA.

The debt service will add to the national deficit and is further proof that this is a bad law that was only designed to engorge the 1% and cause the eventual economic demise of the country.  The TCJA will accomplish its task and bring about austerity which will weaken the country and leave it vulnerable to foreign economic powers.

In the near future, as deficits spiral out of control each year that this Republican tax law is enforced, government budgets will be cut, jobs will be lost, small businesses will close and tax revenues will continue to fall.  In the early to mid-2000s, the world watched this type of economic disaster unfold in Europe.  The agonizing solution was austerity.  Austerity caused civil unrest, rioting in the streets and economic collapse in Greece, Spain, France and Italy.  The effects of this economic policy rippled into Portugal, the Irish Republic and the United Kingdom and nearly brought about the downfall of the European Union.  Austerity is the implementation of government policies that result in drastic cuts in programs such as social security, Medicare, Medicaid, education, protective regulations, government jobs, government pensions, law enforcement and other services needed to ensure the domestic welfare of a country’s population.  Finally, when all of the cuts to services have devastated the people and deficits continue to spiral out of control, the dagger is thrust into the heart of the people.  Taxes are raised dramatically on the poor and middle class to cover the deficits created by the wealthy and corporations.  This is austerity.  For the rich, they believe that it is the thrill of victory.  For the poor and middle-class, it really is the agony of defeat.

However, the rich could not be more wrong.  In today’s global economic climate with the rise of China as an economic power, the growing possibility that the U.S. Dollar may lose its status as the Global Reserve Currency ^{4} and the international plots against the petrodollar ^{5} as the world standard for energy trading, in the eyes of the world financial powers and bankers, to follow the leadership of  such an unstable economy will only lead to global economic disaster.  History has proven this by the Great Depression and the Great Recession.  America’s economy is not a solitary engine that is only fueled by tax revenues.  Through our past economic prowess, we have become a privileged nation.  But with that privilege came the grave responsibility and trust of being the steward of the world’s economy.  This trust has been placed in danger by the TCJA.

The U.S. dollar has the unique distinction of being designated the Global Reserve Currency.  As the Global Reserve Currency, the U.S, Dollar is held in significant quantities by governments and institutions as part of their foreign exchange reserves. The U.S. Dollar is used by all nations in international transactions, international investments and all aspects of the global economy.  Because of this, people who live in the U.S. can purchase imports and borrow across borders more cheaply than people in other nations.  Which means that the U.S. dollar is in global demand and international trade is conducted based upon the value of the dollar against other currencies.  But, as the value of the dollar decline because of adverse economic conditions in the U.S. the costs of trade amongst all nations goes up.  History has shown that this is a cause of global inflation which leads to global recessions.  Unlike in the past, emerging economic powers are forming trading cartels to prevent this from happening.  One such cartel is the BRICS.

The BRICS is a cartel consisting of Brazil, Russia, India, China and South Africa.  The group was originally formed in 2001 as BRIC and expanded in 2010 to include South Africa hence the acronym BRICS.  As an economic power this group, in China and India have the two largest populations in the world.  They are also noted for leading the world in manufacturing and cheap labor costs.  Russia and Brazil possess some of the largest oil reserves in the world.  China has over the past two decades been more proactive in helping third world countries develop economically than the U.S.  Recently, China has entered into an oil production and economic development partnership with Nigeria, the 6^th largest oil producing country in the world.  Russia is the largest provider of natural gas to Europe.  Also, these countries have begun to reject the U.S. dollar as the Global Reserve Currency.  And, they are now conducting all energy transactions in their own national currencies and not petrodollars.

According to Investopedia, “Petrodollars are oil revenues denominated in U.S. dollars. They are the primary source of revenue for many oil-exporting members of OPEC, as well as other oil exporters in the Middle East, Norway, and Russia.”  “Because petrodollars are denominated in U.S. dollars, their true purchasing power relies on both the core rate of U.S. inflation and the value of the U.S. dollar. This means that petrodollars will be affected by economic factors the same way the U.S. dollar is affected.  So if the value of the dollar falls, so does the value of petrodollars, and therefore, the U.S. government’s revenue.”

