Chapter 72 Reagan reaped the consequences

The aftermath of World War I and Versailles war reparations, followed by the Dawes Plans in London and New York in the 1920s, triggered the most devastating postwar consequence, the relative stagnation of long-term investment globally.The absolute decline in the volume of world trade in the 1920s compared with the pre-war period, as well as economic and political instability across Europe, directed more and more funds towards short-term loans, usually not exceeding a year. This has led to a situation where short-term speculative profits are the core criterion for judging investments.This in turn fueled the near-crazy New York stock market boom of the 1920s, fueled by money from London and the continent hoping for unprecedented gains on the rising New York bourse.All this came crashing down in October 1929.

The aftermath of the oil shocks and the shock of high interest rates in the 1970s, sometimes called "hyperinflation," mirrored those of the 1920s.The Versailles reparations, which weighed heavily on world productive investment, were replaced by onerous burdens imposed by the IMF's Third World debt "restructuring" programme. In the early 1980s, the inflation rate reached an incredible 12% to 17%, which effectively limited the return on capital investment.The world needs to make more money faster. In this situation, the Reagan administration ushered in the solution to the "free market" economic problem, and its advocates called "supply-side economics".Strip away the veil of this economic thinking and we see what it has done, leading to the highest ever level of individual short-term profiteering at the expense of the greater good of the nation's economic health.

After the policy was implemented in October 1982, they collected trillions of dollars from third world countries and brought a huge windfall to the liquidity of the US banking system.But the ideology of Wall Street and Treasury Secretary Donald Reagan's zeal to free the government from the "shackles" of financial markets led to the greatest hubris in the history of world finance. In the late 1980s, when the chaos eased, some people began to realize that Reagan's "free market" had destroyed the economy of the entire country, which was the largest economy in the world and the basis of the stability of the world currency.

Reagan thought that simply reducing the tax burden on individuals or corporations would unleash "pent-up creative enthusiasm" and entrepreneurial talent.Backed by this simple but false argument, President Ronald Reagan signed in August 1981 the largest tax cut in postwar history.The bill includes tax breaks that also apply to certain speculative real estate investments, particularly commercial real estate.Government controls on corporate mergers were also lifted, and Washington gave a very clear signal, "Just do it," as long as it stimulated the Dow Jones Industrial Average.

By the summer of 1982, the White House had obtained the agreement of Paul Volcker and the Federal Reserve Board to slowly lower the interest rate level, and a good opportunity to speculate and make a fortune came.That spring, the failure of an obscure oil and real estate bank, Oklahoma's Penn Square Bank, combined with the crisis in Mexico to convince Volcker that it was time to abandon monetary austerity.During the period from the summer of that year to December, the discount rate of the Federal Reserve Board of the United States dropped seven times in a row, falling to less than 40% of the original level.As interest rates fell, financial markets went wild.

The real face of Reagan's "economic revival" policy is that, except for a small number of military aviation companies that have received a large number of defense contracts from the government, they have done nothing to encourage investment, improve technological progress and industrial productivity.Instead, money goes into real estate, the stock market, and speculation in oil fields in Texas or Colorado—all of which are considered “reasonable tax avoidance.” The frenzy has grown close to frenzy as Volcker rates have moved further lower.Borrowing is the new fashion.People think that at low interest rates, it's a "good deal" to borrow money today and pay it back tomorrow.But this is not the case.American cities have endured a 20-year slump, with bridges collapsing, highways broken due to lack of maintenance, and new glass-walled shopping malls are majestic but empty because real estate developers have cashed in on massive tax breaks. to a sufficient profit.

