Luongo: Will Trump’s Vanity Destroy The Global Economy?
Last year I asked the question “Will Trump torch the global economy on the bonfire of his vanity?”
A year later we have the answer. It’s a resounding, “Yes.”
I wrote after Trump pulled out of the JCPOA:
Donald Trump wants regime change in Iran. His cancellation of the JCPOA was a decision born of his myopia. He has surrounded himself with people who reinforce his view and manipulate him via his vanity.
And the price of implementing his current plan will be a global debt crisis which no one will escape. …
He wants to remake America and the world in his image while undoing anything President Obama touched…
We have a leaked (yeah, right) memo explaining this is the plan. Nothing Trump has done since he’s been in office has been contra to this goal; overthrowing the theocracy in Iran…
In fact, it has been a step-wise move in this direction with each decision he’s made.
Today Trump has pushed this plan to its extreme. He’s fomented a trade war with China and threatened sanctions on anyone doing any business will Iran outside its border, now including all strategic metals.
He’s threatened Lebanon with extinction and Iraq as well. His foreign policy mouthpieces are making pronouncements and twisting arms.
And of this for the United States. He’s doing this for the basest of reasons. His ego. And, for him, that means doing everything to support his upcoming “Deal of the Century” between the Palestinian authorities and Israel. That it is the first step towards peace in the Middle East.
But it isn’t.
Israel leaked the terms of the Palestinian surrender yesterday. What was whispered to be a terrible plan is actually laughable if any of this is true.
Like Theresa May’s EU Withdrawal Treaty this looks like a document written by one side as terms of surrender in a war whose outcome is very much in doubt.
A tripartite agreement will be signed between Israel, the PLO and Hamas, and a Palestinian state will be established that will be called “New Palestine” and will be established in the occupied West Bank and Gaza, with the exception of the settlements. Israel would release Palestinian prisoners gradually over the course of three years under the deal.
The settlement blocs in the occupied West Bank, which are illegal under international law, would form part of Israel.
Jerusalem will not be divided but is to be shared by Israel and the “New Palestine” with Israel maintaining general control.
Palestinians living in Jerusalem would be citizens of the Palestinian state but Israel would remain in charge of the municipality and therefore the land. The newly formed Palestinian state would pay taxes to the Israeli municipality in order to be in charge of education in the city for Palestinians.
The status quo at the holy sites will remain and Jewish Israelis will not be allowed to buy Palestinian houses and vice versa.
Egypt will offer the new Palestinian state land to build an airport, factories and for agriculture which will service the Gaza Strip. Palestinians will not be permitted to live on this land.
A highway would be built to connect the Gaza Strip to the West Bank 30 metres above Israel. Funding for the project will mainly come from China, which will pay 50 per cent of the cost, with South Korea, Australia, Canada, the US and EU each paying a ten per cent each.
And for this ridiculous offer Trump is willing to hang the entire global economy and the future of civilization. And I say this with no amount of hyperbole because what’s the walk back from this at the end of Ramadan, when this deal will supposedly see the official light of day?
There is no walking this back. Just like Trump is stuck in his trade talks with China.
Trump backed himself into a corner with China, essentially demanding it give the U.S. ultimate say over its fiscal, monetary and trade policy.
The Chinese aren’t going to agree to that any more than the Palestinians are going to agree to a Palestinian State in name only, administered like a Native American reservation by Israel.
Lebanon is not going to accede to Pompeo’s demands to remove Hezbollah from its government. North Korea isn’t going to give up its nukes so the U.S. will allow it to trade with dollars. Negotiations with Trump are nothing of the sort.
They are terms of surrender.
And Trump, in full re-election mode, is running around telling his MAGApede followers, “China broke the deal.”
There never was any deal. There was a draft agreement China took back to Beijing and altered to suit the demands of any sovereign nation. And Trump threw a temper tantrum which is creating massive uncertainty all across the capital markets.
It’s not just about the Dow Jones, which Trump watches like a hawk. It’s about global currency and bond markets.
Trump refuses to understand that conducting foreign policy isn’t building a freaking casino. You can’t just walk away and negotiate with the guy who owns the lot next door.
And using threats of invasion, military intervention and hybrid warfare to impoverish people is not only insulting and barbaric, it’s counter-productive.