The health of the U.S. economy is just as subject to foreign influence as it is to internal factors centered around Gross Domestic Product (GDP), inflation rates, prime interest rates, tax revenues and deficits.  Like a good neighbor, you become concerned about anything that affects the families in your community.  If one of your neighbors begins to exhibit behavior that is suspect or detrimental to the community you distance yourself and family members in efforts to protect yourself.  The international economic community is no different.  Internationally, when nation’s start to become concerned about the economic health or internal affairs of a neighbor or partner, they begin to do the same things.  The economic impact from such actions are immediate and often times devastating.  Even more importantly, nations like the BRICS may view the U.S. as a financial competitor or adversary and begin to make moves to firm-up their own interest or economic security.  These are the realities that come with having once been the economic superpower in the world that has over decades acquired economic enemies.  Even harsher is the reality that our own economic partners in the G7 are, under the Trump administration, beginning to scrutinize us more critically.  And, with Trump declaring trade wars against our allies and our adversaries, our economic situation in today’s world has grown very weak.  Our own economic partners no longer trust us or have faith in our abilities to maintain a strong and vibrant economy and the TCJA does not inspire their confidence in our economic future.  Under Donald Trump, we are rapidly becoming an island in the global economic sea.  If we don’t change course soon, we may become a deserted island.

History has proven that deregulation is the enemy of a healthy economy.  It is the cause of every major economic crisis in the history of this country and along with the TCJA will destroy this country.  Deregulation is responsible for the massive transference of wealth that has accompanied the Great Depression and the 2008 recession.  According to the San Francisco Federal Reserve, the 2008 recession cost every American $70,000. The Republican Party knows this and continues their practice of deregulation today and will continue it into the foreseeable future.

In 2017, the Republican-controlled House passed the Financial Choice Act ^{6}, a sweeping rollback of Dodd-Frank.  It included controversial provisions to eliminate the Volcker Rule in its entirety, strip the Consumer Financial Protection Bureau of its independence and end the Financial Stability Oversight Council’s ability to designate certain nonbanks as systemically important.

In March of 2018, the financial deregulation onslaught continued.  The US Senate voted 67 to 31 to repeal major provisions of the Dodd-Frank Act, an Obama-era banking regulation law passed after the 2008 financial crisis. The bill was passed with bipartisan support which means that like Bill Clinton, there are Democrats that side with the 1% over the common folk that put them in office.  When one considers the massive amounts of wealth owned by our elected officials, it is easy to understand where their allegiance lays.  The bill increases the threshold from $50 billion to $250 billion for banks to be considered “systematically important financial institutions.”  This subjects a bank to closer regulatory oversight.  Such oversight includes the establishment of “living wills” which outline the process by which a bank can be liquidated without destabilizing the economy.  It also requires banks to undergo “stress tests” to prove that they can handle a major economic crash without going bankrupt.  To affect passage, the bill was portrayed dishonestly by senators as an attempt to protect local “community banks” from the allegedly crushing costs of complying with financial regulations.

Judging from the current economic situation of this country and the very bleak future ahead of us, it is obvious that this precarious set of circumstance is not a result of chance.  It is the result of carefully planned and executed events designed to elevate the wealthy while bringing the rest of the American people to their knees.  But, these economic masters of the universe are not as smart as they would like to believe.   For when the next financial crisis arrives, they will find out that their world is not too big to fail especially if the United States government itself has failed due to the process.

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Linked Sources and Documentation

1. Trump loses 1.17 Billion in 10 years:https://www.nytimes.com/2019/05/08/podcasts/the-daily/trump-taxes.html
2. Trump Banking Deregulation: https://www.nbcnews.com/think/opinion/trump-s-learned-nothing-financial-crisis-his-deregulation-spree-could-ncna906971
3. The Center for American Progress: https://www.americanprogress.org/issues/economy/reports/2018/11/29/461579/rising-deficits-falling-revenues/
4. Global Reserve Currency:https://www.investopedia.com/articles/forex-currencies/092316/how-us-dollar-became-worlds-reserve-currency.asp
5. Petrodollar: https://www.investopedia.com/terms/p/petrodollars.asp
6. The Financial Choice Act: https://www.congress.gov/bill/115th-congress/house-bill/10

Copyright © 2019, Glen Reaux, all rights reserved