posted September 9, 2020
America’s Current Jobs ‘Great Depression’

Two well-known and highly respected mainstream economists, Carmen Reinhart, a chief economist for the World Bank, and Vincent Reinhart, chief economist for Morgan Stanley bank, have recently published an article in the widely read capitalist source, Foreign Affairs, entitled ‘The Pandemic Depression’. Arguing primarily from a global perspective, the economists have concluded the US economy as of the 3rd quarter 2020 is not merely now experiencing a ‘great recession’ but now qualifies as another Great Depression.

There is another perspective, however, from which to also argue the US economy is in a bona fide Great Depression. It is from the perspective of the US Labor Market. For as of the late 3rd quarter 2020 the US economy suffers from an unemployment rate of no less than 25%–i.e. the same rate during the worst years and quarters of 1932-33, the depths of the 1930s Great Depression. Yet what we hear from the media and politicians of both wings of the Corporate Party of America—aka the Republicans and Democrats—is that unemployment is only 8.4%! That’s barely one-third of 25%.

Republicans and Trump have used the low-balled number of 8.4% as the main excuse to prevent the passage by Congress of any further economic stimulus. The Democrats have voiced no effective rebuttal since they too have accepted the 8.4%. So what is it? 8.4% and not even a great recession any longer? Or 25% and the possibility the ranks of unemployed are about to grow even further?
What follows is a debunking of the 8.4% unemployment rate and a quantitative explanation why that rate is 25%–as well as a statement of the forces that will likely result in an even further deterioration in the unemployment rate in the 2020-21 period ahead.

(25% & 40 Million Still Unemployed)

After the massive job implosion last spring, a weak rebound in jobs has occurred as the economy reopened over the early summer. But that jobs rebound has shown clear signs of faltering by late July and has clearly deteriorated by late August as unemployment claims have risen in recent weeks. Even more ominous, as that has near term condition of jobs has worsened, parallel indications show the emergence of a second, more permanent phase of job loss on the horizon.
Since early March 2020, more than 55m workers have filed for, and received, unemployment insurance benefits.

According to official government data, as of the end of August, 29.5 million US workers were still getting benefits. That 29.5m reflects 18.4% workers clearly unemployed. But it’s also a subset of the total jobless, since millions haven’t been able to get benefits. So the actual number of jobless as of labor day 2020 is north of 29.5m and 18.4% Nevertheless, the statistic we hear is 8.4% unemployment rate and 13.4 million unemployed. What gives?

Some of the 55 million who received benefits at some point over the course of the last six months of the pandemic began returning to work starting in May. The number returning grew in June, but then began slowing once again in July and August as the rebound in jobs began to falter in July-August.

Others of the 55 million have simply exhausted their benefits. Many are still unemployed but no longer part of the 29.5 million that remain on benefits.
In addition, millions more workers since March have entered the labor force for the first time but they too have not been eligible to receive benefits due to lack of prior work history as first time job seekers—which precludes them from receiving unemployment benefits. Like those having exhausted their benefits, they too are unemployed but not part of the 29.5m still getting benefits at the end of August.

Joining the ranks of those unemployed but not receiving benefits are the millions who never got benefits because they simply gave up looking for work for various reasons and dropped out of the labor force—which puts them in a category in which, according to US labor department methodology, they aren’t counted as unemployed. They may be out of work, but given the oxymoronic way the US defines unemployed they aren’t considered unemployed for purposes of calculating the unemployment rate!

Finally, there are the additional millions more who never were able to get benefits since March even though they tried, due to various bureaucratic reasons.
Whether having exhausted their benefits, or first time entrants to the labor force not eligible for benefits, or whether they’ve dropped out of the labor force, or were denied benefits for bureaucratic reasons—all these groups are nonetheless part of the unemployed, even though they are not counted among the 29.5m still getting unemployment benefits.

In short, the 55m who got benefits at some point since March, and the 29.5m who are still getting them, are in both cases just a subset of a much larger number of jobless. There are millions more unemployed who never got on the unemployment benefits rolls since March and still not able to get benefits. There’s at least 10-15 million more jobless but without benefits. That means an unemployment rate, at minimum, of 25%–not the 8.4% peddled by the media apologists for Wall St. and the politicians of the Corporate Party of America (aka Trumpublicans and Democrat wings of that party).

Last April 2020 perhaps as much as 50% of the total US labor force of 160 million workers was jobless for approximately two months. As of today, Labor Day 2020, at minimum a fourth, or 25%, still remains so.

That 25% is about the same jobless rate as occurred during the worst years of the 1930s Great Depression, 1932-33!

Here’s why it’s 25% at minimum today, Labor Day, and quite possibly even more:

(Dissecting the Government’s Low-Ball U-3/8.4% Unemployment Rate)

Despite an actual 25% unemployment rate (i.e. 40 million still jobless) what we hear from the media and politicians is that the unemployment rate is only 8.4%. And thus the total unemployed is only 13.4 million. (When 8.4% is calculated on the 160 million total US labor force, the number unemployed comes to 13.4 million).

The official government statistic of 8.4% jobless is repeated ad nauseam in the media. It’s then picked up by politicians, commentators, and even progressives who should know better and parroted back to the public. But 8.4% is nonsense. A purposely low-balled, cherry-picked number for public consumption. Here’s why:
To begin with, the 8.4% is the government’s official U-3 unemployment rate. The problem with U-3, however, is that it represents only full time workers who became unemployed. But there are at least 50 million workers in the US economy who are not ‘full time’, but part time, discouraged and what the government calls the ‘missing labor force’. The government adds these groups to its U-3 and 8.4%. That raises the unemployment rate in August to 14.2%–not 8.4%. And that translates to a total unemployed of 22.7 million—not 13.4 million.

The 14.2%/22.7 million numbers are carefully avoided in media reporting. One almost never hears the 14.2% and virtually always only the 8.4%, regardless that both are official government statistics.

But even that 14.2%/22.7m is grossly under-estimating the total unemployed. Remember that other government statistic, i.e. those receiving unemployment benefits? Workers receiving benefits as of late August was 29.5 million. And that represents a 18.4% jobless rate. Obviously, if a worker is getting benefits, he/she must be unemployed, right? But you’ll hear 29.5 million and 18.4% in the media even less than the 14.2% and 22.7 million.

In the case of the 29.5 million, moreover, we have another example of ‘low-balling’ and cherry-picking a statistic –not unlike cherry-picking the U-3 stat instead of the U-6. The media reports the number of workers getting benefits at only 16 or 17 million, not 29.5 million!

But here’s what they don’t explain when citing only 16-17 million getting benefits: That number accounts only for workers receiving unemployment benefits under the traditional State Unemployment Benefits system. The 16-17 million excludes independent contract workers, gig, freelance, and others getting benefits under the supplemental Pandemic Unemployment Insurance (PUC) program created last March as part of the Cares Act. In other words, there’s two unemployment benefits systems and the media typically chooses to report only the one when indicating workers getting benefits. There’s the traditional State Unemployment Benefits system and the new Supplemental PUC system that for the first time ever has provided benefits for the 50m non-traditional workers who were before March never eligible for benefits but are now and will continue to be eligible at least through December 2020 when that PUC system expires. Once again, it’s media cherry-picking and number low-balling time.

The State system and the PUC system together comprise the 29.5 million workers still getting unemployment benefits. 29.5m receiving benefits is certainly more than 22.7m (U-6) and even more so than 13.4m. It’s not that the government job statistics consciously lie (although in some cases they come quite close). It’s just that the government produces low ball numbers for the media to pick up, which they do and pound away at. And then commentators, politicians, business sources play their role of spreading the low ball numbers and conveniently ignoring other data.

How then did the US economy get to 29.5 million and 18.4%? Here’s the trajectory: In April more than 6 million workers filed for benefits every week for two weeks, followed by 3-5 million more for several more weeks thereafter! The weekly new benefits filing rate declined as the economy began to reopen in May. However, after May new State unemployment benefit claims still averaged 1 to 2 million every week through July; In addition, the number of PUC initial benefit claims per week also exceeded 1 million a week, every week, through July as well.

The combined totals of the two programs—State and PUC— thus never fell below 2 million initial filings a week throughout the period of the reopening of the economy, from May through July. It has also remained a combined more than 1.5m/week throughout August. That’s 6 million new unemployment filing claims—i.e. 6 million newly unemployed—in just the last month of August. Bringing the total on unemployment benefits to the 29.5 million.

But wait! The 29.5m represents only unemployed workers who were able to get benefits. There’s many more workers who became jobless but were unable to successfully get benefits; or who gave up even trying in the first place and simply dropped out of the labor force altogether. Who are they? And how great are their numbers?

Their numbers are well north of even the 29.5 million and 18.4% unemployment rate. The true total jobless includes their numbers plus the 29.5 million.

For the 29.5m receiving benefits as of Labor Day 2020 excludes those jobless who were unable to get benefits in the first place, who filed unsuccessfully for benefits, who got lost in the bureaucratic process of filing and never got benefits, or who just couldn’t figure out how to file and were not helped and gave up. The 29.5m also represents those having exhausted benefits during the last six months. And those who chose not to file even though unemployed. Finally, the 29.5m excludes new entrants to the labor force over the past six months who weren’t eligible for benefits but haven’t been able nonetheless to find work given the collapse of the economy! All these categories of jobless workers represent the unemployed as much as those receiving benefits include the obviously unemployed. So the number of jobless is actually much higher than even 29.5 million. The 29.5m is therefore just a subset of the true total unemployed.
So how many more are jobless but not getting benefits as of Labor Day 2020?

(Estimating the Actual Jobless—With & Without Benefits)

You won’t get an accurate number from the government of the total unemployed who didn’t get benefits but have been, and remain, nonetheless jobless since February 2020.

However, private research surveys do give us an idea. MarketWatch, a business research and media company, published an interesting feature story in Fidelity.com this past week, based on its survey of the Philadephia/Mid-Atlantic region of the economy. That case example survey provides a reasonable estimate of the magnitude of those jobless since March 2020 but not among the 29.5m that succeeded in obtaining unemployment benefits.

Of the total number of workers in the Philadelphia, Mid-Atlantic US region who lost their jobs since February, MarketWatch reports that only 87% actually filed successfully for benefits. And of that 87%, only 65% who bothered to file actually ended up getting benefits. That means only 52%, or roughly half of the unemployed in the Philadelphia area, actually got unemployment benefits. The other 48% were just as much out of work, but without benefits.

If Philadelphia represents a microcosm and relatively accurate sample of the entire US economy labor market, simple extrapolation means that the 55 million who successfully got benefits since March 2020 may represent barely half of the total of those who have been unemployed since March!

That means the 29.5 million still getting benefits may represent barely half of all those still unemployed. There may therefore be between 40 and 50 million workers in America still jobless—those still getting benefits (the 29.5m) and those without benefits (10m to 20m).

Thus, the oft-reported official US numbers of 8.4% unemployment rate and 13.4 million total out of work is dwarfed not only by the government’s own alternative U-6 data, as well as by its own data showing 29.5 million jobless getting benefits, but also by the fact the total jobless without benefits may be nearly as large as those with benefits.

Assuming the low-end estimate of 10 million still jobless but without benefits, and adding that to the government data that shows 29.5 million still on benefits, a total jobless of at least 40 million is the result. And that’s the low end assumption. It may be well over 40 million as of end of August 2020.

40 million is 25% of the labor force. And it’s far greater than the 8.4% and 13.4 million that the media and politicians keep drumming into our ears. What the media and politicians are telling us is only one-third of the total unemployed!
Corroborating this estimate of at least 25% unemployed today is yet another government statistic called the labor force participation rate, or LFPR. It represents workers who have dropped out of the labor force altogether. It’s in addition to the 29.5m and 18.4% rate since, by government guidelines and definitions, those who drop out of the labor force cannot receive benefits.

(Labor Force Participation Rate Suggests 5.5 Million Dropped Out)

The Labor Force Participation Rate (LFPR) is the percent of working age Americans who have left the Labor Force. They are neither working nor actively looking for work. But they are jobless nonetheless and should be considered among the unemployed. The LFPR was 63.4% of the 164.5 million civilian labor force in February 2020. By August the LFPR dropped to 61.7% out of a 160 million labor force. The difference translates into approximately 5.5 million workers who dropped out of the labor force since February 2020. Having dropped out they are not actively looking for work and therefore not considered unemployed by the government for purposes of calculating unemployment rates. Nor are they eligible to receive benefits since, as drop outs, they are not actively looking for work. However they are nevertheless unemployed and their 5.5 million are additional to the 13.4 million U-3 and 22.7 million U-6 unemployed or the 29.5 million getting benefits. They are among the ‘other’ 10-20 million jobless but not counted by the U-3/U-6 or included in those receiving benefits. Their number strongly corroborates that there are many millions more unemployed—not getting benefits or ignored by the government’s official monthly jobless numbers.

Let’s look at the latest of those government monthly employment numbers. Once again what appears is a fudging and manipulation of the numbers in yet other ways as well.

(August 2020 Government Employment Report)

The first thing to know about the August Employment Report is that it isn’t for the month of August. It is only for the first two weeks of the month (and the last two weeks of July). The data cuts off around the 12th of the month. So what we’re looking at in a ‘August’ report is really July 13 to August 12 jobs data—i.e. before unemployment claims began to rise again in late August.

Second, it’s important to understand that the August jobs numbers are not the actual number of jobs created July 13-August 12. It is not the raw data of actual jobs created or lost that’s reported—for August or for any month in the Labor Dept jobs reports.

The government takes the actual raw data and performs various statistical operations on that raw jobs data and reports that adjusted statistic as the actual number of jobs, even though it isn’t. But that’s what all statistics are—an operation and adjustment on the actual raw data. Moreover, the August raw data itself may be over-stated as well, not just altered by the statistical operation(s).

Raw (actual) jobs data comes from several sources: Large businesses report to the government changes in employment, layoffs, hires, etc. (called the Establishment Survey) The government also surveys a sample of households monthly (called the Population Survey). But there’s a third, more questionable source, based on data from the creation and destruction of small businesses, called the (net) New Business Development survey (NBD). That NBD data, however, represents businesses destroyed or created 6 to 9 months before the month in question—i.e. in this case August. So we get six to nine month old data integrated with current data from the Establishment and Population surveys. Mixing such older data with more recent is a questionable statistical practice. It means adding positive net new business development pre-March and Covid, in January-February, to current jobs data. That has the effect of dampening the actual numbers of August jobs unemployment. That is, it adds to and over-estimates the number of jobs created in August. If net business development for July were used—not January/February—it would mean integrating massive small business destruction that has occurred under Covid since March. That would have the opposite effect: it would dampen job creation numbers in August and increase unemployment numbers.

That’s just one example how ‘statistical operations’ on data can serve to exaggerate job growth and under-estimate unemployment.

Another sometimes questionable statistical operation is called the Seasonality adjustment. The seasonality statistical adjustment in August reduced the number of new filings for unemployment benefits in just the last week of August by 130,000. The government then reported a ‘seasonally adjusted’ 881,000 new unemployment claims for the week ending August 29, when the actual number was 1,011,000.

Similarly, in August there were 9,118,000 reported as unemployed in August when the actual data, not seasonally adjusted, for August showed 9,286,000 actually unemployed—i.e. a difference of 168,000. Put another way, there were 168,000 more jobless in actuality than reported as unemployed. 168,000 were artificially reduced from the unemployed ranks due to statistical operations involving just seasonality alone!

The statistical models assume more return to work at the end of summer than, say for instance, at the end of spring. But the point is these models are based on assumptions developed in normal times under normal conditions. Since Covid neither times or conditions are ‘normal’. Yet the government continues to use the same assumptions, models, and statistical operations to change the actual data, the actual number of employed and unemployed, to the statistical representations of the actual numbers!

The latest August official Labor Dept. job data report says 1.37m new jobs were created. This is the statistic. But the actual data, for above reasons, is far fewer new jobs and far more unemployed.

The August Report is biased in yet another way. It purports to show the condition of the US private sector economy. But 238,000 new US census workers were hired in August who’ll be gone by October. Take away the seasonality adjustment of 168,000 jobs and the 238,000 very temporary government Census workers, and the private sector actual job gain in August was roughly 964,000 not 1.37m. Even without the deduction of seasonality, the private job report company, ADP, often cited as a check on government job reports, reported only 428,000 net jobs growth in August—i.e. less than half of the government’s August jobs report.

1.37m new jobs reported, minus the 168,000 seasonal upward adjustment and minus the 238,000 Census workers, and the difference is 964,000 actual net private sector jobs created in August, or about half a million fewer than in July.

Even accepting the government’s own inflated monthly jobs numbers, the rate of monthly job growth has been slowing rapidly since May 2020: In May 3.4 million new jobs were reported as created. In June, as the economy reopened virtually everywhere, 4.7 million new jobs. But in July, as the economic rebound began to fade, only 1.5 million, and now as of August 12, only 1.37m. In short, even questionable statistical operations cannot total cover up the obvious downward trend.

Perhaps a better indicator of this downward trend post-August 12, is the more than 4 million workers who have newly filed for unemployment benefits the last three weeks, and undoubtedly hundreds of thousands more were also newly jobless but who were not able to get benefits or just dropped out of the labor force giving up searching for a job in today’s deeply depressed labor market.
And yet we read and hear from the media and politicians that the job market is healing rapidly and job recovery is accelerating—even as data show it is in fact deteriorating. We hear unemployment is declining fast when in fact it has begun to rise once again.

(Summing Up Jobs: March Through August 2020)

To sum up the bigger true picture of jobless during the first six months of the Covid era:

• 55 million filed for benefits, state and PUC, since last February, out of 160m labor force
• Tens of millions more failed to file or filed unsuccessfully and didn’t get benefits
• 29+ million are still getting benefits as of September Labor Day 2020
• 10-20 million still unemployed but not getting benefits as of Labor Day 2020
• 1.5 million are continuing to file first time for benefits weekly as of early September
• 8.4%/13.4m official U-3 jobless rate is the preferred ‘cherry picked’ media number
• 14.2%/22.7m is government’s alternative data (U-6) yet ignored by media & politicians
• 13.4 or 22.7m still falls far short of the 29.5m/18.4% actually still getting benefits
• At least 5.5m dropped out of labor force the past 6 mo. but not considered unemployed
• The actual unemployment rate is 25% and 40 million are still jobless, at minimum
• Even government monthly stats show a sharp slowing of new jobs added each month
As bad as the picture looks for Phase 1 (March-to Labor Day 2020) of the current crisis, future prospects for jobs for American workers after Labor Day 2020 appear even bleaker.

(2nd Wave of Restructuring & Permanent Job Loss)

The Covid virus did not cause the current economic crisis—i.e. the 2nd Great Recession. It did precipitate and accelerate and deepen that crisis, however. The US economy was weakening steadily throughout 2019, with the important sectors of business investment and manufacturing actually contracting throughout the year. Should the virus therefore disappear overnight, the deep wounds to the US economy will remain. Many of the 40 million furloughed starting in March and still jobless will not soon be recalled to their prior work—if at all. Entire industries like travel, entertainment, food & lodging, and others will not return to the ‘old normal’ of pre-Covid. A new normal will occur, but it will be one based on a much reduced output in various industries and companies and therefore employment.

Many major corporations have already announced thousands—and in some cases tens of thousands—of permanent layoffs that will take effect in the coming months. These layoffs will be permanent. They represent the leading edge of a coming second wave of job loss.

Industries deepest affected by the growing permanent restructuring and downsizing include Airlines, surface transportation, cruise lines, resorts and hotels, casinos, malls and retail services, education services, local food services, and many sectors of manufacturing that support all these industries with products and maintenance services. This is a large swath of the US economy, in both GDP and employment terms. A clearer picture of which industries, and how deeply impacted, will be clearer after September 30 when the government publishes its quarterly industry-specific statistics for the second quarter 2020.

In the meantime, announcements of thousands of planned layoffs are being announced weekly by United, American, and other airlines; by Boeing and other aerospace suppliers; by big box mall-based retail companies like JC Penneys, Kohls, Nieman Marcus and others; Movie Theater chains AMC and Cinemark; oil drilling and fracking companies; hospitals’ non-Covid related services health workers; beverage suppliers to hotels and restaurants like Coca Cola—to mention just those making front business page news in recent weeks. Tech companies are all restructuring despite healthy profits performance, shifting to remote employment on a major scale that reduces employment costs via layoffs. They will require therefore fewer building support and operations employees. Many other businesses may also shift to remote activity, with the result that urban office buildings will become less employment populated and much of the local city support services for the office building sector will dramatically downsize in employment as well.

The Federal Reserve Bank’s latest ‘Beige Book’ summary of the US economy warned that millions of workers temporarily furloughed since March may have been permanently laid off by August and more may become so. This shift of temporary laid off to permanent layoff status is corroborated by a survey that showed 3.4 million workers believe they won’t be recalled because their companies have either permanently closed or said they planned to close.

Added to this leading edge of the next wave of layoffs due to business restructuring and downsizing is the likelihood of millions more public sector state and local government layoffs. More than a million government workers have been already laid off since March. Budget and deficit problems accelerating rapidly for state and local governments due to the Covid pandemic (i.e. more expenses amidst collapsing tax revenues) will result in still more public employee layoffs. It’s been estimated these governments will need between $500 billion and $940 billion in bailout rescue in a new stimulus bill from Congress to avoid the mass layoffs. However, it appears extremely unlikely they’ll get much, if anything, in a next Congressional stimulus bill in 2020. Layoffs are therefore inevitable and in some of the larger states and cities they will be significant and forthcoming before 2020 year end.

Small business failures and permanent closures are already rising significantly. As small businesses close, jobs associated with them will disappear. And the numbers could easily amount in the millions by the end of 2021.

There are roughly 30 million small businesses in the US economy. Millions of those temporarily closed since March will fail to reopen. And the worse may be yet to come. The National Federation of Independent Businesses, an industry trade group for small business, forecasts 21% will likely fail within another six months. That’s one-fifth of the 30 million or about 6 million. Even if a high end estimate, the number is still unprecedented. At the low end is the US Census ‘Business Pulse’ survey that predicts a 5% small business job loss. That’s 1.5 million closures. Whether 6 or 1.5 million, it’s a large number with an even larger number of employees thrown out of work as the businesses close in coming months.

Other forces driving a second wave of layoffs are more difficult to estimate but no less likely. Among them include the Covid related requirement that K-12 schools implement home remote school education services. Many working class households are two-parent wage earners. They lack resources to pay for babysitters or nannies. Those with K-6 year old children in particular will be forced to have one parent quit and stay at home to ensure home schooling. These ‘quits’ will not show up as unemployed, since the parent is ‘out of work’ but not actively ‘looking for work’. They will show up as labor force drop outs. But they will be unemployed nonetheless! It’s uncertain how wide spread the remote K-8 education services will be this fall, or how long it will last. One recent estimate, however, by Brevan Howard Asset Management to its investors, concluded no fewer than 4.3 million US workers could stay home given lack of child care arrangements. A resurgence of Covid may mean millions more may have to quit their jobs and choose unemployment in order to provide their young children education via remote learning.

Another development that for now is difficult to estimate as well is the impact on employment of the lack of a necessary fiscal stimulus for households. The elimination of the $600 supplement pandemic unemployment benefit at the end of July has resulted in a reduction of no less than $65 billion in consumption spending per month starting this past August. Evictions and mortgage foreclosures will also have a negative impact on consumer household spending, which is nearly 70% of the economy and US GDP. Already the loss of the $600 benefit, combined with rising evictions, is having a major effect on consumer confidence which in August began falling again sharply. This could be exacerbated by an inadequate stimulus bill in September. Reduced working class benefits and household incomes will have an impact on consumer demand for products and services in the economy across the board, affecting nearly all sectors of businesses. And as that demand drops, it will almost certainly lead in turn to less consumer spending and in turn to more layoffs.

The preceding five forces—i.e. large corporate restructurings and permanent downsizing, a sharp rise in public sector layoffs, unprecedented business closures, remote schooling requirements of two working parent families, and general demand reduction due to inadequate next stimulus—all translate into a second wave of layoffs now emerging.

These longer term job reduction forces mean the recent tepid rebound in jobs during May-July will likely give way to a relapse in the US labor markets in coming months and a rise in unemployment. The trend may already be appearing as of late August as first time claims for unemployment benefits have begun to rise once again.

And then there are still the ‘known unknowns’ that could exacerbate conditions further: the increasingly likelihood of a historic political crisis surrounding the November 3 elections. That will breed massive uncertainty and potentially an even worse economic crisis and associated layoffs. Or the Covid virus could resurge significantly once again as winter sets in, as many fear will happen. That too will lead to more shutdowns and furloughing of jobs once again. Even further down the road is the 2021 ‘black swan’ event of another financial crisis, as businesses, households, and local governments begin to default on their debts and precipitate another financial crisis similar to 2008-09.

Jack Rasmus
September 8, 2020

posted August 20, 2020
Trump’s Executive Orders: EOs as PR and FUs

Less than 24 hours after Trump broke off negotiations on the economic stimulus package with Congressional Democrat leaders, Pelosi and Shumer, last Friday August 7, Trump issued a series of Executive Orders (EOs) that he had been signaling and threatening all last week well before the break up.

Almost certainly the legal crafting of the EOs were written long before negotiations were dramatically ended by Trump’s hatchet man leading his negotiating team, staffer Mark Meadows. Trump clearly planned the break up and his EOs some time ago.

Trump, Meadows, Mnuchin and McConnell cleverly set up and sucked in Pelosi and Shumer into negotiations last week, never planning to conclude a deal by Friday, in the process getting them to reveal their priority demands and securing from them major concessions worth $1 trillion—for which the Democrat leaders apparently got nothing in return.

A day later, Trump dropped the hammer and issued his EOs, which are designed more as PR for his election campaign. They certainly won’t provide anything remotely necessary as fiscal stimulus to confront the US economy’s emerging fading rebound in recent weeks.
Upon close inspection the EOs are therefore mostly smoke and mirrors, designed to produce useful electoral soundbites for his campaign between now and November. The EOs are more PR for public relations purposes, while also serving as FUs (F*** You) to the Democrats.

EO #1: Payroll Tax Cut

The EO that has gotten the most media attention thus far is his proposal to introduce a payroll tax cut, which neither the Republicans or Democrats in Congress were calling for. Why were they not? Because they had both already agreed to an alternative measure far more lucrative for business: an expansion and extension of the ‘Retention Tax Credit’ passed in March as part of the CARES ACT stimulus. The retention tax credit has provided a direct tax cut to business worth $55 billion since March. Businesses get the tax credit by simply saying they didn’t lay off workers they might have. But any business can make that claim, even if they had no plans to lay off, and thus get the credit. In the current negotiations that were in progress until last Friday, both sides—Republicans and Democrats—had agreed to expand and extend the ‘Retention Tax Credit’ costing another $194 billion in addition to the $55 billion to date.

Another reason why even the Republicans in Congress weren’t all that interested in Trump’s Payroll Tax Cut was that Business had already been allowed to defer their share of the payroll tax in the CARES ACT. Payroll taxes are paid for by both employers and workers, each contributing half the total 15.3% to Social Security and Medicare. (6.2% of the payroll tax goes to social security plus another 1.45% for Medicare). Employers have already therefore had their share of the payroll tax deferred (but not yet permanently cut). Deferral means employers have to start paying it back by the end of 2021. The media hasn’t provided much attention to that. But the employer tax ‘cut’ is really a tax ‘deferral’ that has to be restored at a later date to the social security and Medicare trust funds.

Trump wants not only a deferral of the 7.65% workers’ share immediately, but also to make it permanent later. That means the trust funds will never see the money restored. And if that’s his plan for the workers’ 7.65% share, it will presumably mean the same for the employers’ 7.65% as well. That translates into an end of the social security and Medicare programs! Ending the programs means, in turn that 50 million American households would be immediately thrust into poverty. Consumption would collapse. And economic depression would almost immediately result. But no matter to Trump, so long as he can spin it for re-election purposes in the interim.

Trump administration mouthpieces have been trying desperately to ‘walk back’, as they say, Trump’s disastrous declaration to make the payroll tax cuts permanent and thus destroy social security and Medicare. Mouthpiece #1, Larry Kudlow, says he didn’t mean permanent in fact.

Trump is caught between a rock and a hard place. By deferring the payroll tax the likely response by employers, as others have pointed out, is that the employers, who are responsible for collecting the payroll tax from workers, may do so and just sit on the collected payroll taxes from their employees.

Employers by law are responsible to collect and send the taxes to the government. If they don’t collect from their workers, thus allowing them to realize a real wage increase in their paychecks equal to 7.65%, then the same employers will be liable to pay out of their own profits what they didn’t collect once the deferral period ends. Employers will have to make up the payroll tax loss in 2021—at the same time they have to pay back the deferral on their own 7.65% share by the end of 2021!

Another related problem is that should workers have their 7.65% deferred and realize a wage increase in 2020 from it, they’ll have to declare that as income and pay taxes on it come April 2021. So it won’t be a 7.65% net income gain for them either.

Apparently Trump’s gambit on the payroll tax has had even some Republican Senators choking on the stupidity of the measure. Republican Senator from Nebraska, Ben Sasse, quickly called it “unconstitutional slop”!

EO #2: $400 Supplemental Unemployment Benefits

The supplement Pandemic Unemployment Compensation program, PUC, introduced last March in the CARES ACT provided for an extra federal $600/week benefit in addition to the States’ Unemployment Benefit programs. Those state programs provide up to $450 a week (California) to as little as $235 a week (Mississippi). The $600 was designed to help unemployed stay in their rental apartments and homes. $235 a week, or about $10,000 or so a year, is grossly inadequate to keep people in their homes during the pandemic. So the $600 was added, and not just to cover household living costs but also to stimulate consumption and the economic recovery. Studies show households earning less than $25,000 who received the $600 spent it all. Other university studies show the $600 has not discouraged workers from returning to their jobs.

Trump’s EO proposes to cut the $600 to $400 a week. But not even $400. The federal government will pay $300 and the states will have to kick in the other $100. If they do not, the government $300 may not even be available, according to some sources. The $600 since March has benefited between 14m and 28m unemployed. It generated $85 billion/month in consumer spending and thus GDP to the US economy. Reducing it to $300 a week—as Trump’s EO proposes—cuts that in half, which means at least $40 billion a month will be taken out of the economy and US GDP. Some stimulus that!

And where will the finances to provide the $300/week benefit come from? It is unclear, although Trump administration mouthpieces have raised the possibility the money will be diverted from the Disaster Relief Fund’s $44 billion—i.e. just as the hurricane season arrives! But $44B will only fund the $300/week for about five weeks at most. Not to mention that transferring funds from a program authorized by Congress is also another unconstitutional action—just as is Trump’s payroll tax cut proposal. It too is just another indication of Trump’s intention to run roughshod over any constitutional requirement that gives authority to Congress, and especially the US House of Representatives.

EO#3: Moratorium on Evictions

There are 108 million Americans living in approximately 48 million rental units in the US. The CARES ACT of last March provided for evictions moratorium in only about one third that total, specifically in apartments subject to federal housing finance programs. So evictions have been continuing ever since the pandemic and great recession began. But they have begun accelerating in July as even the limited moratorium expired on July 25. Estimates are that 12.5 million are potential evictions in the federal covered programs–11 million of which in 2020. Other estimates of potential evictions rise to as much as 30 million plus.

Trump’s eviction moratorium Executive Order does not prohibit evictions at all. It just says states should “consider” suspending or limiting evictions. This particular EO is just typical Trump smoke and mirrors, allowing him to say something in his tweets and public appearances that he’s stopped the evictions. In this case, the EO is just normal Trump BS.

EO#4: Student Loan Deferral

Whereas the March CARES ACT provided for the suspension of student loan payments and zero interest accrual through September 30, 2020. Trump’s EO merely extends it up to the end of December 2020. Or possibly earlier, since the EO states: “It is therefore appropriate to extend this policy until such time that the economy has stabilized, schools have re-opened, and the crisis brought on by the COVID-19 pandemic has subsided.” What’s ‘stabilized’? How many schools must ‘reopen’ and what constitutes ‘pandemic has subsided’? In other words, there’s no guarantee even the suspension is extended through 2020.

The current crisis provides no better opportunity for the US government to simply expunge federal student loan balances and obligations. The program is a travesty. It charges students, now in debt to the tune of $1.6 trillion, interest rates as high as 6.7%. That compares to the ability of businesses to obtain 10 year equivalent loans at interest rates as low as 2% today. Why is the federal government charging millions of students such usurious interest rates? Because it wants to push them off the Dept. of Education loan system into the arms of the private banks to re-consolidate their government education loans. Banks charge now about 4% to consolidate, less than the government’s 6.7% but far more than the 2% they charge their business customers for equivalent loans. Abolishing the $1.6 trillion debt load on students will have no effect whatsoever on US government finances and US economic output. In fact, it would likely result in a major stimulus to consumption and therefore economic growth. But Trump’s EO does nothing except allow him to say he improved relief on student debt by some weeks before the November elections.

