The Greater Great Depression: The Slippery Slope Started by Reagan.

Sylvester J. Kowalski, May 9, 2020

The poor economy that has been lurking in the background is now “front-and-center”.  The COVID-19 pandemic has given the economy a shove over the abyss – into the black hole of economic depression.  Today, the unemployment rate, adjusted for those who left the economy completely, is 21%.  In comparison, the peak unemployment in the Great Depression of the 1930s was 27%.  What’s going on?  How did this all start?

This all started in 1941 when the elite concluded that the post-World War II economy will be a militaristic, imperialist economy.  And so it was. The 1950 Korean war and the Cold War against the Soviet Union celebrated the beginning of the costly, new U.S. imperial empire.  Now, the U.S. could not afford this costly empire.  To finance the empire, the U.S. monetized the Federal deficit.  Monetizing  the debt gradually devalued the U.S. dollar which at that time was backed by gold.  Foreign exporters were getting flooded with dollar reserves to the point that De Gaulle’s France massively exchanged dollars for U.S. gold.  In 1971, President Nixon had to forbid further dollar-gold exchanges, and so we had the end of the Bretton Woods agreement. This step by the U.S.  brought the 1970s economic stagnation and the high 15% annual inflation rate.  President Reagan “solved” the twin problems by introducing “Reaganomics” or more accurately known as “voodoo” economics.  He concluded  that the cost of empire could be paid with U.S. government issued bonds, and that the infusion of debt would so accelerate the economy that the net effect will be positive.  He was a liar.

During his 1980s presidency, we had a recession which had devastated residential property prices.  In 1989, I was able to purchase a very desirable home in Moorestown, N.J. for a considerable discount.  But, a few years later, just around the corner from us, very large, custom homes were being built and sold.  Why the sudden prosperity?  Of course, the answer is that it came from the easy money policies introduced with Reagan’s “voodoo” economics.  And, the easy money continued, and the empire started more wars.  Then came the 2007-2009 Global Financial Crisis.  The U.S., and the world, found that it had reached peak credit (debt).  The U.S. economy came to the end of the line.  It could not continue living on debt.  It needed to reform its economy.  But to accomplish the necessary reform, the U.S. would have to abandon its vast empire. And, begin the task of re-industrialization, or better stated, become self-sufficient.  Following a reform program would also substantially reduce the U.S. standard of living.  Reform was anathema to the U.S. elite, and instead of reform the U.S. embarked on a “kick-the-can” approach.  Mountains of more and more debt.  And, here we are with the 2020 Greater Great Depression.

A small example of the distortion that came about from Reagan’s “voodoo” economics comes from my family’s experience with higher education.  I am a 1951 graduate at was then Drexel Institute of Technology with a B.S. in Mechanical Engineering.  Drexel had a co-op program in which after the freshman year, the student spent half of each year in a paying industry assignment.  My co-op earnings easily paid for my five years at Drexel.  Granted, I did live at home.  My son, Vince, also graduated  from Drexel University with a B.S. in Mechanical Engineering in the early 1980s.  After Vince began his co-op assignments, he became financially self-sufficient.  Out of his co-op earnings, Vince paid all of Drexel expenses and his share of the apartment that he and two others rented.   With the explosive growth in Drexel tuitions since the early 1980s, I have serious doubts that today’s Drexel engineering co-op can duplicate Vince’s financial independence.  And, isn’t the high cost of healthcare analogous?  Reagan’s “voodoo” economics massively distorted our economy.  An easy money economy has consequences, and, the consequence we have today is the Greater Great Depression.

 Rotislav Ishchenko in 2015 wrote Time Is Running Out For Pax Americana’s Apologists ( ).  He described the U.S. problem, and what had to be done to save the U.S. economy.  The following are some quotations from his essay.

“The paradox of the current global crisis is that for the last five years, all relatively responsible and independent nations have made tremendous efforts to save the United States from the financial, economic, military, and political disaster that looms ahead. And this is all despite Washington’s equally systematic moves to destabilize the world order, rightly known as the Pax Americana (“American peace”).

Since policy is not a zero-sum game, i.e., one participant’s loss does not necessarily entail a gain for another, this paradox has a logical explanation. A crisis erupts within any system when there is a discrepancy between its internal structure and the sum total of available resources (that is, those resources will eventually prove inadequate for the system to function normally and in the usual way).

