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Thursday
Dec132018

Wall Street, Banks, and Angry Citizens

The Inequality Gap on a Planet Growing More Extreme

This was first posted on Tom Dispatch, December 13, 2018

As we head into 2019, leaving the chaos of this year behind, a major question remains unanswered when it comes to the state of Main Street, not just here but across the planet. If the global economy really is booming, as many politicians claim, why are leaders and their parties around the world continuing to get booted out of office in such a sweeping fashion?

One obvious answer: the post-Great Recession economic “recovery” was largely reserved for the few who could participate in the rising financial markets of those years, not the majority who continued to work longer hours, sometimes at multiple jobs, to stay afloat. In other words, the good times have left out so many people, like those struggling to keep even a few hundred dollars in their bank accounts to cover an emergency or the 80% of American workers who live paycheck to paycheck.

In today's global economy, financial security is increasingly the property of the 1%. No surprise, then, that, as a sense of economic instability continued to grow over the past decade, angst turned to anger, a transition that -- from the U.S. to the Philippines, Hungary to Brazil, Poland to Mexico -- has provoked a plethora of voter upheavals. In the process, a 1930s-style brew of rising nationalism and blaming the “other” -- whether that other was an immigrant, a religious group, a country, or the rest of the world -- emerged.

This phenomenon offered a series of Trumpian figures, including of course The Donald himself, an opening to ride a wave of “populism” to the heights of the political system. That the backgrounds and records of none of them -- whether you’re talking about Donald Trump, Viktor Orbán, Rodrigo Duterte, or Jair Bolsonaro (among others) -- reflected the daily concerns of the “common people,” as the classic definition of populism might have it, hardly mattered. Even a billionaire could, it turned out, exploit economic insecurity effectively and use it to rise to ultimate power.

Ironically, as that American master at evoking the fears of apprentices everywhere showed, to assume the highest office in the land was only to begin a process of creating yet more fear and insecurity. Trump’s trade wars, for instance, have typically infused the world with increased anxiety and distrust toward the U.S., even as they thwarted the ability of domestic business leaders and ordinary people to plan for the future. Meanwhile, just under the surface of the reputed good times, the damage to that future only intensified. In other words, the groundwork has already been laid for what could be a frightening transformation, both domestically and globally.

That Old Financial Crisis

To understand how we got here, let’s take a step back. Only a decade ago, the world experienced a genuine global financial crisis, a meltdown of the first order. Economic growth ended; shrinking economies threatened to collapse; countless jobs were cut; homes were foreclosed upon and lives wrecked. For regular people, access to credit suddenly disappeared. No wonder fears rose. No wonder for so many a brighter tomorrow ceased to exist.

The details of just why the Great Recession happened have since been glossed over by time and partisan spin. This September, when the 10th anniversary of the collapse of the global financial services firm Lehman Brothers came around, major business news channels considered whether the world might be at risk of another such crisis. However, coverage of such fears, like so many other topics, was quickly tossed aside in favor of paying yet more attention to Donald Trump’s latest tweets, complaints, insults, and lies. Why? Because such a crisis was so 2008 in a year in which, it was claimed, we were enjoying a first class economic high and edging toward the longest bull-market in Wall Street history. When it came to “boom versus gloom,” boom won hands down.

None of that changed one thing, though: most people still feel left behind both in the U.S. and globally. Thanks to the massive accumulation of wealth by a 1% skilled at gaming the system, the roots of a crisis that didn’t end with the end of the Great Recession have spread across the planet, while the dividing line between the “have-nots” and the “have-a-lots” only sharpened and widened.

Though the media hasn’t been paying much attention to the resulting inequality, the statistics (when you see them) on that ever-widening wealth gap are mind-boggling. According to Inequality.org, for instance, those with at least $30 million in wealth globally had the fastest growth rate of any group between 2016 and 2017. The size of that club rose by 25.5% during those years, to 174,800 members. Or if you really want to grasp what’s been happening, consider that, between 2009 and 2017, the number of billionaires whose combined wealth was greater than that of the world’s poorest 50% fell from 380 to just eight. And by the way, despite claims by the president that every other country is screwing America, the U.S. leads the pack when it comes to the growth of inequality. As Inequality.org notes, it has “much greater shares of national wealth and income going to the richest 1% than any other country.”

That, in part, is due to an institution many in the U.S. normally pay little attention to: the U.S. central bank, the Federal Reserve. It helped spark that increase in wealth disparity domestically and globally by adopting a post-crisis monetary policy in which electronically fabricated money (via a program called quantitative easing, or QE) was offered to banks and corporations at significantly cheaper rates than to ordinary Americans.

Pumped into financial markets, that money sent stock prices soaring, which naturally ballooned the wealth of the small percentage of the population that actually owned stocks. According to the Fed’s own Survey of Consumer Finances, “It is hardly a stretch to conclude that QE exacerbated America’s already severe income disparities.”