The fundamental features of the Reagan supply school creed were once again echoed by Britain's Margaret Thatcher, who saw trade unions as "part of the problem".A British-style class antagonism ensued, with the result that the organized labor movement was dismantled. The government's deregulation of the transportation industry is the main policy tool.Trucking and air shipping are considered free markets.Some airlines and trucking companies that specialize in "cheap" routes have proliferated, often without unions and with low or no safety standards.Accident rates climbed, and wages for unionized workers plummeted.Reagan's "recovery" policies made young stockbrokers multimillionaires as if at the stroke of a computer, but they lowered the standard of living of skilled blue-collar workers.In Washington, no one is paying more attention to it.After all, according to Reagan, a conservative Republican, labor unions "appeared to be Communist organizations." Nineteenth-century British-style "cheap labor" policies dominated Washington as never before.

By 1982, amid a sluggish economy and deregulation of the trucking industry, the once-mighty International Truckers union had to accept a three-year contract that effectively amounted to a wage freeze.The UAW, once the most influential group of skilled workers in the U.S., also accepted lower wages when it negotiated with Chrysler, Ford and General Motors in 1982.Organizations such as the steelworkers have backed down in desperate efforts to protect pensions for older workers, or to stave off layoffs.While the standard of living for a few has risen substantially compared to what it once was, the real standard of living for the majority of Americans has continued to decline.Society gradually differentiates among different income levels.

From Washington to New York to California, the new concept of "post-industrial society" is being talked about everywhere.America's economic prosperity is no longer about investing in the most modern industrial production capacity.Steel was once considered a "sunset" industry because the steel mills had rusted and the blast furnaces had literally blown up.Shopping malls, the gleaming new Atlantic casinos, casinos, and luxury resort hotels are the "places to make money." During Reagan's tenure, speculation flourished and money flowed into the United States from abroad to fund the frenzy.No one noticed that in the process, by the mid-1980s, the United States had transformed from the world's largest creditor nation to a pure debtor nation in just five years, for the first time since 1914.Debt is "cheap" and grows exponentially.Household debt has reached record highs to buy homes, cars and VCRs.To finance lost tax revenues and an expanded national defense, the Reagan administration also began borrowing.The budget deficit of Reagan's "recovery" policies revealed the underlying economic state of the United States, and it was pathological.

By 1983, the annual government deficit began to climb to an unheard of $200 billion a year.With the increase in the deficit, part of the expansion of the national debt, all used to pay the interest of Wall Street bond dealers and their clients, the number reached the highest level.Interest payments on total U.S. government debt doubled in six years—from $52 billion in 1980 when Reagan was elected president to more than $142 billion in 1986, a figure equivalent to one-fifth of all government revenue.Despite these warning signs, money has flowed in from Germany, the UK, the Netherlands and Japan, both to capitalize on the high value of the dollar and to speculate in real estate and stock markets.