Executive Orders & Deepening US Constitutional Crisis

While running for president before 2016 Trump continually attacked Obama for trying to legislate immigration reform by Executive Order. Now he is doing the same, expanded by magnitudes. Trump has revealed time and again plans to govern by bypassing Congress. He has cornered the Federal Judiciary. Not just the Supreme Court majority but hundreds of his ideological appointees to the Federal Judiciary at all levels are now in his pocket. He clearly believes he can abrogate Congressional legislative authority and govern by decree: executive orders as well as national emergency declarations and similar legal maneuvers no doubt already being planned by Bill Barr and Steven Miller. The current flurry of EOs should be viewed as just the latest tactics in his broader strategy. They are largely public relations measures introduced primarily with his eye on the November elections.

They are also ‘FUs’ directed at the Democrats, declaring his intent to step on them at every opportunity in the run up to the November elections. It’s as if he’s saying and taunting them: “See, I outmaneuvered you guys again. I set you up allowing my hatchet men, Meadows and McConnell, to extract concessions from you in negotiations. I let you think you could get a deal. Now I’ll announce those measures and you can agree to them or not. I’ll spin it and take the political credit. Now you can come back to the bargaining table and give me some more concessions that I’ll take credit for as well. I’m going to string you along like this until November. I’ll look like I’m doing something and you’ll look like you can’t get anything done”.

A Trump De Facto Coup Scenario

Trump will never accede to the results of the upcoming November elections, should he lose. His strategy becomes increasingly evident with every passing week and action. The EOs are just the latest event in that strategy.

The mostly likely scenario for November is his plan to declare on November 4 that the voting has been tampered with as a result of mail ballots and the US post office refusing to process and mail millions of ballots. He’ll declare the November results null and void, and declare the US Supreme Court should decide in his favor for a second term—just as it did (unconstitutionally) in 2000 when the Court stopped the voting count in Florida. This time he’ll challenge the voting count in every state he’ll lose, but not in those he’ll win.

It is not beyond the possible he’ll also call for his radical right, gun-toting friends to come to Washington to surround and protect the White House while the crisis intensifies in December-January. His DHS troops and ICE cops are also available to provide physical protection. Democrats in Congress will rant and rail about it all, but have no executive force to stop him or drag him out of the White House in January when he refuses to leave. Nor will the Washington DC police, or FBI, or US military units want to confront a White House surrounded by his armed supporters. As time drags on, his position will become stronger.

Make no mistake. This is not an impossible scenario. Democrats and moderates think he cannot thus flout the US Constitution and law. Yes he can. And he likely will.

Jack Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.

posted August 8, 2020
Trump Scuttles Economic Stimulus Negotiations-What’s Next?

On August 7, 2020 negotiations on an economic stimulus package between US House Democrats and the White House broke down and broke off. What’s behind it?

In recent days the Democrats’ leaders, Nancy Pelosi and Chuck Shumer, reportedly reduced the cost of their original ‘Heroes Act’ proposals by $1 trillion. Instead of the original cost of $3 trillion in the Heroes Act passed last June, they were willing to agree to a reduced package of $2 trillion. Never mind the attempt to reach a compromise on some middle ground. The White House, through Trump’s assigned negotiator, staffer Mark Meadows, rejected the Dems offer. Meadows reportedly slammed the table (a two-bit amateur negotiating tactic) and walked out of negotiations with Pelosi-Shumer in a huff. Meadows’ walkout appears a well-planned set up in the works for some time.

What does this mean, politically and for the economy, now showing clear signs of the mild rebound of May-June dissipating in recent weeks?

On one level it’s clearly a typical Trump negotiating tactic: Bring a deal to a near close, then make a big show and angrily walk away. Trump’s done that before on numerous occasions. We saw it in the trade negotiations with China in 2018 and again 2019. It didn’t work then with the Chinese trade negotiators, and will likely not work here again—assuming the Dems don’t lose their backbone and fall for the set up. That’s been known to happen in the past.

Trump coyly stayed on the sidelines in the early phase of the negotiations between the Dems and McConnell in the Senate and Mnuchin at Treasury.

He let McConnell in the Senate carry his water in the early bargaining. But McConnell’s extreme ideologue wing, led by Rand Paul and others, revolted. They said they couldn’t support any kind of new stimulus because of its impact on the government’s deficit and debt. However, this same Rand Paul-led crew in just one day last week quickly approved a record $760B Pentagon spending bill. Nor did these same folks have any problem approving tax cuts worth $5 trillion in the past two years under Trump. Nothing said about that impact on the budget and national debt.

And its these same hypocrites in the Senate who have been arguing the $600/wk. unemployment benefits for workers under the March 2020 Cares Act were ‘too generous’. The benefit was keeping workers from returning to work, they argued, although at least a half dozen university studies—from Harvard, Yale and Princeton—concluded it’s not so.

McConnell’s withdrawal to the sidelines in negotiations in early July—allowing Trump, Meadows and Mnuchin to take the lead in negotiations on the stimulus—may be part of the Republican strategy as well. Up until recent weeks, McConnell and Mnuchin were respectively playing ‘hard cop’ and ‘soft cop’ with Pelosi-Shumer. McConnell wouldn’t budge, which let the Dems pursue compromise with Mnuchin who was serving as lead for the Trump negotiations. Mnuchin and the Dems actually made some headway and some compromises. Mnuchin sucked them in, getting them to reduce their original Heroes Act $3T proposals to $2T. They were being set up.
Then Mark Meadows, Trump’s hatchet man, took over the negotiations after mid-July and played hard cop to Mnuchin’s soft cop. Now Meadows broke off discussions and stomped out today, August 7. The tactic is transparently designed to get the Dems to reduce their position even further. Propose more than the $1 trillion concessions already made this past week as the cost of getting Meadows to return to the bargaining table. If they do, it makes Trump look tough and in control of the negotiations agenda. And if they don’t, then Trump moves on to legislative by executive action—which also puts him in the appearance of control and the sole person producing the stimulus package.

Trump also wants to put his ‘mark’ on the negotiations, as is always the case. He wants it to look like the parties couldn’t come together, but he was able to hammer out a deal. ‘The Art of the Deal’, right?

And there’s another more insidious objective here. Trump’s been signaling for weeks he’d like to inject his own pet demands—like more tax cuts for business—and is ready to do so by executive order once again, if necessary. He wants to legislate by executive order. He pulled it off before, setting a precedent. That was when he spent money for his wall by shifting it from the Defense Dept., planning to restore the diverted funds back to the Defense Dept. at a later date. Republican proposals on the table, by the way, provide another $29 billion for the Pentagon—over and above the just awarded Pentagon spending of $760 billion. That’s to restore the funds diverted already for his wall.

Having gotten away with it once, now he’ll make a similar move: he’ll divert funds by executive action to pay for his new tax cuts and other measures by taking money from some other pot to pay for it. Reportedly in the press, the likely ‘other pot’ could be unspent funds already allocated to fight the virus. Dems in Congress will be left standing saying ‘hey, you can’t do that’, but it’ll already be done.

Breaking off negotiations now gives Trump the opportunity to introduce his proposals by executive order. To do so is clearly unconstitutional but that means nothing to Trump. He’ll soon announce his own stimulus proposals and start implementing the executive orders. He’ll use that fait accompli to force the Dems to agree to his measures if they want to be part of any final stimulus deal. And if they don’t,” so what” he’ll say. “They couldn’t get it passed. I did.”

But as the failure to pass a new fiscal stimulus drags on, 14-25 million workers will lose their supplemental $600/wk. unemployment benefits. That’s roughly $85 billion a month taken out of US GDP, in reduced household consumption. Failure to pass a stimulus also means that 12.3 million renters could be evicted before November, according to the most conservative survey. Some surveys estimate as many as 28 million could be evicted. And no more money for state and local governments facing a growing fiscal crisis that will soon require them to start mass layoffs in September.

The McConnell-Trump strategy is not to bail out state and local governments. It’s about making the high urban population centers—located largely in ‘blue’ states—to bear the brunt of the continuing economic crisis. If they need more money, let them go to the municipal bond market and borrow more. It’s a blue state problem, they argue. Let them sink with it is the Republican view. Or else cut their too generous public employee benefits and pensions.

To sum up, the strategic objectives behind Trump’s ordering his man, Meadows, to break off negotiations are several: inject Trump to the center of the negotiations in the last phase of bargaining so he can take credit for any subsequent deal. Second, allow Trump to raise his pet proposals—like making the payroll tax cut permanent—to the top of the bargaining agenda with the Dems. Third, let McConnell off the hook and avoid creating a split within his Republican ranks over deficits in order to forge a deal. Fourth, expand Trump’s attack on the legislative and purse strings authority of the US House of Representatives, and thereby push the presidency toward usurping legislative authority still further than it already has. In other words, exacerbate the already growing US Constitutional crisis between Congress and the Executive branch.

Trump is not only a tyrant—i.e. someone who sees himself above the law—as witnessed by his recent pardons and his own numerous public statements about himself as president. He is a classic usurper, attempting to shift legislative authority via executive action from Congress to himself. He is also moving toward rule by decree—aka a dictator—which is a hallmark of all authoritarian and would-be fascist rulers.

And we should watch out for more ‘rule by decree’ attempts in coming months as he invokes one or more ‘national emergency declarations’ to deal with America’s current triple crises—political as well as economic and health.

With Trump forcing a break-up of the recent fiscal stimulus negotiations and his to be announced executive orders, the political-constitutional and economic crises in America are becoming increasingly entangled. It almost seems as if Trump’s grand strategy may be to exacerbate the deepening crises as much as possible before November 3, in order to create a pretext for him to declare the election void and challenge the results.

Dr. Rasmus is author of the 2020 book, The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump, Clarity Press. He blogs at jackrasmus.com. His website is http://kyklosproductions.com, and his twitter handle, @drjackrasmus. He hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network in New York.

posted August 5, 2020
US GDP Collapses & 3rd Quarter Economic Rebound Fades

This past week US economy collapsed in the 2nd quarter by 32.9% at annual rate and nearly 10% just for the April-June period. Never before in modern US history—not even in the worse quarters of the 1930s great depression—has the US economy contracted so quickly and so deeply!

All the major private sectors of the US economy—Consumption, Business Investment, Exports & Imports—collapsed in ranges from -30% to -40% in the April-June period. That followed first quarter prior declines in single digits as well. More than $2 trillion in real economic activity was wiped from the economy. Consumption collapsed by more than -1.5 trillion. Business investment by nearly -$600 billion. Ditto net trade and even state & local government spending.

Even more foreboding is that the April-June collapse came as the economy opened up in June virtually everywhere and in many states even before in May. So the 2nd quarter collapse—as deep as unprecedented as it was—reflects a rebound of economic activity during the last six weeks of the quarter.

More worrisome still, even the weak May-June rebound has begun showing signs of stalling out as of mid-July, according to latest economic indicators.

Fading 3rd Quarter US Economy

Here’s some emerging evidence of that stall-out now beginning:

• Jobs Deteriorating Once Again

Weekly initial unemployment claims began to rise after mid-July. The numbers of new jobless claims are now consistently in the 2.2m-2.4m per week range as the economy enters August. Officially more than 32m are now collecting benefits. Millions more are still trying, or running out of them. Add to that the more than 5 million more workers who simply dropped out of the labor force since February. They’re not even calculated in the unemployment rate, according to official US government practices. So there’s easily 40m jobless out there in America—a number that’s remained pretty constant for months now. 40m unemployed is roughly a 25% unemployment rate, same as that during the worst of the 1930s great depression.

On Friday, August 7 the US Labor Dept. will report jobs and unemployment numbers for July. The reported consensus among economists is that it will likely show only 1.6m new jobs created, according to a survey reported by Reuters—a sharp slowdown after June’s numbers showed 4.8m. But 3 million of June’s new jobs represented workers returning to restaurants, hospitality, and retail work as the economy was reopened (prematurely) in May-June. Now, as the Covid virus has surged again in July, many of those 3 million who returned to work in May-June are being re-laid off in July or returning to sheltering as 30 states have again re-initiated partial shutdowns.

In addition to the Covid surge effect on jobs, scores of large companies have, independently of the virus effect, begun announcing mass layoffs by the thousands and tens of thousands. They have determined the economy’s situation is far worse than reported by the media or Trump administration and are planning for a long recession. Their layoffs will be mostly permanent due to long term restructuring.
If the 32m now collecting jobless benefits, plus those waiting to still get them, plus those who gave up and dropped out of work altogether equal 25% unemployment, how is it then that the US government keeps saying unemployment is only 11.1%?

It’s because that 11.1% is a cherry-picked low ball number for public consumption that conveniently represents only full time workers unemployment. If part timers laid off were included, even per the government’s own figures that’s 18%. Those numbers also don’t accurately count those who left the labor force or reflect the number of ‘gig’ jobs that are picked up as part of the 25% unemployed in the unemployment benefits numbers.

Another indicator of the renewed deterioration of the labor markets is the number of job openings reported by the government. That too has begun to trend down once again after mid- July just as the unemployment benefits claims began to rise in tandem.

• US Manufacturing & Construction Stagnant At Best

Manufacturing and construction account for roughly 20% of the US economy and GDP. The spin since the US economic reopening began late May has been all sectors of the economy have been bouncing back—services, manufacturing, construction. Facts show otherwise.

In Manufacturing jobs have continued to decline every month, according to Purchasing Managers Indexes (PMI) More companies continued to lay off workers in manufacturing than hire them during May-June. Manufacturing output continued to contract through June, with a reading of 49.8 (less than 50 indicates contraction). That rose to 51.3 in first half of July, but contracted again at the close of July finishing the month of July essentially stagnant at 50.9, according to the business research firm, HIS Markit.

The condition was roughly the same for construction. Per the US Commerce Dept., construction activity continued to decline by -1.7% in May and another -0.7% in June during the period of the economy’s reopening.

So with services’ industries and occupations re-shutting down in July once again, and with Manufacturing and Construction, stagnating at best—by end of July 2020 the US is teetering on the edge of faltering and ending the brief, weak and tentative economic rebound of late May to early July.

• Household Income & Consumption in Trouble

Consumption spending by households represents 70% of the US economy and GDP. The main determinant of household spending for the more than 100 million US working/middle class households is their wage income or, for working class retiree households, their pensions, social security benefits, & other income. Household income for tens of millions is now in a precarious state and is being reflected in reduced spending already.

According to a US Census Bureau report in July, 22% of households report that they now, as of July, can’t make their rent or mortgage payments. There are roughly 70 million renting households in the US. That’s more than 15 million US households and more than 30 million Americans!

According to Urban Institute research, it will cost $7.3B a month to keep renters and homeowners in their homes. That’s a little more than $50B for the next six months. But Republicans—Mnuchin, McConnell & Trump—all adamantly refuse to provide any of the $7.3B assistance. On the other hand, they quickly approved roughly $20B in the March Cares Act for Defense corps making billions in profits, passed the $760B in new money for the Pentagon in one day last week, and now propose another $30B for their Pentagon-Defense Corp. friends in their HEALsAct stimulus proposal announced in July.

Apart from the $760B new record Pentagon budget just passed in the blink of a political eye, that’s roughly $50B in new money for the Pentagon instead of $50B to keep tens of millions of working class households in their homes for another six months!

Already evictions of renters and foreclosures of homeowners are rising fast. It’s something of a myth that even the Cares Act of last March introduced a moratorium on rent evictions. First of all, that addressed only one third of the available rents—i.e. those backed by US government financing. Two-thirds have always been exempt. Even the one-third was not enforceable, moreover. Many areas of the US have continued with evictions throughout the pandemic period.

And now evictions are accelerating even faster in July, now that the Cares Act measure expired on July 25. No fewer than 12.3 million renters covered by the Cares Act lost their moratorium late July. That evictions acceleration, now underway, has resulted in reduced spending and consumption since mid-July and will no doubt depress spending even more into August and beyond.

In addition to the Housing crisis depressing income and consumer spending, there’s the parallel crisis of more than 15 million newly unemployed having no medical insurance. Studies show clearly those without insurance tend to spend less to save for medical expenses. A Commonwealth Health Care Fund survey in late June found that 21% of workers laid off lost all health insurance coverage from their employer and all sources during layoff since March. That means at least 8 million additional US households without health insurance since March. 8 million more—and rising as new unemployment claims also rise—who will spend less and compress consumption further and therefore US GDP in 3rd quarter.

Yet another major factor portends a slowing of household spending and consumption, further dampening any economic rebound: Congress’s reduction of unemployment benefits.

Debate is now intensifying in Congress on the scope and magnitude of a so-called ‘5th stimulus’ legislative package. At the heart of the debate is whether to continue the $600/week federal supplemental unemployment benefits instituted last March under the Cares Act. The cost of the $600/wk. benefit was estimated in March at $340 billion, for a period of four months. Were the $600 eliminated altogether, it would thus take roughly $85B a month out of the US economy.

Republicans in the Senate have proposed an immediate reduction of the $600 benefit to $200. Hidden in the proposal is a further reduction after two months at $200, by integrating the federal benefit with state unemployment benefits and capping both at $500. So at least 3/4s of the $600 would end, taking nearly $65B a month in spending out of the economy starting in August and for however long the benefit continue.

It is not surprising given the rising unemployment claims, pending evictions, growing ranks of health uninsured, and prospects of ending significant unemployment benefits—not to mention the resurge of the virus and growing partial re-shutdowns across dozens of states—that household consumer confidence shows evidence of fading in July as well. University of Michigan’s survey—considered the gold standard of the confidence research—recently reported that consumers’ expectations for the US economy over the next six months continue to slip further. In March 2020 the overall index fell to only 72.5, a historic low (>100 means positive; <100 means failing confidence). That remained at 73.2 in June despite the economy reopening. The next six months expectations index in June was 72.3 but by mid-July had deeply contracted further to only 65.9. Clearly, consumers are not optimistic where the economy is about to go and, to the extent their expectations affect their spending, the latter is not likely to recover soon.

In short, escalating housing evictions, more loss of health insurance coverage, and reduction of weekly unemployment benefits for tens of millions of Americans and households can only further significantly depress household consumption—70% of the economy—and thus undermine the already weak and fading May-June economic rebound.

Fading US Economic Rebound in Historical Perspective

During the depths of the crash in March-April, Trump, his administration spokespersons, much of the mainstream media, and many economists were predicting the crash would soon produce a just as rapid snap back of the economy beginning in June. That was called the ‘V-Shape’ recovery.

But recoveries are sustained, whereas ‘rebounds’ are not. This writer was publicly predicting last March the V-shape prediction was a fiction. At best, the trajectory of the US economy would prove to be ‘W-Shape’—as have all great recessions of which the current contraction has proven to be among the more severe. (Other ‘great recessions’ have occurred the last century in 1908-13, 1929-30, and 2008-11. None were V-shape. All were to some degree ‘W-shape’. And in one case, the ‘W’ transformed into an extended ‘U’ and the great depression of the 1930s.

W-shape trajectories are typical of great recessions. W-shape means a deep initial contraction of the economy is followed by a weak rebound, which then dissipates and produces a subsequent economic relapse in terms of growth and GDP. The relapse may take the form of a dramatic slowdown in the rebound or in the economic growth rate totally stalling out and economic stagnation occur next quarter. Or, yet a third possibility is that the relapse may prove even more severe and result in a renewed contraction once again—i.e. a double dip recession. In a W-shape typical great recession trajectory, the stagnation or double dip is in turn followed by another brief and weak ‘rebound’. And that rebound followed by yet another relapse. Triple dips are not impossible. That’s what happened to Japan after 2008 and almost to Europe as well after 2014.

This ‘bouncing along the bottom’ trajectory following the deep initial crash may go on for months and years—as was the case in the US after 1908 and again after 2009 as well.

Or, alternatively, the stagnation or further economic contractions may lead to a subsequent financial and banking crash that drives the economy even deeper, ratchet-like, to become a de facto economic depression. That was the case after 1930.

What’s happened to date in the US, from early March through July 2020, shows the US economy has clearly fallen into a great recession again–and this time three times deeper than in 2008-09 and in one third less the time!

It is unprecedented. And it represents totally new territory that mainstream economists have no analog experience from which to speculate as to its medium and longer term trajectory into 2021. Indeed, the mainstream economics community has no clue. They are content, as they typically are won’t to be, with predicting the present instead of the future—although very few now bother to say it’s a V-shape recovery. Only the polyannas in the Trump administration still adhere to that nonsense and that fiction.

The first phase of the 2020 Great Recession has passed. That was the deep and rapid contraction of 10% (32.9% annualized). The second phase began with the weak June rebound that continued into early July. The question now is whether that weak rebound will transform into a relapse in the form of a rapid slowing of the economy once again—i.e. a third phase. Or perhaps just a second phase, with the weak rebound of May-June representing a juncture or transition between phases.

Beyond the coming 3rd quarter the central question is whether the US economy will experience yet another weak, short and shallow economic rebound? If so, the W-shape trajectory of the current Great Recession 2.0 will be further confirmed. Another possibility is the contraction will even out and settle into a longer term stagnation. Yet a third outcome is further shocks to the economy will drive it into yet another sharp and deep contraction.

There are three possible ‘drivers’ that would result in the latter outcome: a failure of Congress and policy makers to introduce a sufficient fiscal stimulus directed at household consumption stimulus; a major political and constitutional crisis occurring surrounding the November 3 national presidential elections; or a chain reaction contagion in financial markets provoked by spreading business defaults and bankruptcies—either in the US or abroad.

The nation should know fairly shortly whether Congress—driven by Republican and conservative-radical ideologues—fails to pass sufficient fiscal stimulus as the economy fades in the 3rd quarter.

The second outcome is becoming increasingly likely by the day. Trump clearly has no intention of leaving office by normal processes. A close electoral college vote will further ensure a political crisis in the US of dimensions never before experienced. The economic consequences will prove severe. Those possible scenarios will be described shortly in another article.

Third, although a major financial instability event is not yet imminent, the longer the W-shape great recession trajectory continues, the more likely such an instability event becomes. Moreover, when it does, it will appear swiftly, unexpectedly, and no less severely in terms of its impact on the real economy of households, workers, and even businesses in general.

Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He hosts the weekly radio show, Alternative Visions, blogs at jackrasmus.com. His twitter handle is @drjackrasmus and his website: http://kyklosproductions.com.

posted July 19, 2020
What Lies Ahead?

The US economy at mid-year 2020 is at a critical juncture. What happens in the next three months will likely determine whether the current Great Recession 2.0 continues to follow a W-shape trajectory—or drifts over an economic precipice into an economic depression.
With prompt and sufficient fiscal stimulus targeting US households, minimal political instability before the November 2020 elections, and no financial instability event, it may be contained. No worse than a prolonged W-shape recovery will occur. But should the fiscal stimulus be minimal (and poorly composed), should political instability grow significantly worse, and a major financial instability event erupt in the US (or globally), then it is highly likely a descent to a bona fide economic depression will occur.

The prognosis for a swift economic recovery is not all that positive. Multiple forces are at work that strongly suggests the early summer economic ‘rebound’ will prove temporary and that a further decline in jobs, consumption, investment, and the economy is on the horizon.

A Second Wave of Permanent Job Losses

Through mid-June to mid-July, the COVID-19 infection rate, hospitalization rate, and soon the death rate, have all begun to escalate once again. Daily infections consistently now exceed 60,000 cases—i.e. more than twice that of the earlier worst month of April 2020. Consequently, states are beginning to order a return to more sheltering in place and shutdowns of business, especially retail, travel, and entertainment services. The direction of events cannot but hamper any initial rebound of the economy, let alone generate a sustained economic recovery.

Exacerbating conditions, a second wave of job layoffs is clearly now emerging—and not just due to economic shutdowns related to the re-surging virus.

Reopening of the US economy in June resulted in 4.8 million jobs restored for that month, according to the US Labor Department. That number included, however, no fewer than 3 million service jobs in restaurants, hospitality, and retail establishments. These are the occupations that are now being impacted again with layoffs, as States retrench once more due to the virus resurgence underway. But there’s a new development as well: A second jobless wave is now emerging in addition to the renewed layoffs due to shutdowns not only of the resumed service and retail occupations, but reflecting longer term and even permanent job layoffs across various industries.

Household consumption patterns have changed fundamentally and permanently in a number of ways due to both the virus effect and the depth of the current recession. Many consumers will not be returning soon to travel, to shopping at malls, to restaurant services, to mass entertainment or to sport events at the levels they had, pre-virus.

In response, large corporations in these sectors have begun to announce job layoffs by the thousands. Two large US airlines—United and American—have announced their intention to lay off 36,000 and 20,000, respectively, including flight attendants, ground crews, and even pilots. Boeing has announced a cut of 16,000, and Uber,n just its latest announcement, a cut of 3,000. Big box retail companies like JCPenneys, Nieman Marcus, Lord & Taylor, and others are closing hundreds of stores with a similar impact on what were formerly thousands of permanent jobs. Oil & gas fracking companies like Cheasepeake and 200 other frackers now defaulting on their debt are laying off tens of thousands more. Trucking companies like YRC Worldwide, the Hertz car rental company, clothing & apparel sellers like Brooks Brothers, small-medium independent restaurant and hotel chains like Krystal, Craftworks—all are implementing, or announcing permanent layoffs by the thousands as well.

Reflecting this, since mid-June new unemployment benefit claims have continued to rise weekly at a rate of more than 2 million—with about 1.3 million receiving regular state unemployment benefits plus another 1 million independent contractors, gig workers, self-employed receiving the special federal government unemployment benefits. The latter group’s numbers are rising rapidly since mid-June.

As of mid-July no fewer than 33 million are receiving unemployment benefits, with another 6 million having dropped out of the labor force altogether and no longer even being counted as unemployed. Unemployment therefore remains at what will likely be a chronically high number, at around 40 million—with about 25% of the US labor force unemployed—as renewed service-retail sector layoffs, plus new permanent layoffs, both loom on the horizon.

Added to the growing problem of renewed service layoffs and the 2nd wave of permanent layoffs in the private sector is the growing likelihood of significant layoffs in the public sector, as states and cities facing massive budget deficits are forced to lay off several millions of the roughly 22 million public sector workers in the US. This potential public employee layoff wave will accelerate and occur sooner, should Congress in summer 2020 fail to bail out the states and cities whose budgets have been severely impacted by the collapse of tax revenues while facing escalating costs of dealing with the health crisis. Estimates as of last May are that the states and cities will need $969 billion in bailout funding this summer—roughly two-thirds for the states and the rest for cities and local governments.

The resurgence of layoffs from all these sources is a sure indicator that the economy’s rebound—let alone recovery—is in trouble. Rising joblessness means less wage income for households and therefore less consumption and, given that consumption is 70% of the economy, a slowing of the rebound and recovery. Problems in consumption in turn mean business investment suffers as well, further slowing the economy and recovery. Exacerbating the decline in personal income devoted to consumption due to unemployment is the evidence that even those fortunate enough to return to work after spring 2020’s economic shutdown are doing so increasingly as part time employed—which means less wage income for consumption compared to the pre-COVID period before March 2020.

Overlaid on these negative prospects for employment, consumption, business investment is the intensification of economic crisis-related problems.

Rent Evictions, Child Care & Education Chaos

There is an imminent crisis in rents affecting tens of millions. At the peak in April, it is estimated that roughly one-third of the 110 million renters in the US economy had stopped making rent payments due to the COVID-related shutdowns of the economy. The CARES ACT, passed in March, provided forbearance on rental payments, although perhaps as many as 20 states failed to enforce it. That forbearance directive expires at the end of July, with as many as 23 million rent evictions projected in coming months. A major housing crisis is thus brewing, as well as the second wave of job layoffs.

A combined education-child care crisis is about to occur almost simultaneously. The K-12 public education system is approaching chaos, as school districts plan to introduce remote learning on a major scale in order to deal with the renewed COVID-19 infection and hospitalization wave. The heart of the crisis is that tens of millions of US working class families dependent on two paychecks to survive economically cannot afford to accommodate school district practices for remote learning—especially for young children in the K-6 grade levels. Even if such families could afford to pay for expensive child care, the current US child care system is far from being able to accommodate them. Many minority and working class households, moreover, lack the computers and networking equipment, or even the requisite skills to set it up, to enable their children participate in remote learning.

Several forces are driving the shift to remote learning: school district fears of liability actions by parents if children become ill, the significant cost of ensuring disinfected classrooms, the lack of classroom space to allow distance learning on site, and the growing concern of teachers regarding their own exposure to infection. At least 1.5 million public school teachers are over age 50 and have health conditions that put them at greater risk of serious infection, should they attend closed-in classroom environments.

The child care plus K-12 education crisis will likely erupt within months on a major scale. Chaos in education is around the corner.
This fall, higher education—colleges and universities—will also experience chaos of their own kind. While distance learning will not be as serious an implementation problem as it will in K-12 levels, costs from the pandemic will force many smaller, private colleges into bankruptcy, consolidation or closure. Public colleges’ funding problems will require them to sharply reduce available services. Remote education will create a two-tier system of higher education—educational services delivered remotely and those of a more traditional nature on campus; or a hybrid of both.

However, demand for higher education services will likely decline sharply in the short term, during which higher education will experience a devastating decrease in tuition and other sources of college revenues. Some estimates show a third of freshmen plan to take what’s called a ‘gap year’: i.e. accept entrance but not attend for a year. That’s a massive revenue loss. Some estimates foresee a 15%-30% decline in new student attendance, with another 5%-10% decline in transfer students, and a similar decline of 5%-10% in continuing students. In addition, the attendance by international students, the ‘cash cow’ for most colleges, may also decline sharply due should the Trump administration’s new rules become effective.

Still other developments will sharply reduce college revenues. Students forced to attend classes via remote learning will demand lower tuition. One can expect a wave of legal suits as students seek to ‘claw back’ full tuition expenses. Other secondary sources of college revenues—from fees, on-campus room and board, endowment earnings and gifts, and sports revenues—also spell a looming revenue crunch.

A wave of college consolidations and closures is inevitable. And with student loan debt at $1.6 trillion it is unlikely that the federal government will introduce new aid through that channel. Nor will States increase their subsidization of public colleges, given the severe state budget deficits on the horizon.

In short, the economic crisis is about to assume more socio-economic dimensions and character: rent, child-care, education chaos will soon overlay the continuing unemployment problem and worsening recession. Social and political discontent, frustration, and anxiety are almost certainly to rise in turn in coming months as a consequence.

Global Recession & Sovereign Debt Defaults

The weakness of the global economy is yet another factor likely to ensure the US economy’s W-shape trajectory. As noted previously, with 90% of other countries in recession, global demand for US exports will remain weak or declining. In addition, global supply chains have also been severely disrupted by the health crisis, or even broken, and will not be restored soon. The global economy is suffering from deep problems of both demand and supply. This too is a unique historical event. Never before have demand and supply problems occurred congruently. Together, they increase the potential for a global depression.

Commodity producing economies have been hard hit, especially oil and metal producing countries. Many were in a recession well before the COVID health crisis. Global trade in general had stagnated, registering little to no growth in 2019, for the first time since modern records were kept. Many countries had over-extended their borrowing, expanding their sovereign debt loads during the last decade. This was money capital borrowed largely from western banks and capital markets (i.e. shadow banks).

Now, with global trade flat and declining, and prices for their export goods deflating in price as well, these debt-extended countries cannot earn sufficient income from exports in order to pay the principal and interest on their debt. As a result, several countries in the worst shape may soon default on their debt payment to western banks, hedge funds, private equity firms, and so on. Debt defaults potentially mean the same western financial institutions that loaned the funds now experience financial crises in turn. In such a manner, financial instability events abroad are often transmitted to the domestic US economy through its banking system. It would not be the first time, moreover, that foreign bank crashes have spilled over the US and rest of the world economy and in the process significantly exacerbated a recession already underway.

Theoretically, countries experiencing severe sovereign debt crises could borrow from the International Monetary Fund. However, the IMF has nowhere near the funds to accommodate multiple large sovereign defaults that occur simultaneously. Nor is it likely that the US and Europe will increase the IMF’s funding to enable it to do so. Once it becomes clear the IMF cannot handle a crisis of such potential dimensions, the global capitalist economy will slip even further toward global depression.

The further deterioration now already occurring in economic relations between the US and China may also potentially impact the Great Recession in the US, and ensure its continued W-Shape recovery. Trump’s trade pact with China signed December 2019 has proven thus far a colossal failure. The president declared at the deal’s signing it would mean $150 billion in China purchases of US goods in 2020—especially farm products, oil & gas, and manufactured goods.