Wall Street, Central Banks, and Everyday People

What has since taken place around the world seems right out of the 1930s. At that time, as the world was emerging from the Great Depression, a sense of broad economic security was slow to return. Instead, fascism and other forms of nationalism only gained steam as people turned on the usual cast of politicians, on other countries, and on each other. (If that sounds faintly Trumpian to you, it should.)

In our post-2008 era, people have witnessed trillions of dollars flowing into bank bailouts and other financial subsidies, not just from governments but from the world's major central banks. Theoretically, private banks, as a result, would have more money and pay less interest to get it. They would then lend that money to Main Street. Businesses, big and small, would tap into those funds and, in turn, produce real economic growth through expansion, hiring sprees, and wage increases. People would then have more dollars in their pockets and, feeling more financially secure, would spend that money driving the economy to new heights -- and all, of course, would then be well.

That fairy tale was pitched around the globe. In fact, cheap money also pushed debt to epic levels, while the share prices of banks rose, as did those of all sorts of other firms, to record-shattering heights.

Even in the U.S., however, where a magnificent recovery was supposed to have been in place for years, actual economic growth simply didn’t materialize at the levels promised. At 2% per year, the average growth of the American gross domestic product over the past decade, for instance, has been half the average of 4% before the 2008 crisis. Similar numbers were repeated throughout the developed world and most emerging markets. In the meantime, total global debt hit $247 trillion in the first quarter of 2018. As the Institute of International Finance found, countries were, on average, borrowing about three dollars for every dollar of goods or services created.

Global Consequences

What the Fed (along with central banks from Europe to Japan) ignited, in fact, was a disproportionate rise in the stock and bond markets with the money they created. That capital sought higher and faster returns than could be achieved in crucial infrastructure or social strengthening projects like building roads, high-speed railways, hospitals, or schools.

What followed was anything but fair. As former Federal Reserve Chair Janet Yellen noted four years ago, “It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority.” And, of course, continuing to pour money into the highest levels of the private banking system was anything but a formula for walking that back.

Instead, as more citizens fell behind, a sense of disenfranchisement and bitterness with existing governments only grew. In the U.S., that meant Donald Trump. In the United Kingdom, similar discontent was reflected in the June 2016 Brexit vote to leave the European Union (EU), which those who felt economically squeezed to death clearly meant as a slap at both the establishment domestically and EU leaders abroad.

Since then, multiple governments in the European Union, too, have shifted toward the populist right. In Germany, recent elections swung both right and left just six years after, in July 2012, European Central Bank (ECB) head Mario Draghi exuded optimism over the ability of such banks to protect the financial system, the Euro, and generally hold things together.

Like the Fed in the U.S., the ECB went on to manufacture money, adding another $3 trillion to its books that would be deployed to buy bonds from favored countries and companies. That artificial stimulus, too, only increased inequality within and between countries in Europe. Meanwhile, Brexit negotiations remain ruinously divisive, threatening to rip Great Britain apart.

Nor was such a story the captive of the North Atlantic. In Brazil, where left-wing president Dilma Rouseff was ousted from power in 2016, her successor Michel Temer oversaw plummeting economic growth and escalating unemployment. That, in turn, led to the election of that country’s own Donald Trump, nationalistic far-right candidate Jair Bolsonaro who won a striking 55.2% of the vote against a backdrop of popular discontent. In true Trumpian style, he is disposed against both the very idea of climate change and multilateral trade agreements.

In Mexico, dissatisfied voters similarly rejected the political known, but by swinging left for the first time in 70 years. New president Andrés Manuel López Obrador, popularly known by his initials AMLO, promised to put the needs of ordinary Mexicans first. However, he has the U.S. -- and the whims of Donald Trump and his “great wall” -- to contend with, which could hamper those efforts.

As AMLO took office on December 1st, the G20 summit of world leaders was unfolding in Argentina. There, amid a glittering backdrop of power and influence, the trade war between the U.S. and the world’s rising superpower, China, came even more clearly into focus. While its president, Xi Jinping, having fully consolidated power amid a wave of Chinese nationalism, could become his country’s longest serving leader, he faces an international landscape that would have amazed and befuddled Mao Zedong.

Though Trump declared his meeting with Xi a success because the two sides agreed on a 90-day tariff truce, his prompt appointment of an anti-Chinese hardliner, Robert Lighthizer, to head negotiations, a tweet in which he referred to himself in superhero fashion as a “Tariff Man,” and news that the U.S. had requested that Canada arrest and extradite an executive of a key Chinese tech company, caused the Dow to take its fourth largest plunge in history and then fluctuate wildly as economic fears of a future “Great Something” rose. More uncertainty and distrust were the true product of that meeting.