There are at least three basic options for addressing this situation:

  1. Through reform, in which the system’s internal structure evolves in such a way as to better correspond to the available resources.
  2. Through the system’s collapse, in which the same result is achieved via revolution.
  3. Through preservation, in which the inputs threatening the system are eliminated by force, and the relationships within the system are carefully preserved on an inequitable relationship basis (whether between classes, social strata, castes, or nations).

The preservation method was attempted by the Ming and Qing dynasties in China, as well as the Tokugawa Shogunate in Japan. It was utilized successfully (in the 19th century) prior to the era of capitalist globalization. But neither of those Eastern civilizations (although fairly robust internally) survived their collision with the technologically more advanced (and hence more militarily and politically powerful) European civilization. Japan found its answer on the path of modernization (reform) back in the second half of the 19th century, China spent a century immersed in the quagmire of semi-colonial dependence and bloody civil wars, until the new leadership of Deng Xiaoping was able to articulate its own vision of modernizing reforms.

This point leads us to the conclusion that a system can be preserved only if it is safeguarded from any unwanted external influences, i.e., if it controls the globalized world.

The contradiction between the concept of escaping the crisis, which has been adopted the US elite, and the alternative concept – proposed by Russia and backed by China, then by the BRICS nations and now a large part of the world – lay in the fact that the politicians in Washington were working from the premise that they are able to fully control the globalized world and guide its development in the direction they wish. Therefore, faced with dwindling resources to sustain the mechanisms that perpetuate their global hegemony, they tried to resolve the problem by forcefully suppressing potential opponents in order to reallocate global resources in their favor.

If successful, the United States would be able to reenact the events of the late 1980s – early 1990s, when the collapse of the Soviet Union and the global socialist system under its control allowed the West to escape its crisis. At this new stage, it has become a question of no longer simply reallocating resources in favor of the West as a collective whole, but solely in favor of the United States. This move offered the system a respite that could be used to create a regime for preserving inequitable relationships, during which the American elite’s definitive control over the resources of power, raw materials, finance, and industrial resources safeguarded them from the danger of the system’s internal implosion, while the elimination of alternative power centers shielded the system from external breaches, rendering it eternal (at least for a historically foreseeable period of time).

The alternative approach postulated that the system’s total resources might be depleted before the United States can manage to generate the mechanisms to perpetuate its global hegemony. In turn, this will lead to strain (and overstrain) on the forces that ensure the imperial suppression of those nations existing on the global periphery, all in the interests of the Washington-based center, which will later bring about the inevitable collapse of the system.”

Mr. Ishchenko’s concluding words:

“However, we can say with absolute certainty that there is a certain window of opportunity during which any decision can be made. And a window of opportunity is closing that would allow the US to make a soft landing with a few trade-offs. The Washington elite cannot escape the fact that they are up against far more serious problems than those of 10-15 years ago. Right now the big question is about how they are going to land, and although that landing will already be harder than it would have been and will come with costs, the situation is not yet a disaster.

But the US needs to think fast. Their resources are shrinking much faster than the authors of the plan for imperial preservation had expected. To their loss of control over the BRICS countries can be added the incipient, but still fairly rapid loss of control over EU policy as well as the onset of geopolitical maneuvering among the monarchies of the Middle East. The financial and economic entities created and set in motion by the BRICS nations are developing in accordance with their own logic, and Moscow and Beijing are not able to delay their development overlong while waiting for the US to suddenly discover a capacity to negotiate.

The point of no return will pass once and for all sometime in 2016, and America’s elite will no longer be able to choose between the provisions of compromise and collapse. The only thing that they will then be able to do is to slam the door loudly, trying to drag the rest of the world after them into the abyss.”

In 2020, Rostislav Ishchenko’s wrote The End of an Empire dated March 25, 2020.    He further wrote on the above theme.  Again, some quotations.

 ”It happens that empires collapse suddenly, being quite viable (like the Russian Empire in 1917). It happens that empires disappear after many decades (and even centuries) of excruciating agony (like the Western Roman Empire in 476). But if the empire collapses, two conditions must always coincide: an acute global crisis, which the empire cannot resolve at the expense of domestic means alone, and the inability or unwillingness of imperial power to adapt to the crisis through the necessary reforms.

