Offshore monetary transactions outpaced world trade by the mid-1970s, triggering financial deregulation

Evidence

In the 1970s, U.S. deficit spending combined with global demand for U.S. Treasury securities flooded the market with dollars and the Nixon administration de-linked the dollar from gold, establishing the era of floating exchange rates. Liquidity grew rapidly around the world, compelling governments to manipulate exchange rates and interest rates, depending on their domestic circumstances. Compounding the situation, this offshore capital offered new opportunities to expand through trade and speculation of these variable rates. “By the mid-1970s,” Arrighi claims, “the volume of purely monetary transactions carried out in offshore money markets already exceeded the value of world trade many times over. From then on the financial expansion became unstoppable.” In order to recentralize mobile capital in the United States, the Reagan administration enacted wide-ranging financial deregulation, providing corporations, financial institutions, and the wealthy with nearly unrestricted freedom of enterprise and little tax burden. Though tax rates for the wealthy were already declining from their postwar high, this shift accelerated during the Reagan administration, as seen in figure 1.5. During the same period, U.S. corporations expanded their tax evasion strategies, as firms exploited new opportunities to route profits through nations with even lower tax rates, as seen in figure 1.6, from less than 10% of foreign profits of U.S. firms in the 1970s, to over 50% in 2018. — Andrew deWaard, Derivative Media, 75

Categorization

• XREF: Arrighi’s financial expansion framework connects to the reader’s William Julius Wilson economics reading on financialization eras.