In fact, we are now in a world whose key leaders, especially the president of the United States, remain willfully oblivious to its long-term problems, putting policies like deregulation, fake nationalist solutions, and profits for the already grotesquely wealthy ahead of the future lives of the mass of citizens. Consider the yellow-vest protests that have broken out in France, where protestors identifying with left and right political parties are calling for the resignation of neoliberal French President Emmanuel Macron. Many of them, from financially starved provincial towns, are angry that their purchasing power has dropped so low they can barely make ends meet

Ultimately, what transcends geography and geopolitics is an underlying level of economic discontent sparked by twenty-first-century economics and a resulting Grand Canyon-sized global inequality gap that is still widening. Whether the protests go left or right, what continues to lie at the heart of the matter is the way failed policies and stop-gap measures put in place around the world are no longer working, not when it comes to the non-1% anyway. People from Washington to ParisLondon to Beijing, increasingly grasp that their economic circumstances are not getting better and are not likely to in any presently imaginable future, given those now in power.

A Dangerous Recipe

The financial crisis of 2008 initially fostered a policy of bailing out banks with cheap money that went not into Main Street economies but into markets enriching the few. As a result, large numbers of people increasingly felt that they were being left behind and so turned against their leaders and sometimes each other as well.

This situation was then exploited by a set of self-appointed politicians of the people, including a billionaire TV personality who capitalized on an increasingly widespread fear of a future at risk. Their promises of economic prosperity were wrapped in populist platitudes, normally (but not always) of a right-wing sort. Lost in this shift away from previously dominant political parties and the systems that went with them was a true form of populism, which would genuinely put the needs of the majority of people over the elite few, build real things including infrastructure, foster organic wealth distribution, and stabilize economies above financial markets.

In the meantime, what we have is, of course, a recipe for an increasingly unstable and vicious world.

Wednesday
Sep192018

The Donald in Wonderland

Down the Financial Rabbit Hole With President Trump
This first appeared in Tom Dispatch, Sept 16, 2018

Once upon a time, there was a little-known energy company called Enron. In its 16-year life, it went from being dubbed America’s most innovative company by Fortune Magazine to being the poster child of American corporate deceit. Using a classic recipe for book-cooking, Enron ended up in bankruptcy with jail time for those involved. Its shareholders lost $74 billionin the four years leading up to its bankruptcy in 2001.

A decade ago, the flameout of my former employer, Lehman Brothers, the global financial firm, proved far more devastating, contributing as it did to a series of events that ignited a global financial meltdown. Americans lost an estimated $12.8 trillion in the havoc.

Despite the differing scales of those disasters, there was a common thread: both companies used financial tricks to make themselves appear so much healthier than they actually were. They both faked the numbers, thanks to off-the-books or offshore mechanisms and eluded investigations... until they collapsed.

Now, here’s a question for you as we head for the November midterm elections, sure to be seen as a referendum on the president: Could Donald Trump be a one-man version of either Enron or Lehman Brothers, someone who cooked “the books” until, well, he imploded?

Since we’ve never seen his tax returns, right now we really don’t know. What we do know is that he’s been dodging bullets ever since the Justice Department accused him of violating the Fair Housing Act in his operation of 39 buildings in New York City in 1973. Unlike famed 1920s mob boss Al Capone, he may never get done in by something as simple as tax evasion, but time will tell.

Rest assured of one thing though: he won’t go down easily, even if he is already the subject of multiple investigations and a plethora of legal slings and arrows. Of course, his methods should be familiar. As President Calvin Coolidge so famously put it, “the business of America is business.” And the business of business is to circumvent or avoid the heat... until, of course, it can’t.

The Safe

So far, Treasury Secretary and former Trump national campaign financechairman Steven Mnuchin has remained out of the legal fray that’s sweeping away some of his fellow campaign associates. Certainly, he and his wife have grandiose tastes. And, yes, his claim that his hedge fund, Dune Capital Management, used offshore tax havens only for his clients, not to help him evade taxes himself, represents a stretch of the imagination. Other than that, however, there seems little else to investigate -- for now. Still, as Treasury secretary he does oversee a federal agency that means the world to Donald Trump, the Internal Revenue Service, which just happens to be located across a courtyard from the Trump International Hotel on Washington’s Pennsylvania Avenue.

As it happens, the IRS in the Trump era still doesn’t have a commissioner, only an acting head. What it may have, National Enquirer-style, is genuine presidential secrets in the form of Donald Trump’s elusive tax returns. Last fall, outgoing IRS Commissioner John Koskinen said that there were plans to relocate them to a shiny new safe where they would evidently remain.

In 2016, Trump became the first candidate since President Richard Nixon not to disclose his tax returns. During the campaign, he insisted that those returns were undergoing an IRS audit and that he would not release them until it was completed. (No one at the IRS has ever confirmed that being audited in any way prohibits the release of tax information.) The president’s pledge to do so remains unfulfilled and last year counselor to the president Kellyanne Conway noted that the White House was “not going to release his tax returns,” adding -- undoubtedly thinking about his base -- “people didn’t care.”

