The Donald Undone: Tilting At The Swamp, Succumbing To The Empire

You can't build the Empire and drain the Swamp at the same time. That's because the Swamp is largely the fruit of Empire. And it's also the reason that the Donald is being rapidly undone.

Indeed, it is the Empire's $800 billion national security budget which feeds Washington's vast complex of weapons suppliers, intelligence contractors, national security bureaucrats, NGOs, think tanks, K-street lobbies, so-called "law" firms and all-purpose racketeers. It's what accounts for the Imperial City's unseemly and ill-gotten prosperity.

It goes without saying that the number one priority of these denizens of Empire is to keep the gravy train rolling. That is accomplished by inventing and exaggerating threats to America's homeland security and by formulating far-flung and misbegotten missions designed to extend and reinforce Washington's global hegemony.

As we demonstrate elsewhere, a true homeland security defense budget would consist of the strategic nuclear triad and modest conventional forces to defend the nation's shoreline and air space; it would cost about $250 billion per year plus a few $10 billion more for a State Department which minded its own business.

So the $500 billion difference is the fiscal cost of Empire, which is pushing the US toward an immense generational fiscal crisis. But it's also a measure of the giant larder that fills the Swamp with the projects and busywork of Washington's global hegemony.

In fact, it is the vasty deep of that $500 billion larder which gives rise to the forces that not only thwart the Donald's desire to drain the Swamp, but actually enlist him the cause of deepening its brackish waters.

Moreover, these missions encompass far more than direct military occupations, such as in Afghanistan and Iraq; or indirect aggressions, such as in Washington's arming of anti-government terrorists in Syria and facilitating and supplying Saudi Arabia's genocidal bombing campaign in Yemen; or even the kind of rank provocation implicit in the 29,000 troops Washington still bivouacs on the Korean peninsula 65 years after the war there ended and the thousands of US and NATO forces which conduct virtually constant maneuvers and war games on the very borders of Russia.

OFAC And Washington's Economic Sanctions Strike Force 

Beyond the Empire's purely military dimension lies a vast stratum of economic and financial warfare. The US currently has sanctions----trade, financial and proscribed nationals---on more than 30 countries including highly visible alleged malefactors like Russia, Iran and North Korea---but also Lebanon, Liberia, Libya, Somalia, Sudan and Syria, to name a few.

These sanctions are enforced by an office in the US Treasury Department, which is aptly named the Office of Foreign Asset Control (OFAC). Being openly in the business of controlling the assets of foreign countries, in fact, its name speaks volumes about the daily purposes of the Imperial City.

In addition to enforcement actions against the above named three dozen countries, OFAC's global reach has been fantastically expanded by the so-called war on terror, and the mechanism of sanctioning "Specially Designated Nationals" or SDNs.

We are here talking about individual citizens and officers of foreign countries, one at a time. It so happens that the OFAC periodically publishes a list of SDNs and the latest one (May 24, 2018) is a staggering 1,132 pages long. By our reckoning it lists in excess of 500,000 foreign evil doers of one type or another.

The fact that it takes 221 pages just to get through the "A's" in its alphabetical listing---owing to the prevalence of Ali's, Abdul's, and Ahmed's----is perhaps indicative of the nature and scope of Washington's SDN dragnet.

Needless to say, sanctioning 500,000 foreigners generates endless make-work for the denizens of the Swamp and the phalanx of national security agencies and private contractors which employ them. But it's all in a day's work in the Empire because this list exists only by virtue of Washington's self-appointed role of global policeman and hegemon of global order.

Moreover, the list now encompasses far more than the Abdul's and Ahmed's arising from the Imperial City's misbegotten "war on terror". In truth, the latter has actually been a hatchery of terror in the form of blowback and vengeful retaliation for Washington's military devastation of the Middle East and elsewhere.

Nevertheless, there are also thousands of Russian, Iranian and Chinese names on this list owing to Washington's putting a hex on certain disapproved behaviors and policies of these nations. And many tens of thousands more names appear for the sin of not compliantly observing Washington's sanctions on third-parties with which they had wished to do business.