It's all too familiar to anyone with a sense of history or a long-term memory.This all happened during the "Roaring Twenties" - until the market crash of 1929 brought the wheel of roulette to a sudden stop. When storm clouds began to hang over the U.S. economy in 1985, a threat to the ambitious Vice President George Bush's presidential bid, oil came to the rescue once again; China's oil strikes in a completely different way.Washington apparently thought, "If we can raise prices, why can't we lower them when it's in our interest?" So they persuaded Saudi Arabia to carry out a "reverse oil shock," a steady flow of oil into an already sluggish world oil market. Inject oil.The price of OPEC crude oil plummeted like a rock, from $26 a barrel just a few months ago to below $10 by the spring of 1986.Incredibly, Wall Street economists proclaimed a final "victory" over inflation, but they forgot the role that oil played in causing inflation in the 1970s or deflating it in the 1980s. Immediately afterwards, the price of crude oil fell further, which not only threatened the interests of independent small oil producers, but also threatened and shook the vital interests of the British and American oil groups. In March 1986, George Bush quietly came to Riyadh.He is said to have told King Fahd that the price war should stop.The oil minister of Saudi Arabia, Prince Zaki Yamani, was naturally the scapegoat for Washington's oil policy, and crude oil prices stabilized at a relatively low level of 14 to 16 dollars per barrel.Texas and other oil-producing states sank into depression, while real estate speculation rose fastest elsewhere in the country, while the stock market began a new climb to unprecedented heights. The sharp drop in crude oil prices in 1986 was comparable to the speculative bubble in the United States between 1927 and 1929.Interest rates fell even more sharply as money flowed into the United States in the hope of making a fortune on the New York stock market. The new financial behavior of "leveraged buyout" became popular on Wall Street.The cost of money has fallen, stock prices have risen significantly, and the Reagan administration has given full play to its "free market" beliefs, allowing it to do whatever it wants in the market.For example, a well-run, century-old industrial company with a well-organized operation, whether it produces tires, machinery, or textiles, may become a target for these new corporate "raiders."These "raiders" are known as the "meat hawks" of Wall Street.Various figures on the front lines of leveraged buyouts, such as Burne Pickens, Michael Milken, and Ivan Boesky, became billionaires.In order to give a reasonable explanation for this crazy behavior, some serious academic institutions such as Harvard Business School have proposed a new corporate management philosophy in the name of market "efficiency". In a typical corporate leveraged buyout, a buyer such as Burne Pickens commits borrowed funds to buy stock control of a company, such as Union Oil of California or Gulf Oil , the market capitalization of these companies is many times the value of the money held by the acquirer.The target company's stock price climbed because of the acquisition.If successful, he would take over a large company, almost entirely on borrowed money.If all goes well, the debt is repaid by the company issuing some "low-grade investment" bonds, known as "junk bonds."If the company goes bankrupt, then the debt is a pile of "waste" paper.But, in the 1980s, the stock market and real estate prices were climbing, so no one paid attention to this risk.Reagan's tax reforms made it more "profitable" for companies to take on huge amounts of debt than to issue stock. To attract buyers, these "junk bonds" pay very high interest rates.These acquirers, known as "sharks," go very quickly to "stripping" new companies, selling off assets cheaply for a quick gain, and then looking for new targets, much like South American piranhas.In the late 1980s, these actions devastated Wall Street, driving the Dow higher and driving corporate debt to levels not seen since the Great Depression of the 1930s.However, the debt was not used to invest in modern technology or new factory facilities.This is the result of financial speculation allowed during the free market era of the Reagan and Bush administrations. During Reagan's presidency, nearly a trillion dollars were spent on speculative real estate markets, a record high and nearly twice as much as all previous years combined.Banks looking to protect their balance sheets from Latin America's turmoil have, for the first time, moved directly into real estate lending rather than through traditional corporate lending. Savings and Loans were independently regulated banks established during the Great Depression to provide families with a reliable source of long-term mortgages for home purchases.But they were "deregulated" in the early 1980s as part of Treasury Secretary Donald Reagan's free-market push on Wall Street.Allows for large deposits to be "attracted" at high cost, known as "Broker's Margin".The Reagan administration passed the Gann-Saint-Germain Act in October 1982, removing all regulatory restrictions.This act allowed savings and loan (S&L) banks to invest as they wished, with the US government providing a full $100,000 per account risk guarantee against failure. "I think we've hit the jackpot," President Reagan enthusiastically predicted to the invitation of savings and loan bankers when he signed the bill. That "jackpot" was the $1.3 trillion savings and loan bank The system starts to crash. The new law opened the door for savings and loan banks to abuse wholesale finance and engage in speculative ventures that had been nearly impossible