On April 17, 2018, the White House announced that the president would defer even filing his 2017 tax returns until this October. As every president since Nixon has undergone a mandatory audit while in office, count on American taxpayers hearing the same excuse for the rest of his term, even if Congress were to decide to invoke a 1924 IRS provision to view them.

Still, Conway may have a point when it comes to the public. After all, tax dodging is as American as fireworks on the Fourth of July. According to one study, every year the U.S. loses $400 billion in unpaid taxes, much of it hidden in offshore tax havens.

Yet the financial disclosures that The Donald did make during election campaign 2016 indicate that there are more than 500 companies in over two dozen countries, mostly with few to no employees or real offices, that feature him as their “president.” Let’s face it, someone like Trump would only create a business universe of such Wall Street-esque complexity if he wanted to hide something. He was likely trying to evade taxes, shield himself and his family from financial accountability, or hide the dubious health of parts of his business empire. As a colleague of mine at Bear Stearns once put it, when tax-haven companies pile up like dirty laundry, there’s a high likelihood that their uses aren’t completely clean.

Now, let’s consider what we know of Donald Trump’s financial adventures, taxes and all. It’s quite a story and, even though it already feels like forever, it’s only beginning to be told.

The Trump Organization

Atop the non-White House branch of the Trump dynasty is the Trump Organization. To comply with federal conflict-of-interest requirements, The Donald officially turned over that company’s reins to his sons, Eric and Donald Jr. For all the obvious reasons, he was supposed to distance himself from his global business while running the country.

Only that didn’t happen and not just because every diplomat and lobbyist in town started to frequent his money-making new hotel on Pennsylvania Avenue. Now, according to the New York Times, the Manhattan district attorney’s office is considering pressing criminal charges against the Trump Organization and two of its senior officials because the president’s lawyer, Michael Cohen, paid off an adult film actress and a former Playboy model to keep their carnal knowledge to themselves before the election.

Though Cohen effectively gave Stormy Daniels $130,000 and Karen McDougal $150,000 to keep them quiet, the Trump Organization then paid Cohen even more, $420,000, funds it didn’t categorize as a reimbursement for expenses, but as a “retainer.” In its internal paperwork, it then termed that sum as “legal expenses.”

The D.A.’s office is evidently focusing its investigation on how the Trump Organization classified that payment of $420,000, in part for the funds Cohen raised from the equity in his home to calm the Stormy (so to speak). Most people take out home equity loans to build a garage or pay down some debt. Not Cohen. It’s a situation that could become far thornier for Trump. As Cohen already knew, Trump couldn’t possibly wield his pardon power to absolve his former lawyer, since it only appliesto those convicted of federal charges, not state ones.

And that’s bad news for the president. As Lanny Davis, Cohen’s lawyer, put it, “If those payments were a crime for Michael Cohen, then why wouldn’t they be a crime for Donald Trump?”

The bigger question is: What else is there? Those two payoffs may, after all, just represent the beginning of the woes facing both the Trump Organization and the Trump Foundation, which has been the umbrella outfit for businesses that have incurred charges of lobbying violations (not disclosing payment to a local newspaper to promote favorable casino legislation) and gaming law violations. His organization has also been accused of misleading investors, engaging in currency-transaction-reporting crimes, and improperly accounting for money used to buy betting chips, among a myriad of other transgressions. To speculate on overarching corporate fraud would not exactly be a stretch.

Unlike his casinos, the Trump Organization has not (yet) gone bankrupt, nor -- were it to do so -- is it in a class with Enron or Lehman Brothers. Yet it does have something in common with both of them: piles of money secreted in places designed to hide its origins, uses, and possibly end-users. The question some authority may pursue someday is: If Donald Trump was willing to be a part of a scheme to hide money paid to former lovers, wouldn't he do the same for his businesses?

The Trump Foundation

Questions about Trump’s charity, the Donald J. Trump Foundation, have abounded since campaign 2016. They prompted New York Attorney General Barbara Underwood to file a lawsuit on June 14th against the foundation, also naming its board of directors, including his sons and his daughter Ivanka. It cites “a pattern of persistent illegal conduct... occurring over more than a decade, that includes extensive unlawful political coordination with the Trump presidential campaign, repeated and willful self-dealing transactions to benefit Mr. Trump’s personal and business interests, and violations of basic legal obligations for non-profit foundations.”

As the New York Times reported, “The lawsuit accused the charity and members of Mr. Trump’s family of sweeping violations of campaign finance laws, self-dealing, and illegal coordination with Mr. Trump’s presidential campaign.” It also alleged that for four years -- 2007, 2012, 2013, and 2014 -- Trump himself placed his John Hancock below incorrect statements on the foundation’s tax returns.

