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Trump, the Dragon, and the Minotaur

If Donald Trump understands anything, it is the value of bankruptcy and financial recycling. But the success of his strategy hinges on whether he grasps the profound difference between a developer’s debt and the debt of a large economy – China's.

ATHENS – If Donald Trump understands anything, it is the value of bankruptcy and financial recycling. He knows all about success via strategic defaults, followed by massive debt write-offs and the creation of assets from liabilities. But does he grasp the profound difference between a developer’s debt and the debt of a large economy? And does he understand that China’s private debt bubble is a powder keg under the global economy? Much hinges on whether he does.

Trump was elected on a wave of discontent with the establishment’s colossal mishandling of both the pre-2008 boom and the post-2008 recession. His promise of a domestic stimulus and protectionist trade policies to bring back manufacturing jobs carried him to the White House. Whether he can deliver depends on whether he understands the role America used to play in the “good old days,” the role it can play now and, crucially, the significance of China.

Before 1971, US global hegemony was predicated upon America’s current-account surplus with the rest of the capitalist world, which the US helped to stabilize by recycling part of its surplus to Europe and Japan. This underpinned economic stability and sharply declining inequality everywhere. But, as America slipped into a deficit position, that global system could no longer function, giving rise to what I have called the Global Minotaur phase.

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