At mid-year, China has purchased only $5 billion of the agreed $40 billion in farm products and only $14 billion of $85 billion in US manufactured goods. Trump’s promised $150 billion was never agreed to by China, even before the Covid pandemic struck the US economy in 2020. China never agreed to a dollar value of purchases of US exports, but announced it would purchase based on conditions in 2020-21. Trump’s $150 billion was typical Trump misrepresentation of a deal never made. At best China would purchase perhaps $40 billion in agricultural goods—i.e. about the level of it purchases before Trump launched a trade war with it in March 2018. Failure to deliver his exaggerated public promise in 2020 Trump turned on on China and embraced further his anti-China hard line advisors on trade and other matters. The former ‘trade war’ with China will likely transform now, in the wake of Covid, into a broader economic war with China. Furthermore, the deterioration of relations with China, set in motion by the current recession and the collapse of global trade, shows signs of spilling over to other political and even military affairs.

Permanent Industry Transformations

The COVID health crisis is accelerating the transformation of entire industries and sectors of the economy, US and global. As noted above, household consumption patterns are already changing fundamentally and will continue as changed even after the health crisis passes. Entire industries will shrink as a consequence. Company consolidations and downsizing are inevitable in airlines, cruise lines, and even public land transport. So too will companies fail, consolidate and restructure in the hospitality, leisure and hotel industries, in mall-based retail establishments, inside entertainment (movies, casinos, etc.) to name but the obvious. Sports and public entertainment companies are struggling to redefine their business models and how they bring their ‘product’ to the public for consumption. Even education—public and private—is undergoing a radical shift. Not so obvious is similar fundamental change in oil & energy industries, and later as well in manufacturing as supply chains are slowly returned to the US economy.

Not only will these changes significantly (and often negatively) impact employment levels and wage incomes, but business practices as well. Already businesses are instituting new cost cutting practices under the pressure of the health crisis and shutdowns. These practices will become permanent. And since much of the practices and cost cutting will focus on workers’ pay and benefits, more of what economists call ‘long term structural unemployment’ will result—in addition to the current ‘cyclical unemployment’ occurring due to the current recession.

An historic consequence of the current Great Recession precipitated by the COVID-19 health crisis is the accelerating introduction underway of what some call the Artificial Intelligence revolution. AI is about cost-cutting. It’s about new data accumulation, data processing and statistical evaluation, to allow software machines to make decisions previously made by human beings. AI will eliminate millions of low level decision-making by workers in both services and manufacturing. A 2017 report by the business consulting firm, McKinsey, predicted no less than 30% of all workers’ occupations will be severely impacted by AI by the end of the present decade. 30% of jobs will either disappear or have their hours reduced significantly. That means less wage income and less consumption still.

The important linkage to the current Great Recession 2.0 is that the introduction of AI by businesses will now speed up. What McKinsey formerly predicted for the late 2020s decade will now take place by mid-decade. The economic consequences for the next generation of US workers, the late Millennials and the GenZers will be serious, to say the least. After decades of the permeation of low pay, low benefits ‘contingent’ part time and temp jobs since the 1990s, after the impact of the 2008-09 crash and aftermath on employment, after the acceleration of ‘gig’ jobs with the Uberization of the capitalist economy since 2010, and after the even more serious negative economic effects of the current Great Recession 2.0, the tens of millions of US workers entering the labor force today and in coming years will have to face the transformation of another 30% of all occupations. The future does not portend very well for the 70 million millennials and GenZers. US neoliberal economic policies and the Great Recession 2.0 is accelerating the long term structural unemployment crisis of both the US and the global capitalist economy.

Return of Fiscal Austerity

The US federal budget deficit under Trump averaged more than a trillion dollars annually during his first three years in office. The federal national debt at the end of 2019 was $22.8 trillion. As of July 2020 it has risen to $26.5 trillion—and rising. Earlier projections in March were that it would increase by $3.7 trillion in 2020. That has already been exceeded. So, too, will projections for 2021, or another $2.1 trillion. The deficit and debt will likely rise to more than $4 trillion in this fiscal year and another $3 trillion in 2021. That means the current national debt within 18 months will reach $30 trillion. And that’s not counting the debt level rise for state and local governments, already $3 trillion; nor the debt carried on the US central bank, the Federal Reserve, balance sheet which is scheduled to rise another $3 trillion at minimum.

The point of presenting these statistics is that the US elites, sooner or later, will introduce a major austerity program. It will likely come later in 2021. And it will make little difference whether the administration that time is headed by Democrats or Republicans. It will come and it will target social security, Medicare, Medicaid, Obamacare, education, housing, transport and other social programs.

The first Great Recession provides a historical precedent. Obama’s recovery program in January 2009 provided for $787 billion in stimulus. But the joint Republican-Democrat austerity agreement introduced in August 2011 took back nearly twice that stimulus, or $1.5 trillion, in 2011-13. That austerity contributed significantly to the W-shape recovery from the 2008-09 economic crash and contraction—i.e. the first Great Recession. With the current deficit surge of $6 trillion to date, likely to increase to $9 to $10 trillion, the US economic elites will no doubt pursue a new austerity regime at some point within the next few years. That austerity will, like its predecessor, ensure at best a W-shape recovery typical of Great Recessions. At worst, it may prove the final event that pushes the US economy into another Great Depression.

Financial Instability, Defaults & Bankruptcies

Those who deny that the US and global economy have already entered a second Great Recession offer the argument that the 2008-09 crash and recession was caused by the banking and financial crash of 2008-09, and therefore, since there has not yet been a financial crash, the economy at present is not in another Great Recession. But they are wrong.

Great Recessions are always associated with a financial crisis, but that crisis need not precede the deep contraction of the real, non-financial economy. The COVID-19 pandemic has played the role of a financial crash in driving the real economy into a contraction that is both quantitatively and qualitatively worse than a ‘normal’ recession. Furthermore, a subsequent banking system-financial crash is not impossible in the coming months, although not yet likely in 2020.

The preconditions for a financial crisis are in development. It won’t be precipitated by a residential mortgage crisis, as in 2007-08. But there are several potential candidates for precipitating a financial crash once again. Here are just a few:

• The commercial property sector in the US is in deep trouble. Commercial property includes malls, office buildings, hotels, resorts, factories, and multiple tenant apartment complexes. Many incurred deep debt obligations as they expanded after 2010 or just kept operating by accruing more high cost debt when they were unprofitable. Today they are unable to continue servicing (i.e. paying principal and interest) on their excessive debt load. Many have begun the process of default and chapter 11 bankruptcy reorganization. Banks and investors hold much of the commercial property debt that will never be repaid. Excess derivatives (credit default swaps) have been written on the debt. A debt crisis and wave of defaults and bankruptcies in 2020-21 in the commercial property sector could easily precipitate a subprime mortgage-like debt crisis as occurred in 2008-09. And derivatives obligations could transmit the crisis throughout the banking system—as it did in 2009. Regional and small community banks in the US are particularly vulnerable.

• The oil and gas fracking industry, where junk bond and leverage loan debt had already risen to unstable levels by the advent of the COVID crisis. The collapse of world oil and gas prices—which began before the COVID-19 impact and continues—will render drillers and others unable to generate the income with which to service their debt. Already more than 200 companies in this sector are in default and bankruptcy proceedings. Again, regional banks that financed much of the expansion of fracking in Texas, the Dakotas, and Pennsylvania will be impacted severely by the defaults. Their financial instability could easily spread to other sectors of banking and finance in the US.

• State and local governments, should Congress fail to appropriate sufficient bailout funding in its next round of fiscal spending in July 2020. State and local governments are capable of default and bankruptcy—unlike the Federal government, which is not. The US has a long history of state defaults associated with the onset of Great Depressions. This time around, state financial instability will quickly spill over to public pension funds, and from public to private pensions, and from there to the municipal bond markets with which state and local governments raise revenue by borrowing to fund deficits.

• Global sovereign debt markets, as previously noted. Defaults on massive debt accumulated since 2010 by many countries could result in serious contagion effects on the private banking systems of the advanced economies, including the US, Europe, and Japan. Should the IMF fail to contain a chain of sovereign debt crises that could follow in the wake of the current Great Recession, a chain reaction of defaults across emerging market economies in particular has the potential to precipitate a global financial crisis.

History shows that financial crises often originate from unsuspected corners of the economy. The above candidates are the ‘known unknowns’. There may also lurk in the bowels of the capitalist global financial system still more ‘unknown unknowns’—i.e. what are sometimes called ‘black swan’ events.

Political Instability

The US and other countries are on new ground in terms of potential political instability. The piecemeal curtailment of democratic and civil rights has been progressing at least since the mid- 1990s. In the 21st century it has been accelerating, both in the US and across the globe. Recent years have seen a growing public confrontation between contending wings of the capitalist elites and their political operatives. Institutions of even limited capitalist democracy are under attack and atrophying. And now political instability is growing as well at both the institutional and grass roots levels. One should not underestimate the potential for even more intense political confrontation among elites, or between segments of the US population itself, from having a negative impact on the current economic crisis and 2nd Great Recession. A Trump ‘October Surprise’ or a November 2020 constitutional crisis are no longer beyond the realm of the possible, but even likely.

The expectations of both households and business may serve as transmission mechanisms propagating political instability into more economic and financial instability. Political instability has the effect of freezing up business investment and therefore employment recovery. It has the further effect of causing households to hoard what income they have and raise the savings rate—at the expense of consumption. It also leads to government inaction on the policy necessary to provide stimulus for recovery.

On a global front, political instability may even assume a global dimension. History in general, and US history in particular, reveals that US presidents seek to divert public attention from domestic economic and social problems by provoking foreign wars. Targets for US attack, in the short term, are Iran and Venezuela—especially the latter, which is more susceptible to US military action. But tomorrow, in 2021 and after, it could well be Russia (Ukraine or Baltics US provocations), North Korea (a US attack on its nuclear facilities) or China (a US naval confrontation in the South China sea)—irrespective of the unlikely success of such ventures.

Like another financial-banking crash, a major political instability event—domestic or foreign—could easily send an already weak US economy struggling in the midst of a Great Recession into the abyss of the first Great Depression of the 21st century.

Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He hosts the weekly radio show, Alternative Visions, blogs at jackrasmus.com. His twitter handle is @drjackrasmus and his website: http://kyklosproductions.com.

posted July 6, 2020
Why 3rd Quarter US Economic ‘Rebound’ Will Falter

Eric, here’s a submission for you for next issue of Z mag. Jack

Why 3rd Quarter US Economic ‘Rebound’ Will Falter
By
Dr. Jack Rasmus
Copyright 2020
The reopening of the US economy in June—and some states as early as May—has produced a modest economic ‘rebound’. But rebound is not to be confused with economic recovery.

The current rebound is the natural result of the US economy collapsing 40% between March and June 2020. In the first quarter, January-March 2020, the US economy contracted 5%, virtually all of that in March. While the final data for the 2nd quarter is yet to be announced, the US Federal Reserve Bank’s forecasts of US Gross Domestic Product (GDP) show a much greater collapse, ranging from -30.5% (NY Fed district) to -41.7% (Atlanta Fed district). No economy can continue to collapse at that steep a rate quarter after quarter.

Economies experiencing deep and rapid contractions—which is typical of both great recessions and economic depressions—inevitably experience periods of leveling off for a time, or even a slight bounce back—i.e. a rebound. But that’s not a recovery. ‘Recovery’ means a sustained, quarter to subsequent quarter economic growth that a continues more or less unabated until the lost economic ground is ‘recovered’. But a rebound is typically temporary, followed by subsequent economic relapses in the form of stagnant growth or even second or third dip recessions.

Look at the Great Recession 1.0 that began in December 2007. The decline began that month subsequently declined more rapidly in the first quarter 2008, but then bounced back slightly in the 2nd quarter 2008. It then took a deep dive in the second half of 2008 through the first half of 2009, contracting every quarter for an entire year. A short, shallow recovery followed into 2010. But the economy relapsed again in 2011, contracting once more for two quarters in 2011. Another small rebound followed in early 2012 and was followed by stagnation in the second half of 2012.

The reported GDP numbers after 2008 were even weaker, and the relapses more pronounced, before the US Commerce Dept. changed the way it defined US GDP and boosted the totals by $500 billion a year after 2013, retroactive to 2008 and before.

All Great Recessions with an initial deep economic contraction, are typically followed by brief shallow recoveries, cut short by subsequent double dips or quarters of no growth stagnation.
That was true of the Great Recession of 2008-09, which didn’t really end in June 2009, but bounced along the bottom economically for several more years. A similar trajectory will almost certainly follow today’s 2020 Great Recession 2.0 now concluding its Phase One initial deep collapse.

The Phase One deep collapse is now giving way to its Phase Two and what will prove a brief and quite modest ‘rebound’. But that’s not a recovery.

Further economic relapses are inevitable after ‘short, shallow rebounds’ that characterize all Great Recessions. That trajectory—i.e. short, shallow rebounds followed by relapses also brief and moderate can go on for years.

What it means is there will be no V-shape and true recovery in the US economy in the second half of 2020. What there will be is an extended ‘W-shape’ period, the next two years 2020-2022 at minimum. And it may continue for perhaps even longer.

The 1929-30 Great Recession: Anteroom to 1930s Depression

A similar scenario occurs prior to bona fide economic depressions, like that which occurred in the 1930s. The great depression began initially as a Great Recession. US policy makers failed to contain it and it slipped into the Great Depression of that decade as we know it. What precipitates Great Recessions collapsing into bona fide Depressions is the collapse of the financial and banking system.

The Great Depression of the 1930s did not begin with the stock market crash of October 1929, however. The real economy was already slipping into recession in manufacturing and construction sectors in 1929, well before the October 1929 stock market financial crash. The economy contracted in 1930 by -8.5% and continued to contract every year thereafter through mid-1933 as the US economy experienced a series of four banking crashes, one each year from 1930 through 1933. The banking crashes drove the real, non-financial economy ever deeper every year, in a ratchet like effect.

Rebound and growth followed 1934-36. However, that weakened significantly in late 1937 as a conservative Republican Congress and Supreme Court together began dismantling Roosevelt’s 1935-37 New Deal social spending fiscal stimulus programs. As a result, in 1938 the US economy fell back into depression once again. A partial reversing of the dismantling in 1939 produced a return to positive GDP growth that year. But it wasn’t really until 1941-42 that the economy really exited the Great Depression, as US GDP rose 17.7% in 1941 and then 18.9% in 1942. Recovery—not rebound—was clearly underway after m id-1940—i.e. the result of government spending on both social programs and defense that amounted to more than 40% of GDP those years. That was fiscal stimulus. That was recovery.

In other words, the lesson of the Great Depression of the 1930s is in order to end a depression, or stop a Great Recession from becoming a Depression, the government must step in and spend at a rate of 40% GDP.

Prior to the onset of the current 2020 Great Recession 2.0, the US government’s spending and share of US GDP was about 20%. It needs to double to 40% to engineer a true recovery from the current crisis. 5.5% is no stimulus in fact; just a partial ‘mitigation’ of the severe collapse that just occurred. That is, a temporary floor under the deep 30%-40% collapse that would have been even greater.

The 2008-09 Great Recession: The 5.5% Failed Stimulus

In January 2009 the incoming Obama administration proposed a fiscal stimulus recovery package amounting to roughly $787 billion and 5.5% of GDP. Economists advocated double that. Even Democrat party leaders in the US House proposed another $120 billion in consumer tax cuts. But Obama’s economic advisers, mostly former bankers and pro-banker academics like Larry Summers, argued the US could not spend that much. Obama listened to Summers and reduced the amount to the $787 billion. It proved grossly insufficient. The real economy continued to lag and job losses continued to mount. Supplemental programs like ‘cash for clunkers’ and ‘first time homebuyers’ had to be added.

Even with these post-January program supplemental spending Obama’s fiscal stimulus proved insufficient to generate a robust recovery, as the historical record shows. The US recession under Obama ‘recovered’ at its weakest rate compared to all the prior ten US post-recession recoveries since 1947. The Obama recovery was only 60% of normal for recession recoveries.

The problem with the Obama 5.5% was not only the insufficient magnitude of the stimulus. Its composition was deficient as well. It called for almost $300 billion of the $787 billion in mostly business tax cuts, which were then hoarded by business and not invested to expand output, hire more workers, and generate thereby more income for consumption. Nearly $300 more was in the form of grants given to the states to spend. They too hoarded most of it and failed to rehire the unemployed as was intended. The remainder of the $787 billion was composed mostly of long term infrastructure investment and spending that had little initial effect on the economy’s recovery. As a result of the insufficient magnitude and poor composition of the Obama 2009 stimulus, the US economy fell into a ‘stop-go, W-shape economic recovery for the next six years. US jobs lost in 2008-09 were not recovered until as late as 2015, and the average wages paid for the new jobs was significantly less than wages paid for the jobs that were lost.

The point is: if 5.5% was insufficient to generate sustained recovery in 2009, today in 2020 the effective 5.5% fiscal spending produced by the CARES ACT in March 2020 will prove even less successful. The US economy’s economic collapse today is five times deeper than in 2008-09 and has occurred in one-fifth the time of the 2008-09 event. If a second more aggressive government spending program does not follow in the second half of 2020, then the current tepid economic ‘rebound’ underway due to the reopening of the US economy will certainly fail at generating a sustained recovery. Here’s why the CARES ACT—the main and only stimulus program to date—is only 5.5% and will fail to generate a sustained recovery as the economy reopens with a modest ‘rebound’.

The March 2020 CARES ACT: Failed Stimulus Déjà vu

As of mid-year 2020 the US government spending to date is summed up in the various provisions of the CARES ACT passed by Congress in March 2020, plus several smaller measures passed before and after it as supplements. Its actual spending as of late June 2020 amounts to only approximately a 5.5% contribution to US GDP.

The CARES ACT on paper called for $1.45 trillion in loans and grants to small, medium and large businesses. $500 billion is allocated as loans to large corporations. Another $600 billion to medium sized plus some other measures. And $350 billion in loans, convertible to grants, to small businesses called the Payroll Protection Program, or PPP.

Another $310 billion was added to the PPP small business loan program as banks quickly misdirected hundreds of billions of dollars to many of their ineligible bigger business prime customers which scooped up much of the original $350 billion for small business.

The three business programs combined thus allocated $1.76 trillion in loans and grants.

Another $500 billion was allocated to workers and US households in the form of supplemental income checks of $1200 per adult plus an extra $600 in federal unemployment benefits available through July 31, 2020.

A couple hundred billion dollars more went to hospitals and health care providers in emergency reimbursements before and after the March CARES ACT passage.

That brought the total March CARES ACT fiscal stimulus to roughly $2.3 trillion. However, not discussed much in the media is another $650 billion CARES ACT provided business and investor tax cuts. The tax cuts include a temporary suspension of business payments to the payroll tax; more generous net operating loss (NOL) corporate tax averaging that allows business to use current losses to get tax refunds on prior year taxes paid; faster depreciation write-offs ( de facto tax cut); and more generous business expense deductions. Less than 3% of the $650 billion tax cuts in the CARES ACT went to families earning less than $100,000 per year in annual income.

On paper, the roughly $2.3 trillion CARES ACT amounted to roughly 11% of GDP. But only half of that 11%–or just 5.5—has actually hit the US economy. This contrasts with Germany and other European and Asian countries that boosted fiscal spending stimulus by as much as 15%-20%.

Another 5.5% Stimulus Means Another Failed Sustained Recovery

The 5.5% to not enough to kick start the rebound into a sustained recovery. Much of the 5.5% is already spent to mitigate the 2nd quarter deep contraction and is no longer available as a stimulus in the upcoming 3rd quarter.

All the $1200 checks have been spent already and most of the $600 unemployment benefit boost has entered the economy. The latter expires on July 31. Furthermore, the majority of the $1.7 trillion allocated to businesses large and small has yet to get into the US economy as well.

Of the $660 billion in the small business PPP program, about $520 billion has been spent. Less than $100 billion of the $500 allocated to large businesses, like airlines and defense companies, has actually been ‘borrowed’ by big business. And as mid-June 2020, none of the $600 billion for medium size businesses had yet been ‘taken up’ by those businesses. The program was only fully launched late June, more than three months after it was first announced in March.

Thus far little interest appears on the part of medium and large businesses in the more than $1 trillion loans allocated to them. And as far as the $650 billion in tax cuts is concerned, its effects can be delayed until December 31, 2020, if even then. Given the weak US economy and consumer demand, many businesses will take the tax cuts and hoard them.

In short, more than half the roughly $3 trillion total of government spending, loans, grants and tax cuts provided by the CARES ACT is yet to be committed to the US economy. The official 11% is really only half that at best.

This fact leads to the interesting question: Why have medium and large businesses not take up more of the $1.1 trillion business loans allocated to them?

The $3+ Trillion Uncommitted Business Cash Hoard

The answer is they haven’t because they are already bloated with cash and don’t need or want it. That cash hoard has resulted from several sources in recent months: Large corporations saw the writing on the wall with regard to the virus as early as January-February 2020. They quickly began loading up on cash by drawing down their generous loan credit lines with their banks. That produced a couple hundred billion dollars in cash by March. Then they issued record levels of new corporate bonds to raise still more cash. From March to end of May more than $1.3 trillion in new corporate investment grade bonds was raised by the Fortune 500 US businesses—i.e. more than in all 2019. A couple hundred billion dollars more was raised in junk grade corporate bonds.

Still another cash source was raised by businesses suspending dividend payments and stock buybacks to shareholders. In 2019 they distributed $1.3 trillion in buybacks and dividend payouts
($3.4 trillion total under Trump’s first three years in office). So buybacks and dividends suspensions saved at least another $500 billion in cash. Companies also began selling off and cashing in their minority stock interests in other companies. Furloughing workers to work from home also saved still more cash in reduced facilities, benefits and related costs for many corporations. Tech companies especially benefited from this.

Bloated with trillions of dollars of cash, large and medium sized corporations had little interest in borrowing from the CARES ACT, since the latter came with conditions like the provision that 70% of the loans be spent on keeping workers on their payrolls. They preferred to lay off their workers, and borrow from the credit markets, issue new bonds, and otherwise conserve cash.
A good example was Boeing Corporation. Congress allocated more than $50 billion to Boeing as part of the $500 billion loan program earmarked for large corporations. Instead of borrowing that, Boeing raised $25 billion issuing new bonds and announced layoffs of 16,000 of its workers! Less than $100 billion has been used to date by large corporations under the CARES ACT big corporations’ $500 billion loan allocation. And virtually nothing of the $600 billion to date allocated under the medium size business loan program called the ‘Main St.’ lending facility.

7 More Reasons Why ‘Rebound’ Won’t Mean Recovery

Here are some seven other reasons—apart from the US current insufficient fiscal stimulus—why the US economy will not experience a sustained ‘recovery’ in the next six months, and why instead the US will follow a W-Shape trajectory of weak un-sustained growth followed by economic relapses through 2020-21 (and perhaps even longer):

1.) 2nd Covid-19 Wave Economic Impact:

It is inevitable a number of states will reinstate shutdowns—in significant part if not totally—as the infection, hospitalization, and death rates rise over the summer due to premature reopening of the economy and a growing breakdown of social discipline in adhering to basic precautions like social distancing and mask wearing. The partial shutdowns will. To varying degrees, reduce consumer spending, business investment, and result in re-layoffs of workers. Second wave layoffs in services like leisure & hospitality, bars, restaurants, travel, public entertainment, and even education and health care services will emerge—all negatively impacting household consumption demand. It is estimated that at least half of the states, 40% of the reopened economy, will reinstate some degree of re-closures of business activity in coming weeks and months as a resurgence of Covid 19 impacts the US economy in the second half of 2020 and beyond.

The official US June employment report on July 3, 2020 showed 4.8 million jobs were reinstated. But no less than 3 million of that 4.8 million were recalls in leisure & hospitality, hotels, bars, restaurants, and retail industries. These are the same industries that will be affected most by states reinstituting shutdowns. They are also industries where businesses that have been able to reopen only partially thus far in most cases operate on very thin margins. They are likely to fail in Phase Two of the crisis now beginning, and many closing completely in the second half of 2020 as a result of operating only at half capacity.

The scope of the possible closures is revealed by the recent Yelp survey of 175,000 of its customer business base. During the 2nd quarter, Yelp’s survey found that in May-June only 30,000 of its 175,000 had reopened. More important, its survey showed that 40,000 of its 145,000 that hadn’t yet opened had already closed permanently. The wave of permanent business closures in the second half of 2020—especially in the leisure & hospitality and retail industries—should not be underestimated. The permanent shutdowns will occur not only due to reduced consumer demand, but to a resurgence of Covid-19 and a second wave of layoffs.

2.) Deeply Entrenched Business & Consumer Negative Expectations

The US economy has been deeply wounded by the deep contraction of the past four months. Both businesses and consumers have negative expectations as to the direction of the economy in the short to intermediate run. Businesses don’t see the conditions for returning to expanding investment, or even returning to prior levels of production and output. With consumer demand clearly in retreat, business expectations of future sales and profits are dampened. Reducing the cost of investing by lowering business taxes or interest rates have little effect on generating more investment, when expectations of profitability—which is what really drives investment—are so low. This is the fundamental reason why business across the board is hoarding its accumulated cash. The same applies to consumers and households. They too are hoarding what cash they have available, spending mostly on necessities only. The evidence is the sharp rise in the household savings rate and bank deposit rates. As much cash is saved and deposited as a precaution that economic conditions may worsen, instead of actually spent. The result is only minimal increase in spending occurs, just as minimal investment. Until negative expectations are somehow reversed, both business investment and household consumption do not rise to levels that result in sustained ‘recovery’.

It will take a major event to again shift business and consumer negative expectations, like a vaccine for the virus or a major fiscal stimulus or a program of mass hiring of the unemployed by government. However, none of the above is on the immediate horizon. Therefore negative expectations will continue to dampen any sustained recovery and limit whatever insufficient government fiscal stimulus to generating a modest ‘rebound’ at best.

3.) Business Cost Cutting & Permanent Layoffs

The deep and rapid rate of contraction of the economy over the past four months, and the business expectation of weak recovery, has convinced many businesses to make many of the cost cutting moves of recent months permanent. An example is how some industries and businesses moved their workforces to work from home. It has saved them significant costs of operation—on facilities, maintenance, and some employee benefits. In recessions businesses always find new ways to cut costs that often result in more layoffs and lower wages. Another phenomenon is rehiring and recalling workers back to work temporarily laid off does not occur en masse and all at once. The typical business practice is to recall only part of their workforce and to recall workers more on a part time basis. Not least, the cost cutting and the part time recalls typically results in businesses leaving part of their furloughed work force behind, whose unemployment then becomes permanent.

This second wave of jobless is already beginning to emerge, as businesses downsize in employment after the initial shock to the economy that has already occurred. Airlines are announcing tens of thousands of layoffs. Several other industries are experiencing growing defaults on debt payments and bankruptcies that will result in mass layoffs as well. For example, the oil & energy sector which was a major source of new job creation during the fracking boom of the past five years. More than 200 defaults of companies are in progress. Layoffs are beginning, of a permanent nature not just temporary furloughs or layoffs.

Cost cutting and layoffs translate into less household income for consumption and therefore for generating a sustained recovery.

4.) Deeper Global Recession & Global Trade Crisis

The collapse of the US economy in the first half of 2020 has been accompanied by a synchronized contraction of the global economy. Global economic contraction means US production for export does not recover much in the short run. Offshore demand for US goods & services remains weak. That in turn dampens domestic US investment, employment, and therefore business-consumer spending. Although the US economy is relatively less dependent on exports to stimulate economic growth, exports are not an insignificant contributing factor to US growth and recovery.

More than 90% of the world economy has also experienced deep recession in the first half of 2020. That compares with the first Great Recession of 2008-09 when a fewer 60% of countries were in recession along with the US. Foreign demand for US exports is thus even weaker this time around. Post 2009 China and emerging market economies boomed after 2010 and put a partial floor under US economic contraction by stimulating demand for US product exports; that China-Emerging Market economies stimulus effect on the US economy no longer exists in 2020.

5.) Intensifying US Political Instability

One should not underestimate the potential growing political instability in the USA in the second half of 2020. This instability will occur on two ‘fronts’. One is at the level of political institutions. It is likely the upcoming national elections on November 3, 2020 will be challenged and not accepted by either Trump or the Democratic Party nominee. The growing social instability in the USA and Covid 19 effects on voter turnout, combined with the already widespread voter suppression in various states, makes for ripe conditions for post-electoral crisis should the election be narrowly decided by voters in November. Evidence is growing, moreover, that Trump is prepared to declare voting by mail as fraud and use that as an excuse to throw the election into the Supreme Court—as occurred in the US in 2000. Today Trump, unlike George W. Bush in 2000, enjoys an even firmer majority in the US Supreme Court.

The instability at the level of political institutions in the USA today is accompanied by what appears as growing grass roots civilian conflicts. Street level confrontations between Trump supporters and rising popular movements and demonstrations are not beyond the realm of possibility, perhaps even likelihood.

The political instability has significant potential to negatively impact both consumer and business expectations and therefore dampen both business investment and household consumption even further in addition to causes already noted.

6.) Wild Card #1: Financial Crisis 2021

Intermediate term, in 2021 likely more than in 2020, is the wild card of a financial system crisis emerging that would exacerbate the real economy’s faltering recovery still further. This channel by which a financial crisis might emerge is a growing wave of corporate and state & local government defaults. Massive excess debt has built up over the past decade in business sectors in the US. More than $10 trillion in corporate bond debt exists at present. At least $5 trillion in corporate junk bonds and virtual junk like BBB investment grade. Still more for corporate ‘junk’ leveraged loans. A protracted period of recession and weak recovery will generate a major potential for corporate defaults and bankruptcies. If the magnitude and rate of defaults is too great, or comes too fast, the banking system could very well experience a major credit crash once again.

Industries highly unstable with high cost unaffordable debt, and with insufficient revenues with which to service that debt, include: oil fracking and coal, big box retail, smaller regional airlines, rental car and other travel related companies, hotels and resorts, malls, commercial property in general, and hundreds of thousands of small restaurants and regional restaurant chains. Defaults have already begun rising rapidly in many. Household debt and state and local government debt finds itself in much of a similar situation—highly leveraged with debt amidst collapsing incomes to service the debt as unemployment and wage incomes continue to decline and as tax revenues remain depressed long term due to the weak economic recovery.

The US central bank, the Federal Reserve, is in the midst of an historic experiment to pre-bail out non-bank corporations to forestall the defaults and to flood, at the same time, the US banking system with massive excess liquidity with which to manage the defaults should they come excessively and too rapidly. It remains to be seen whether the Fed’s massive liquidity injections thus far ($3 trillion), and promised (unlimited), will prove sufficient to manage the defaults. If not, the US banking system will freeze up as financial institutions begin to crash as well with the transfer of defaulted corporate debt on to their own bank balance sheets.

In 2008-09 it was the banking system that collapsed first and in turn precipitated a deeper and faster contraction of the real economy in the US. Today it is quite possible the reverse causation may occur in the Great Recession of 2020. But it matters not in a Great Recession which precipitates which first—i.e. the banking system the real economy or vice-versa. The key point is that both cycles—financial and real—feed back on the other in a Great Recession and amplify the downturn in both.

7.) Wild Card #2: Artificial Intelligence Faster Rollout

Another wild card that may emerge with fuller force longer term is the penetration of Artificial Intelligence in business operations. McKinsey Consultants estimated that by 2025 AI would accelerate in its penetration of business practices. By the latter half of the 2020s decade it would have deep and widespread impact on employment and wages, as AI led to deep cost cutting by business. As much as 30% of occupations would be seriously impacted. The essence of AI is to eliminate simple decision making jobs, in services as well as manufacturing.

But it is highly possible that AI will now penetrate even faster, accelerated by business cost cutting and productivity enhancing drives, as a consequence of the current deep economic crisis. The deeper and more protracted the current recession, the more likely business will engage in multiple ways to reduce costs as a means to weather the crisis. AI offers businesses a prime opportunity to do just that. But AI also means a significant reduction in net jobs, especially simple low paid service and retail work. And with the net jobs and wage loss come reduced consumer household demand, consumption, and therefore sustainable economic recovery.

The Case for 40% Government Share of GDP

As previously noted, recoveries from great recessions and depressions require at least a 40% US government spending share of total GDP. Obama’s raised the US government share of GDP to barely 25%, not 40%. The economy accordingly struggled after 2009.

The current 2nd Great Recession 2020, the first phase of which has just concluded in June, is following the same rough trajectory and scenario as the 2008-09. There has been only token fiscal stimulus to the economy thus far from the CARES ACT. Indeed, Congress never considered, at least in the House of Representatives, the CARES ACT was a stimulus bill. It was called a ‘mitigation’ bill, designed to put a partial floor under the collapse of the economy going on at the time in the 2nd quarter 2020. A true stimulus bill was to follow. That’s the HEROES ACT now blocked in Congress by Republican Senate and Trump. What the latter want is to end the unemployment benefits and provide no further income supplement payments. They want to exchange further unemployment benefits for direct wage subsidies to businesses. They want even more tax cuts for business—permanent payroll tax cuts, more capital gains tax cuts, and more business expense deductions. And they are reluctant to provide funding support for state and local governments with accelerating deficits as a result of tax revenue collapse. Should support for state and local governments not occur soon, it is likely mass layoffs will emerge in states and local governments soon.

