Trade deficit = Defense budget. China funds the U.S. defense budget.
In the latter stages, post World War II, America's corporate colonies sought competitive advantage in industry. America's corporations, eager to arbitrage labour differentials fork-lifted production from the U.S. to Asia and Mexico without second thought. The presiding economic paradigm of "free trade" did nothing to stand in their way. The result was loss of manufacturing jobs, factories, industries, and intellectual property.
The erstwhile "left" was eradicated by systematic economic McCarthyism, as any attempt to restore rationality to economic policy was deemed "socialism". The political divide focused solely on social issues or "identity politics", with each side seeking to incite the other. Campaign cycles were non-stop.
The nascent "services" economy could in no way restore the productivity and standard of living of the collapsed industrial sector. Fast food chains proliferated, as the Financial Services sector presided over the remains of the economy. Debt soon became conflated as "GDP", first at the household level, which led to the Housing bubble and collapse. After that, debt at the corporate and Federal level grew to unprecedented proportions.
The output gap grew inexorably as deflation was imported from abroad. Central banks resorted to various money printing gimmicks to inflate asset prices. Interest rates collapsed to the zero bound, providing a widely believed illusion of infinite return on investment. Surplus capital bid up global assets to record overvaluations. Investment in automation ensued at a record rate, as "free money" made worker replacement a financial "no-brainer".
The output gap grew more, as endogenous deflation from automation and suppressed wages drove the supply/demand equation further out of balance. Corporate profits stopped growing, therefore corporations ploughed all cash flow into stock buybacks to reduce share count and provide the illusion of return on investment.
Corporate debt grew in tandem with stock over-valuation.
At the very latter stages, a recycled serial-failed casino operator was elected to reverse forty years of greed-driven industrial arbitrage, by starting a trade war with America's largest supplier. His entire delusion was labelled 'MAGA', which was enthusiastically embraced by America's right. His populist appeal was to white nationalism, by blaming every other country for America's self-inflicted problems. Little did he know that all of America's budget and trade surpluses were now fully dependent on the imbalanced trade relationship between the two largest economies. The country was living far beyond its means, subsidized by the massive trade deficit. Making matters far worse, Trump's entire platform was predicated upon borrowed tax cuts for the ultra-wealthy, which exploded long-term interest rates higher. Which in turn caused the dollar to rally, driving the U.S. trade deficit to record wide. This "crowding out" phenomenon - well known to prior generations - somehow was an unforeseen consequence to the money printing economic experts of the day.
Monetary policy collided with fiscal policy as the temporary sugar spike in GDP from the tax cut soon wore off leaving the middle class massively exposed to higher interest rates to pay for the tax cut. As the economy weakened, monetary response lagged deflation. The Federal Reserve had under-estimated the long-term deflationary impact of the tax cut. Record corporate buybacks kept the stock market artificially bid to unprecedented over-valuations as the economy weakened.
As Treasury issuance to fund the colossal deficit reached a record level, interest rates u-turned and screamed higher causing dislocations to markets priced for deflation. Liquidity collapsed. Investors were trapped.
At the end, everyone was reminded that there is no such thing as "free trade" and no such thing as "free money". They were surprised beyond belief, having grown up under the umbrella of a reserve currency.
The downfall of the empire can be attributed to three things: greed, greed, and more fucking greed.