That is, OFAC is now into a higher level of economic warfare: Sanctioning those who fail to sanction the sanctioned.

Here's the thing. Almost none of this busywork of Empire has anything to do with the safety and security of the American homeland.

It is the fruit of middle eastern interventions and occupations which should never have happened--- going all the way back to the first Gulf War and all that followed.

Indeed, it goes back even further in time to Washington's siding with Saddam Hussein during the 1980s Iran/Iraq War and to the so-called Charlie Wilson's War during which the CIA recruited and armed the mujahedeen in Afghanistan against the Soviets after the latter's misbegotten invasion of the "graveyard of empires" in 1979.

It is also the fruit of a needless demonization of Russia and Putin, which , as we have seen, comprise no threat to the American homeland whatsoever; and also, increasingly, the designation of alleged Chinese malefactors for failure to enforce Washington's foreign policy.

Imperial Arrogance: Sanctioning China For Not Enforcing Washington's Economic War On Iran

The Trump Administration's recent attempt----purposeful or not---to destroy China's second largest telecom supplier (ZTE) is an hideous case in point. Once upon a time that would have been considered an act of war, but under the aegis of Empire the shoe goes on the other foot: It's China's fault, apparently, that ZTE failed to comply with Washington's hex on Iran.

In effect, the Donald is getting sucked into functioning as another handmaid of Empire rather than actually performing the noble work of draining the Swamp. After all, the essence of draining the Swamp boils down to shrinking the state and unleashing the energies of free market capitalism--including generation of more export to the rest of the world.

But in the ZTE case, Trump and his neocon and warhawk advisors were doing just the opposite.They had slapped an edict on US telecom component and software suppliers like Qualcomm, prohibiting them from engaging in acts of trade with China's #2 telecom equipment manufacturer and the #4 mobile phone provider in the world.

That is, they were about the business of pumping the Swamp full with even more busybody regulation and bloat---and once again bamboozling the Donald with phony threats to national security.

In this case, ZTE apparently violated "sanctions" put upon Iran and North Korea by the Empire in its self-appointed role of global policeman.

That's right. There have been no charges that ZTE has "stolen" American technology or subsidized exports to the harm of American cell phone factories----because, well, there are none left.

The Chinese state-owned company's only alleged offense, in fact, was not functioning as a complaint enforcement arm of Washington's foreign sanctions strike force.

But threatening to bring daily production at ZTE to a halt because it cannot (in the short-run) make cell phones without those designed-in Qualcomm parts, the Donald was also in danger of putting the kibosh on American production, jobs and leadership in the high technology components end of ZTE's business.

Since ZTE sits on a giant mountain of debt, however,the Chinese had no choice in the near term except to bend over and request Washington's bar of soap. To that end, in fact, they are now negotiating the complete housecleaning of the company's board and top executives and replacing them with names satisfactory to Washington.

Indeed, when this compromise settlement with China was announced a few months ago, we learned that the Donald had told his "friend" President Xi Jinping that in return for letting ZTE off the sanctions hook, Washington would be happy to collect a $1.3 billion fine and take control of company's board and management!

But here's the thing. ZTE is not only a state-owned company; it's also a core national technology champion in the Red Ponzi's statist scheme of economic management.

So the idea that Washington should control ZTE is flat-out idiotic, yet it stems 100% from the Empire's hex on Iran and North Korea----a futile, destructive exercise in the sanctions game which never should have happened in the first place.

As we have frequently explained, Iran should be free to conduct a foreign policy of its own choosing in its own middle eastern neighborhood; and that if we got the machinery of war and empire out of the way, the Koreans---north and south---would readily find a way to denuclearize, demilitarize and economically reunite.

And yet that's not the half of it. The Donald's doddering Secretary of Commerce and former crony capitalist thief, Wilbur Ross, explained to bubble vision at the time of the July deal that "compliance" would be assured by placing an entire squadron of Washington operatives inside the company on a permanent basis to makes sure it does not again violate Washington's sanctions and other edicts.