However, it does not appear so far that anything resembling a real stimulus will get passed with the HEROES Act. The unemployment benefits extension will likely be eliminated. More business tax cuts, should they be added to the $650 billion provided by the CARES ACT, will be hoarded in large part. As will corporate income that would have been otherwise used to pay wages, as the government pays the wages of their workers instead.

An insufficient fiscal stimulus from an eventual HEROES Act, should it occur, will ensure the current tepid ‘rebound’ of the US economy will fail to evolve into a sustained recovery of the US economy. The seven other, additional factors noted above will further prevent a sustained recovery—and indeed may precipitate a subsequent further serious economic contraction. The summer of 2020 is thus a critical juncture period for the US economy.

The US is currently experiencing what might be called a ‘triple crisis’. A health crisis that shows little sign of abating. A deep economic crisis that is still in its early phases. And a ripening political crisis. Never before in its history have three such major events converged. The one of the three that is potentially most manageable is the economic. Health crisis depends heavily on the development of a vaccine. Not much can be done to prevent a deepening political crisis. It will run its course, whatever that may be. But a government fiscal stimulus equivalent to about 40% of US GDP would very likely stabilize the economy and set it on a path to sustained recovery. However, it is highly unlikely that in the current political climate of instability, deep splits within the US political elites, growing grass roots social confrontations, and failure to mount an effective strategy to address the Covid-19 health crisis that the capitalists and their political representatives will be capable of introducing the necessary 40% war time economic stimulus.

Dr. Jack Rasmus
July 6, 2020

Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He hosts the weekly radio show, Alternative Visions, blogs at jackrasmus.com. His twitter handle is @drjackrasmus and his website: http://kyklosproductions.com.

posted June 17, 2020
2nd Covid-19 Wave and the US Ecnoomy

Over the past week evidence keeps growing that the US has entered a second wave of the Coronavirus pandemic. More than 117,000 Americans thus far have died in just the past three months and more than 2.1 million have been infected. That compares to roughly 460,000 and 7.6 million worldwide. With roughly 5% of the world’s population, the US has about 25% of the world’s virus cases—a testimony to the abject failure of the US thus far to manage the virus.

That failure is perhaps most evident in Trump’s virtual withdrawal from the ‘war’ on the virus and what appears to be his new strategy of letting the states each deal with it as they may and can. Trump’s government is clearly in retreat, concerned only with one thing: to get Trump re-elected no matter what the cost in lives or economic well-being of American citizens.

Trump’s policy boils down to this: totally reopen the economy now, blame the states, World Health Organization and the Chinese for the crisis, declare the rising numbers of infections, hospitalizations, etc. as ‘fake news’, blame a 2nd wave on increased testing, and hold daily mass political rallies from now until November.

Trump is a phony ‘war’ president who long ago dropped his rifle and fled from the field of battle. It’s as if president Franklin Roosevelt on December 8, 1941 left town to sail down the Potomac river on his yacht to contemplate the December 7 Japanese attack on Pearl Harbor, Hawaii—instead of appearing before Congress, as he did on December 8, 1941, to declare war on Japan and rally the country in an all out effort. Roosevelt immediately announced a comprehensive ‘war production act’ to take effect across the entire US economy in just a few weeks. His first executive order was to develop and mass produce penicillin, which was thought impossible but which the US did within just a few months. In contrast, what we got from Trump was a declaration the virus a hoax, a proposal for a bogus hydroxychloroquin treatment that the CDC has since declared dangerous and likely to cause heart attacks, and a public announcement it would all be over by Easter. And today, even more incredibly, Trump has said the virus would go away if we just didn’t test for it so much.

Trump’s only concern is to hold rallies with his conservative red state base that will exacerbate the contagion effect of the virus. As President of only the 30% (his base), he is little concerned about the country at large or the virus ‘war’ that has already killed more Americans than every US war together since 1945. Trump’s only actual order after he announced the activation of the war production act months ago has been to force meatpacking workers back to work else their forfeit unemployment benefits. Work or die! will be the legacy of Trump as a war president!

Trump’s economic legacy, history will also eventually show, is to have pushed for a premature reopening of the US economy in the midst of the pandemic and a resurging of virus infections.

Indicators of a second wave in the US are now rising in no fewer than 18 states, most of which are located in the South and Southwest.
Key indicators of a virus re-surge in the US—like hospitalization rates, death rates, and the test positivity rate—are all on the increase throughout those 18 US states. In some states, like Arizona, the availability of ICU beds is fast approaching maximum capacity. Texas is now experiencing more than 2,247 new hospitalizations per day, after having stated to reopen its economy weeks ago, on May 1. That’s seven straight day of rising hospitalizations per day for the state. Florida experienced a new one day record of more than 1900 cases just this past Friday. Alabama, Arkansas and South Carolina are all witnessing surging hospitalizations as well, approaching max capacity in ICU beds.

But it’s not just the deep South. West coast states—Nevada, Oregon, Alaska, and others—are recording a new rise in cases, reversing a prior downward trend. That fact suggests what’s going on now is more than just a first wave. What we may now have is a simultaneous extension of the first wave into the red states, as well as an emergence of a second wave congruent with that extension.
Meanwhile, scientists have recently confirmed that the Coronavirus has indeed now mutated, and is potentially five times more contagious.

Congruent Developments Fanning the 2nd Wave

It is in this general environment that the US is now rushing toward reopening its economy, especially in the South, Southwest and Mid-west, where a more or less full reopening is entering its fifth week in some cases. Added to the premature reopening are public demonstrations against policy brutality that have grown and continue, overlaid on the economic reopening. Perhaps the biggest factor contributing to the emergence of a second wave, however, has been the lack of public self-discipline in many states, especially the ‘red’ ones where Trump’s political base is concentrated. A rising disregard of social distancing has been the growing norm in many states. It’s not just that many people don’t believe they can catch the virus; it’s also that they just don’t care if they spread if they do come down sick.

Add to all this the example of President Trump himself, who has announced he now plans to begin holding mass election rallies once again—thus sending the message to the public it’s ok to engage in mass gatherings. And if they are to follow Trump’s example, they’ll do so without wearing face masks. As the moronic right wing blogosphere has been saying—and Trump has again picked up—the rising rates of infection are because we’re testing too much. Social distancing may have ‘flattened the curve’ in places like New York City and big urban centers of the northeast. But the general economic reopening now underway, the widespread protests and demonstrations against police brutality, Trump’s personal behavior example to his political base and, probably and most important, the general lack of social discipline by the populace in many regions like the country, have ensured the effects of Covid -19 in the US are now on the rise once again.

And it does not appear any of these sources driving a 2nd wave are about to abate any time soon.

Trump administration key spokespersons, like economic advisor Larry Kudlow and Treasury Secretary, Steve Mnuchin, have both declared publicly this past week the US economy will not shut down and shelter in place again a second time. Trump thus has decided to trade tens of thousands of more US lives for the right of business to return to producing revenues and profits.

Nor does it appear Black Lives Matters protestors, mobilizing against decades of intensifying police brutality, will relent in their public demonstrations.

Nor that a majority of residents of the ‘red’ states will finally acknowledge the need for social discipline and social distancing soon by all indicators when the trend is actually opposite.

Nor does it appear Trump is about to reconsider holding mass election rallies, an action that sends a clear message to the rest of the country that it’s ok to gather in large groups, to abandon social distancing, and mask wearing.

A 2nd Wave Means W-Shape Economic Stagnation…Or Worse

In short, it is increasingly likely that things are about to get worse in terms of US public health. And as that happens, so too will the US economy experience a further negative impact from the virus. A 2nd wave now emerging means not just a further decline in public health, but an eventual 2nd wave of problems for the US economy as well.

What a second wave all but ensures is that the US economic recovery will not be ‘V-Shape’ but will be ‘W-Shape’; that is, a W shape recovery characterized by periods of short and shallow GDP growth, followed by brief periodic economic relapses thereafter. These short, shallow recoveries and relapses may repeat and continue for years to come.

Following such a duration of economic stagnation, a major threat grows that could usher in an economic depression perhaps even worse than the 1930s: should the economic stress building from weak, short and shallow recoveries—i.e. an extended deep economic stagnation for years to come—result in an inevitable flood of business, local government, and household debt defaults and bankruptcies, it will eventually overwhelm the financial system. At that point the short-shallow recoveries and relapses will give way to a more generalized banking crisis that will make 2008-09 great recession appear as a minor dress rehearsal. A next great depression rivaling, and perhaps exceeding, the experience of the 1930s may well be the consequence in 2021 or beyond.

Great Depressions are always the result of mutually amplifying crises in the real and financial sectors of the economy. The current deep contraction of the US economy has yet to experience a subsequent banking-financial system crash. However, the longer the current seriously wounded US economy continues to stagnate, slipping in and out of recessions for years, the more likely it becomes that a wave of business and consumer defaults (i.e. failure to pay interest and principal) on record levels of business-household-local government debt will wash over the economy.

When that happens, banks will have to assume the bad debt of failed companies, households, and local governments on their own bank balance sheets. That freezes up lending to business and households in general. Further mass layoffs then follow. Following the bank lending freeze, the real economy contracts still further as the banking system crashes. A financial crisis converges with the real, deep economic contraction and stagnation already underway. As the two systems—financial and real economy—mutually interact and amplify each other, the outcome is a descent into a bona fide economic depression.

2008-09 Great Recession & 2020 Briefly Compared

In 2008-09 it was the financial side that crashed first, subsequently dragging down the real economy 5%-10% for several quarters and producing unemployment rates of 15%-20%. Thereafter it took six years just to recover the jobs lost in 2008-09 and return to 2007 employment levels. Wages for most working families stagnated or fell for the next decade. Working class family debt ballooned in lieu of real wage gains across all categories: credit cards, autos, mortgage, student debt, installment debt, etc., to almost $15 trillion today. In the first three months of the virus that household debt has risen 16% further, according to the New York Federal Reserve. Federal Reserve policies of 2008-09 quickly bailed out investors and the banks, but did little for jobs, wage and income levels for workers, and working class living standards in general.

At the same time corporate profits nearly tripled from 2009 to 2019. Corporate America in turn awarded its shareholders nicely. Stock buybacks and dividend payouts under Obama averaged more than $800 billion a year from 2009 through 2016. To that under Trump was added a further $3.4 trillion in just three years. That’s a total of more than $10 trillion of income and wealth distributed to shareholders in a decade! In contrast to wage stagnation and decline for the bottom 80% of US households.

This time, in 2020, the causal relationships between the two sectors—real and financial—are reversed. This time it’s a crash of the real side of the economy, at least four times worse than that which occurred in 2008-09!

In 2008-09 it was the financial crash that precipitated, accelerated and deepened the real economic contraction. Today in 2020 the causal relation is reversed, and may prove worse. The real economy contraction and extended stagnation may precipitate a financial crisis which, in turn, could feedback further on the real economy and cause an even deeper and longer contraction. Mutual feedback historically always leads to a great depression. It doesn’t matter which precipitates which. The mutual negative interaction is the key determinant that drives the depression.

In just the 1st wave of Covid-19, from late February through May 2020, working class households lost more than $1 trillion net in wage income—even after $500 billion in expanded unemployment benefits and government $1,200 checks are factored. In contrast, corporations were provided since March with $1.7 trillion in loans and grants plus another $650 billion in further business tax cuts under the March 2020 ‘CARES Act’. And the Federal Reserve US central bank has provided another $3.3 trillion in loans to banks, to corporations, and to investors as well. That’s a 10 to 1 ratio: more than $5.5 trillion to business and only $500 billion to the rest. Most of the subsidy to business is being hoarded, moreover; whereas, most of the $500 billion has been already spent. Neither provide any further real stimulus to the economy in the second half of 2020.

In the 2nd wave on the horizon, moreover, more of the same is yet to come, as it appears likely Congress in its forthcoming ‘HEROES Act’ will discontinue the March 2020 unemployment benefits extension that expires the end of July; will refuse to provide further income supplement checks; and will instead use the ‘savings’ from such programs to provide direct wage subsidies to business. By some estimates, the Government (and thus the taxpayer) plans to subsidize business further by providing a wage subsidy of up to 85% of wages that were previously paid by businesses to their employees. In short, instead of unemployment benefits to workers, it will be wage payment subsidies to businesses.

In short, a 2nd covid-19 wave will coincide with an already seriously depressed US economy with little further real economic stimulus in the pipeline. That contrasts with the great recession of 2008-09, which hit a real economy that was still growing strongly when recession hit late 2007.

The Great Capitalist Experiment: Pre-Bail Out the System

So far the central bank of the USA, the Fed, has staved off a banking crash in the short term by pumping the $3.3 trillion into bankers and investors, in effect pre-emptively bailing them out before a crash actually occurs!

Congress has provided the $1.7T to date with which to pre-bail out the non-banking side of the business economy with loans and free grants, as well as provided an additional $650 billion in business-investor tax cuts.

The Fed has provided an additional $3.3 Trillion through its various 11 special lending facilities in virtual ‘free money’ to banks & businesses.

And both Congress and the Fed have signaled they are prepared to provide still more to business and investors in coming months if necessary—if not to workers, consumers, and state and local governments.

An historic policy experiment is thus now underway in the US economy. By pre-emptively bailing out the banking system with trillions of dollars of liquidity (i.e money at low or no interest rates) the Fed is attempting to ‘fatten up’ the banks with record excess money reserves on hand to enable them to absorb the defaults, bankruptcies, and deflation that are coming—even before it occurs.

Simultaneously, in another historic first, the Congress and Fed together are pre-bailing out broad sectors of non-bank businesses in the US with the $1.7T in business-corporate loans and grants. That non-business bailout is designed to reduce the flood of defaults and bankruptcies even before they ‘hit’ the banking system.

So the Fed—with funding assistance from the US Treasury and Congress—is bailing out the capitalist system today even before it crashes. Whether it will succeed in doing so remains to be seen.

One thing is certain, however. The Capitalist state in the 21st century in the USA today is engaged in a massive subsidization of Capitalism itself on a grand scale never experienced or even envisioned before. It is flooding the system with free money and liquidity (loans, grants, tax cuts, QE, corporate bond purchases, etc.) in an attempt to prevent another ‘great recession’ of 2008-09 that would prove to be an even ‘greater recession of 2020-21’—or perhaps morph into the first Great Depression of the 21st century.

A second virus wave will certainly test the experiment of a massive pre-bailout of the system now underway. How broad and deep the second wave goes is yet to be determined. Similarly the specific economic ‘transmission mechanisms’ and ways in which the health crisis impacts and exacerbates the current economic crisis further.

But even if there is no second wave of significant dimension in coming months, the independent dynamics of the current crisis will eventually precipitate a banking-financial crash at some point nonetheless. For the US and global capitalist economy is seriously wounded, fundamentally. It was already slowing and in decline in the US and globally in 2019 in certain sectors of the economy. A second virus wave will accelerate the process of weakening and decline, as it did the first wave. At some point that will inevitably translate into a financial system crisis once again as well. At that point, a new phase, more serious, of the crisis emerges: i.e. the financial crisis occurs, more likely than not drives the seriously wounded ‘real economy’ into a deeper contraction. No longer mere stagnation and W-Shape. Now a clear descent into bona fide economic depression similar to the 1930s, or perhaps even worse.

Until the financial crash takes place, the US economy stagnates more or less in a W-Shape trajectory. Short shallow recoveries will be followed by short relapses and returns to recessions. This will occur regardless of whether a significant 2nd wave of the virus impacts the economy.

The Covid-19 effect, whether first or second wave, is not the sole factor driving the economy and the current economic crisis. Forces have now set in motion a continuing economic crisis, virus or no virus. It’s just a matter of time and place before the economic crisis enters a new and even more unstable phase.

It’s not a Covid-19 economy. It’s a capitalist economy, the instability of which has been rendered even more unstable by the current Covid-19 health crisis. And that instability is not going away should the virus disappear which, of course, is not about to happen either.

Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions. His twitter handle is @drjackrasmus.

posted June 10, 2020
Confronting Institutional Racism

June 3, 2020

A week ago in Minneapolis, for all the world to see, a black man, George Floyd, was murdered by a policeman, Derek Chauvin. Protests broke out in nearly 100 American cities, and even worldwide, and have continued now for more than a week.

Murders of black men by police in America are not new. They are endemic. So why the deep, widespread, and sustained protests this time?

Certainly the nature of this particular murder explains in large part the especially angry protests and response. But it’s not the entire explanation. Youth of all color, race and ethnicity are leading the demonstrations.

A Sadistic, Merciless & Intentional Killing

The killing of George Floyd was a particularly reprehensible police murder. It was clearly intended. It was merciless. It was sadistic. As the world has watched, Floyd was cuffed, face down on the street, pleading for his life. And the more he pleaded, the more Derek Chauvin, the cop, seemed determined and unrelenting, intent on keeping his knee on Floyd’s neck. The first six minutes, as Floyd pleaded for his life, even pitifully calling out for his mother at the end, a sure indication he felt he was nearing his last moments of life. But for almost 3 minutes more Chauvin’s knee remained after Floyd had already lost consciousness.

What angers those who observed the murder most is the lack of mercy shown by Chauvin and his three complicit partner officers. What they showed was clearly an intention to kill. Chauvin appeared almost to take pleasure in keeping his knee on Floyd’s neck for three minutes more after he lay motionless. That made it a particularly sadistic murder.

It suggested to observers of the video, especially to black folks, that the police in 2020 will show you no mercy. Plead all you want for your life when cuffed, helpless, face down in the dirt. They’ll still murder you. And apparently enjoy it in the process!

The murder act was followed soon by another typical series of events, also all too often occurring in America today: Minneapolis police and the city’s district attorney (DA) office prevaricated and hesitated taking action, only responding when protests erupted. That delay suggested a typical cover up was underway, as is so often the response of local authorities in such cases.

There’s a big problem in America today: the cozy relationships that exist between police and DA offices. Both ‘scratch each others’ backs’, as the saying goes: The DA depends on police testimony to get convictions in court; in turn the DAs go light and help protect the police in exchange for their favorable testimonies. Police unions frequently provide significant campaign donations to District Attorney candidates that favor them, creating a kind of political ‘conflict of interest’ by Das. Coroner offices play a contributing role, by providing whatever autopsy results are necessary to support the DA. Carefully selected Grand Juries, should legal challenges to murder get that far, then endorse their joint mutual cover ups. It’s an institutional arrangement that too often thwarts the process of Justice.

So it’s not just an occasional racist cop. It’s institutionalized racism. A pattern that repeats over and over again. This is what the protesters of Floyd’s murder also realize and demonstrate against. They’ve seen it before. Time and again.

Black folks today know that pleading for your life when about to be murdered—like pleading for Justice after the fact—will more often than not fall on institutional deaf ears when police brutality is concerned. No mercy and no justice come in the same institutionalized racist package.

Protests As Acts of Solidarity

The immediate and increasingly angry protests that followed the murder of George Floyd are not due solely to the police killing of Floyd. The media would have you think so. That it’s only about the murder of Floyd and policy brutality. The politicians would like you to think so. All those leaders calling for calm and dialogue want you to believe so.

Floyd may have been murdered in nine minutes. But many youth in America today, especially but not only youth of color, feel their own lives are slowly and steadily being drained on a daily basis, sucked dry by the unfairness and injustice of ‘the system’. They feel that system—a capitalist system that increasingly rewards the wealthy and ignores the rest as never before in its history—has its knee on their necks too. And that system, that knee, is no less unrelenting, shows no mercy, and has no intent on relieving the pressure.

Working class youth of all color today know their lives are being destroyed more insidiously, step by step, year by year, as they struggle to survive: laid off and moving from low paid job to job, accumulating crushing debt laid upon debt, lacking minimal health benefits, changing apartment to apartment as rents are continually raised, with no hope of ever having a normal family life, of ever paying off student loans, in effect having to live a 21st century form of economic indentureship, a second or even third class economic citizenship—while they watch multimillionaires and billionaires almost exponentially add to their wealth.

In just the last three years under Trump, corporations registered record profits, wealthy investors and 1% were given $4.9T in tax cuts and $3.4T in stock buybacks and dividend payouts. While the rich and their corporations get richer, the rest make due with stagnant or falling wages, working two and three jobs, and constant job loss and turnover.

All those protestors on the streets this past week—virtually all young folks—are not just demonstrating against the murder of Floyd and institutionalized racism. That’s the tip of the protest spear. But it’s more than that. It goes deeper than that. There’s a deeper frustration and desperation behind it all, affecting tens of millions but especially American youth.

The youthful protesters looked at Floyd and they saw themselves. The protests are thus an eruption of social solidarity among wide sections of American youth! Not just among black and minority youth but American youth in general. Look at the composition of the demonstrators city after city. They are mostly Millennials and GenZers of all races and ethnicities and gender who feel they have been left behind by ‘the system’. Left out and declared disposable. They are virtually all working class youth. What the protests show is that Class and Race are coming together! Especially among the youth.

They are fearful of police brutality, especially blacks and youth of color. But they are fearful as well of being condemned to a life of low paid, no benefits, insecure and futureless part time and temp work. Working often two and even three jobs cobbled together just to get by.

And now, with the advent of the Coronavirus pandemic, even those mostly low paid service jobs have been wiped out by the virus and recent economic crash—many of which, they sense, aren’t coming back soon or even at all. The Congressional Budget Office today, June 2, 2020 announced it will likely take ten years for the jobs now being lost to come back, and many won’t return at all! There will be no V-shape quick recovery. It will be W Shape, extended over a decade or more, with periodic brief and weak recoveries followed by repeated relapses and recessions—whether or not there are subsequent waves of the virus. The economic die is cast. The US economy (and global) have entered a phase of chronic, long run decline.

What the protestors don’t realize yet, but will soon, is that more of their low paid jobs with no future are about to be wiped out by the coming Artificial Intelligence revolution and automation now ramping up. According to McKinsey Consulting, AI will eliminate 30% of all occupations in the next five to ten years. Even their low pay, futureless service jobs will be eliminated.

Add to all the above fears of the worsening climate crisis the protesting youth know they will have to live through. And to that the growing public awareness of a deepening political crisis in America, as the nation drifts into tyranny driven by the Trump wing of the US political elite.

The USA has entered a ‘triple crisis’: health care & environment, jobs and the economy, and a growing political crisis of Democracy in America itself. The protestors know this. They sense and feel it and are growing frustrated, angry and desperate. The youth of America are growing increasingly desperate. All that ‘social crisis kindling’ is feeding the protests. Police brutality, institutional racism, and murder is just the spark that has set it all off. It’s not just about George Floyd any more.

WHAT TO DO? SOME PROPOSALS

So what’s the solution(s)? To escalating police murders; to white supremacist provocateurs who are intent on stoking a race war (as they say in their own words); to the sub-classless looters that prey upon the protests and demonstrations; to the local institutionalized racism. What might be done?

It’s no longer acceptable to say, as elites of both parties and their media declare daily, that demonstrators should calm down, go home, and let’s dialogue about how to reform the police. That’s been done before. Many times. With little result. It’s time for black folks, protestors and demonstrators on the streets today to develop their own independent solutions to the problem of police brutality.

There are three general actions that might be undertaken immediately to confront institutional racism in America that chronically gives us murders of George Floyds:

1. Break the iron nexus between Police Departments and District Attorney Offices

2. Launch a National ‘Policing the Police’ Movement

3. Form Local Community ‘Committees of Safety’

At the core of institutional racism is the relationship between local police departments and District Attorneys. The police rely on the DAs to smother, delay and defuse investigations and prosecutions of police who have engaged in brutality and murder against black and other minorities. The DAs depend in turn on police testimony in court cases to enable them to win their cases and advance their personal careers. In exchange for police assistance, the DAs go light on police charged with brutality. Knowing they are covered, police feel more inclined to shoot first and not worry about the outcome. It’s a ‘scratch my back-I’ll scratch yours’ mentality that permeates both institutions—police departments and DA offices—nearly everywhere in America today.

Coroner’s offices play a secondary but important role in the process when a murder is involved. They assist the DA by rendering a decision of the cause of death that conveniently points away from the police action in question. The decease died of a heart attack and had underlying heart problems is often the official cause of death. It wasn’t choking of the defendant by the police. It was a heart attack that would have occurred regardless of the choke hold. The guy had a bad heart or some other underlying condition was the cause of death—not the police tactic employed.

Another institutional player in the charade is often a local Grand Jury. This archaic institution is nothing like a real ‘jury’, although called that. It is a selected group of often pro-police and so-called ‘upstanding citizens’—meaning more often than not white, conservative and business oriented. Grand juries often rule to throw out charges, giving the DA cover not to proceed to prosecution. Should the DA still proceed, the charges are reduced from murder to something less based on Grand Jury lesser recommendations. If convicted, the police in question’s penalty is often reduced to only employment termination. But he is then eligible to go to another police dept. and rehired. Police departments often have a silent understanding to rehire each other’s ‘bad apples’. Thus a cop with a long record of abusing blacks and minorities continues to work somewhere ‘down the road’. It’s not unlike the Catholic church simply moving some pederast priest to another parish.

Breaking the Police-District Attorney Cover-Up Nexus

• Local DA’s must be prohibited from prosecuting their local police in cases of racist related brutality and murder. The prosecution responsibility must be moved to an independent source outside the county or city.
• Police department unions and organizations should be prohibited from contributing to DA election campaigns
• Coroners should be selected by the murdered party’s family to ensure impartiality
• Grand Juries should be abolished, especially and starting with cases involving police brutality and killing
• A police discharged for cause, involving a racist brutality case, should be prevented from rehire by another police department anywhere

Launching a national ‘Policing the Police’ Movement

• A national ‘Policing the Police’ movement should be launched. Wherever a cop confronts and stops someone, the public should use smartphones or other photo devices to record the interaction. This is now done haphazardly and occasionally. There should be a general education effort nationwide to get everyone to engage in the practice of video recording police whenever they see a police interaction with any citizen.
• An independent national database of photos and video recording of confrontations should be created.
• A public education campaign should be launched as well, encouraging the public to immediately send all videos to the independent national database.
• The public database should be accessible to everyone online

Forming Local Community ‘Committees of Safety’

• All cities should form local community ‘Committees of Safety’ to police the police, to gather information on confrontations and make the information available to the general public
• The Committees should organize protests and demonstrations and coordinate with other Committees outside their local area to organize larger protests and demonstrations
• During protests and demonstrations, Committee members should undertake the task of identifying, confronting, and rooting out provocateurs. And distribute photo leaflets of known white supremacists and provocateurs to participants in the protests and demonstrations
• The Committees of Safety should publicize to the community at large those identified as looters during the protests and demonstrations
• Committees should endorse and run candidates for city councils, city managers, DAs, and local elected judgeships that are committed to, and supportive of, black lives matter and other minority civil rights
• Committees would raise demands for local ordnance changes and state wide legislation to protect the rights of demonstrators, and organize recalls of politicians who do not
• Committees would undertake other measures as necessary to ensure the safety of protestors from provocateurs, white supremacist violence, and other proponents of violence against people or property during demonstrations

Many of these proposals are not new. Others are being introduced by protestors right now. But the point is the protests and demonstrations should be taken to the next organizational level. They cannot go on as just spontaneous events. They will eventually dissipate without organization. Or be captured by provocateurs and looters. Or manipulated by politicians for purposes of personal election and careers. Or all the above.

Without organization, the ‘I Can’t Breathe’ anti-racist, anti-policy brutality movement that has swept the country runs the risk of eventually fading—just as had other promising popular movements like ‘Occupy’ in 2011 and the ‘Yellow Vests’ in France of a few years ago. Without organization, the provocateurs and looters will also increasingly displace the protestors in the media–providing cover for a ‘law and order’ right wing reaction that will use the violence to crush the demonstrations while ushering in still further restrictions on civil liberty rights of assembly and expression. Nor will the police and politicians rid the protests of provocateurs and looters. The protestors must do so themselves. But that cannot be done without organization.

The other even greater risk, absent organization, is that mainstream politicians will divert the energy and anger of the protestors into channels to get themselves elected.

Organization is needed as well simply in order to expand and build the protests and demonstrations, and to ensure they continue with ever larger turnout.

Forming local community ‘Committees of Safety’ are the core organizational element necessary for building the organizational power of the protests and demonstrations. Launching a ‘policing the police’ movement is a way to connect the general ranks of the demonstrators—and the public in general—to the work of the Committees of Safety. And the Committees and the public Policing the Police movement are together the means by which to independently politically attack the institutionalized racism embedded today in the relationships between police departments, district attorneys, coroners, and Grand Juries.

Breaking institutional racism requires an independent political movement, with a grass roots organizational structure. That independent movement is on the streets of America right now. Will it take the movement to the next level, a level necessary to break the embedded local institutions of racism?

Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at http://jackrasmus.com. Tweets at @drjackrasmus, and hosts the weekly radio show Alternative Visions on the Progressive Radio Network in New York. His website is http://kyklosproductions.com.

posted May 19, 2020
Low-Balling the Unemployed in the Era of the US 2020 Great Recession

This past Friday, May 8, the US Labor Dept. released its latest jobless figures. The official report was 20 million more unemployed and an unemployment rate of 14.7%.

Both mainstream and progressive media reported the numbers: 20 million more jobless and 14.7%. But those numbers, as horrendous as they are, represent a gross under-estimation of the jobless situation in America!

One might understand why the mainstream media consistently under-reports the jobless. But it is perplexing why so many progressives continue to simply parrot the official figures. Especially when other Labor Dept. data admits the true unemployment rate is 22.4% and the officially total unemployed is 23.1 million.

Here’s why the 20 million and 14.7% is a gross under-representation of the magnitude of jobless today:

Only Half Month Data

First, the 20 million for April is really only for data collected until mid-April. Nearly 10 million more jobless workers filed, and received, unemployment benefits after mid-April. And likely millions more jobless have been attempting to get benefits but haven’t. Even officially, more 33.5 million have filed for benefits, with several millions more in the pipeline. So the April numbers of jobless—both receiving benefits and not yet getting them—are more than 20 million!

Only Full Time Employed Layoffs

An even greater misrepresentation is that the official 20 million unemployed represents only full time workers becoming unemployed. It’s the figure from the government report that is the category called U-3, or full time workers. There are between 50-60 million more workers who are part time, temp, contract, gig and otherwise ‘contingent’ workers (i.e. not full time) who are not considered in the 20 million and 14.7%.

Check out the Labor Dept’s own data, in Table A-8, which shows for March and April no fewer than 7.5 million part time workers became unemployed. In April jobless in this group doubled over the previous month, rising by about 5 million in April, according to the Labor Dept.’s own monthly ‘Employment Situation Report’. 5 million to 7.5 million represent what’s called the U-4 government unemployment rate.

But there’s still more. It’s what’s called the U-5 and U-6 unemployed. Who are they? They are what the government calls workers without jobs who are ‘marginally attached’ to the labor force and workers who are too ‘discouraged’. They are just as ‘jobless’ as full time and part time workers. But they’re put in another category simply because they haven’t actively looked for a job in the most recent four weeks.

You see the US government defines unemployed as that subset of jobless who “are out of work and actively looking for work”. If you haven’t looked in the last four weeks, you may be jobless but aren’t considered unemployed! Go figure. Add them to the U-3 unemployed, and the totals for unemployed in America rise to 22.4%. Add in those who filed for benefits in the last half of April, or tried to, and we get closer to the publicly admitted 33.5 million without jobs and receiving unemployment benefits.

The Disappeared 8 Million Unemployed

But that’s not even the whole real picture. The way the government defines unemployment a worker must be part of the labor force. The labor force is composed of two groups: those who have jobs and those who are officially unemployed—i.e. out of work and looking for work in past four weeks. If you are not looking, you’re ‘marginally attached’ (U-5, U-6). It assumes if you have stopped looking in the past four weeks you are part of the 850,000 ‘marginally attached’. But that figure is not credible. Somehow there are less than a million jobless who simply haven’t tried to find a job in the last four weeks? Really? There are many millions.

A government stat that suggests there are likely millions more not in the labor force who are jobless nonetheless is called the ‘Labor Force Participation Rate’. It estimates the percent of the working age population who either have a job or are officially unemployed.
There’s approximately 164.5 million employed/officially unemployed in the US labor force as of May 1, 2020. In February 2020 the labor force participation rate was 63.4% of the US labor force. As of May 1, that had dropped to only 60.2%. Over the past 12 months, roughly 8 million have dropped out of the labor force. And remember: if they aren’t in the labor force they can’t be counted as unemployed. So where did the additional 8 million dropping out go?

The US government doesn’t consider them unemployed so they don’t show up in the U-3 or even U-6 statistics! But if they aren’t in the labor force they are jobless by definition. Perhaps 850,000 are counted as the ‘marginally attached’. But what about the remaining 7.2 million or so? The government has no category for them except the estimation of them in the labor force participation rate. It tries to explain the large number away by saying they retired or went back to school. But did 7.2m (63.4% in Feb. drop to 60.2% in April) retire in 2 months? And they certainly can’t have gone back to school in mid-March/April 2020.