The main issue in question: Did the Trump Foundation use any of its funds to benefit The Donald or any of his businesses directly? Underwood thinks so. As she pointed out, it “was little more than a checkbook for payments from Mr. Trump or his businesses to nonprofits, regardless of their purpose or legality.” Otherwise it seems to have employed no one and, according to the lawsuit, its board of directors has not met since 1999.

Because Trump ran all of his enterprises, he was also personally responsible for signing their tax returns. His charitable foundation was no exception. Were he found to have knowingly provided false information on its tax returns, he could someday face perjury charges.

On August 31st, the foundation’s lawyers fought back, filing papers of their own, calling the lawsuit, as the New York Times put it, “a political attack motivated by the former attorney general’s ‘record of antipathy’ against Mr. Trump.” They were referring to Eric Schneiderman, who had actually resigned the previous May -- consider this an irony under the circumstances -- after being accused of sexual assault by former girlfriends.

The New York state court system has, in fact, emerged as a vital force in the pushback against the president and his financial shenanigans. As Zephyr Teachout, recent Democratic candidate for New York attorney general, pointed out, it is “one of the most important legal offices in the entire country to both resist and present an alternative to what is happening at the federal level." And indeed it had begun fulfilling that responsibility with The Donald long before the Mueller investigation was even launched.

In 2013, Schneiderman filed a civil suit against Trump University, calling it a sham institution that engaged in repeated fraudulent behavior. In 2016, Trump finally settled that case in court, agreeing to a $25 million payment to its former students -- something that (though we don’t, of course, have the tax returns to confirm this) probably also proved to be a tax write-off for him.

These days, the New York attorney general’s office could essentially create a branch only for matters Trumpian. So far, it has brought more than 100 legal or administrative actions against the president and congressional Republicans since he took office.

Still, don’t sell the foundation short. It did, in the end, find a way to work for the greater good -- of Donald Trump. He and his wife, Melania, for instance, used the “charity” to purchase a now infamous six-foot portrait of himself for $20,000 -- and true to form, according to the Washington Post, even that purchase could turn out to be a tax violation. Such “self-dealing” is considered illegal. Of course, we’re talking about someone who “used $258,000 from the foundation to pay off legal settlements that involved his for-profit businesses.” That seems like the definition of self-dealing.

The Trump Team

The president swears that he has an uncanny ability to size someone up in a few seconds, based on attitude, confidence, and a handshake -- that, in other words, just as there’s the art of the deal, so, too, there’s the art of choosing those who will represent him, stand by him, and take bullets for him, his White House, and his business enterprises. And for a while, he did indeed seem to be a champion when it came to surrounding himself with people who had a special knack for hiding money, tax documents, and secret payoffs from public view.

These days -- think of them as the era of attrition for Donald Trump -- that landscape looks a lot emptier and less inviting.

On August 21st, his former campaign manager, Paul Manafort, was convictedin Virginia of “five counts of tax fraud, two counts of bank fraud, and one count of failure to disclose a foreign bank account.” (On September 14th, he would make a deal with Robert Mueller and plead guilty to two counts of conspiracy.)  On that same August day, Trump's personal lawyer, Michael Cohen, also pled guilty to eight different federal crimes in the Manhattan U.S. attorney’s office, including -- yep -- tax evasion.

Three days later, prosecutors in the Cohen investigation granted immunity to the Trump Organization’s chief financial officer, Allen Weisselberg. A loyal employee of the Trump family for more than four decades, he had also served as treasurer for the Donald J. Trump Foundation. If anyone other than the president and his children knows the financial and tax secrets of the Trump empire, it’s him. And now, he may be ready to talk. Lurking in his future testimony could be yet another catalyst in a coming Trump tax debacle.

And don’t forget David Pecker, CEO of American Media, the company that publishes the National Enquirer. Pecker bought and buried stories for The Donald for what seems like forever. He, too, now has an immunity deal in the federal investigation of Cohen (and so Trump), evidently in return forproviding information on the president’s hush-money deals to bury various exploits that he came to find unpalatable.

The question is this: Did Trump know of Cohen’s hush-money payments? Cohen has certainly indicated that he did and Pecker seems to have told federal prosecutors a similar story. As Cohen said in court of Pecker, "I and the CEO of a media company, at the request of the candidate, worked together" to keep the public in the dark about such payments and Trump’s involvement in them.

The president’s former lawyer faces up to 65 years in prison. That’s enough time to make him consider what other tales he might be able to tell in return for a lighter sentence, including possibly exposing various tax avoidance techniques he and his former client cooked up.

And don’t think that Cohen, Pecker, and Weisselberg are going to be the last figures to come forward with such stories as the Trump team begins to come unglued.