That's right. Wilbur proposes to run China's giant state telecom company from the Commerce Department Building on Constitution Avenue.

That's draining the swamp?

Well, at least there is some irony---surely not intended----in proposing to control a communist state industrial behemoth from Constitution Avenue.

Then again, through the largesse of the state and the Fed's Bubble Finance, Wilbur Ross became a self-proclaimed billionaire, like his boss.

So how would either have a clue about draining the real statist Swamp?

China Trade Deal---Recipe For A Big Washington Trade Nanny

And that get's us to the Donald utterly wrong-headed pursuit of an overall "trade deal" with China---a prospect that has the far-flung agencies and contractors in the Imperial City giddy with anticipation. It would simply mean a whole new regime of economic meddling, trade management, bureaucratic enforcement and sanctions for not measuring up.

It would also have the meters running overtime at Washington's law firms and consultancies, which would be over-run with demand from Chinese companies and state agencies seeking help with "compliance".

The fact is, America doesn't need no stinkin' trade deal with China.

Yes, as we have seen, we did import $526 billion last year from China compared to just $130 billion of exports. But that $396 billion deficit is due to factors that trade negotiators and enforcement bureaucrats could not fix in a month of Sundays. As we have shown, it's an artifact of bad money and the machinations of central bankers, starting with the Fed.

So even though China doesn't import much, it's not mainly owing to its high tariffs or its labyrinth of non-tariff barriers. Instead, it results from the fact that Beijing has run the People Printing Press overtime for the last 25 years and has thereby buried its economy in $40 trillion of unsustainable and unrepayable debt----debts that will eventually grind its economy to a halt or trigger the mother of all financial implosions.

In the interim, however, it won't import much because most foreign suppliers---and most especially the US---cannot compete with a state controlled economy temporarily blessed with spanking new, debt-financed capital equipment, essentially proletarian labor in a red economy and a minimal welfare state burden on businesses owing (temporarily) to favorable demographics and the stingy benefit policies of its allegedly socialist rulers in Beijing.

Thus, even if the Donald should succeed in strong-arming Beijing into tripling its current $15 billion of agricultural imports from the US and doubling its $20 billion of energy imports, the resulting $50 billion uptick in combined exports from these sectors wouldn't make a dent in the trade deficit.

And even if they do cut their tariffs on auto imports as promised, that's not going to amount to a hill of beans, either. That because a long time ago all high volume US auto producers----GM, Ford and Chrysler---recognized that taking coals to Newcastle was the better part of wisdom.

That is, they all moved their assembly plants and their parts suppliers to China where they face capital and labor costs that are only a fraction of those in the US. Accordingly, there is not a snowball's chance in the hot place that US based production----other than perhaps in the case of tiny volumes of niche or prestige vehicles---can compete in China's 30 million unit auto market.

In fact, autos and parts exports to China currently amount to less than $5 billion, and there is no reason to believe there is much upside at all---even with a zero tariff.

Even when it comes to the heavy capital equipment made by Caterpillar or the advanced commercial aircraft supplied by Boeing-----these US suppliers are doing a increasing share of their  production and valued added in their own or JV plants in China, not Peoria and Seattle.

And as to most consumer goods, fuggetaboutit!

On the other hand, the Donald doesn't have a clue about the other side of the equation---the $526 billion of annual US imports from China. That baleful fact, however, is the legacy of 30 years of monetary central planning by the Fed, not cheating by the Chinese.

The essence of the Fed's false prosperity trick was to enable American households to live beyond their means by raising their debts by nearly 6X to $15.6 trillion during the last three decades---- even as wage and salary incomes grew by only 3.7X.

The difference essentially reflected unearned consumption borrowed from the economic future, but also on the margin was supplied by goods emanating from the far lower cost factories of the Red Ponzi.