Another government statistic that corroborates this ‘missing 8 million’ in the labor force participation rate is called the Employment to Population Ratio stat. It measures how many are in the labor force as a percent of the total US population of nearly 340 million.
If the EPOP percentage goes down, then fewer are working even though they’re obviously still alive and part of the US population. That figure has declined from 61.1% of the US population employed to 51.3% of the population employed as of May 1, 2020. That’s a nearly 10% drop. 10% of 340 million is about 34 million. And 34 million is not 20 million for April, or even the Labor Dept.’s total 23.1 million.
So both the labor force participation rate and the employed to population ratio both suggest the Labor Dept.’s official U-3 (or even U-6) unemployed figures are grossly under-representations of the total Americans without jobs today.

Voluntary Jobless Are Not ‘Unemployed’

One possible reason for the discrepancies between the official unemployed of 23.1 million vs. the 33.5 million receiving benefits, or the 7-8 million not being counted per the labor force participation rate and EPOP ratio, may be due to the government in this current crisis choosing not to count as unemployed those workers forced to leave work since February to care for dependents.

Remember the government’s driving definition of unemployed is the worker must be ‘out of work and actively looking for work’. Millions of workers who have been forced by the current crisis to leave their job to care for elderly and disabled family members, or to care for young children forced to stay home due to school closures, are not ‘actively looking for work’. Few Americans can afford nannys to watch their young children so they can work. But those in this situation are not considered unemployed by the US Labor Dept. because they don’t fit the definition of ‘actively looking for work’! It’s not clear how many in this category the Labor Dept. has recently refused to acknowledge as officially unemployed.

In America you may be jobless, but that doesn’t necessarily mean per the government you are unemployed!

The above stats and data show that the under-reporting of the jobless in the US is not some kind of conspiracy by the Labor dept. and the government. The data are there, buried in the monthly labor reports beyond the executive summaries. The government stats, moreover, are not perfect. There are serious problems related to raw jobs data recovery, to the various assumptions on that raw data the government makes to come up their jobs ‘statistics’ (always operations on raw data with assumptions which data to count and how). There are conflicting conclusions often between this or that data or statistic. Furthermore, in recent years changes in statistical processing have sought repeatedly to change definitions and processes in order to ‘smooth out’ swings in the statistics—whether employment, unemployment, wages, or inflation. The government has a vested interest in ensuring the smoothing. It reduces government (and especially business) costs of programs and operations.

If there’s a conspiracy of sorts, it’s in the media that purposely seems to always ‘cherry pick’ the most conservative stat to report. Thus we get the media trumpeting every month the nearly worthless statistic of the U-3 unemployment rate—a stat that applies only to full time workers and ignores part time, temp and other contingent labor who make up now nearly a third of the US labor force; a statistic based on a narrow definition of unemployed that has become an oxymoron when estimating unemployed; a statistic based on questionable assumptions and data gathering; and a statistic that can’t be reconciled with other statistics like the labor force participate rate.

The real unemployment rate is not the U-3 figure of 14.7% but easily 25% today. And the real total jobless are not the U-3 20 million, or even 23 million, but somewhere between 35-40 million… and rising!

However, what’s really disappointing is that many progressive and left economists simply parrot the government’s and mainstream media’s misleading U-3 statistic. One can understand why the corporate mainstream media keep pushing the U-3 stat and thus trying to make the unemployment situation look better than it is (or today not as bad as it is). But progressive economists should know better.

Jack Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020, and ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.

posted May 9, 2020
The Myth of US ‘V-Shape’ Economic Recovery

The spin is in! Trump administration economic ‘message bearers’, Steve Mnuchin, US Treasury Secretary, and Kevin Hasset, senior economic adviser to Trump, this past Sunday on the Washington TV talking heads circuit launched a coordinated effort to calm the growing public concern that the current economic contraction may be as bad (or worse) than the great depression of the 1930s.

Various big bank research departments predict a GDP contraction in the first quarter (January-March 2020) anywhere from -4% to -7.5%, and for the current second quarter, a further contraction from -30% to -40%: Morgan Stanley investment bank says 30%. The bond market investment behemoth, PIMCO, estimates a 30% fall in GDP. Even Congress’s Budget Office recently estimate the contraction in GDP could be as high as -40% in the 2nd quarter.

Mnuchin-Hassett’s New Old Normal

Despite the flashing red lights on the state of the US economy, the Trump administration’s key economic spokespersons are pushing the official line that the economy will soon quickly ‘snap back’. On the near horizon is a V-shape recovery coming in the 3rd quarter (July-September) or, at the latest, the following 4th quarter. The economy may be particularly bad, they admit, but be patient folks a return to normal is on the way before year end!

Speaking on Fox News Sunday Treasury Secretary, Mnuchin, declared the US economy is about to open up in May and June and “you’re going to see the economy really bounce back in July, August and September”. And Hassett echoed the same, just a barely less optimistic viewing the snap back in the 4th quarter. Getting ahead of the bad news coming this Wednesday when 1st quarter US GDP numbers are due for release, Hassett admitted a big shock is coming on Wednesday, to be followed by “A few months of negative news that’s unlike anything you’ve ever seen”. But not to worry, according to Hassett, the 4th quarter “Is going to be really strong and next year is going to be a tremendous year”.

Meanwhile, the administration’s big banker allies were also making their TV news show rounds, singing the same ‘happy days will soon be here again’ tune. Bank of America’s CEO, Moynihan, appearing on ‘Face the Nation’ show, predicted consumer spending had bottomed out and would soon rise nicely again in the 4th quarter, October-December, followed by double digit GDP growth in 2021!

The Trump administration is pressing hard to reopen the economy now! It knows if it doesn’t the contraction of the economy could settle in to a medium to long term stagnation and decline. Business interests are pushing Trump and Republicans to reopen quickly, regardless of the likely consequences for a second wave of the virus devastating national health and death rates. There is a growing segment of US business interests desperate to see a return to sales and revenue, without which they face imminent defaults and bankruptcies after a decade of binging on corporate debt. A growing wave of defaults and bankruptcies could very well provoke an eventual financial crisis which would exacerbate the collapse of the real economy even further.

The Fed’s $9 Trillion May Not Succeed

So far the Federal Reserve central bank has committed to $9 trillion in loans and financial backstopping to the banks and non-banks, in an unprecedented historic experiment by the Fed. Not just the magnitude of the Fed bailout in dollar terms, already twice that the central bank employed in 2008-09 to bail out the banks in that prior crash, but the Fed this time is not waiting for the banks to fail. It’s pre-emptively bailing them out! Also new is the Fed is bailing out non-banks as well, trying to delay the defaults and bankruptcies at their origin, before the effects began hitting the banking system. Bailing out non-banks is new for the Fed as well, no less than the pre-emptive bank rescue and the $9 trillion—and rising—total free money being thrown at the system. But it should not be assumed the Fed will succeed, despite its blank check to banks and businesses. Its historic, unprecedented experiment is not foreordained to succeed—for reasons explained below.

For the magnitude and rapidity of the shutdown of the real economy in the US is no less unprecedented. Even during the great depression of the 1930s, the contraction of the real economy occurred over a period of several years—not months. It wasn’t until 1932-33 that unemployment had reached 25%.

As of late April 2020, that 25% unemployment rate was already a fact. The official government data indicated 26.5m workers had filed for unemployment benefits. That’s about 16.5% of the 165 million US civilian labor force. Bank forecasts are 40 million jobless on benefits by the end of May. But respected research sources, like the Economic Policy Institute, recently estimated that as many as 13.9m more are actually out of work but have not yet been able to successfully file for unemployment benefits. So the 40 million jobless may already be here. And that’s roughly equivalent to a 25% unemployment rate. In other words, in just a couple months the US economy has collapsed to such an extent that the jobless ranks are at a level that took four years to attain during the great depression of the 1930s

A contraction that fast and that deep likely has dynamics to it that are unknown. It may not respond to normal policy like enhanced unemployment benefits, emergency income checks, and even grants and loans to businesses on an unprecedented scale such as being provided by the Fed. The psychology of consumers, workers, businesses, and certainly investors may be so shocked and wounded that the money injections—by Congress and by the Fed—may not quickly result in a return to spending and production. The uncertainty of what the future may bring may be creating an equally unprecedented fear of spending the money. Economists sometimes call this a ‘liquidity trap’. But it may more accurately be called a ‘liquidity chasm’ out of which the climb back will prove very slow, very protracted, and the road strewn with economic landmines that could set the economy on a second or third collapse along the way.

The V-shape argument is predicated on the assumption that the virus’s negative effect will dissipate this summer. Those supporting the argument assume, openly or indirectly, that the economic collapse today is largely, if not totally, due to the virus. It’s not really an economic crisis; it’s a health crisis. And when the latter is resolved, the economic crisis will fade as well as a consequence.

But this assumes two things: first that the virus will in fact ‘go away’ soon and not hang like a dead weight on the economy. Second, that there were not underlying economic causes that were slowing the US (and global) economy already before the virus’s impact. The virus is seen as the sole cause, in other words, and not as a precipitating factor that accelerated an already weak and fragile economy into a deep contraction. But the virus may be best understood as an event that precipitated and then accelerated the contraction of an economy already headed for a slowdown and recession.

These latter possible ways to understand the current economic crisis are of course ignored by the advocates of a V-shape recovery. In their view, it’s just a health crisis. And the health crisis is about to end soon. And when it does, we’ll return to the old ‘normal’ and the economy will snap back. But the depth and rapidity of the decline into what is, at least, a ‘great recession 2.0’ and perhaps something more like the even deeper and longer great depression of the 1930s, strongly suggests that forces of decline have been unleashed in the US economy that have a dynamic of their own now. And that dynamic is independent of the precipitating cause of the virus which, in any event, is not going away soon either. In all cases of such virus contagion, there has always been a second and even third wave of infection and death. And Covid-19 appears the most aggressive and contagious.

It’s not just the 40 million and likely more unemployed that define the unprecedented severity of the current crisis.

Millions of small businesses have already shut down or gone out of business. More will soon follow. And many will never re-open again. The average number of days of cash on hand for small businesses before the virus impact was 27 days. Many small businesses are projected to run out of that by end of April. That’s why we are not witnessing growing protests and refusals to abide by a ‘sheltering in place’ order announced by various state governors. Small businesses and their workers, both on the brink of bankruptcy are taking to the streets—encouraged of course by radical right forces, conservative business interests, and political allies right up to the White House.
The millions of workers who haven’t been able to get through to successfully file and obtain unemployment benefits, and the millions of smallest businesses who have been squeezed out of the Small Business bailout program (called the Pay Protection Program) are fertile ground for right wing propaganda demanding the country reopen the economy immediately, even if it’s premature in terms of suspending virus mitigation efforts and almost sure to result in a second wave of infection that will debilitate the economy again later in the year.

And the flow of funding from recent small business legislation passed by Congress has been bottled up by big banks gaming the system—first using the crisis to extract concessions from the federal government on further bank deregulation, getting guarantees by the government on liability protection, ensuring they receive lucrative fees and charges from the lending, and requiring the government to reimburse them for loans that might later default and fail.

In addition to the slow distribution of the loans by the big banks, the same big banks began re-directing the small business program loan funds first to their own largest and best customers. Thus the first $350 billion in Congress funding for small business was directed to the banks’ best customers in less than two weeks. A second $320 billion supplement just added is reportedly already accounted for in less than half that time.

Despite the data on jobs, small business, and GDP much of the liberal economist establishment appear to be falling for the Trump administration official line and spin that there’ll soon be a V-shape recovery.

Liberal Economists Buy the Mnuchin-Hassett Line

The dean of liberal economists, Paul Krugman, in one of his columns recently, says it’s not an economic crisis but a disaster relief situation. Kind of like an economic hurricane, he added, that once it passes the sun will come out and shine again at the same economic intensity as before. And then there’s Larry Summers, Harvard economics professor and advisor to Barack Obama in 2009, who agreed with Krugman, saying “it’s possible to collapse and come back quite quickly.” Or Robert Reich, Cal Berkeley professor and former member of Bill Clinton’s cabinet, who declared in another TV interview recently, that the crisis wasn’t economic but a health crisis and as soon as the health problem was contained (presumably this summer) the economy would ‘snap back’.

Theirs is economic analysis by means of weather metaphors. And the error they all make is assuming that the fundamental cause of the crisis is not economic but the virus. They don’t see the virus as only a precipitating cause, exacerbating and accelerating what was a basically weak US and global economy going into the crisis, but instead the virus is the sole, fundamental cause of the deep contraction.
Krugman and other proponents of the ‘snap back’ (V-shape recovery) thesis all deny the counter argument that the current deep and rapid economic decline is precipitated by the crisis and that there is an internal economic dynamic set in motion that is taking over that driving the economy into a downward spiral regardless of the initial health crisis effect.

As one partial example of that internal dynamic: once the contraction in the real economy accelerates and deepens, it inevitably leads to defaults and bankruptcies—among businesses, households, and even local governments. The defaults and bankruptcies then provoke a financial crisis that feeds back on the real economy, causing it to deteriorate still further. Income losses by businesses, households and local government thereafter in turn cause a further decline. Once negative mutual feedback effects within the economy begin, it matters little if the health crisis is soon abated. The economic dynamic has been set in motion. Krugman and friends should understand that but either don’t, or are cautioned by their employers and political friends not to tell the whole truth lest it cause further concern, lack of business and consumer confidence, or even panic.

When mainstream economists don’t understand what’s actually happening, they hide behind their metaphors as a way to obfuscate their lack of understanding and ability to forecast the future. Or they employ the same metaphors to avoid telling the truth. But the truth is this isn’t just a health crisis. And it won’t quickly disappear even if the health issue were resolved in a matter of weeks or months.
Instead of pacifying the public with nice metaphors, they might just look at the recent past. No snap back economic recovery occurred after 2008-09, which was a contraction far weaker in relative terms than the present, with fewer job losses and a much smaller GDP decline.

2008-09 Recovery Was No V-Shape

Even after the less severe 2008-09 contraction, bank lending after 2009 did not return immediately or even normally. Only the largest, best customers of the big banks and their offshore clients received new loans from them. Bank lending to US small and medium businesses continued to decline for years after 2009. And jobs lost in 2008-09 did not recover to the levels of 2007 just before the recession began until 2015. Wages of jobs recovered from 2008 to 2015 was much lower compared to wages of 2007 jobs that were lost. The ratio between full time jobs and part time/temp/contract work deteriorated after 2009, with more of the latter hired and the former not rehired. Real wages still has not recovered to this day for tens of millions of workers at median income levels and below.

So one can only wonder what the Krugmans, Summers and Reichs are ‘smoking’ when they make ridiculous declarations about ‘snap back’ recovery. They should know better. All they had to do was look at the evidence of the historical record post-2009 that V-shape recoveries do not happen when there are deep and rapid contractions! And that’s true not only for 2009, but even for 1933 when the great depression finally bottomed out.

Between 1929 and 1933 the US economy continued to contract. Not all at once, but in a kind of ‘ratcheting down’ series of lower plateaus as banking crises erupted in 1930, 1931, 1932 and then again in early 1933. When Roosevelt came into office in March 1933 he introduced a program aimed at bailing out the banks first, and then assisting business to raise prices. It was called the National Recovery Act. That program stopped the collapse but generated only modest recovery, and by mid-1934 that recovery had dissipated. It was then, in the fall of 1934, that Roosevelt and the Democrats proposed what would be called the New Deal, which was launched in 1935 after the mid-term 1934 Congressional elections. The US economy began to recovery rapidly in 1935 to 1937. In late 1937 Republicans and conservative Democrats in the South allied together and cut back New Deal social spending. The US economy relapsed back into depression in 1938 until Congress, fearful of the return to Depression, reinstated New Deal spending and the economy recovered again to where it was in 1937. The permanent recovery did not begin until 1940-41, as the US economy mobilized for war and government spending rose from 15%-17% of GDP to more than 40% in one year in 1942.

But mainstream economists are not very attentive to their own country’s economic history. If they were they would understand that deep and rapid economic contractions always result in slow, protracted, and often uneven recoveries. There never is a ‘snap back’ when depression levels of contraction occur—or even when ‘great recession’ levels occur, as in 2008-09. It takes a long time for both business and consumers to restore their ‘confidence’ levels in the economy and change ultra-cautious investing and purchasing behavior to more optimistic spending-investing patterns. Unemployment levels hang high and over the economy for some time. Many small businesses never re-open and when they do with fewer employees and often at lower wages. Larger companies hoard their cash. Banks typically are very slow to lend with their own money. Other businesses are reluctant to invest and expand, and thus rehire, given the cautious consumer spending, business hoarding, and banks’ conservative lending behavior. The Fed, the central bank, can make a mass of free money and cheap loans available, but businesses and households may be reluctant to borrow, preferring to hoard their cash—and the loans as well.

In other words, the deeper and faster the contraction, the more difficult and slower the recovery. That means the recovery is never a V-shape, but more like an extended U-shape.

Dr. Jack Rasmus
copyright 2020

Dr. Rasmus is author of the just released book, The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020; and the preceding book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com. His twitter handle is @drjackrasmus and his website: http://kyklosproductions.com

posted April 15, 2020
Origins & Emergence of the 2020 Great Recession 2.0 in the US Economy

The Great Recession 2.0 is unfolding before our very eyes. It is still in its early phase. But dynamics have been set in motion that are not easily stopped, or even slowed. If the virus effect were resolved by early summer—as some politicians wishfully believe—the economic dynamics set in motion would still continue. The US and global economies have been seriously ‘wounded’ and will not recover easily or soon. Those who believe it will be a ‘V-shape’ recovery are deluding themselves. Economists among them should know better but are among the most confused. They only need to look at historical parallels to convince themselves otherwise.

The 2008-09 crash, less serious than the present, did not recover quickly. In the US the recovery was barely 60% of normal recession recoveries for years. Employment recovery was particularly slow, taking six years to return to employment levels just before the contraction in late 2007. Europe experienced a bona fide ‘double dip’ recession, in 2008-09 and a second more serious in 2011-13. In most economies it still had not recovered when the 2020 crisis hit. Japan bounced in and out of recession, stagnation, and weak short recoveries for the past decade.

The early 1930s decade provides yet another historical example from which contemporary, mainstream US economists fail to deduce obvious conclusions: deep contractions in the real economy inevitably lead to financial-banking system crashes that ratchet down the real economy in ever-descending stages. Deflation and defaults in the real economy inevitably produce banking system lending credit freeze ups and crashes.

The current 2020 contraction is already a great recession. And should the forthcoming business defaults and bankruptcies continue on their current trajectory, bank lending will surely dry up as financial institutions absorb the bad debts they leave on bank balance sheets. Available liquidity will disappear. More defaults and deflation will follow. And the crisis will deepen in the real economy, and erupt as well in the financial.

The Federal Reserve US central bank—and other central banks—understand the potential threat and are engaged currently in a massive, unprecedented experiment: throwing mountains of cash, loans, and liquidity in general into the system. Not only into the banks to prevent a freeze in credit as defaults rise, but directly (and indirectly) into non-financial corporations as well, to try to check the coming defaults and stabilize the related price deflation. After just a month the Fed alone has more than doubled its balance sheet, from $4 trillion to $9 trillion as it floods banks, markets, and corporations with unprecedented liquidity. Time will tell, soon, if this experiment succeeds. The odds are not great that it will. And should it not, the consequences even greater.

Contrary to apologists for the US economy, the misrepresentations of the Trump administration, the US and global economies had become quite weak and fragile on the eve of the impact of the virus.

The virus has not caused the economic crisis. It precipitated and accelerated it. And if the fantasy of a rapid control and containment of the virus happened, the forces now driving the real—and financial—economy will continue. The economic depression genie has been released from its bottle; there’s no putting it back.

In the four parts that follow, this author’s analysis of some of the key elements of the current crisis economic dynamic are described, as it emerges, still a ‘work in progress’ unfolding.

In Part 1, the analysis, published in September 2018, predicted the likely course of events of the current crisis, with comparisons of the dynamics during the first great recession of 2008-09 as well as relevant events in the great depression of the 1930s. The next crisis would share many characteristics of the previous events, but also differ in key characteristics—as all such events do. In Part 2, the early phase of the 2020 great recession is described, with the focus on the role of collapsing financial asset markets. In Part 3, the focus is on the early phase of the emergence of the current contract of the US economy in February March 2020, in both the real and financial sides of the economy. The early efforts to provide a fiscal and monetary stimulus are described. In Part 4, a partial analysis is offered why the current contraction will not result in a quick recovery.

Part 1: Comparing Crises: 1929 with 2008 and the Next

(September 19, 2018)

It is often said that the initial months of the 2008-09 crash set the US economy on a trajectory of collapse eerily similar to that of 1929-30. Job losses were occurring at a rate of 1 million a month on average from October 2008 through March 2009. One might therefore think that mainstream economists would look closely at the two time periods—i.e. 1929-30 and 2008-09—to determine with patterns or similar causes were occurring. Or to a deep analysis of the periods immediately preceding 1929 and 2008 to see what similarities prevailed. But they haven’t.

What we got post-2009 from the economic establishment was a declaration simply that the 2008-09 crash was a ‘great recession’, and not a ‘normal’ recession as had been occurring from 1947 to 2007 in the US. But they provide no clarification quantitatively or qualitatively as to what distinguished a ‘great’ from ‘normal’ recession was provided. Paul Krugman coined the term, ‘great’, but then failed to explain how great was different than normal. It was somehow just worse than a normal recession and not as bad as a bona-fide depression. But that’s just economic analysis by adverbs.

It would be important to provide a better, more detailed explanation of 1929 vs. 2008, since the 1929-30 crash eventually led to a bona fide great depression as the US economy continued to descend further and deeper from October 1929 through the summer of 1933, driven by a series of four banking crashes from late 1930 through spring 1933 after the initial stock market crash of October 1929. In contrast, the 2008-09 financial crash leveled off after mid-2009.

Similarities 1929-31 & 2008-09

Another similarity between 1929 and 2008 was the US economy stagnated 1933-34—neither robustly recovering nor collapsing further—and the US economy stagnated as well 2009-12. Upon assuming office in March 1933 President Roosevelt introduced a pro-business recovery program, 1933-34, focused on raising business prices, plus initiated a massive bank bailout. That bailout stopped further financial collapse but didn’t generate much real economic recovery. Similarly, Obama bailed out the banks (actually the Federal Reserve did) in 2009 but his recovery program of 2009-10, much like Roosevelt’s 1933-34, didn’t generate real economic recovery much as well.
After the failed business-focused recoveries, the differences between Roosevelt and Obama begin to show. Roosevelt during the 1934 midterm elections shifted policies to promising, then introducing, the New Deal programs. The economy thereafter sharply recovered 1935-37. In contrast, Obama stayed the course and doubled down on his business focused recovery program in 2010. He provided $800 billion more business tax cuts, paid for by $1 trillion in austerity programs for the rest of us in August 2011.

Not surprising, unlike Roosevelt’s ‘New Deal’, which boosted the economy significantly starting in 1935 after the midterms, Obama’s ‘Phony Deal’ recovery of 2009-11 resulted in the US real economy continuing to stagnate after 2009.

The historical comparisons suggest that both the great depression of 1929-33 (a phase of continuous collapse) and the so-called ‘great’ recession of 2008-09 share interesting similarities. Both the initial period of the 1930s depression—October 1929 through fall of 1930—and the roughly nine month period of October September 2008 through May 2009 appear very similar: A financial crash led in both cases to a dramatic follow on collapse of the real economy and employment.

But the 1929 event continues on, deepening for another four years, while the latter post 2009 event levels off in terms of economic decline. Thereafter, similar pro-business subsidy policies (1933-34) and (2009-11) lead to a similar period of stagnation. Obama continues the pro-business policies and stagnation, while Roosevelt breaks from the business policies and focuses on the New Deal to restore jobs, wages, and family incomes and recovery accelerates. Unlike Roosevelt who stimulates fiscal spending targeting household incomes, Obama focuses on further business tax cutting—i.e. another $1.7 trillion ($800 billion December 2010 plus another $900 billion in extending George W. Bush’s tax cuts for another two years—thereafter cutting social programs by $1 trillion in August 2011 to pay for the business tax cuts of 2010-11.

Policy Choices: Roosevelt v. Obama

The policy comparisons associated with the recovery and non-recovery are clearly determinative of the comparative outcomes of 1935-37 and 2010-11, as are the comparisons of the business-focused strategies 1933-34 and 2009-10 that resulted in stagnant recoveries. But the political outcomes of the policy differences are especially divergent and interesting.

No less interesting are the political consequences for the Democratic Party. Roosevelt’s 1934 campaigning on the promise of a New Deal resulted in the Democrats sweeping Congress further than they did even in 1932. They gained seats in 1934 so that by 1935 they could push through the New Deal that Roosevelt proposed despite Republican opposition. In contrast, Obama retained, and even deepened, his pro-business programs before the 2010 midterms which resulted in the Democrats experiencing a massive loss in Congress in the 2010 midterm elections. Thereafter, the Democrats were stymied by a Republican House and Senate that blocked everything. Obama nonetheless kept reaching out and asking for a compromise with Republicans, but the Republican dog bit his hand with every overture.
Obama pleaded with American voters for one more chance in 2012 and they gave it to him. The outcome was more of the same of naïve requests for compromise, rejection, and a continued stagnation of the US economy. Republicans meanwhile also deepened their control of state and local level governorships, legislatures, and local judiciary throughout the Obama period.

The final consequence of all this was Trump in 2016 as the Obama Democrats promised more of the same in the 2016 presidential election. We know what happened after that.

The forces which led to the 2008 banking crash were associated with property bubbles (US and global) and the derivatives markets which allowed the bubbles to expand to unsustainable levels, derivatives which then propagated and accelerated the contagion across financial markets in general once the property bubbles began to collapse.

The 2008 crash was thus not simply a subprime housing crisis, as most economists declare. It was just as much, perhaps more so, a derivatives financial asset (MBS, CMBs, CDOs, CDSs, etc.) crisis.

More fundamentally than the appearance of a collapse in prices of subprime mortgages, and even derivatives thereafter, 2008 was a crisis of excess credit and debt that enabled the boom in subprimes and derivatives to escalate to bubble proportions.

But subprimes and derivatives were still the appearance, the symptoms of the crisis. Even more fundamentally causative, the 2008 crash had its most basic origins in the massive liquidity injections by the central banks, led by the US Fed, that has occurred from the mid-1980s to the present. The massive liquidity provided the cheap credit that fueled the excess debt that flowed into subprimes and derivatives by 2008. (And before than into tech stocks in 1998-2000, and before that into Asian currencies (1996-97), and into Japanese banks and financial markets and US junk bonds and savings & loans in the 1980s, and so forth).

Debt Level Is Not the Whole Story

Excessive debt accumulation is not the sole cause of financial crises, however. It is an enabling precondition. Enabling the debt in the first place is the excess liquidity and credit. That liquidity-credit-debt buildup is what occurred in the 1920s decade leading up to the October 1929 stock crash. It’s what occurred in the decades preceding 2008, especially accelerating after the escalation of financial derivatives in the 1990s.

Excessive debt creates the preconditions for the crisis, but the collapse of financial asset prices is what precipitates the crisis, as the excessive debt built up cannot be repaid (i.e. principal and interest payments ‘serviced). So if liquidity provides the debt fuel for the crisis, what sets off the conflagration is the collapse of prices that lights the flame.

The collapse of stock prices in October 1929 precipitated the subsequent four banking crashes of 1930-33. The collapse of property prices (residential subprime and also commercial) in 2006-07 precipitated the collapse of investment banks in 2008, thereafter quickly spilling over to other financial institutions (brokerages, insurance companies, mutual funds, auto finance companies, etc.) after the collapse of Lehman Brothers investment bank in September 2008.

Today in 2018 we have had a continued debt acceleration since 2008. As estimated by the Bank of International Settlements (BIS) in Geneva, Switzerland, total US debt has risen from roughly $50 trillion in 2008 to $70 trillion at end of 2017. The majority of this is business debt, and especially non-financial business debt. That’s different from 2008 when it was centered on mortgage debt. It is also potentially more dangerous.

The US government since 2008 has also increased its federal debt by trillions, as it continued to borrow from investors worldwide in order to ‘finance’ and cut business-investor taxes and continue escalation of war spending since 2008. US household debt also rose further after 2008, as the lack of real wage and income growth over the post-2008 decade has resulted in $1.5 trillion student debt, $1 trillion plus in auto and in credit card debt, and $7-$8 trillion more in mortgage debt. Globally, according to the BIS, non-financial business debt has also been the major element responsible for accelerating global debt levels—especially borrowing in dollars from US banks and investors (i.e. dollarized debt) by emerging market economies, as well as business debt in China issued to maintain state owned enterprises and to finance local building construction.

So the debt driver has continued unabated as a problem since 2008, and has even accelerated. Financial asset bubbles have appeared worldwide as a result—not least of which is the current bubble in US stocks. This time it’s not real estate mortgages. It’s non-financial business and corporate debt that is the likely locus of the next crisis, whether in the US or globally or both.

Since 2008 US and global debt bubbles have been fueled once again—as in the 1920s and after 1985 by the excess liquidity provided by the US central bank, and other advanced economy central banks. The central bank, the Fed, alone has subsidized US banks and investors to the tune of $6 trillion from 2009 to 2016, as a consequence of its QE and near zero interest rate policies.

The Fed as Capital Subsidization Machine

Since 2008, excessive and sustained low interest rates for investors and business have resulted in at least $1 trillion a year in corporate debt buildup, as corporate bond issues have accelerated due to ultra cheap Fed money. The easy money has allowed countless ‘junk’ grade US companies to survive the past decade, as they piled debt on debt to service old debt. Cheap money has also fueled corporate stock buybacks and dividend payouts to investors, which have been re-funneled back into stock prices and bubbles. So has the doubling and tripling of corporate profits from 2008 to 2017 enabled record buybacks and dividend distributions to shareholders.

In 2017-18 the subsidization locus shifted to Trump tax cuts that have artificially boosted US profits by a further 20% and more. As data showed for 2018, stock buybacks and dividend payouts totaled more than $1.2 trillion. In 2019 it rose to $1.3 trillion. For Trump’s three years in office it was $3.4 trillion in combined buybacks and dividends, and that came after six years of averaging nearly $1 trillion a year under Obama. That’s more than $8 trillion income distributed by corporate America to its wealthy shareholders in the form of buybacks and dividends alone. Interest income, rent income, windfall income from investor-business tax cuts, and other forms are additional.

And where did that mountain of money provided to investors go? Certainly not in raising wages for workers. Certainly not in paying more taxes to government. It was largely diverted into financial markets in the US and globally—stocks, bonds, derivatives, currency, property, etc.; into mergers & acquisitions in the US; or just hoarded on balance sheets in anticipation of the next crisis. Another large part was invested in emerging markets (financial markets, mergers & acquisitions, joint ventures, expanding production operations, etc.) when they were booming during 2010-2016.

So where will the financial asset prices start collapsing in the many bubbles that have been created globally and in the US so far—and thus precipitating once again the next financial crisis? The BIS has been warning to watch US corporate junk bonds and leveraged loan markets. Watch out for the new derivatives replacing the old ‘subprimes’ and CDSs—i.e. the Exchange Traded Funds, ETFs, passive index funds, dark pools, etc. Watch also the US stock markets responding to US political events, to a real trade war with China perhaps in 2019, a continuing collapse of emerging market economies and currencies, to a crisis in repayment of non-performing bank loans in Italy, India and elsewhere, or a tanking of the British economy in the wake of a ‘hard’ Brexit next spring, or Asian economies contracting in response to China slowing or its currency devaluing, or to any yet unseen development. Collapsing prices in any of the above may be the origin of the next financial asset contraction that will spread by contagion of derivatives across global markets. And the even larger debt magnitudes built up since 2008 may make the eventual price deflation even more rapid and deeper. And the new derivatives may accelerate the contagion across markets even faster.

The financial kindling is there. All it now takes is a spark to set it off. The next financial crisis is coming. The last decade, 2008-18, is eerily similar to the periods 1921-1929 and 1996-2007.

Only now it will come with the US challenging foreign competitors and former allies alike as it tries to retain its share of slowing global trade; with a US economy having devastated households economically for a decade; with a massive US federal debt now $21 trillion and going to $33 trillion due to Trump tax cuts; with a US crisis in retirement income, healthcare access and costs, and a crumbling education system; with an economy having created only low pay and mostly contingent service jobs; with a virtually destroyed union movement; with a big Pharma initiated opioid crisis killing more Americans per year than lost during the entire 9 year Vietnam war; with a culture allowing 40,000 of its citizens a year killed by guns and doing nothing; with an internal transformation and retreat of the two established political parties; and with a Trump and right wing radical movement ascendant and poised to move to the streets to defend itself.