In the cases of Enron and Lehman Brothers, both companies unraveled after multiple shell games imploded. Enron’s losses were being hidden in multiple offshore entities. In the case of Lehman Brothers, staggeringly over-valued assets were being pledged to borrow yet more money to buy similar assets. In both cases, rigged games were being played in the shadows, while vital information went undisclosed to the public -- until it was way too late.

Donald Trump’s equivalent shell games still largely remain to be revealed. They may simply involve hiding money trails to evade taxes or to secretly buy political power and business influence. There is, as yet, no way of knowing. One thing is clear, however: the only way to begin to get answers is to see the president’s tax returns, audited or not. Isn’t it time to open that safe?

 

Thursday
Aug302018

The Entropy Wars

Five Financial Uncertainties of 2018 (So Far)
This first appeared in Tom Dispatch, August 2, 2018

Here we are in the middle of the second year of Donald Trump’s presidency and if there’s one thing we know by now, it’s that the leader of the free world can create an instant reality-TV show on geopolitical steroids at will. True, he’s not polished in his demeanor, but he has an unerring way of instilling the most uncertainty in any situation in the least amount of time.

Whether through executive orders, tweets, cable-news interviews, or rallies, he regularly leaves diplomacy in the dust, while allegedly delivering for a faithful base of supporters who voted for him as the ultimate anti-diplomat. And while he’s at it, he continues to take a wrecking ball to the countless political institutions that litter the Acela Corridor. Amid all the tweeted sound and fury, however, the rest of us are going to have to face the consequences of Donald Trump getting his hands on the economy.

According to the Merriam-Webster dictionary, entropy is “a process of degradation or running down or a trend to disorder.” With that in mind, perhaps the best way to predict President Trump’s next action is just to focus on the path of greatest entropy and take it from there.

Let me do just that, while exploring five key economic sallies of the Trump White House since he took office and the bleakness and chaos that may lie ahead as the damage to the economy and our financial future comes into greater focus.

1. Continuous Banking Deregulation

When Trump ran for the presidency, he tapped into a phenomenon that was widely felt but generally misunderstood: a widespread anger at Wall Street and corporate cronyism. Upon taking office, he promptly redirected that anger exclusively at the country’s borders and its global economic allies and adversaries.

His 2016 election campaign had promised not to “let Wall Street get away with murder” and to return the banking environment to one involving less financial risk to the country. His goal and that of the Republicans as a party, at least theoretically, was to separate bank commercial operations (deposits and lending) from their investment operations (securities creation, trading, and brokerage) by bringing back a modernized version of the Glass-Steagall Act of 1933.

Fast forward to May 18, 2017 when Trump’s deregulatory-minded treasury secretary, “foreclosure king” Steven Mnuchin, faced a congressional panel and took a 180 on the subject. He insisted that separating people’s everyday deposits from the financial-speculation operations of the big banks, something that had even made its way into the Republican platform, was a total nonstarter.

Instead, congressional Republicans, with White House backing, promptly took aim at the watered-down version of the Glass-Steagall Act passed in the Obama years, the Dodd-Frank Act of 2010. In it, the Democrats had already essentially capitulated to Wall Street by riddling the act with a series of bank-friendly loopholes. They had, however, at least ensured that banks would set aside more of their own money in the event of another Great Recession-like crisis and provide a strategy or “living will” in advance for that possibility, while creating a potent consumer-protection apparatus, the Consumer Financial Protection Bureau (CFPB). Say goodbye to all of that in the Trump era.

Dubbed “the Choice Act” -- officially the Economic Growth, Regulatory Relief, and Consumer Protection Act -- the new Republican bill removed the “living will” requirement for mid-sized banks, thereby allowing the big banks a gateway to do the same. When Trump signed the bill, he said that it was “the next step in America’s unprecedented economic comeback. There’s never been a comeback like we’ve made. And one day, the fake news is going to report it.”

In fact, thanks to the Trump (and Republican) flip-flop, banks don’t need to defend themselves anymore. The president went on to extol the untold virtues of his pick to run the CFPB, meant to keep consumers from being duped (or worse) by their own banks. Before Trump got involved, it had won $12 billion in settlements from errant banks for the citizens it championed. 

However, Kathy Kraninger, a former Homeland Security official tapped by Trump to run the entity, has no experience in banking or consumer protection. His selection follows perfectly in the path of current interim head Mick Mulvaney (also the head of the Office of Management and Budget). All you need to know about him is that he once derided the organization as a “sick, sad” joke. As its director, he’s tried to choke the life out of it by defunding it

In this fashion, such still-evolving deregulatory actions reflect the way Trump’s anti-establishment election campaign has turned into a full-scale program aimed at increasing the wealth and power of the financial elites, while decreasing their responsibility to us. Don’t expect a financial future along such lines to look pretty. Think entropy.