The 30-Year Borrowing Binge: Household Debt Versus Wage And Salary Income

At the same time, as we have seen, the Fed's insensible pursuit of 2.00% inflation essentially inflated the cost-price-wage structure of the US economy, and at the very worst time imaginable: That is, after Mr. Deng's early 1990's pronouncement that it is "glorious to be rich" and its adoption of mercantilist, credit fueled, state-driven economic development model.

In a word, China was draining its rice paddies of cheap industrial labor, thereby driving the global labor cost curve downward---at the very time that the geniuses in the Eccles Building did their level best to inflate the nominal wage levels of US factories in the opposite direction. The result was that the borrowed consumption of the American household sector got supplied by the peasantry-turned-factory worker in the Red Ponz1.

So, is some kind of Imperial City fostered "trade deal" going to alter these deeply embedded historical legacies?

No, they will not---that is, at least not until sound money policies are once again replanted in the Eccles Building.

The arrival of Janet Yellen in tie and trousers at the helm of the Fed, however, means that the one chance the Donald had to do something meaningful about the China trade gap has been blown.

That's not only owing to the appointment of Jerome Powell, who is a Keynesian Imperial City lifer, but also due to the constant drumbeat of suggestion from the White House that the Donald is a "low interest man" and would prefer to keep the monetary status quo in place; or more recently, has even demanded that the Fed cut an interest rate target that is still negative in real terms..

So why is the Donald wasting his time and fueling growth of Imperial Washington via his "art of the deal" dueling with President Xi?

In part, of course, that's because the Donald has been a life-long dyed-in-the-wool protectionist---a virtual paragon of 18th century mercantilism.

Needless to say, protectionism and mercantilism are the health of the Swamp because they rest on government-to-government deals, not the enlightened self-interest and mutual benefits of capitalist commerce.

Accordingly, the central pillar of the Donald's economic policy----new bilateral "trade deals"--- is inherently designed to fill the Swamp, not drain it.

In the first place, if the Red Suzerains are economically benighted enough to figuratively throw rocks into their own harbors to repel imports and to subsidize exports with cheap credit, repressed wages and other state subventions, guess what?

It's their wealth being penalized, not America's. The Red Ponzi is effectively sending foreign aid to America!

Technology Protectionism----Trojan Horse Of The Warfare State

And it is here where the Imperial City has taken the Donald by the short orange ones. The Warfare State sees trade as just another venue of battle-----and in this case based on the completely spurious notion that China's alleged theft of US intellectual property is a threat to national security.

That just patent nonsense because nearly every technology in today's world is dual use. So if you start with the false premise that China has the will and capability to threaten America militarily---either now or in the relevant future----you are automatically embarking down the road of state control of the economy and an ever deeper Swamp in the Imperial City.

The fact is, the Red Ponzi is a giant house of cards that cannot survive in the long-run, and in the mid-term is completely dependent of US markets to earn the dollar surpluses that it needs to keep its $40 trillion tower of debt from having a crash landing.

So the truth is, it doesn't matter what technologies the Chinese have----they are almost definitionally not a threat to the American homeland. Nevertheless, the Donald's glandular protectionism plays right into the hands of the Washington hegemonists.

They now have him busily attempting to administer a trade spanking to China because purportedly it does not buy enough American soybeans, LNG and Ford Explorers.

But the Deep State has something far bigger in mind. Namely, the complete control of trade in the name of national security in the new age of advanced information technology---and on that front the Donald is turning out to be a battering ram beyond their wildest dreams.

For instance, here is what a true Swamp creature has to say about the matter. Mr. Paul Rosenzweig is apparently a Republican but actually a certified denizen of the Imperial City.

“I knew what was critical in 1958 — tanks, airplanes, avionics. Now, truthfully, everything is information. The world is about information, not about things,” said Paul Rosenzweig, who worked with CFIUS while at the Department of Homeland Security during President George W. Bush’s second term. “And that means everything is critical infrastructure. That, in some sense, means CFIUS really should be managing all global trade.”

Needless to say, the misbegotten China Trade Deal is only one of the many avenues by which the Empire has enlisted the Donald in the business of deepening the Swamp, not draining it.

 

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.