Part 2: Global Financial Asset Deflation: Prelude to Next ‘Great Recession’?

(March 9, 2020)

This morning, Monday, March 9, financial asset markets continue to implode: US stocks are further collapsing -6% (Dow down 1650, Nasdaq >500 mid-day). Ditto Asian and Europe stock markets -6%. They were already declining sharply last week due to coronavirus induced supply chain shocks (reducing production) and expanding demand shocks (consumer spending contraction in select industries like travel, hotels, entertainment)–all of which are being forecast by investors to whack corporate earnings in 2Q20 big time. But imposed on the equities market crash of the past 2 weeks now is the acceleration of the global oil price deflation that erupted yesterday as the Saudis deal with Russia last year to cut production and prop up prices fell apart. Collapsing oil & commodities futures prices are now feeding back up equities and other financial asset prices. Financial price deflation spreading, including to currency exchange rates. Money capital fleeing everywhere into ‘safe havens’ (gold, Treasuries, Yen). Historic decline of US Treasuries now below 1% (30 yr.) and .5% (10 yr).

Will the financial asset markets deflation soon spill over to the credit system (especially corporate bonds) and accelerate the decline of real economies worldwide in turn? Are traditional monetary & fiscal policy tools now less effective compared to 2008-09? If so, why? Is the global economy on the precipice of another ‘great recession’?

Financial Asset Markets Imploding

So we have oil futures market prices–i.e. another financial asset market–collapsing now and impacting the stock markets. In other words, a feedback contagion underway on stocks market prices in turn. Feedback is occurring as well on other industrial commodity futures prices that are following oil futures prices downward in tandem. But that’s not all the financial contagion and deflation underway.

The freefall in financial assets (stocks, oil, commodities) is also translating into currency exchange price deflation in turn, especially in emerging market economies in Latin America, Africa, Asia highly dependent on commodity sales with which to earn needed foreign exchange with which to finance their past debt (e.g. case of Argentina whose egotiations with IMF on how to restructure their debt will now break down, I predict).

Currency exchange rates are in sharp decline everywhere as a result. For emerging market economies that means money capital is more rapidly flowing out of their economy, toward safe havens globally like the US dollar, US Treasury bonds, gold, and the Japanese Yen currency.

In short, stocks, oil-commodity futures, and forex currency markets are all imploding and increasingly feeding back on each other in a general deflating downward spiral. This is a classic ‘cross-contagion effect’ that occurs in financial asset market crashes. And crashing financial markets eventually have the effect of contracting the real economy in turn, by freezing up what’s called the credit markets. Businesses can’t roll over their loans and refi their corporate bonds. Banks stop lending. The rest of the real economy then contracts sharply. It starts in the financial markets, spreads to credit markets (corporate junk bonds, BBB corporate bonds, then top grade bonds).

Coronavirus Effect as Precipitating Not Fundamental Cause

But it even earlier begins in a slowing real US and global economy that precedes the markets crash. The global economy was already weakening seriously in 2019. The US economy at year end 2019 was also weak, held up only by household consumption. Business investment had already contracted nine months in a row in 2019 and inventories built up too much. And, of course, the Trump trade war took its toll throughout 2018-19.

Then came the Coronavirus which shut down supply chains in China, and then in So. Korea and Japan in turn. That then began impacting Europe, already weakened by the trade war (especially Germany) and Brexit concerns. The supply chain economic impact of the virus developed into a consumer demand economic impact as well, as travel spending was reduced (airlines, cruise ships, hotels, resorts, etc.) and now, in latest development, other areas of consumer spending too. Both supply chain (production cutbacks) and demand (consumption cutbacks) are interpreted by investors as leading soon to a big fall in corporate earnings–which translates in turn into stock price collapse we see now underway. Investors have decided the 11 year growth cycle is over. They’re cashing in and taking their money and running to the sidelines, moving it from stocks to cash or Treasuries or gold or other near liquid financial assets.
So the Coronavirus event is really a ‘precipitating cause’ of the current markets crash. The real economy weakness was already there. The virus just accelerated and exacerbated the process big time. (see my 2010 book, ‘Epic Recession’ for explanation how financial causation comes in different forms as precipitating causes, enabling causes, and fundamental causes. Book reviews are on my website). Again, worth repeating: global and US economies were weakening noticeably in late 2019. The virus further impacted supply chains (production) and demand (consumption), reduced corporate earnings in the near term and thereby simply pushed stock markets over the cliff.

Mutual Feedback Effects: Real & Financial Economies

But financial crashes have the effect of feeding back into the real economy as well, causing it to contract further in turn. What starts as a weakening of the real economy that translates into financial markets crashing, in turn feeds back into a further weakening of the real economy. Mainstream economists don’t understand this ‘mutual feedback effect’; don’t understand the various causal relationships between financial asset cycles and real investment cycles. (For my explanation of this relationship there’s my 2016 book, ‘Systemic Fragility in the Global Economy’ and specifically chapters on the need to distinguish between financial asset investing and real investing and how late capitalism’s financial structure has changed such that the inter-causal effects of financial-real investment have deepened and intensified.) Financial crashes accelerate and deepen the contraction of the real economy. Recessions turn into ‘Great Recessions’ as in 2008-09. They may even turn into bona fide ‘Depressions’ as in the 1930s should the banking system not get bailed out quickly.

Corporate Bonds & Credit Markets Next?

The feedback effect of the current financial asset price deflation–now underway in stocks, commodity futures, forex, (and derivatives)–on the real economy will soon emerge as the financial markets deflation affects the various credit markets. The key credit market is the corporate bond market. Bond markets are far more important to capitalism than equity-stock markets. The credit markets to watch now are the corporate junk bonds (sometimes called high yield corporates). Junk bonds are debt issued to companies that have been performing poorly for years. They are kept alive by banks helping them issue their bonds at high interest rates. Investors demand a high rate because the companies may not survive. In good times they do. But when markets and economies turn down, companies over loaded with junk financing typically default–i.e. can’t pay the interest or principal on their bonds. They go under. The investors that bought their risky bonds are then left holding their debt that becomes near worthless. The US junk bond market today is ‘worth’ more than $2 trillion. At least a third of that is oil & energy (fracking) companies. A large part of their bonds must be rolled over, refinanced, in 2021. But many of them will not be able to refinance. Why? Because global oil prices have just collapsed to $30 a barrel, perhaps falling further to $20 a barrel. At that price, the oil-energy junk bond laden companies will not be able to refinance. They will default

That will spread fear and contagion to other sectors of the $2 trillion junk bond sector–especially big box and other retail companies (e.g. JC Penneys, etc.) that also loaded up on junk financing in recent years. Investors will disgorge themselves of junk bonds in general.
The fear of a crash in junk bonds will almost certainly spread to other corporate bonds, first to what’s called BBB grade corporates. That’s another $3 trillion market. But most of BBBs are really also junk that’s been improperly reclassified as BBB, the lowest (unsafe) level of corporate Investment grade bonds (the safest). So at least $5 trillion in corporate credit is at risk for potential default. If even a part defaults, it will send shock waves throughout the corporate economy that will have very serious implications–for both the financial and real economies, US and global, which are increasingly fragile.

Is Another ‘Great Recession’ on the Horizon?

For example, Japan is already in recession as of late last year. Now it’s contracting, reportedly, by 7% more. Europe was stagnant at best, with Italy and Germany slipping into recession before the virus hit. So. Korea and Australia are in recession now, as other economies in Asia and Latin America are now contracting as well. China economy reportedly will come to a halt in terms of GDP this quarter, or even contract, according to some sources. Meanwhile, Goldman Sachs forecasts the US economy growth will stall to 0% in the second quarter 2020.

So a collapse in risky corporate bonds will occur overlaid on this already weak real economic scenario. Should that happen, then the recession could easily morph into another ‘great recession’ as in 2008-09; maybe even worse if the banking system freezes up and central banks cannot bail them out quickly enough. Or if banks in a major economy elsewhere experience a crash–as in India or even Europe or Japan where more than $10 trillion in non-performing bank loans exist–and the contagion spreads rapidly to banking systems elsewhere

Failed Monetary & Fiscal Policies, 2009-2019

Which leads to the question can central banks now do so? After the 2008-09 crash, the Fed bailed out the US banks by 2010. But it kept interest rates near zero under Obama for six more years. Banks could still get free money from the Fed at 0.15% interest. (The Fed then paid them 0.25% if they left the money with the Fed). The Fed bailed out other financial companies to the tune of $5 trillion more as it bought up bad loans and Treasuries from investors at above then market rates. That is, it subsidized them. And did so for six more years. All this free money flowed, mostly into financial markets in the US and worldwide, creating the stock bubbles that are now imploding. So the Fed and other central banks went on a binge subsidizing banks for years, and in the process broke their own interest rate tool needed for instances like the present crisis. The Fed tried desperately to raise interest rates in 2017-18 so it could have a cushion for times like this. But it then capitulated to Trump and began reducing interest rates again in 2019–as it had under Obama for six years.

The free money from the Fed artificially boosted stock prices. On top of this Trump added a further subsidization of banks and non-bank corporations, businesses, and investors with his $4.5 trillion 10 year tax cuts passed January 2018. Most of that went as a windfall to corporate-business bottom lines. 23% of the 27% rise in corporate profits in 2018 is attributable to the windfall tax cuts. And where did that go? It too was redirected to stock and other financial markets,further inflating the bubbles. Here’s the channel and proof: Fortune 500 corporations in the US alone spent $1.2 trillion in both 2018 and 2019 in stock buybacks and dividend payouts to their shareholders. The stock buybacks inflated the stock markets, and most of the dividend payouts did as well. (Buybacks+dividends under Obama were nearly as generous, averaging more than $800 billion a year for six years).

In other words, the 25% run up in US stock markets in 2017-19 under Trump was totally artificial, driven by the tax cuts and by the Fed capitulating to Trump and lowering rates again in 2019. Very little of the annual $1.2 trillion went into the real US economy. For the past year real investment in structures, plant, equipment, etc. actually contracted for nine months in 2019, and is now contracting even faster in 2020.

Just as the Fed has busted its own interest rate monetary tool as it continually subsidized banks and businesses with low interest rates for years, the chronic corporate-investor tax cutting has busted fiscal policy responses to recession as well. Since 2001 the US has provided $15 trillion in tax cuts, the vast majority of which have gone to corporations, banks, and wealthy investors. That has led to government deficits averaging more than $1 trillion a year since 2008. And accelerated the US federal debt to more than $22 trillion. Fiscal policy is now seriously constrained by the deficits and debt–just as monetary policy as interest rates is now constrained by virtually all Treasury bond rates below 1% in the US and negative rates in Europe and Japan.

Interest rate policy responses to today’s emerging crisis is thus dead in the water. (As this writer predicted it would become in 2016 in the book, ‘Central Bankers at the End of Their Rope: Monetary Policy and the Coming Depression’). After years of monetary policy used as a tool to subsidize banks, it is now ineffective as a tool to stabilize the economy. Ditto for fiscal policy as tax policy. Used by Obama and even more so by Trump to subsidize corporations, stock buybacks, and financial markets, it is confronted by massive annual US budget deficits and accelerating national debt.

The likely responses by politicians and policy makers to the current emerging financial crisis and recessions in the real economy will be to cut taxes even further for businesses. It will have little effect, however. But will exacerbate levels of deficit and debt. That means the follow up will be to attack and reduce government spending, especially targeting social security, medicare, healthcare and education in 2021. Trump has already publicly indicated his intent to do so. On the Fed side, expect more injection of money directly into the economy and failing businesses by means of another major round of ‘quantitative easing’ (QE). That’s coming soon. Ditto for Europe and Japan where negative rates already exist. Watch China too should its economy contract for the first time in 30 years. And watch India, where it’s banking system is already fracturing due to causes totally separate from the virus effect. A banking crash in India is on the agenda. It could result in yet another financial blow to the global economy, adding to the current Saudi-produced oil price shock and the virus effect on supply chains and demand.

Summary and Conclusions

In summary, the global capitalist economy is unraveling financially, and soon further in real terms. Massive job layoffs in coming months in the US are a growing possibility. That will drive the US economy deep in contraction as household consumption, the only area holding up the US economy in 2019, now joins the contraction. It remains to be seen how US monetary and fiscal policy can restore economic stability given its self-destruction by US politicians since 2008. Trump policies have been no different than Obama’s-just more generous to corporate America and investors. Trump’s policies are best described as ‘Neoliberalism 2.0’ or ‘Neoliberal on steroids’. (see my just published 2020 book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’).

The US and global economies are well on their way to a repeat of the ‘great recession’ (or worse) of 2008-09. Only this time traditional monetary-fiscal policy is much less effective. More radical policy responses will likely be developed to try to stabilize the capitalist economies both in USA and elsewhere (where problems are even more severe). Watch closely as the crisis on the financial side moves on from equity (stock), commodities, and forex financial markets into derivatives markets and credit markets–especially junk bond and other corporate bond markets. Watch as the Fed tries desperately to provide liquidity to business and markets via its Repo channel and QE since its traditional rate channels are now ineffective. And watch as US and global capitalist advanced economies try to coordinate new fiscal policy responses to the general dual crisis in financial and real economic sectors of global capital.

Part 3: The 2020 Great Recession 2.0–Or Worse

(March 24, 2020)

In late February 2020 I was convinced the recession I have been predicting since January 2019 had arrived. Two weeks ago I began writing this would be another ‘Great Recession 2.0’, as in 2008-09. Now I’m not so convinced of even that. It may be worse, much worse.

US Real Economy: Contracting Faster Than 2008 or 1932

Just last week Goldman Sachs investment bank was predicting a -14% contraction of the US real economy in the second quarter, April-June 2020. Morgan Stanley followed with its prediction of a -30% drop in US GDP. Goldman has since modified its initial forecast to -24%.

This compares with the worst quarterly decline in 1932, in the depths of the Great Depression of the 1930s, of -13%. The current contraction, in other words, is coming faster and deeper than any on record previously—whether compared to the 2008-09 Great Recession or the 1930s Depression.

As of the close of March 2020, about a third of the US economy is now shutdown. More is about to follow. The US regions most directly and heavily impacted by the coronavirus—Washington State, California and New York—are where business activity has virtually shut down except for emergency services. Other areas, like Illinois, Texas, and Florida are catching up fast.

Given the spreading shutdowns, focused in states of high concentration of economic production, According to current Federal Reserve central bank governors, the unemployment rate will rise as high as 30%, and quickly, according to St. Louis district Federal Reserve governor, Bullard. Predictions are at least 2 million will be unemployed in March alone, just the first month of the crisis. That monthly unemployment rise also exceeds the worst months of the 2008-09 prior Great Recession.

In short, the real economy in the US has fallen into an economic ‘coma’, as some have accurately called it.

But that economy was already weak and fragile when the virus effect pushed it off a cliff. Already in late 2019, business investment had been contracting for nine months, the manufacturing sector was in a recession, trade was negatively affected by Trump’s 2018-19 trade wars, and household consumption was showing serious signs of weakening. For example, with regard to household consumption, the default rate on credit cards for median families had risen to nearly 9% by late 2019, more than 7 million auto loans had defaulted, and student loan defaults were rising as well (although covered up by clever government re-categorizing of loan defaults). The consumer was not in good shape, in other words, keeping spending afloat largely by credit based spending by the middle classes and by the high end income households’ spending based on inflating stock and financial gains (the wealth effect) and Trump’s massive tax cuts of 2018-19 flowing to their bottom lines.

Then the virus hit the economy like a baseball bat to the back of the head!

Financial Markets Price Implosion

Financial asset markets began to plummet. Artificially boosted for three years under Trump, US financial markets were fueled by Trump’s multi-trillion dollar tax cuts and low interest rates in prior years. That tax and cheap money windfall to business, senior managers and shareholders in turn was redistributed to managers and shareholders in the form of a flood of stock buybacks and dividend payouts. More than $3.4 trillion, in fact, in just the last three years!

The buybacks & dividends were then diverted once again in large part back into stocks and other financial markets once more. The artificial financial asset bubbles grew. But it was all artificial, driven by cheap money and massive tax cut income redistribution to investors, corporations, and the wealthiest 1%.

Under Trump, from 2017 through 2019, stock buybacks totaled more than $2 trillion. It went mostly to professional investors and CEOs and senior managers of companies (In tech companies, the amount of the buybacks going to CEOs and senior managers was as high as 70%, as for example occurred in Apple).

Another $1.4 trillion was distributed to shareholders in the form of dividend payouts. That’s a total of more than $3.5 trillion in tax cut and low interest driven income redistributed to the wealthiest households. Most of this massive income windfall was reinvested in financial markets. US stock markets alone under Trump rose by 25%-35% in just three years. And that’s just about the amount the same markets have now crashed in just one month under the virus’s economic impact!

Crashing stock prices are one key indicator of the onset of a Great Recession, nor a normal one. The same applies to the spread of financial asset collapse to other financial markets.

Already US stocks have contracted by 35%-40%. Oil and commodity futures prices by 40% or more, as the price per barrel of crude has fallen from $70 to the mid-$20s per barrel range. Other industrial commodity prices by 20%-30%. Currencies (aka foreign exchange) worldwide devaluing everywhere, with greatest pressure in India, Asia, and Latin America. Bond markets—corporate and government—have now begun to feel the pressure as well and are beginning to fracture. And bond markets are far more important to the stability of the capitalist economy than are even the stock markets.

As financial asset prices deflate rapidly holders of those assets try to dump them to contain losses. Everyone wants to sell; no one wants to buy. Prices deflate further. Often purchased on margin, by borrowing money to buy more assets during the boom period, ‘margin calls’ require even more selling—and even more financial asset price collapse. Investors become desperate to raise cash to cover their losses. A ‘dash for cash’ overwhelms investor, business, and consumer psychology. As losses exceed the ability to raise cash, financial markets begin to implode. And they are now falling line ‘ten pins’, one after the other.

Pre-Emptive Bank & Investor Bailouts

First stock markets, but in the past month, repo markets where banks loan to each other; then commercial paper markets and money market funds; then municipal bond markets; and residential mortgages; and leverage loans (junk loans); and, behind the scenes and intensifying, high yield (junk) corporate bonds and so-called BBB investment grade corporate bonds.

The latter junk corporate bond + BBB market in the US alone is valued at $6 trillion. Leveraged loans another $1.2 trillion. Muni bonds $4 trillion. Residential mortgages $11 trillion. All in trouble now. Plus Repos, Commercial Paper-money funds, and so on as well.
And let’s not forget oil-commodity futures global price deflation, collapsing emerging market economy currencies, and even growing troubles in national government bonds like US Treasuries, Gilts (UK), Bunds (Germany) and others, many of which were already trading in negative rate territory.

In short, the generalized financial markets collapse was a defining characteristic of the 2008-09 financial crisis. And it’s returned now with vengeance.

Also returning is the desperate effort by the Federal Reserve (and other central banks worldwide) to stuff the growing black holes in banks, shadow banks, and corporate balance sheets with new liquidity (money injections) in order to try to prevent defaults and bankruptcies. A bank-corporate bailout has already begun—even before the banks fail. It is pre-emptive in 2020, unlike ‘after the fact’ as in 2008. Banks have not yet crashed and are being bailed out!

The Federal Reserve in one week in mid-March injected $2.2 trillion in the form of $1.5T for the repo market and another $700 billion in Fed direct purchases of mortgage bonds and investor held Treasuries. It followed with unlimited further money to stave off collapse of the commercial paper-money market funds, the muni bonds, mortgage bonds, and reportedly to back up credit card and auto finance companies from their anticipated losses. The Fed also announced it would ‘swap’ US dollars for foreign currencies of other central banks in order to help their economies. The Fed has committed to $4T more in money injections to banks. And that’s in addition to the $2.2T already committed.

In other words, bankers will be bailed out $6.2T, and that’s probably just a start. That amount compares, by the way, to approximately $4.5T used to bailout the banks in 2008-09.

What about non-bank companies? They received a ten year Trump tax cut in January 2018 of no less than $4.5 trillion! They were then awarded with more tax loopholes in 2019 equal to $427 billion more. Now the Republican Senate in the US Congress is proposing another $500 billion with virtually no strings attached.

Yet Another Windfall for Non-Bank Corporate America

In contrast, the fiscal spending stimulus for Main St. and middle-working class families totals about $500B in the pending 2020 crisis recovery bill. It includes a one time cash rebate to households of $3,000 but no increase in unemployment benefits thereafter. It’s clearly a 30 day emergency package, even though the impact on the US economy from the virus will be for months to come.
The US economy generates $1.7 trillion in spending every month. The $1 trillion fiscal stimulus package coming from Congress will thus replace barely half of the lost spending by the US economy.

Big corporate interests and politicians in Washington DC know the depth of the current economic crisis—financial and real. They’re providing for the bankers and investors to the tune of $6.2 trillion, with an open ended checkbook for more if necessary. But they’re only providing for a one month bailout of Main St.

Already Trump is tweeting this package will be reviewed in 15 days. He’s thinking short term. So too are other politicians. Their media is pushing the theme that ‘maybe the economic costs are too high for the cost of the death rate from the virus’ that will occur. Politicians like New York governor, Cuomo, are raising the question, signaling the debate now rising within the economic and political elite; they are preparing the public. They are getting ready to trade off human lives for their economy. They are preparing to send people back to work after a month, regardless the health consequences. They fear economic collapse and their loss of incomes more than the virus and its destruction of American lives.

Trump may soon decide to announce “let them go back to work”. An echo perhaps of Marie Antoinette’s infamous line as her citizens were dying too: “let them eat cake”. In short, we are now about to see that people’s lives are expendable, for their profits, income and wealth that are not.

Part 4: Why a V-Shape Economic Recovery Will Not Happen

(April 9, 2020)

Various bank research departments have been estimating the depth and severity of the real economic downturn, admitting the second quarter US economy, April-June, will experience the worst contraction since the 1930s great depression. Indeed, in job loss terms the current decline is even worse. 17+ million jobs were lost, at minimum, in just the last three weeks. And that’s an underestimation, since it represents only those who actually have filed successfully for unemployment benefits. Many are still in the process of filing or won’t for some time yet. Actual unemployed totals always exceed those who file for various reasons.

Millions of small businesses have already shut down or gone out of business. More will follow. The average number of days of cash on hand for small businesses is 27. They will run out of that by mid-April. And the flow of funds from recent stimulus legislation passed by Congress is minimal thus far, bottled up by big banks that are gaming the system and using the crisis to extract concessions out of the federal government on bank deregulation and their share of profits from the lending to small business.

The 10 million plus job losses that occurred in the last two weeks of March will therefore easily exceed 20 million by mid- April. And 30-35 million by May 1.

That’s a deeper and faster fall in jobs than occurred in 2008-09. The total jobless in just a few weeks in March (more than 10 million) exceeds the total jobs lost over 19 months of the 2008-09 great recession!

And it’s not just employment that’s in freefall. The consensus among big bank research departments is that US GDP will contract by 20% or more in the second quarter. Goldman Sachs research estimates the contraction in US GDP will be 24%. Morgan Stanley investment bank says 30%. And most recently the bond market investment behemoth, PIMCO, estimates a 30% fall in GDP.

The 2020 CARES ACT & V-Shape Recovery

Whether the 2008-09 crisis or the 1930s great depression, historical parallels support the view that a rapid, deep contraction like the current 2020 recession are not followed by rapid, V-shape recoveries. Apart from historical parallels, however, current US government and central bank policy responses will also fail to generate a prompt recovery to prior economy levels. On the government, fiscal policy side, the programs to date are insufficient in magnitude, are experiencing serious problems of timing, and are imbalanced and poor in their composition to have the desired effect.

The government’s fiscal policy response (CARES Act) to date has been too little, too late; moreover, its composition is too imbalanced in favor of business instead of households to stimulate a quick economic recovery. Simultaneously, the monetary policy response to date by the Federal Reserve US central bank is being ‘gamed’ in the short run by the big banks through which much of the monetary stimulus will flow. And even more important, in the longer run, the Fed’s policy of massive liquidity injections into the banking system will be thwarted by the even greater collapse of money demand that will neutralize the Fed’s massive increase in money supply (i.e. liquidity). The Fed’s policies may succeed in delaying or even preventing a collapse of the banking system, but they will not produce a recovery of the real economy now having contracted to 1930s depression levels.

With regard to magnitude, Congress’s recently passed CARES ACT is grossly insufficient. The US economy spends $1.7 trillion every month. With virtually half of the US economy shut down by various estimates, $2 trillion in spending just keeps a floor under the economic collapse for six to eight weeks. By mid-May at latest that $2 trillion will have dissipated. Finally, the composition is heavily lopsided to loans and grants to business, large and small alike. They will hoard it, use it to pay down debt, and ration the grants and loans piecemeal and minimally until they see an end to the economic crisis months from now. If the Airlines and Boeing are a good example, the loans and grants won’t be used to maintain payrolls. The big corporations in particular will ‘game the system’ and divert the money to other business purposes or hoard it.

With regard to ‘timing’, while the CARES Act was passed relatively quickly, its implementation is showing signs of significant administrative and operational lags and delays. The unemployment benefit increases passed by Congress in its recent $2.2 trillion so-called fiscal stimulus bill has yet to reach the unemployed. Many can’t even get to the filing stage for benefits. Yet their April 1, mortgages, rents, car payments remain due—and unpaid. Nor have the much promised $1200/person checks been received as yet. That will take weeks more. In the interim, consumer spending and the economy keep sinking.

69% of middle class and below households (< $75,000 annual income) as of early April already say they are financially much worse off than just two months ago. That’s not surprising, since more than half of all US households say they have $400 or less for emergencies, per recent research by the Federal Reserve bank of New York.

The picture is no different for small businesses who were supposed to get $350 billion in direct grants and loans by the first week of April, as provided in the same recent Congressional ‘CARES ACT’ fiscal stimulus package. Although Congress per the CARES ACT has authorized the $350 billion and the US Treasury has provided the money to the Federal Reserve Bank for distribution to small businesses weeks ago. Only $90 billion or so of the $350 billion has actually gotten out to small businesses desperately in need. As of March, the average days of small business available cash on hand was only 27 days. And that was almost a month ago. So most of small businesses have already run out of funds. Meanwhile the pipeline of loans—from the Treasury to the Federal Reserve to them—has clogged up. Why? The big banks are gaming the system.

Because the way the US banking system works, the big banks are in the driver seat of the distribution of the loans. They are the bottleneck. This past week they have been using their position to slow the flow of funds to small business. They are leverage the crisis to extract more concessions out of the Fed and the government. They are demanding that before they participate and open up the bottleneck of lending that the US government and Fed reduce banking regulations, which would fatten their share of the profits from the loan distribution and reduce financial regulations they legally must deal with.

The point, however, is that the $600B rescue of small business hasn’t gotten into the economy any more than has the $500B ‘stimulus’ has for households in the form of unemployment benefits and the $1200/person + $500 per child checks. What all this gaming of the system by the big banks, and the delaying of restoring some of the lost income for workers, means is that the contraction of the real US economy continues to deepen and will do so through most of April.

Fed Liquidity Diversion & V-Shape Recovery

It is the Fed that is attempting to bail out the collapsing real economy, not Congress. It is monetary policy at the forefront, not traditional fiscal government spending policy. Monetary policy took the lead in the recovery after 2009 and failed to generate a quick recovery. And monetary policy is always slower and uncertain in generating recovery.

All the major programs targeting small-medium-large corporations are being ‘funded’ by the Fed. The Fed is either pushing money through the private banks with the objective of getting the big banks to lend to non-financial businesses in need of cash. There is some indication the Fed may at times bypass the banks and provide grants and loans, or buy financial securities, directly itself. But it is largely pushing money into the accounts of the big banks, who are then supposed to lend it to non-bank business customers in need.

When the media refers to $500 billion in loans offered to large (non-bank) corporations under the CARES ACT, or to $350B in loans to small businesses, or another $600B to mid-size businesses, these numbers actually represent anticipated final loans to businesses made by the private banks. The Fed actually provides the big banks with around one-tenth of these totals in loans. But because the US banking system is what’s called ‘fractional reserve banking’, the private banks are expected to loan out five to ten times the money the Fed deposits in the big banks’ accounts at the Fed.

But what if the big banks sit on the money provided by the Fed and don’t actually loan out 5X-10X? Or maybe loan out only 2.5X and hoard the other 2.5X? Or lend the money to US or foreign businesses offshore instead of in the US? Or loan it out and the businesses invest it in stocks and other financial securities instead of the real economy to restore and grow production? All this is what actually happened in 2008-09. Bank lending to US non-financial businesses in the US actually fell in the years immediately after 2009. Or the Fed’s direct purchase of bad assets (subprime mortgage bonds) from investors or Treasuries resulted in money from the Fed that was diverted by the private banks into financial markets or offshore. That’s why the recovery of the real economy was so weak post-2008. The Fed liquidity injections did not flow into the real economy, into real investment, employment and wage incomes. Once again, the private banks ‘gamed’ the monetary system then and will likely do so again in 2020, just as they’re already doing with the CARES Act Congressional mandated loans.

The point is the current private banking system always functions as a drag on a rapid economic recovery (V-shape) when monetary policy via the Fed is relied upon as the primary stimulus tool. And that’s what is being repeated again in 2020.

To put it another way, relying on massive money supply (liquidity) injections to restore rapid growth to the economy is, under even the best assumptions, always a slower approach to recovery and even more so less likely to produce a ‘V-Shape’ recovery.

But there are other reasons why monetary policy solutions in general also work against a V-Shape recovery; reasons that are independent of the private banks’ bottleneck effect and independent of the central bank, the Fed, pushing a massive supply of money (liquidity) into the banking system. These other reasons have everything to do with the Demand for Money which is independent of whatever the Fed and the private banks may or may not do.

Money Demand & V-Shape Recovery

What if the Fed, and even the banks, provided a massive amount of loans to business and households and local governments in an attempt to jump start a recovery—but those loan offers were not taken up by business or households? The liquidity, the supply of money, might be there but the demand for that supply does not materialize. Or maybe businesses and households ‘borrow’ the money made available, but just sit on it and keep it for emergencies? Or use it to pay down pre-existing debt levels. Or use it not to rehire laid off workers but for other business purposes? Or reinvest it in a rising stock market or use it as collateral to take on more debt, to redistribute to shareholders in the form of more dividends and stock buybacks?

None of these options and possibilities results in a recovery of the real economy, of employment, of GDP.

When a crisis is especially severe, as is the present, the strong incentive for businesses is to take the cash grants and hoard them. Or take the loans and use the proceeds to pay down prior existing debt—which for a number of US industries has reached historic highs. For example, the US $2.2 trillion corporate junk bond market is at record levels. The (junk) leveraged loan market is more than $1 trillion. The shakiest BBB level of corporate bonds at $3 trillion. Corporate debt in the US, and world wide, is at levels never before seen. On the consumer side it’s no better. Credit card debt is $1.1 trillion. Auto debt $1.3 trillion. Student debt $1.6 trillion. Residential mortgage debt $10 trillion. The point is many businesses will take the $350b (small business) and $500B (large corporations) Fed money injections and use a good part of it to pay down debt.

Another large part will be simply hoarded and held for future emergencies. There is great uncertainty whether the health effects will end in just a few more months. There are likely second and third waves of virus infections coming. Until there is a vaccine and the populace develops what’s called ‘herd immunity’ that uncertainty will remain. Furthermore, as the global economy contracts elsewhere it will enhance the uncertainty. The longer the current contraction, the more likely will defaults and bankruptcies grow—both business and household and even local governments. Defaults further intensify the uncertainty. And uncertainty means the money supply increase provided by the Fed and the banks will not be taken up by borrowing; and that which is taken up will be used to pay down pre-existing debt or will be hoarded. And any of the above means the supply/liquidity won’t result in a return of investment, production, or household consumption levels that existed before the crisis. The economy is already wounded. It will take some time to heal even under the best of circumstances concerning resolving the health crisis.

In short, it doesn’t matter how low the Fed reduces interest rates. Or how much money it makes available for loans. Both business and household confidence may fall so low that cheap and available money is not ‘taken up’—i.e. borrowed. The demand for it may be so low that the supply of money remains unused or is used for activities that don’t actually stimulate the recovery of the economy. This is not theoretical conjecture. It’s what happened in the wake of the 2009-09 crash, when bank lending for small and medium businesses continued to contract for years. It’s what happened in the 1930s as well, when interest rates were virtually zero for years.

Money demand may therefore negate even very large injections of Fed central bank money supply made available for loans. That will offset much of any effort to generate a V-shape recovery. That’s not to say that none of the Fed’s current multi-trillion dollar programs targeting small-medium and even large corporations will have no effect whatsoever. Undoubtedly a good part will be loaned by the banks to businesses in need. Some will be taken up in the form of grants. Grants more so than loans. The Fed may provide direct purchases of business assets and state & local governments’ (municipal bonds) debt. But it will not do so quick enough to ensure a V-Shape recovery. And it remains to be seen how much of the available credit is borrowed for hoarding for emergencies or paying down debt and thus not ever getting into investment, production and consumption sufficient to generate a V-shape recovery. And the historical record of similar deep contractions tells us never enough for a V-shape.