2. Tensions Rise in the Auto Wars

Key to Trump’s economic vision is giving his base a sense of camaraderie by offering them rallying cries from a bygone era of nationalism and isolationism. In the same spirit, the president has launched a supposedly base-supporting policy of imposing increasingly random and anxiety-provoking trade tariffs.

Take, for instance, the automotive sector, which such tariffs are guaranteed to negatively impact. It is ground zero for many of his working-class voters and a key focus of the president’s entropic economic policies. When he was campaigning, he promised many benefits to auto workers (and former auto workers) and they proved instrumental in carrying him to victory in previously “blue” rust-belt states. In the Oval Office, he then went on to tout what he deemed personal victories in getting Ford to move a plant back to the U.S. from Mexico while pressuring Japanese companies to make more cars in Michigan.

He also began disrupting the industry with a series of on-again-off-again, imposed or sometimes merely threatened tariffs, including on steel, that went against the wishes of the entire auto sector. Recently, Jennifer Thomas of the industry's main lobbying group, the Alliance of Automobile Manufacturers, assured a Commerce Department hearing that “the opposition is widespread and deep because the consequences are alarming."

 

Indeed, the Center for Automotive Research has reported that a 25% tariff on autos and auto parts (something the president has threatened but not yet followed through upon against the European Union, Canada, and Mexico) could reduce the number of domestic vehicle sales by up to two million units and might wipe out more than 714,000 jobs here. Declining demand for cars, whose prices could rise between $455 and $6,875, depending on the type of tariff, in the face of a Trump vehicle tax, would hurt American and foreign manufacturers operating in the U.S. who employ significant numbers of American workers.

Though President Trump’s threat to slap high tariffs on imported autos and auto parts from the European Union is now in limbo due to a recent announcement of ongoing negotiations, he retains the right if he gets annoyed by... well, anything... to do so. The German auto industry alone employs more than 118,000 people in the U.S. and, if invoked, such taxes would increase its car prices and put domestic jobs instantly at risk.

3. The Populist Tyranny of the Trump Tax Cuts

President Trump has been particularly happy about his marquee corporate tax “reform” bill, assuring his base that it will provide jobs and growth to American workers, while putting lots of money in their pockets. What it’s actually done, however, is cut the corporate tax rate from 35% to 21%, providing corporations with tons of extra cash. Their predictable reaction has not been to create jobs and raise wages, but to divert that bonanza to their own coffers via share buybacks in which they purchase their own stock. That provides shareholders with bigger, more valuable pieces of a company, while boosting earnings and CEO bonuses.

Awash in tax-cut cash, American companies have announced a record $436.6 billion worth of such buybacks so far in 2018, close to double the record $242.1 billion spent in that way in all of 2017. Among other things, this ensures less tax revenue to the U.S. Treasury, which in turn means less money for social programs or simply for providing veterans with proper care.

As it is, large American companies only pay an average effective tax rate of 18% (a figure that will undoubtedly soon drop further). Last year, they only contributed 9% of the tax receipts of the government and that’s likely to drop further to a record low this year, sending the deficit soaring. In other words, in true Trumpian spirit, corporations will be dumping the fabulous tax breaks they got directly onto the backs of other Americans, including the president’s base.

Meanwhile, some of the crew who authored such tax-policies, creating a $1.5 trillion corporate tax give-away, have already moved on to bigger and better things, landing lobbying positions at the very corporations they lent such a hand to and which can now pay them even more handsomely. For the average American worker, on the other hand, wages have not increased. Indeed, between the first and second quarters of 2018 real wages dropped by 1.8%after the tax cuts were made into law. Trump hasn’t touted that or what it implies about our entropic future.

4. Trade Wars, Currency Wars, and the Conflicts to Come

If everyone takes their toys to another playground, the school bully has fewer kids to rough up. And that’s exactly the process Trump’s incipient trade wars seem to be accelerating -- the hunt for new playgrounds and alliances by a range of major countries that no longer trust the U.S. government to behave in a consistent manner.

So far, the U.S. has already slapped $34 billion worth of tariffs on Chinese imports. China has retaliated in kind. Playing a dangerous global poker game, Trump promptly threatened to raise that figure to at least $200 billion. China officially ignored that threat, only inciting the president’s ire further. In response, he recently announced that he was “willing to slap tariffs on every Chinese good imported to the U.S. should the need arise.” Speaking to CNBC’s Squawk Box host Joe Kernen on July 20th, he boasted, "I'm ready to go to 500 [billion dollars].”

That’s the equivalent of nearly every import the Chinese sent into the U.S. last year. In contrast, the U.S. exports only $129.9 billion in products to China, which means the Chinese can’t respond in kind, but they can target new markets, heighten the increasingly tense relations between the world’s two economic superpowers, and even devalue their currency to leverage their products more effectively on global markets.