before.In addition, the bill also made savings and loan banks an ideal tool for criminal organizations to launder money. Since the 1980s, the drug business in the United States has grown in size.Few noticed that the Lugano offices of Donald Regan's former Merrill Lynch employer were under fire for allegedly helping the Mafia launder billions of dollars in heroin money in the so-called "pizza chain". implicated. This broad and vaguely unregulated economic environment created an atmosphere in which banks that took the risk of accepting unsolicited funds quickly outpaced law-abiding, well-run savings banks.Banks, while secretly operating funds for the CIA, also laundered money for mafia families or other organized crime families.The vice president's son, Neil Bush, was a director of the Silverado Savings and Loan Bank in Silverado, Colorado, and was later accused by the government of operating illegally. In 1988, Neil had a good sense of smell, and the week his father clinched the Republican presidential nomination, he resigned. To compete with unregulated neobanks and savings and loans, life insurance companies, the most conservative in all of the financial sector, also began to make real estate speculation a major business in the 1980s.But, unlike savings and loan banks and commercial banks, the government has never regulated insurance companies, given their law-abiding past.There is also no national government insurance fund to cover policyholders.Not so with banks, where every country's government guarantees depositors.By 1989, insurance companies had an estimated book value of $260 billion in real estate, up from just $100 billion in 1980.But 1989 was the worst period since the 1930s, with the housing market collapsing and insurers experiencing their first postwar bankruptcy as panicked policyholders demanded their money. The simple fact is that since the oil shocks of the 1970s, New York's financial conglomerates have had such power over all other conglomerates that Washington has not heard a different rhetoric since the Mexican crisis of 1982.Debt has grown in staggering amounts.When Reagan won the election in late 1980, the total private and public debt of the United States was $3,873 billion.By the late 1980s, it reached $10 trillion.In other words, the debt burden has increased by more than $6 trillion in such a short period of time. As the debt burden of the productive economy mounted and the state of American factory equipment and labor deteriorated, the cumulative consequences of 20 years of neglect began to be felt, with the massive destruction of the nation's major public infrastructure. Highways were broken due to lack of routine maintenance; bridges collapsed due to structural safety problems; water systems were seriously polluted in poor areas of Pittsburgh;By 1989, the American Contractors Association, a construction industry trade association, estimated that a net investment of $3.3 trillion was urgently needed just to rebuild America's dilapidated public facilities to modern standards.No one in Washington is heeding that advice.By 1990, the Bush administration proposed that private enterprise in a free market solve the problem.Because Washington is in the midst of a budget crisis.The unequal distribution of benefits caused by Reagan's "recovery" policy was finally reflected in the US government's statistics on the American population living below the poverty line. In 1979, when Paul Volcker began his monetary shock policy during the second oil crisis, government figures showed that 24 million Americans were living below the poverty line (defined as earning less than $6,000 a year).By 1988, that number had grown by more than 30 percent, to 32 million people.The Reagan-Bush tax policy concentrated wealth in the hands of a very small number of people, unprecedented in American history.Since 1980, the top 20 percent of earners have seen a 32 percent increase in real income, according to a study by the U.S. House of Representatives Ways and Means Committee. Reflecting a combination of "free enterprise" subsidies and government subsidies, US healthcare costs are at an all-time high and as a share of GNP twice as high as in the UK; even so, 37 million Americans No health insurance.The areas where black and Hispanic unemployed workers live in large cities in the United States have a health level similar to that of third world countries, not like the most developed industrial countries in the world. Thatcher's 11-year rule in Britain had similarly tragic results.Thatcher's economic policies severely discriminated against industrial investment and the country's deteriorating public infrastructure - such as the modernization of railways and roads - but this was concealed by London's property speculation and the general growth of London's financial services "industry" . The deregulation of finance in the City of London in 1986 was called the "Financial Big Bang" by historians, and it was one of the "achievements" that Thatcher was proud of.But by the end of the 1980s, everything was showing its true colors: interest rates were once again rising to double digits, industry was in a deeper recession, the worst depression since the war, and inflation rose to the level of Thatcher 1979 level at the time of employment. In their own words, Thatcher's economy failed.As its twin sister, the Reagan economy also failed.However, this does not hinder the interests of the oil and financial circles in London and New York at all.In the "post-industrial age" the dominance of oil and financial conglomerates is global, not regional.They demand less state intervention in the financial sphere everywhere in the world—Frankfurt, Tokyo, Mexico City, Paris, Milan, São Paulo.