From V-Shape to L-Shape Recovery?

An important characteristic of this economic crisis is that the Fed is attempting to prevent a banking crisis by flooding the banking system with liquidity and money. The crisis is ‘inverted’ in a sense: in 2008-09, it was the financial system crashing that spilled over and brought down a weakened real non-financial side of the economy. This time it is the real, non-financial side crashing that threatens, in turn, to result eventually in a financial-banking crisis. The Fed’s even more massive money injections this time are designed twofold: to bloat the banks with cash and, second, to funnel enough money through the banks, and directly as well, into the non-financial sectors of the economy to prevent defaults and bankruptcies. Should the latter occur in sufficient volume—probably starting in energy and retail and hospitality companies and spreading elsewhere—then these companies will default and go bankrupt in large numbers. That will mean losses by the banks and financial institutions that provided them loans and credit. It could mean thereafter failures of the financial institutions themselves, as occurred in 2008-09 and 1930-33.

The US economy is not there yet. The Fed is trying to head it off. But should it fail to prevent mass defaults, both business, households (credit cards, student loans, auto loans, installment loans, mortgage loans), and local governments alike—then the failures will spread in contagion-like effect to the banking system itself.

Should events and conditions lead to this advanced state of the crisis, then not only is a V-Shape out of the question. What we’ll have is more an ‘L-Shape’ non-recovery for years. And that’s what describes a bona fide Great Depression.

Dr. Jack Rasmus
April 11, 2020

Dr. Rasmus is author of the recently published book, “The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump”, Clarity Press, January, 2020. His other books on economic theory and polic

posted April 13, 2020
On Market Solutions to the Covid-19 Crisis

On a daily basis, Trump tells us what a fantastic job he’s doing, then trots out corporate CEOs before the camera, one after another, each telling us what they’re doing: US auto execs tell us of their plans to convert their idled factories and produce millions of ventilators (while states in desperate need are actually buying them from abroad, mostly China). Big Pharma companies are developing the new vaccine or interim medical treatments like hydrocholoroquinine (which Cuba has already produced and is giving free to Italy); silicon valley tech companies announce contributions of hundreds of thousands of N95 masks (from their offshore inventories purchased from Asia and elsewhere no doubt).

But the reality is that the free market and so-called free enterprise system is largely responsible for much of today’s health crisis. It is the ‘market’ that has given us the massive shortages in hospital beds, ventilators, critical personal protection equipment (PPE), and the long lag in developing interim medical treatments—let alone a vaccine.

Here’s just a few notable cases of how the market has failed and continues to do so:

Hospital Beds

As others have pointed out, before the Neoliberal market system implanted itself in the USA decades ago with Ronald Reagan (deepening and expanding ever since), there were 1.5 million hospital beds in the country and an extensive non-profit public hospital system. Before 1980 there were 100 million fewer US citizens for those 1.5 million beds. Today there are 100 million more Americans, but only 925,000 hospital beds. We’ve added 100 million but reduced beds by 500,000. The reduction, of course, was all done in the name of ‘market efficiency’ by the for profit hospital chains who bought up and then shut down much of the non-profit public hospital system. Now, as the current health crisis deepens, we’re left setting up cots in auditoriums and college dorms and call them hospitals.
The crisis in hospital beds for virus patients can be traced largely to the program of Bill Clinton in 1994 called ‘managed health care’. That program permitted and incentivized the acquisition of the public hospital system by the for-profit chains who sought to reduce competition so they could raise prices. Under Clinton’s program, the for-profit chains were even exempted from US anti-trust laws that might have prevented the loss of half million hospital beds. Hospitals are one of the few industries totally exempt from anti-trust still today.

Personal Protective Equipment (PPE)

Why is the USA so short on ventilators, masks, safety clothing, even disinfectants? It’s because the market solution was to offshore the production of these critical items to Asia, Latin America, and especially China years ago. It was cheaper to move production offshore (experts call this today relocating the supply chains!). It was cheaper to import back these products to the US economy. Expanding free trade (again under Clinton) then made the cost of importing back to the US even cheaper and thus more profitable still. Offshoring and free trade are but two sides of the same coin. Add a third leg to the economic stool: tax laws were changed to provide tax breaks to corporations that actually offshored the production of PPE.

Fast forward and today we have China producing 115 million N95 and surgical masks A DAY! China’s surplus is so great it is giving ventilators and masks to Italy for free. But is the US saying anything about this in Trump’s press conferences? Has Trump ever admitted the availability of these critical PPE materials, ready for import to the US right now! No. Instead, health care providers, doctors, nurses, technicians, are told to re-use their masks and other equipment since there aren’t enough of them to go around. And we’re told by corporate representatives in Trump’s press conferences the materials are coming. Just be patient.

And then there’s the Hydrochloroquinine interim treatment for those sick with Covid-19. Trump mentioned that. But did he say where it was being already used? Some reports are now appearing that the treatment was successfully developed in Cuba, whose doctors have been sent to Italy to administer it there to the most ill patients. But no mention, however, that that treatment is taking place right now in Italy. You won’t hear that ‘non-market’ solution from market unfriendly Cuba from Trump.

Unemployment Benefits

The USA has one of the most miserly unemployment benefit payment systems among all the advanced economies. It provides barely a third of what’s needed to live on. And in many states not even that. In California, one of the more generous in relative terms, the top benefit is $450/wk. That’s about $1,800 a month. But the median rent in urban areas of California alone is $3,000 or more! In New York and other big cities, even more. And the insufficient benefits are paid for only six months.

But if you’re one of the tens of millions of temp, contract, gig workers you’re not considered an employee for the company you’re working for. You therefore are not eligible for even the insufficient unemployment benefits paid in the US.

That has temporarily changed as the US Congress CARE Act just passed. It now provides unemployment benefits for ‘gig’ and other contract workers, albeit for just four months. But the point is this: It’s not the ‘market’ that is helping the millions of gig and other contract workers with at least some benefits. It’s the government. With the CARES Act the government and taxpayer will now pick up the tab for the unemployment benefits for the millions of contract and gig workers that the ‘market’ has failed to cover. The market has allowed companies to avoid paying any unemployment benefits tax that would otherwise cover contract and gig workers. The taxpayer and government now will ‘pick up the tab’. The market failed and the government-taxpayer must clean up its mess and provide the benefits companies like Uber, Lyft, AirBnB and others have avoided and pocketed for themselves.

Health Insurance

In the free market Nirvana that is the USA today, millions of companies are permitted to forego providing their employees health insurance coverage. 37 million have no insurance at all. And 87 million are under insured. Millions with some insurance have deductibles of thousands of dollars per person a year.

Now the Cares Act once again, i.e. the government and taxpayer, is stepping in and ensure these millions—employed and unemployed—have some kind of health insurance coverage. The government is called upon to clean up the mess the market has left.

Paid Medical-Sick Leave

The richest country in the world, the USA, where the Fortune 500 largest companies have managed to distribute more than $1 trillion a year for the past nine years to their shareholders in stock buybacks and dividend payouts, only provides on average 6 paid sick leave days a year to employees. And that’s typically only where a union contract exists. Most get unpaid sick leave or none at all. Get sick, go find another job. That’s the ‘market solution’. In Europe and elsewhere, combined paid leave is typically 30 days or more a year. But not in Trump’s market solution America.

Once again, the consequence is that the government-taxpayer in the CARES Act will have to pick up the tab for paid medical leave for the millions who must stay home due to their Employer’s order, or government ‘stay in place’ guidelines, or school districts shutdowns.

Market Solutions for Worker Retraining

It used to be that companies trained their own workers to become more skilled and productive. There was once a very widespread on the job training culture in the USA. That disappeared as well with the deepening of Neoliberalism and globalization (aka free trade, offshoring, and foreign direct investment by US multinational corps). Under Bill Clinton, corporations were allowed to bring hundreds of thousands of skilled workers from their foreign operations back to the US to take some of the best US jobs. It still continues. Free market efficiency meant it was cheaper (and more profitable) just to transfer workers on H1-B and L-1/2 visas to the US. No need to train American citizens. Cheaper simply to import skilled labor. That was the ‘market solution’ to job training.

The CARES ACT: $500 Billion ‘Socialism for Corporations’

The CARES Act allocates $500 billion just to large corporations. (Another $367 billion to smaller businesses). But do the large corporations really need the $500 billion? And who will oversee the distribution of that largesse?

Take the Airlines. Do they need it for the next 60 days? Do they deserve it?

The airlines are getting $58 billion under the just passed Cares Act. Half of that in outright grants. No strings attached. Another half in loans. Reportedly, they’re now quickly taking the grants but not the loans. Why? They’re probably waiting for Congress to agree to convert the loans to outright grants later in the year.

But no one is asking how much cash on hand the airline companies have as they’re handed these tens of billions of $! And no one is mentioning that the same airline companies in recent years gave their shareholders and CEOs no less than $45 billion in stock buybacks and dividend payouts. So now they’re getting $58B to back fill the hole of $45 billion they gave away to themselves and their big investors (who together owned most of the $45B stock bought back).

Here’s another question unanswered: In recent years big corporations (Fortune 500) earned record profits and paid out more than $1T a year in buybacks and dividends. Under Trump, they’ve paid out a total of more than $3 trillion in buybacks+dividends. In addition to that, in the months immediately leading up to the March 2020 virus crisis, the same big corporations were drawing down hundreds of billions of dollars from their credit lines with banks. At the same time in recent months they have been issuing new bonds and raising billions more in cash. No less than $73 billion was raised from issuing new bonds in February, a record. Flush with mountains of cash from Trump 2018 tax cuts, from their bank credit lines, and from record corporate bond issuance, they now are being given $500 billion more by Congress in the CARES ACT. Do they really need it? Let’s open their books and see before they get even $1.

Not least, there’s the question of who will oversee who gets the $500 billion. The Democrats in Congress say the special board created must oversee. Trump in turn has said, no way. I’m personally going to oversee. Want to guess who’ll win that one?

The point is Big Corporations are loaded with cash. And they didn’t earn most of it from the ‘market’. They got it from Trump tax cuts, from bank credit lines, and from low interest corporate bond issuance made possible by convenient near zero interest loans from the Federal Reserve. Nevertheless, now the non-market sugar daddy, the US government, is giving them $500 more whether they need it or not!

Super-Socialism for Bankers & Investors

The $500 billion going to big business pales in comparison, however, to the multi-trillions that the central bank, the Federal Reserve, is now pouring into the bankers, shadow bankers (i.e. hedge funds, equity firms, investment banks, mutual funds, etc.), and even now into non-bank corporations for the first time as well.

In 2008 the Federal Reserve provided more than $4 trillion to bail out the banks. Now it is providing more than $6 trillion (thus far)—and this time the banks haven’t even failed yet!

The Fed has opened a free money spigot to investors, bankers, and to big business of all types, and has simply declared ‘come on in and take it’. And if the $6 trillion to date isn’t enough, we’ll provide more.

For the first time ever the Fed is now providing free money not only to bankers, but to credit card companies, mortgage companies, corporate bond holders, and even to investors in derivatives like Exchange Traded Funds, or ETFs. Next it will start buying stocks to prop up those markets. Its cousin central bank, the Bank of Japan, has been doing that for years now.

Subsidizing Capital Incomes by Government Not the Market

Both tax policy and central bank monetary policy are supposed to function as general economy stabilization tools, according to mainstream economists. But today that’s a fiction perpetrated by the corporate media. In recent decades, tax and central bank policy ‘tools’ have become virtual conduits for the subsidization of capital incomes.

They have become the vehicles of Corporate Socialism. The Capitalist State and its government takes care of its own. The rest of us will be taken care of by ‘the market’, according to Trump.

Dr. Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions on the Progressive Radio Network. Join Dr. Rasmus for daily commentary on developments in the US economy and politics on Twitter at @drjackrasmus.

posted April 13, 2020
The 2020 Great Recession 2.0–Or Worse

A month ago, in late February 2020, I was convinced the recession I have been predicting since January 2019 had arrived. Two weeks ago I began writing this would be another ‘Great Recession 2.0’, as in 2008-09. Now I’m not so convinced of even that. It may be worse, much worse.

US Real Economy Contracting Faster Than 2008 or 1932

Just last week Goldman Sachs investment bank was predicting a -14% contraction of the US real economy in the second quarter, April-June 2020. Morgan Stanley followed with its prediction of a -30% drop in US GDP. Goldman has since modified its initial forecast to -24%.

This compares with the worst quarterly decline in 1932, in the depths of the Great Depression of the 1930s, of -13%. The current contraction, in other words, is coming faster and deeper than any on record previously—whether compared to the 2008-09 Great Recession or the 1930s Depression.

As of the close of March 2020, about a third of the US economy is now shutdown. More is about to follow. The US regions most directly and heavily impacted by the coronavirus—Washington State, California and New York—are where business activity has virtually shut down except for emergency services. Other areas, like Illinois, Texas, and Florida are catching up fast.

Given the spreading shutdowns, focused in states of high concentration of economic production, According to current Federal Reserve central bank governors, the unemployment rate will rise as high as 30%, and quickly, according to St. Louis district Federal Reserve governor, Bullard. Predictions are at least 2 million will be unemployed in March alone, just the first month of the crisis. That monthly unemployment rise also exceeds the worst months of the 2008-09 prior Great Recession.

In short, the real economy in the US has fallen into an economic ‘coma’, as some have accurately called it.

But that economy was already weak and fragile when the virus effect pushed it off a cliff. Already in late 2019, business investment had been contracting for nine months, the manufacturing sector was in a recession, trade was negatively affected by Trump’s 2018-19 trade wars, and household consumption was showing serious signs of weakening. For example, with regard to household consumption, the default rate on credit cards for median families had risen to nearly 9% by late 2019, more than 7 million auto loans had defaulted, and student loan defaults were rising as well (although covered up by clever government re-categorizing of loan defaults). The consumer was not in good shape, in other words, keeping spending afloat largely by credit based spending by the middle classes and by the high end income households’ spending based on inflating stock and financial gains (the wealth effect) and Trump’s massive tax cuts of 2018-19 flowing to their bottom lines.

Then the virus hit the economy like a baseball bat to the back of the head!

Financial Markets Price Implosion

Financial asset markets began to plummet. Artificially boosted for three years under Trump, US financial markets were fueled by Trump’s multi-trillion dollar tax cuts and low interest rates in prior years. That tax and cheap money windfall to business, senior managers and shareholders in turn was redistributed to managers and shareholders in the form of a flood of stock buybacks and dividend payouts. More than $3.4 trillion, in fact, in just the last three years!

The buybacks & dividends were then diverted once again in large part back into stocks and other financial markets once more. The artificial financial asset bubbles grew. But it was all artificial, driven by cheap money and massive tax cut income redistribution to investors, corporations, and the wealthiest 1%.

Under Trump, from 2017 through 2019, stock buybacks totaled more than $2 trillion. It went mostly to professional investors and CEOs and senior managers of companies (In tech companies, the amount of the buybacks going to CEOs and senior managers was as high as 70%, as for example occurred in Apple).

Another $1.4 trillion was distributed to shareholders in the form of dividend payouts. That’s a total of more than $3.5 trillion in tax cut and low interest driven income redistributed to the wealthiest households. Most of this massive income windfall was reinvested in financial markets. US stock markets alone under Trump rose by 25%-35% in just three years. And that’s just about the amount the same markets have now crashed in just one month under the virus’s economic impact!

Crashing stock prices are one key indicator of the onset of a Great Recession, nor a normal one. The same applies to the spread of financial asset collapse to other financial markets.

Already US stocks have contracted by 35%-40%. Oil and commodity futures prices by 40% or more, as the price per barrel of crude has fallen from $70 to the mid-$20s per barrel range. Other industrial commodity prices by 20%-30%. Currencies (aka foreign exchange) worldwide devaluing everywhere, with greatest pressure in India, Asia, and Latin America. Bond markets—corporate and government—have now begun to feel the pressure as well and are beginning to fracture. And bond markets are far more important to the stability of the capitalist economy than are even the stock markets.

As financial asset prices deflate rapidly holders of those assets try to dump them to contain losses. Everyone wants to sell; no one wants to buy. Prices deflate further. Often purchased on margin, by borrowing money to buy more assets during the boom period, ‘margin calls’ require even more selling—and even more financial asset price collapse. Investors become desperate to raise cash to cover their losses. A ‘dash for cash’ overwhelms investor, business, and consumer psychology. As losses exceed the ability to raise cash, financial markets begin to implode. And they are now falling line ‘ten pins’, one after the other.

Pre-Emptive Bank & Investor Bailouts

First stock markets, but in the past month, repo markets where banks loan to each other; then commercial paper markets and money market funds; then municipal bond markets; and residential mortgages; and leverage loans (junk loans); and, behind the scenes and intensifying, high yield (junk) corporate bonds and so-called BBB investment grade corporate bonds.

The latter junk corporate bond + BBB market in the US alone is valued at $6 trillion. Leveraged loans another $1.2 trillion. Muni bonds $4 trillion. Residential mortgages $11 trillion. All in trouble now. Plus Repos, Commercial Paper-money funds, and so on as well.
And let’s not forget oil-commodity futures global price deflation, collapsing emerging market economy currencies, and even growing troubles in national government bonds like US Treasuries, Gilts (UK), Bunds (Germany) and others, many of which were already trading in negative rate territory.

In short, the generalized financial markets collapse was a defining characteristic of the 2008-09 financial crisis. And it’s returned now with vengeance.

Also returning is the desperate effort by the Federal Reserve (and other central banks worldwide) to stuff the growing black holes in banks, shadow banks, and corporate balance sheets with new liquidity (money injections) in order to try to prevent defaults and bankruptcies. A bank-corporate bailout has already begun—even before the banks fail. It is pre-emptive in 2020, unlike ‘after the fact’ as in 2008. Banks have not yet crashed and are being bailed out!

The Federal Reserve in one week in mid-March injected $2.2 trillion in the form of $1.5T for the repo market and another $700 billion in Fed direct purchases of mortgage bonds and investor held Treasuries. It followed with unlimited further money to stave off collapse of the commercial paper-money market funds, the muni bonds, mortgage bonds, and reportedly to back up credit card and auto finance companies from their anticipated losses. The Fed also announced it would ‘swap’ US dollars for foreign currencies of other central banks in order to help their economies. The Fed has committed to $4T more in money injections to banks. And that’s in addition to the $2.2T already committed.

In other words, bankers will be bailed out $6.2T, and that’s probably just a start. That amount compares, by the way, to approximately $4.5T used to bailout the banks in 2008-09.

What about non-bank companies? They received a ten year Trump tax cut in January 2018 of no less than $4.5 trillion! They were then awarded with more tax loopholes in 2019 equal to $427 billion more. Now the Republican Senate in the US Congress is proposing another $500 billion with virtually no strings attached.

Yet Another Windfall for Non-Bank Corporate America

In contrast, the fiscal spending stimulus for Main St. and middle-working class families totals about $500B in the pending 2020 crisis recovery bill. It includes a one time cash rebate to households of $3,000 but no increase in unemployment benefits thereafter. It’s clearly a 30 day emergency package, even though the impact on the US economy from the virus will be for months to come.

The US economy generates $1.7 trillion in spending every month. The $1 trillion fiscal stimulus package coming from Congress will thus replace barely half of the lost spending by the US economy.

Big corporate interests and politicians in Washington DC know the depth of the current economic crisis—financial and real. They’re providing for the bankers and investors to the tune of $6.2 trillion, with an open ended checkbook for more if necessary. But they’re only providing for a one month bailout of Main St.

Already Trump is tweeting this package will be reviewed in 15 days. He’s thinking short term. So too are other politicians. Their media is pushing the theme that ‘maybe the economic costs are too high for the cost of the death rate from the virus’ that will occur. Politicians like New York governor, Cuomo, are raising the question, signaling the debate now rising within the economic and political elite; they are preparing the public. They are getting ready to trade off human lives for their economy. They are preparing to send people back to work after a month, regardless the health consequences. They fear economic collapse and their loss of incomes more than the virus and its destruction of American lives.

Trump may soon decide to announce “let them go back to work”. An echo perhaps of Marie Antoinette’s infamous line as her citizens were dying too: “let them eat cake”.

In short, we are now about to see that people’s lives are expendable, for their profits, income and wealth that are not.

Check out Dr. Rasmus’s predictions since Sept. 2018 on recession and current events on this blog. And concluding chapters from his books, ‘Systemic Fragility in the Global Economy’ 2016; ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’ 2017; ‘Epic Recession: Prelude to Global Depression’ 2010; and the most recent ‘The Scourge of Neoliberalism’ 2020. For day by day and hourly commentary, join Dr. Rasmus on twitter at @drjackrasmus, and listen to his weekly radio show commentaries in depth as the crisis unfolds, at http://alternativevisions.podbean.com.

posted March 26, 2020
US Senate’s Fiscal Stimulus Bill: What It’s Not Enough

Just after midnight March 25, 2020 eastern time the US Senate passed a compromise bill of fiscal spending to address the accelerating economic decline. Both Democrat and Senate Republican leaders agreed on the terms. US House of Representatives Speaker, Nancy Pelosi, indicated she would rush approval of the package seeking a unanimous voice vote of the House.

Here’s what the terms of the stimulus package looks like, according to initial summaries by the Washington Post and CNN released within minutes of the bill passage:

Middle class and worker households would get $500 billion in the form of direct checks ($250B) and increased unemployment insurance benefits for the next four months ($250B)

Corporations and businesses would get $867B–$367B of which would go to small businesses, and another $500B to large corporations like airlines, defense companies, cruise lines, hotels and other companies.

Additional funding of $130B would go to hospitals to purchase needed medical supplies. State and Local governments get $150B. Other funds would be provided by the government’s Small Business Administration ($10B) to help pay their debt. Reference is made in the package as well for another $20 in farm bailout, raising that total from the $30B spent to date during the US-China trade war to $50B. While it appears the $130B for hospitals and $150B for local governments is in addition to the $867B to business and $500B to households, it’s not clear if the $20B farm bailout and $10B additional SBA are included in the $867B or not.

Here’s a further detail in breakdown of these amounts:

$500B to Business

The Airlines get their $58B they’ve been lobbying for. And if past breakdowns still apply, it means roughly half the $58B will take the form of outright grants, not loans, to the airlines and the remainder as loans. It is also unclear if the loans will be ‘forgiven’ after six months, as had been proposed before in past versions of the Senate bill.

Another $17B of the $500B is earmarked for defense companies considered important to national security. No details are released who these are and why such companies, not affected by consumer demand, should receive such an increase. (Possibly to back fill money that has been transferred from them by Trump to help pay for his wall).

Trump has also indicated he intends to have some of the $500B go to cruise lines and hotels which, along with airlines, are critical to his own company’s business.

The remainder of the $500 is designated for spending to support other industries. Whether in the form of loans, grants, or other forms of assistance is still unclear.

$367B to Small Business

The Senate bill always included $350B in loans for small business, and the provision that the loans would change to outright grants if used to pay wages and payroll costs. It won’t take clever accounting to use the $350 to cover wages and compensation (and payroll taxes, etc.), as companies move the money that would have been used for such purposes to other areas of their income statements. So consider the $350B as money without repayment—i.e. not a loan.

In addition to the $350B, another $17B is added now for small business to cover interest on their existing loans for six months. Finally, there’s the $10B from the Small Business Administration to help pay debts, which may or may not be part of the other totals.
Add in the $20B for farm support, the $10B from SBA, and the $130B to hospitals, it means Business Large & Small thus get $1,027B in direct assistance by the government in the new agreed on Senate-House stimulus package.

Another item that the Democrats demanded and received in part was to have an Oversight Board to review how corporations and businesses actually spent the government money. In the previous emergency economic recovery legislation in 2009, much of the direct assistance was ‘gamed’ by businesses that received it. Some even used it to buyback their stock and award bonuses to managers. The Oversight Board is supposed to prevent that. It remains to be seen, however. Who will be chosen to manage the Board will make all the difference. It can be assumed the Republican Senate or Trump will choose corporate-friendly Board members. As Trump has said publicly when asked who will ‘oversee’ the distribution of the funds to business, he replied “I’ll be the oversight”.

Middle class families and workers get a total of $500B under the agreement, which is what it was before. It appears that the money was just ‘moved around’.

Direct Household Cash Assistance

Talk of $3,000 per household is now changed to a check of $1,200 for a single household member, or $2,400 for married couple, plus $500 per child. (It’s unclear if that’s for all children in a family or just up to two).

To qualify for the full $1,200/$2,400 an individual must make no more than $75,000 income annually. Income above $75,000 phases out until $99,000 after which no payment is made. For couples, the phase out is at $199,000 per household.

Increased Unemployment Insurance Benefits

The package includes an increase of $600 to the state’s defined level of unemployment benefits paid (that vary by state quite a bit). But it’s unclear if the $600 applies to the highest paid state benefit payment or to all levels of state benefit payments. For example, in California the top payment is $450/week. The new payment would be $1,050/week. But will those below the top payment level also get $600?

A plus to the unemployment insurance provision is that it will also apply to contingent work: that is, to part time, temp, contract labor not just to full time employed who are laid off due to the effect of the virus on company shutdowns.

On the negative side, all the improvements in unemployment insurance will take effect for only 4 months, then will expire.

It is clear, therefore, that middle class families will receive only the $500 billion that had been allocated before—in the form of cash assistance one time worth $250 billion and improved unemployment benefits for four months costing another $250 billion. It appears some of the cash assistance was redirected toward improvement in unemployment insurance benefits, but no net increase in the total $500B on the negotiating table before.

In other words, in the final stimulus bill businesses get more than twice as much as do households and the working class!

State & Local Governments

An additional $150 billion is allocated in the bill to assistance to state & local governments.

    THE TOTALS

The totals in spending thus appear to be approximately $1,650 billion! It is being reported as a $2 trillion stimulus effect and increase in US GDP overall. AS Trump’s advisor, Larry Kudlow, has said on a previous occasion, the $2T represents the spending plus the ‘multiplier effect’. $2T is not therefore the actual spending. That is less, around the $1,650T estimated here. The difference is a multiplier effect of about $400B.

But that’s a generous estimate of the multiplier. It’s based on normal economic conditions. And the current collapse of the real and financial US economy is anything but normal. The multiplier will be much less. That is because much of the spending by the government, to business and households alike, will be used to pay down debt, hoard the money due to expectations of future profits and employment insecurity, or to cover price gouging by businesses selling necessities.

The US economy spends monthly the equivalent of $1.7 trillion. The Senate’s stimulus package is thus a one month stop-gap at best! As this writer has been arguing in recent days, the stimulus needed to get through the summer will have to be $4 trillion, not $1.65 trillion.
The $2 trillion (spending + multiplier) is estimated at around 9% of US Gross Domestic Product, GDP, at present. A 20% increase of GDP is necessary, raising total government spending in GDP terms from the roughly current 21% of GDP to 40%.

40% of GDP is what the US government raised spending to in 1942, when we went to war at that time. It was an increase from around 15% pre-war. If the fight against the new enemy, the virus, is a kind of ‘economic war’, then the US will have to mobilize its economy again on a war footing. Trump’s activation of the War Production Act, and then doing nothing about it further, is not a war mobilization. Trump is not a ‘war president’, as he claims. Indeed, he allowed the enemy to actually penetrate our shores and spread amongst us with his delayed action to stop airline travel and cruise travel. It’s not an accident that the largest concentrations of the virus infections are in our coastal ports and airports—Washington state, California, New York, and now increasingly New Orleans, Philadelphia, Chicago and Miami.

Trump as ‘War President’ & Other Fictions

Unlike our prior war presidents, Roosevelt and Truman, Trump is not mobilizing production and distribution of key resources and supplies to fight the enemy. He simply asks the private sector to do it and then gives his daily ‘sales pitches’ to the nation press conferences to say what he’s doing when he’s not actually doing it. War supplies (masks, ventilators, PPE) are promised and promised but are slow to appear, if they ever do.

The question follows then whether the current Senate-House stimulus bill represents a sufficient stimulus to protect the US economy. The answer is no. It’s not even half way there for Main St.

In contrast, however, the Federal Reserve US central bank has quickly allocated no less than $6.2 Trillion so far to bail out the banks and investors, even before they fail this time. And promises to do more if needed and for as long as necessary. It is writing a blank check for the bankers and investors.

Meanwhile Congress provides one-fourth that, and only one third of that one fourth, for the Main St., workers, and middle class families.

Finally, it is clear from Trump’s statements in recent days that he knows this stimulus is only a one month hit to the economy. That’s why he—and the capitalist investors who have been lobbying him hard the past week—are turning up the message we should all start going back to work by mid-April.

As Trump put it, the timing is ‘beautiful’, at Easter. But it won’t be so beautiful when a surge in infections and death occur on top of the current surge underway occur by early summer.

But profits and money are more important to this wheeler-dealer, commercial property speculator capitalist in the White House. With the US budget deficit this fiscal year almost certainly to exceed $3 trillion, and his election looming on the horizon, Trump and friends see Wall St. and US business interests as more important than the rising death rate that is inevitable should we return to work prematurely by mid-April. Such action will all but ensure the eventual overwhelming of the US hospital system three months from now, an even higher death rate, and an even greater collapse of the US economy and financial system in the aftermath.

Trump may think he’s at war with the coronavirus, but it is the virus that is winning! And his poor generalship is aiding and abetting that enemy. Unfortunately, the American public—and especially the old and infirm—are becoming the ‘cannon fodder’ in Trump’s phony war.

Jack Rasmus is author of the recently published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.

posted March 17, 2020
Economic Recovery Proposals: Theirs & Mine + How to Finance My Plan

The Coronavirus has been wrecking the US and global economies. While focus has been on addressing the biological devastation wrought by the virus, the economic devastation keeps growing.

Failure to properly address the deepening economic impact of the coronavirus has been no less shocking to date than the obvious failure of politicians and policymakers to get a handle on the medical-human impact of the virus.

Trump had called the virus a ‘hoax’, said it would be over by April, declared publicly there were millions of test kits being used when there weren’t, and blamed first the Chinese then the Europeans for the obvious spread of the virus, and rising death toll, in the US.
His answer thus far to the spreading and deepening economic impact of the disease has been to demand US Federal Reserve bank chair, Jay Powell, to drop interest rates further plus advocate a payroll tax cut across the board—the latter a measure that economists almost unanimously say will have no stimulus effect on the economy. Even his own advisers, Steve Mnuchin & Larry Kudlow, reportedly have advised against the payroll tax cut. The payroll tax cut was first enacted under Obama to try to stimulate consumption in the wake of the last 2008 economic crash. It is generally acknowledged not to have had much, if any, effect on economic recovery.

How the Virus is Crushing the Economy

There are at least four major ‘channels of contagion’ by which the virus is driving the contraction of the US, and global economy:

1. Global Supply Chain Disruption

This was the easiest to see. Intermediate and final goods exported from China to the US were halted in many industries. US production began to cut back on final goods delivery in the US economy, already affected by Trump’s trade war with China during 2018-19. Not only goods from China to US directly. But supply chains in which Japan and So. Korea goods, made in China and delivered to those countries, would otherwise be shipped to the US. Or goods shipped to Mexico and then exported as final goods to the US. Or from Asia to Europe, and then to the US. The net effect was a significant drop in US production and therefore sales and the output of the US economy in general. But that channel of contagion is now being dwarfed by another.

2. Collapsing US Consumer Demand

We can see this now spreading and deepening rapidly throughout the US economy. First demand for travel related spending: airlines, cruise & shipping, hotels & leisure, entertainment, etc. were initially impacted. But that’s been spreading to other industries as rapidly as the virus itself. Personal services of all kind are coming to a halt, except for healthcare. Restaurants and bars are shutting down. Education is being driven to an online underground. Malls and stores are virtually deserted. Social entertainment, including sports, is suspended everywhere. Even grocery stores are experiencing empty shelves, and consumption in basic necessities will soon fall off. Then there’s online purchasing, now developing huge backlog and delivery problems.

The consumption sector is coming to a halt in industry after industry, and it’s not over yet. Social distancing required by the virus to slow its spread is, conversely accelerating the spread of the economic impact.

Consumption was the only sector of the US economy in late 2019 holding it up. And it was slowing in that regard as well by year end. Now it is collapsing. Nearly 70% of the US GDP and economy, it is now joining the contraction in business investment and trade that was occurring throughout 2019.

The recession is here, as of March 2020, folks. The only real question now is how deep will it go and how long will it last! And that question depends, in turn, on how quickly and seriously will US politicians respond. And the actions thus far do not portend well for a prompt ‘v-shape’ recovery.

But there is yet a third channel of economic contagion emerging that may dwarf the effect of the supply chain disruption and household consumer demand collapse. It is the condition of the financial system itself.