The West (the United States and its first-line vassals: Canada, Australia, New Zealand, Japan, the Republic of Korea, and the EU) has long refused to recognise that the global imperial space it created is in systemic crisis. At worst, periodic economic crises were recognised, but the main thesis was that crisis events would pass quickly, growth would resume, and the results of the temporary recession would be quickly offset.

This was a lie. Since the mid-1980s, with Reagan’s administration (with his famous “Reaganomics”), US leaders have been well aware that the possibility of further expanding production through the development of new markets and the inclusion of new resources has been exhausted. Free markets and free resources on planet Earth are over. In fact, Reagan’s idea (which gave rise to “Reaganomics”) was to finance the current needs of the United States from the pocket of future generations through a monopoly on the printing of the dollar (already back then the currencies of international settlements).

It was assumed (by the way, quite rightly) that the United States and the USSR were equally exhausted by the Cold War and economic confrontation. The one who could last longer would win. The USSR could last longer. The US no longer had free resources for economic growth. The money of future generations pumped into the economy has started to create bubbles that have been bursting since the beginning of the new century in front of us. But they were enough to last until Gorbachev and his perestroika. The leadership of the USSR then correctly defined the need for reforms, but they were carried out completely ineptly – it’s not by chance that people still call these reforms deliberate sabotage. Indeed, it is hard to believe such an outstanding intellectual failure of a superpower’s top leadership. Yes, there were clear traitors in Gorbachev’s entourage. But the primary things in the collapse of the USSR is still foolishness and unprofessionalism. Without the foolishness and unprofessional nature of the first persons, the traitors could do nothing.

After an unexpected deafening victory over the USSR, America urgently needed to roll back “Reaganomics” and return to a normal economic model. But firstly, banks and exchanges had already tasted easy money. Household loans for household needs generated unprecedented demand that spurred sales and production. Everyone was living well, and no one wanted to give up their unearned benefits. Secondly, and most importantly, the Western economy of the 1950s-1970s still lacked (as was already said) free markets and free resources. It was necessary to start reforms ― reorganising the West, but nobody knew how exactly to create a new steady global economic model without at the same time sacrificing western hegemony. In the event that reforms were abandoned, stimulating demand with cheap but unsecured credit remained the only way to prolong the existence of the cash model.”

Mr. Ishchenko’s concluding paragraphs:

“Euro-oriented” countries like Ukraine will lose much of the West’s attention and support. When the usual world order collapses, when resources are lacking for urgent needs, it’s not time for games in the backyard of the empire, and even more so in someone else’s backyard. Ukraine, like other weak links in the global system, is the first candidate for being dumped as ballast. The West won’t kill it on purpose. It just won’t be able to help it survive anymore.

As for Russia, difficult times are also waiting for us. After all, we were part of the West’s global empire from 1991 to 2005 (at least until 2008). Over the past ten years (especially since 2014), Russia has distanced itself from the Western system, but many ties have remained intact, and the well-being of the Russian economy is still directly dependent on the state of the world economy. We cope with the crisis easier, but it’s still a crisis, not a Sunday picnic. In addition, we do not yet know whether the coronavirus epidemic will cover us and how destructive it will be (if it is) to the national economy.

However, it can be stated that Russia has the largest safety margin in the world. It is the only one with a self-sufficient economy to survive in a state of complete autarky. As is always the case during global systemic crises that destroy empires, the one who lasts longer will survive. The safety margin is very important for this. But the history of the collapse of the USSR has shown that it is equally important to realise the need to stand up. It is possible (although not always necessary) to make peace with a former enemy after it has surrendered to us, not after we have surrendered to it.

As a result of the current systemic crisis, we will certainly see the end of an empire. There is every reason to believe that it will be the empire of the West. But nothing is done by itself, and in order not to be a “victim of circumstances”, there is still a lot of effort to be made.“

Mr. Ishchenko clearly tells us why we are now facing the Greater Great Depression.  I suggest reading in full both of his essays.  For obvious reasons, this topic is a “no-no” for U.S. analysts.