Global trade alliances were already moving away from a full-scale reliance on the U.S. even before Donald Trump began his game of tariffs. That trend has only gained traction in the wake of his economic actions, including his tariffs on a swath of Mexican, Canadian, and European imports. Recently, two major American allies turned a slow dance toward economic cooperation into a full-scale embrace. On July 17th, the European Union and Japan agreed on a mega-trade agreement that will cover one-third of the products made by the world economy.

Meanwhile, China has launched more than 100 new business projects in Brazil alone, usurping what was once a U.S. market, investing a record $54 billion in that country. It is also preparing to increase its commitments not just to Brazil, but to Russia, India, China, and South Africa (known collectively as the BRICS countries), investing $14.7 billion in South Africa ahead of an upcoming BRICS summit there. In other words, Donald Trump is lending a disruptively useful hand to the creation of an economic world in which the U.S. will no longer be as central an entity.

Ultimately, tariffs and the protectionist policies that accompany them will hurt consumers and workers alike, increasing prices and reducing demand. They could force companies to cut back on hiring, innovation, and expansion, while also hurting allies and potentially impeding economic growth globally. In other words, they represent an American version of an economic winding down, both domestically and internationally.

5. Fighting the Fed

President Trump’s belligerence has centered around his belief that the wealthiest, most powerful nation on the planet has been victimized by the rest of the world. Now, that feeling has been extended to the Federal Reserve where he recently lashed out against its chairman (and his own appointee) Jerome Powell.

The Fed had been providing trillions of dollars of stimulus to the banking system and financial markets though a bond-buying program wonkily called “quantitative easing” or “QE.” Its claim: that this Wall Street subsidy is really a stimulus for Main Street.

Unlikely as that story may prove to be, presidents have normally refrained from publicly commenting on the Federal Reserve’s policies, allowing it to maintain at least a veneer of independence, as mandated by the Federal Reserve Act of 1913. (In reality, the Fed has remained significantly dependent on the whims and desires of the White House, a story revealed in my new book Collusion.) However, this White House is run by a president who couldn’t possibly keep his opinions to himself.

So far, the Fed has raised (or “tightened”) interest rates seven times since December 2015. Under Powell, it has done so twice, with two more hikes forecast by year’s end. These moves were made without Trump’s blessing and he views them as contrary to his administration’s economic objectives. In an interview with CNBC, he proclaimed that he was “not thrilled” with the rate hikes, a clear attempt to directly influence Fed policy. Sticking with tradition, the Fed offered no reaction, while the White House quickly issued a statement emphasizing that the president “did not mean to influence the Fed's decision-making process.” 

Ignoring that official White House position, the president promptly took to Twitter to express his frustrations with the Fed. (“[T]he United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates -- Really?”)

Fed Chairman Powell may want to highlight his independence from the White House, but as a Trump appointee, any decisions made in the framework of the president’s reactions could reflect political influence in the making. The bigger problem is that such friction could incite greater economic uncertainty, which could prove detrimental to the economic strength Trump says he wants to maintain.

When Entropy Wins, the World Loses

Trump’s method works like a well-oiled machine. It keeps everyone -- his cabinet, the media, global leaders, and politicians and experts of every sort -- off guard. It ensures that his actions will have instant impact, no matter how negative. 

Economically, the repercussions of this strategy are both highly global and extremely local. As Senator Ben Sasse (R-NE) noted recently, "This trade war is cutting the legs out from under farmers and [the] White House’s ‘plan’ is to spend $12 billion on gold crutches... This administration’s tariffs and bailouts aren’t going to make America great again, they’re just going to make it 1929 again."

He was referring to the White House’s latest plan to put up to $12 billiontaxpayer dollars into those sectors of American agriculture hit hardest by Trump’s tariff wars. Let that sink in for a moment and think: entropy. In order to fix the problems the president has created, allegedly to help America become great again, a deficit-ridden government will have to shell out extra taxpayer dollars.

Subsidizing farmers isn’t in itself necessarily a bad thing. It is, in fact, very New Deal-ish and Franklin Delano Roosevelt-esque. But doing so to fix an unnecessary problem? Under such circumstances, where will it stop? When those $200 billion or $500 billion in tariffs on China (or other countries) enflames the situation further, who gets aid next? Auto workers? Steel workers?

What we are witnessing is the start of the entropy wars, which will, in turn, hasten the unwinding of the American global experiment. Each arbitrary bit of presidential pique, each tweet and insult, is a predecessor to yet more possible economic upheavals and displacements, ever messier and harder to clean up. Trump’s America could easily morph into a worldwide catch-22. The more trust is destabilized, the greater the economic distress. The weaker the economy, the more disruptable it becomes by the Great Disrupter himself. And so the Trump spiral spins onward, circling down an economic drain of his own making.