Everyone around the world now knows Trump’s game and are unimpressed. They are all willing to take a hit or two here. Trump keeps upping the ante.
But this exposes cracks in the global financial infrastructure. The most important point of failure is in Turkey, which the U.S. is attacking through the Turkish lira.
President Erdogan’s insistence on defying Trump’s edicts on Syria, Iran and Israel while building pipelines from Russia and buying Russian S-400s has led to a sustained attack on the currency.
But that, in turn, is pressuring Italy, as it has an enormous exposure to Turkey’s corporate debt markets. Things are getting real for Erdogan and the next step is for him to declare force majeure, close the capital account and default on a lot of this debt.
This could easily precipitate a sovereign debt crisis across Europe, as Rickards points out in the link above, comparable to 1997 in Thailand or 1999 in Russia.
But I think this one will be far worse since the global economy is so much more fragile today than then after a decade of insane monetary policy. The ECB and Bank of Japan have completely destroyed their sovereign bond markets. The Fed is now floating similar ideas of rate targeting the yield curve, which is just QE by another name.
And Trump’s advisory team is only focused on the geopolitics of the situation because Turkey cannot be lost to the Russia/China/Iran axis forming in Asia. They see the economic strangulation of Turkey, Iran and Venezuela as geopolitical tactics for regime change.
Do you think they see the bigger picture? Do you think they see the potential for global collapse or just a few people ‘getting their hair mussed?’
George C. Scott, Donald Trump or John Bolton?
We have to realize that speech is closer to truth than comedy.
If Bolton’s team do realize they are fomenting a monetary crisis on purpose then that should truly scare you.
Erdogan survived a coup against him fomented in a similar way to the one that just failed in Venezuela. He no longer trusts us or wants to be in an alliance with us. That will cost him and the Turkish people, given this situation.
Turkey is being prepared for the same balkanization that Syria and Libya have undergone.
The same thing goes for China and Russia and Iran. The trade war is a means by which to attack China’s fragile banking system, but that’s hard to do behind a closed capital account.
Fighting an economic war on all fronts eventually leads to an unstable global economy. It leads to people changing their trading habits and a meltdown of a world sustained only through egregious amounts of debt.
And it seems at this point Trump is willing to flirt with burning down the rest of the world to leave the U.S. in a somewhat better state than the rest after it’s all over.
It comes back to Trump’s ego and his obsession with solving the Gordian knots of geopolitics. People like John Bolton tell him how to achieve those goals through the most obnoxious means possible and Trump goes along with it because they are both bullies.
He wants the medal for peace in the Middle East, and Jared Kushner’s plan is the only path he has now. He’s pot-committed to it. The deal is stillborn given the terms of surrender on offer, however.
All of these people — the Palestinians, Lebanon, Syria, North Korea, Turkey, China, Iran and Russia — would rather eat dirt at this point then give Trump anything at all.
He complains that Iran won’t call him. Why should they? So he can insult them? The gross sense of entitlement in his demeanor precludes any negotiations.
If this deal wasn’t DOA it would have been presented by now. But the screws had to be tightened all the way, way beyond what is remotely reasonable. Because that’s all Trump knows. Double Down. Tweet more. Be a jackass.
What happens when this is rejected?
What happens when China shifts more of its oil purchases to Iran flaunting U.S. sanctions?
Will the U.S. seize Chinese company bank accounts?
What happens when Russia and the Syrian Arab Army wipe out the last of the U.S.’s proxies in Idlib and Hama while Turkey stands by and lets it happen?
Remember back in 2017 when Trump was threatening fire and brimstone on North Korea to get them to the bargaining table? Xi and Putin went along with it trying to help him get the wins he needed to solidify his power in D.C.
Trump snookered them, hired Bolton and Pompeo and the rest has been a clown show ever since.
Now he has no real relationship with any of them now. No one will deal with him seriously. And it’s not about the election next year. It’s about Trump and his unwillingness to actually make deals. So, we’re stuck with threatening the world with more beatings until morale improves.
These next few weeks are going to tell us whether China is ready to finally put chips on the table and call Trump’s bluff.
He’s pushed this gambit as far as he can go. Bolton likely assured him Iran and China would be ready to fold by now. He’s running out of time to have something, anything to campaign on in 2020 because he’s pushed the world to the brink of ruin to satisfy his immense ego.
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