According to one of the top monetarist economists, World Bank Chief Economist and Harvard Prof. Carmen Reinhart, the year 2021 will be the beginning of a “protracted global debt crisis” including large debt defaults and write-offs, manipulated inflation and general tax increases to try to cope with debt, and a lack of any economic development. Given the immense bubbles of unpayable debt around the world which she referred to, she could make the case to threaten a debt crisis with worse characteristics than 2007-08 – by completely ignoring the steps sovereign nations’ leaders can take immediately to create new physical economic value, raise productivity and technological levels, and attack poverty. While not touching on “climate” in her talk, Reinhart could have been describing the high-tax, zero-interest-rate money printing response of the “green new deal” of the likes of Joe Biden and the liberal Democrats in the U.S. Congress.
Reinhart spoke on “China’s Overseas Lending and Developing Country Debt after COVID” at a George Washington University Institute for International Economy Policy virtual conference on China’s economy Oct. 30. Given her topic, only a leading economist of the school that views wealth as money, even as trading profits, could fail to mention or refer to the Belt and Road Initiative, China’s overarching overseas lending program of the past six years – but Reinhart did not mention it during a 45-minute talk and then a Q&A session. Therefore China’s overseas lending, which has made it the world’s largest lender for new infrastructure projects, was described by Reinhart as “commodity lending.” Since commodity prices have generally fallen for five years, therefore, China would have to pull back and reduce its lending, in her view, as big Wall Street and London banks and some advanced nation governments already have.
The situation, Reinhart said, should actually be worse than in 2007-08, as there are many more countries whose financial systems are riddled with unpayable debt now, and as poverty has gotten worse in 2020, “reversing 40 years of progress.” Even zero U.S. interest rates will not prevent “the very high likelihood of a very, very protracted debt crisis” beginning in 2021 and concentrated in the low- to mid-income countries. In all the advanced capitalist countries, these “low for long” rates will only inflate away part of the debt crisis — there will also be big debt write-downs, defaults of corporate as well as sovereign debt, along with higher taxes.
“It will be a lost decade for development,” Reinhart concluded. But she only showed her imprisonment in the policies of the British floating-exchange-rate system of speculation, which has deindustrialized and ruined advanced industrial economies since the British destroyed Franklin Roosevelt’s gold- and dollar-reserve Bretton Woods system in the early 1970s.
A sovereign United States under President Donald Trump, supporting space exploration, scientific and technological development, can go into cooperation with other technologically leading nations to issue joint credits for development. The Trump Administration has already taken leadership through the World Food Program in fighting the increasing food deprivation and poverty brought on by the COVID pandemic. It can do the same with healthcare facilities. Using breakthrough nuclear reactor designs, new automated deepwater port technology, river basin flood control and irrigation, and working with China’s Belt and Road project credits, the United States can contribute the most to physical economic development – anything but a “lost decade” for development. This has been outlined for decades in Lyndon LaRouche’s New Bretton Woods proposals and in his economic laws for bank reorganizations, national credit institutions and scientific crash programs. They were in preparation for just a deep international debt crisis as this one. They are beyond the ken of economists specializing in British monetary theories, but they will work in a world of sovereign nations.