3. Financial Markets Deflation & Default

Globally and in the US financial markets are churning and fracturing, with a net effect already of having deflated by more than 20% and in some cases 30% or more. Not just stock markets. But oil and commodity futures markets. Foreign exchange currency markets. Corporate bond markets, which are far more important to capitalist economies than stock markets, are showing signs of great stress, to put it mildly. Especially unstable are markets for what’s called junk bonds (especially in oil fracking, retail, and travel & leisure). And what’s called ‘junk loans’—i.e. leveraged loans. In the US the total at risk is a combined more than $7 trillion. Add to that the fact that banks globally are sitting on $10 trillion in non-performing loans. Should prices collapse further, widespread defaults on paying principal & interest on debt will take place. That will result in mass layoffs once again, as in 2008-09; a further collapse of business investment; and a yet further acceleration of contraction of the real economy.

It’s not coincidental that the US central bank, the Federal Reserve, last week pumped an extra $1.5 trillion into the banks via what’s called the Repo market, plus more through traditional bond channels, and is planning in a couple days this coming week to drop interest rates to near zero and re-institute special funding once again, as in 2008, to bail out mutual funds and other ‘shadow’ (i.e. unregulated) banks. Why? Because liquidity is rapidly drying up throughout the economy as businesses drawn down their bank credit lines to zero as well, in order to hoard cash to weather out the storm of consumption and production collapse on the horizon.
The financial markets collapse, the 3rd channel, may prove to have the greatest devastation on the now already recession hitting the US economy. What began as supply chain and household demand problems will be greatly exacerbated by the financial instability.
Is Trump and the politicians preparing for this economic contingency? No, not at all.

Here’s what Trump and even the Democrat leadership (Pelosi-Shumer) are proposing:

Trump’s Failed Economic Stimulus ‘Program’

In the middle of last week Trump addressed the nation on TV and proposed the weakest possible response. It was so weak even investors reacted with a 2,200 point fall in the stock market. There were basically three things Trump proposed:

First, a $50 billion increase in the small business administration loan fund. A hint of some kind of tax deferral extending the normal IRS April 15 deadline. And, third, a payroll tax cut costing the social security trust fund a hit of at least $800 billion.

He then revisited that paltry proposal on Friday, March 14. He proposed an apparent additional $50 billion for the states to spend on emergency measures to address the spreading virus. He clarified the tax deferral would be only for ‘some’, not all. He added a suspension of interest on student debt. But failed to explain if that meant a full waiver of debt for all students, or just a temporary halt to paying interest, which would nonetheless continue to accumulate and for which students would still have to pay later after the suspension was lifted. Trump also added the proposal the US would buy more oil from US producers to fill the US strategic reserve. That was to help oil companies experiencing revenue loss from oil prices falling to the low $30s per barrel. Trump’s statements to the press indicated he still wanted the payroll tax cut, even as the Democrats were saying ‘no way’, it won’t have any effect except to further destroy social security funding.

Pelosi & Democrats Blocked Stimulus Program

As Trump was prevaricating and dribbling out minimalist economic responses to the cratering US economy, Pelosi and the Democrats were trying to address the real scope of the problem, even if not as broadly required as well.

Intense discussions were being held behind the scenes between Pelosi and Trump’s Treasury Secretary, Steve Mnuchin. All that came out of that negotiation by Friday, March 14, however, was an agreement to provide free testing of the virus. But how ‘free’ was defined was not all that clear. Did that mean those sick would have to pay out of pocket and then get reimbursed by the government. If so, millions will hold off getting tested. More than half US households have less than $400 for emergencies, according to the Federal Reserve’s own data research. They can’t afford to get tested.

Pelosi and the Democrats had also been proposing paid medical leave of 14 days, tax credits to small business to help pay for the leave, an increase in unemployment benefit payments in anticipation for all those, maybe not sick, who would soon be laid off or asked by their employers to stay home (on unpaid medical leave). Pelosi &company, to their credit, also refused to cut payroll taxes. They know of Trump’s leaked plans to cut social security and medicare after the November elections.

While there are some good provisions in Pelosi’s proposals, the Democrat economic stimulus doesn’t go far enough as well to address the scope and magnitude of the negative economic impact that’s coming to the US economy: as it shuts down in broad industries and should the financial system crack as it did in 2008.

Furthermore, it appears that both Trump and McConnell in the Senate are intent on doing their worst to refuse to agree on most of the proposals in the Pelosi plan; demanding in particular acceptance of a payroll tax cut in exchange for other proposals. So don’t expect anything big or effective in any agreement coming this week. Trump is determined not to have an effective fiscal stimulus, now that his budget deficit last year exceeded $1 trillion—and that his current budget deficit after only five months is running at a rate of $1.4 trillion for this year.

An economic stimulus must focus on government spending and income restoration. It cannot focus on tax cutting. Nor on interest rate reduction. Neither of those kinds of policies will stimulate investment or consumption. Why? Because there’s a massive shift to hoarding cash underway by business and consumers will not get relief quick enough, or at all if they’re unemployed.

Businesses is selling its financial assets across the board to gather in as much cash as possible, needed to continue to pay interest and principal on its $10 trillion debt run up since 2008, as its prices, sales and revenue drop precipitously in the meantime. There’s a ‘dash for cash’ underway. And no amount of tax cutting will lead to re-investing in production. The tax cuts will simply be hoarded and not spent. Ditto for households and consumers. Any payroll tax cut will be hoarded, not spent, to ensure households have enough to continue paying mortgages and car loans and student loans—assuming they still have jobs. If no jobs, it will be spent on trying to maintain current consumption, not increase it.

The same applies to interest rate reductions by the Fed. Why will businesses borrow even at a lower rate to expand production, when consumers are buying less of their goods or if they can’t get parts from abroad with which to build the goods? And why would households borrow to take the risk to purchase a new auto or even a new home given the current direction of the economy? Cutting the costs of business investment is now the least important variable determining the outcome of investment. Expectations of a collapsing economy and thus falling profitability is what’s driving investment now—and the anxiety of being able to continue to pay for debt accumulated in recent years in order to avoid default.

Yet that’s what exactly Trump will propose: more tax cuts, for business especially, and lower interest rates. It will prove throwing money down a rathole.

MY PROPOSALS FOR FISCAL SPENDING ECONOMIC RECOVERY
(March 15, 2020)

Make no mistake. The US is now in recession. And it will deepen considerably before it is over. Moreover, the great risk is now a spreading crisis of credit, a fracturing of the financial system as in 2008-09, and the potential emergence of another ‘Great Recession’, this time even worse than 2008-09. All the efforts by the Federal Reserve and other central banks to pump trillions of dollars more into the US and their economies may prove futile this time around.

What’s needed is an immediate restoration of consumer household spending power and a protective floor under incomes that may soon also collapse should mass layoffs emerge once again in another couple months. Here’s some measures, a necessary short list, expanding on some of my earlier proposals, to provide that immediate income effect:

I. Paid Medical Leave

A 14 day paid medical leave until vaccines for the virus are generally available, eligible for:

· Those tested with virus
· Those with symptoms
· All those Parents of K-8 students forced to remain home due to school closures

The 14 day paid leave should be renewable by state legislatures’ decision since the economic impact, nor the recovery from the virus, will not occur evenly across all states

II. Company Reimbursement for Paid Medical Leave

· Paid Medical Leave costs should be reimbursed by the federal government to companies with fewer than 500 workers. Reimbursement by tax credits for companies with more than 50 employees; and by means of direct subsidy payments for companies with fewer than 50.

· 50% reimbursement to companies with more than 500 workers by means of tax credits provided the company shows a full restoration of jobs for those laid off within a year of the development of a vaccine for the virus.

· Paid leave shall not result in a reduction of paid sick leave provisions already provided by a company or by union contracts, which shall otherwise remain accrued to workers

III. Employment Guarantees

· Employers are required to restore workers on paid medical leave, who return, and to their former position, pay and benefits.
· All other benefits shall continue to accrue for workers while on paid medical leave

IV. Hospital Testing & Related Costs

· Costs for hospital-clinic-doctor office entry and testing will be billed by the health provider directly to the government, not paid by the worker and then reimbursed

· Provider costs associated with the visit for testing (i.e. labs, emergency or other room charges, out patient, in patient, etc.) will similarly be billed by provider to the government

· Return or follow up visits if needed will be billed directly as well

· Pharmacy and drug costs are waived for patients determined to be infected by the virus, and all their immediate dependents under age 21, or on Medicare, Medicaid, or otherwise uninsured.

V. Health Insurance Companies Responsibility

If a worker is insured and on medical leave, or if otherwise laid off due to the economic effects of the virus on their company of primary employment, the health insurance provider shall waive the worker’s share of monthly health insurance premium. This shall apply as well as for their immediate dependents covered by the company’s insurance benefits program

· If a worker is insured, or if otherwise unemployed due to the economic effects of the virus on their company of primary employment, the health benefits insurance provider will waive all deductibles and co-pays for services for those determined infected or on leave due to school shutdowns. This shall apply as well as for their immediate dependents covered by the company’s insurance benefits program

· Premiums, deductibles, copays and coverage shall remain frozen until the State legislature declares the virus effect is declared over
· State legislatures shall review all insurance company requests to raise rates after the virus effect is over for the next 3 years.

Attempts to recoup costs during the virus period by accelerating price increases or reducing coverage will be denied if greater than the rise in the local consumer price index for the urban region.

VI. Medicare & Medicaid

For those employed while receiving Medicare coverage, the monthly Medicare deductible payment shall be waived until the vaccine for the virus is made available

For those employed while receiving Medicaid, all doctor or hospital costs to the employee or unemployed shall be paid for by the State’s Medicaid authority. All doctors and hospitals shall be required by law to accept Medicaid patients until the vaccine for the virus is made available.

Refusal by doctors, hospitals or clinics to accept Medicare or Medicaid patients will result in fines levied on the health provider’s annual federal tax payment

VII. Unemployment Benefits

· The federal government shall immediately extend unemployment benefits for all layoffs for an additional six months (one year total), effective as of March 1. 2020

· Companies shall be required to continue to pay unemployment benefits taxes to their states for laid off workers for up to a year, commencing March 1, 2020.

· There shall be no suspension of the Social Security 6.2% payroll tax or Medicare 1.45% tax by companies.

VIII. General Company Requirements

· For the duration of the virus crisis period, companies shall be required to continue to pay their workers’ health insurance monthly premiums if laid off, for a period of six months from date of initial lay off

· Banks shall be required to provide lending to business customers at interest rates no greater than the original loan, if extended; or for initial loan, no more than the average rate for the local urban area in which the company is located

· Banks and mortgage companies shall institute immediately a moratorium on mortgage payments for those on paid medical leave, or for those laid off for economic reasons associated with the virus effect on their company for a period of three months or until returning to work, whichever is sooner

· Auto companies’ financial services, credit unions auto financing, and other sources of financing of vehicles shall introduce a moratorium on monthly auto loan payments for those on medical leave, or for those laid off for economic reasons associated with the virus effect on their company for a period of three months or until returning to work, whichever is sooner

IX. Federal Student Loans & School Districts

· For college students who work, but are laid off due to economic effects associated with the virus at the company or institution for which they work, student loan principal and interest payments shall be suspended until returning to work. Suspension shall be defined as permanent waiver of all interest charges. Such interest payments shall not further accrue.

School districts that shut down shall continue to receive per pupil reimbursement from their states on the same schedule as when students were attending sessions

X. Food Provisioning & Delivery System

K-8 students who were receiving meals while in attendance at their school, but are not so doing due to school shutdown, shall continue to have meals delivered to their primary residence daily. State programs providing ‘meals on wheels’ for elderly residents or similar programs shall be expanded to cover K-8 students

All former cuts to the SNAP (food stamp) program since January 2017 shall be restored for all those eligible on paid medical leave, leave from work due to school shutdowns, receiving unemployment benefit payments, or on Medicare or Medicaid

Federal & State governments shall undertake whatever measures necessary to ensure the physical delivery of food to local grocery outlets, and to remove bottlenecks to online ordering and delivery of food and necessary household items to residents or local distribution centers, including if necessary mobilization of state national guard units and requisitioning temporarily of private delivery company facilities and equipment

HOW TO FINANCE MY FISCAL PROPOSALS

(March 16, 2020)

Some friends have asked how much would my own fiscal-spending based ‘Economic Recovery Program’ just released earlier today cost? The total cost can’t be quantified exactly, as the impact on working families is spreading rapidly. But here’s some financing, administrating, and implementation principles associated with my proposal:

* First, the amount of financing applied in its first phase should be no less than the same amount that the Federal Reserve bank has already allocated to spend on the banks and investors. That’s $2.2 trillion in just the last week. So if we can spend that on the bankers, why can’t we allocated the same funds to bail out workers and the middle class. Index that $2.2T to whatever further increases the Fed spends on its pre-emptive bailout of bankers and investors already under way. If the Fed can ‘create $2.2 trillion’ out of thin air to give to bankers and investors, why can’t it do the same for Main St. and working families?

*Second, use some of the money to enroll those without health insurance or whose insurance will not cover the costs of health services, apart from the actual tests only, in the Medicare system. Introduce a one page sign up for Medicare online. Create a special ‘temporary’ membership category. Have healthcare providers bill Medicare for the tests costs to workers, and for all other related costs, as well as costs for those on unpaid medical leave or unemployed due to the economic effects of the virus on the economy-i.e. economic layoffs. Immediately enroll the 30 million uninsured. Voluntarily enroll the 87 million who are under-insured with massive deductibles, copays, with no dependents covered, etc. Immediately allocate funds from the $2.2 trillion to bail out Main St. and transfer the allocated funds to the Medicare-Social Security Trust Fund. And hire as many workers in the Medicare administration as needed.

*Third, instead of reimbursing companies for continuing paying wages to workers sent home on unpaid leave, or who are laid off because of the major economic impact that’s coming (there will be mass layoffs starting in May), why not have the government ‘hire’ the laid off for the duration of the crisis–which today Trump admitted will likely continue through August. Adapt the unemployment benefits system to make the payments to those so covered. This would be a 21st century, electronic administered ‘Works Progress Administration’ that provided 8 million government jobs to the unemployed.

The administrative apparatus is there already: Medicare and Unemployment Benefits. Why not use it. And make it clear it is the government that is providing their health care and employment protection–not the private employers or bankers who would otherwise cut them loose to scramble individually to protect them and their families.

*Fourth, immediately create a ‘Public Investment Corporation‘, funded and managed by the government (Federal, State & Local) to invest in alternative energy expansion and other climate crisis mitigation that would hire workers, since the current crisis will mean private business investment will collapse across the board and such much needed investment from the private sector will not be forthcoming for some time.

Let the Federal Reserve pre-emptively bail out its bankers and billionaire private investors! But if they can spend $2.2 trillion, then the government can, and should, pre-emptively bail out Main St. as well for no less!

Further economic measures will be needed to address the current US recession, and the increasing possibility of the recession morphing into another ‘great recession’ (or worse). But the above represents an initial phase of immediate fiscal spending response in the short run to restore incomes being devastated right now.

Dr. Jack Rasmus

Jack Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.

posted March 17, 2020
Trump’s DOA (Dead on Arrival) TV Speech

Tonight, March 11, Trump gave a TV address to the Nation that was to be his program for mobilizing the country to address the growing spread of the Covid-19 virus and its increasing negative impact on the US economy. The proposals landed with a thud. Even the financial markets gasped and went into a tailspin. The Dow Jones stock futures market immediately went into a tailspin, falling 1250 points again even before the markets reopen tomorrow morning, Thursday March 12.

Not only the financial markets, but the rest of the real economy is declining rapidly. The US stock markets now have officially entered ‘bear’ territory, having lost more than 20% in value. That has nearly wiped out all of Trump’s much vaunted stock market gains since he came into office.

Subsidizing Stock Markets with Tax Cuts & Interest Rates

The markets under Trump have been artificially boosted since he assumed office. First by expectations of his 2016 campaign promise he would deliver a $5 trillion business-investor tax cuts immediately once elected. Secondly, his delivering on that promise in January 2018 with his $4.5 trillion tax cut for multinational corporations, businesses, and investors. (To this was added a further $427 billion in business-investor tax loopholes in 2019). And third, as a result of Trump forcing the Fed to reverse course and lower interest rates in 2019 as well.

Working and middle class households end up paying $1.5T in more taxes under as a consequence of Trump’s 2018 tax cuts. That boosted already record profits to still higher profits. For example, 23% of the 27% rise in the Fortune 500 companies’ profits in 2018 were attributed to the Trump windfall tax cuts alone. Flush with record profits, the same Fortune 500 redistributed their profits bonanza to their shareholders. They gave back to shareholders $1.2T in stock buybacks and dividend payouts in 2018, plus another $1.2T in 2019. Most of the $2.4T went right back into the stock markets, driving their price levels still higher.

But that wasn’t all. Added to Trump’s subsidization of Corporate America by means of tax cuts was the subsidization of Banking America. Trump browbeat, threatened and successfully forced the US central bank, the Federal Reserve, to provide cheaper money once again to America’s bankers by lowering interest rates three times in 2019. The cheaper money led to loaning out more to investors, more cheap money to speculate in stock and other financial markets. Cheap money also served to drive up stock prices even more in 2019.

In other words, under Trump tax policy and Trump monetary policy have been in the service of the stock markets ever since he came into office. The tax and interest rate policies artificially pumped up corporate profits, that in turn boosted corporate stock buybacks and dividend payouts to record levels that then enabled the diverting of much of those buybacks-dividends cash into the stock markets. In the end it created an artificial stock market boom.

But it all came crashing down in 2020. After risen for three years, the markets crashed 20% in just three weeks. And another 20% is likely yet to come.

Accompanying the stock market crash has been the collapse of other financial asset prices in the US and worldwide. Stock markets globally have followed the US down. Oil and commodity futures prices have tanked. Oil has fallen into the low $30s per barrel, flirting with the $20s. Ditto other commodity prices. So have foreign currencies. Ditto the US Muni bond market. And corporate junk bonds in the energy sector are well on their way to mass defaults, followed by retail and other high yield bonds.

Meanwhile, the real non-financial economy in the US and globally fare no better. Already slowing before the virus’s impact on global supply chains and domestic demand, only the US household consumer was holding up the US economy at year end 2019. That has now changed dramatically in 2020, however. All the indicators of the real economy are now in freefall too—not just the financial markets.
The US recession, in other words, has arrived as of March 2020. The same recession is spreading now globally: in Europe, So. Korea, Japan, Latin America, Australia, and by many independent forecasts, China perhaps soon as well. Goldman Sachs research is projecting a second quarter 2020 US growth rate of zero. Others are forecasting a China growth between 2% and -2%, depending on the source. In other words, half of the global economy—the US and China—are about to stagnate at best and more likely contract now—as the rest, even weaker, economies in Europe, Japan, Latin America and elsewhere slide even deeper into recession.

So there’s a globally synchronized real economic contraction underway (aka recession), as well as a spreading global contagion of deflating financial asset markets. The last time financial markets and the real economy were similarly synchronized was 2008. But this time the financial price collapse is the fastest on record.

Trump’s DOA TV Address to the Nation

It was in this economic context that Trump came before the cameras tonight, March 11, to tell the nation what he was going to do. But his answers were not well received—by business, the media, and I’m sure the vast majority of Americans looking for leadership and a convincing program. Nor was his delivery convincing. He appeared wooden, subdued, unconvinced of his own words, and, of course, he contradicted himself repeatedly in typical Trump fashion.

Just one week ago he declared publicly that the virus was not a problem in the US. He said only 15 cases had been recorded and that number was going to zero soon. It would all disappear by April when warmer weather returned. Last week he said 43 million test kits for the virus were being distributed. And that everyone should make sure they go to work and carry on life as normal.
But tonight he did not challenge the fact of more than 1200 cases in just one week, and 38 deaths, with both numbers rising rapidly. Instead of ‘going to work’, he reversed himself and said “if sick, stay home”. And normal life, he said, now means not traveling, no mass events or gatherings, closing schools.

Nor did he mention why California governor, Gavin Newsom, complained today that many of the test kits sent to California have been defective and that the most recent kits received by California were sent without the biological ‘reagents’ necessary to make the kits work. As a result, 2500 travelers disembarking today from the Grand Princess cruise ship now docked in Oakland, California were not tested as they left the ship unless they showed direct symptoms of the virus. In other words, thousands were being sent on their way even if they were asymptomatic carriers of the virus because there just wasn’t enough working test kits. Nor did Trump mention New York governor, Cuomo, who has had to shut down entire communities in New York because of insufficient test kits. Following Trump’s speech, Cuomo today on CNN TV added “we don’t have testing capacity…We are way behind on testing”.

And of course Trump would never say that in four weeks the US has tested fewer than 10,000 nationwide, in contrast to China’s testing 200,000 in a single day or South Korea 15,000 in a day. Nonetheless, according to Trump, the US had carried out an “unprecedented response”, and was “responding with great speed”. Trump’s speech was typical ‘reverse hyperbole’. To refute the facts and critics, just say the opposite and exaggerate to the max. It used to be called the ‘big lie’ when Nazi ideologue, Joseph Goebbels, used to employ it.

In the days immediately preceding his speech, Trump and administration officials began calling the coronavirus the ‘China virus’ or the ‘Wuhan virus’, in a clear Xenophobic attempt to divert blame. But even that was contradicted in his speech tonight. Now it was Europe that was the cause of the spread of contagion in the US. As he put it directly, it was Europe that had “seeded the virus” to the US as its citizens traveled from Europe to the US. So the Europeans were now to blame as well as the Chinese.

In the same breath identifying Europe as the cause, Trump announced he was “suspending all Europe travel to the US for 30 days”. However, he failed to clarify if that included cargo and freight from Europe to the US as well as passengers. If cargo were included, that of course would accelerate recession in the real economy, for Europe as well as the US as global trade between the two came to a halt. In an even more astounding clarification to all that, however, he added that the UK would be exempt from the freeze on all Europe to US travel.

That remark was almost comical. What then would stop European passengers from taking the ‘Chunnel’ (the train tunnel under the English channel) from France to London and then flying to the US after a London connection? Was he trying to help his buddy, Boris Johnson, and his fast weakening UK economy by diverting all Europe travel to the US through London? Was he making a concession to Boris on upcoming US-UK trade negotiations? To point was as silly as it was transparent.

After meeting with US bankers earlier in the day, Trump had made a point to mention that collapsing US stock prices was “not a financial crisis”. Oh yeah? Tell that to Fed chairman Powell who today rushed another $175 billion into the markets overnight. Or to the giant shadow banks, Blackstone and Carlyl Group, who today began telling their clients to quickly draw down their credit lines at their banks because it was likely the banks would freeze their access soon. Or tell it to the various financial analysts who are now increasingly warning of escalating defaults on the way in the junk bond market for oil-gas fracking companies. Oil at $20 a barrel. No crisis really? (Let’s not forget the oil price crash in early 2008 that preceded the collapse of Lehman Brothers and other banks in the fall of 2008).

What working class America got out of Trump’s speech was that something for them was ‘on the way’ but Trump couldn’t say what that was, except there would be “relief soon”. That’s all. A ‘maybe’. Sometime. Perhaps. We’ll see. Just wait.

But US business would not have to wait. What Trump did propose in his speech was a series of measures directed mostly at US small businesses. He said he would add $50 billion to the government’s small business loan fund to provide money capital to small businesses in need. Secondly, he promised deferring of tax payments due April 15. And there was the payroll tax cuts, where all businesses across the board would enjoy an immediate 6.2% tax cut—whether they were negatively affected by the virus or not.

The idea of suspending the payroll tax was first introduced by President Obama in the wake of the 2008-09 crisis, when his other economic stimulus programs weren’t working too well. In retrospect, today most economists agree that Obama’s payroll tax suspension had little to no effect on stimulating the real economy—and would have even less today. What a payroll tax cut did accomplish under Obama was to further undermine the finances of the social security trust fund. But that would serve to support Trump’s announced plans this past January 2020—while talking to billionaires in Davos, Switzerland, at the World Economic Forum—to cut social security and medicare after the November 2020 US elections. Create a deficit in social security in order to order cuts in its benefits.

But where was the assistance to those who needed it most? What about the millions of American workers who would now have to stay home because they were infected. Either voluntary quarantined or ordered to do so by their employers. Or the millions unable to ‘work from home’ due to their occupation. Or those too sick to go to work. What about the more than half of the 165 million US work force who, according to the Federal Reserve research, have less than $400 in emergency savings for such situations? Or the 30 million who have no health insurance whatsoever. Or the 87 million who may have some insurance but have $500, $1000 or even $2000 deductibles, plus copays? Or the millions who have no paid sick leave whatsoever, since the USA is the cheapest provider of paid sick leave among all the advanced economies. Even most union contracts provide only 6 days paid leave on average. That’s 8 less than a 14 day quarantine period. And what about the tens of millions of working class households with Kindergarten through grade 6 children who can’t afford nannys or babysitters? What if their parents have to stay home, not work and not get a paycheck because their school districts shut down? And what about the many millions who will almost certainly have to go on unemployment in the travel industry, hotel workers, restaurant workers, airline and ship workers, those who work in entertainment, sporting, and other ‘social gathering’ industries? Where were Trump’s proposals for them? Trump and his administration advisors keep referring to ‘targeted’ stimulus, but his ‘target’ is businesses whether they need it or not, while working families are not at all a ‘target’ and will have to wait to get “relief soon”.

Dr. Jack Rasmus
March 11, 2020

posted March 17, 2020
Covid-19 and the Working Class

US politicians and media are reporting approximately 500 cases of the virus in the US as of March 8. The actual number is almost certainly much higher, however. Perhaps as much as 10-fold that number, according to some sources. Why?

There’s the problem of reporting only tested cases so far, and there’s still a lack of available tests even to test and to verify all those infected without symptoms.. And even those showing symptoms may have been determined initially as not infected by the tests, since reportedly many of the early test kits were defective. Meanwhile, those without symptoms or pre-symptomatic are not being tested at all.

The Fiction of Voluntary Quarantine

Then there’s the policy of voluntary quarantining those who have come into contact with someone who was tested and found infected. It’s not working very well. Those who have come in contact with carriers of the virus are asked simply to stay home. But do they? There’s no way to know, or even enforce that. The case example why voluntary quarantining doesn’t work well is Italy.

Most of the northern Lombardy region, including the financial center of Milan in that country, is in ‘lock down’ right now. But all that means is voluntary quarantining. People are asked not to leave their town, or the larger region. But is that stopping them traveling around their town in public places? Or within the larger region? And spreading the virus there? Apparently not. Reportedly, infection for those tested have risen in just two weeks to more than 6,000 in Northern Italy. CNBC reports that, in just one day this weekend, that number increased by 1200! So much for voluntary quarantines. There’s no way, no sufficient personnel, not even accepted procedures, with which to daily check on those (in Italy that means hundreds of thousands) in voluntary quarantine.

The Real Costs to Workers

Average working class folks cannot afford to voluntary quarantine themselves. Or to stay home from work for any reason. Even if they have symptoms. They will continue going to work. They have to, in order to economically survive.

Consider the typical scenario in the US: there are literally tens of millions of workers who have no more than $400 for an emergency. As many perhaps as half of the work force of 165 million. They live paycheck to paycheck. They can’t afford to miss any days of work.

Millions of them have no paid sick leave. The US is the worst of all advanced economies in terms of providing paid sick leave. Even union workers with some paid sick leave in their contracts have, at best, only six days on average. If they stay home sick, they’ll be asked by their employer the reason for doing so in order to collect that paid sick leave. And even when they don’t have sick leave. Paid leave or not, many will be required to provide a doctor’s slip indicating the nature of the illness. But doctors are refusing to hold office visits for patients who may have the virus. They can’t do anything about it, so they don’t want them to come in and possibly contaminate others or themselves. So a worker sick has to go to the hospital emergency room.

That raises another problem. A trip to the emergency room costs on average at least a $1,000. More if special tests are done. If the worker has no health insurance (30 million still don’t), that’s an out of pocket cost he/she can’t afford. They know it. So they don’t go to the hospital emergency room, and they can’t get an appointment at the doctor’s office. Result: they don’t get tested, refuse to go get tested, and they continue to go to work. The virus spreads.

Even if they have health insurance coverage, the deductible today is usually $500 to $2000. Most don’t have that kind of savings to spend either. Not to mention copays. So even those insured take a pass on going to the hospital to get tested, even if they have symptoms.

The media doesn’t help here either. Reports are typically that those who are young, middle age, and in reasonable good health and without other complicating conditions don’t die. It’s the older folks, retirees with Medicare, or with serious other conditions, that typically die from the virus. Workers hear this and that supports their decision not to go to the hospital or get tested as well.

Then there’s the further complication concerning employment if they do go to the hospital. The hospital will (soon) test them. If found infected, they will send them home…for voluntary quarantine for 14 days! Now the financial crises really begins. The hospital will inform their employer. Staying at home for 14 days will result in financial disaster, since the employer has no obligation to continue to pay them their wages while not at work, unless they have some minimal paid sick leave which, as noted, the vast majority don’t have. Nor does the employer have any obligation legally to even keep them employed for 14 days (or even less) if the employer determines they are not likely to return to work after 14 days (or even less). They therefore get fired if they go to the hospital after it reports to the employer they have the virus. Just another good reason not to go to the hospital.

In other words, here’s all kind of major economic disincentives to keep an illness confidential, to go to work, not go to the hospital (and can’t go to the doctor). That risks passing on the highly contagion bug to others–which has been happening and will continue to happen.
Here’s another financial hit for the working class: child care. Schools are beginning to shut down. Even where no cases are yet confirmed. Stanford University just decided to discontinue all in class sessions and revert to all online education. But what about K-6 and pre-school? Or even Jr. high schools? When they shut down, kids must stay at home. But most working class parents can’t afford nannys or baby-sitters. Not everyone works in an occupation or company where they can ‘work from home’. Do they send the young kids to grandma’s and grandpa’s, who are more susceptible to the virus? With their kids required to stay home, they must miss work, and risk even losing their jobs. We’re talking about millions of families with 6 to 12 year olds. And who knows how long the schools will remain shut down.

In short, wages lost due to self-quarantining, forced voluntary quarantining after hospital testing, the cost of hospital emergency room visits (whether insured or not), the unknown cost of the tests themselves (the government says it will reimburse them but they don’t have the $1,000 or more cash out of pocket in the first place), the cost of paying for nannys or baby-sitters for young school age children when schools shut down–i.e. all result in a massive out of pocket expense for most workers that they don’t have.

Workers figure all these possibilities of financial disaster pretty quick and know that the virus will mean a big financial hit if they miss a day’s work, or even if they don’t. So they keep working, hoping they’ll recover on their own, refusing to get tested because of the potential loss of work, wages, and income, and crossing their fingers that their kids’ school districts don’t shut down.

Economic Contagion Channels: Supply Chains, Demand, Asset Deflation, Defaults & Credit Crunch

What this all means for the US economy is obvious. Household consumption was already weakening at the end of last year. Most of consumption was driven by accelerating stock valuations, which affect those in the top 10% who own stocks; or by taking on more credit–credit cards, which affects the middle class and below.

Over $1 trillion in credit card debt is what has been largely driving middle income and below consumption. Mainstream economists argue that defaults on credit card debt are only 3% or so, and thus not a problem. But that’s a gross average across all 130 million households. When this data are broken down, middle income and below family credit card debt is around 9%, a very high number more like 2007 when the last economic recession began.

Then there’s auto debt. As of 2018, reportedly 7 million turned in their keys on their auto loans. As in the case of credit cards, auto debt defaults will rise as well in 2020. Then there’s student debt, over $1.6 Trillion now. Defaults there are much higher than reported as well, since actual defaults (defined as failure to pay either principal or interest) have been redefined to something else other than actual default.

Add to all this the likelihood is very high that job layoffs will now begin by April, as the global supply chain crisis due to virus-related cuts in production and trade. More job loss means less wage income and thus less household spending and more inability to deal with the costs of the virus for most working class families.

Let’s not also forget the price gouging for certain products that is beginning now to appear, both online and in stores. That reduces working class real incomes and thus consumption too. Meanwhile, certain industries are already taking a big hit and layoffs are looming in travel companies of all kinds (airlines, cruise ships, hotels, entertainment). In places where the virus effect is already large, a big decline in restaurant, sports and concerts, movies, etc. has also begun.

The two big economic contagion channels impacting employment thus far are supply chain production and distribution reductions, and local demand for certain services (travel, retail, hospitality, etc.).

But a third major channel has just begun to emerge: that’s financial asset deflation in stocks, oil & commodity futures, junk bonds & leveraged loans, and currency devaluations.

Stocks’ price collapse leads to business shelving investment and even cutting back production. That means more job loss, reduced wage incomes, less spending, and economic slowdown.

Oil and commodity prices now collapsing also lead to energy industry layoffs. More importantly, in turn that will lead to energy junk bond market collapse–potentially spreading to all junk bonds, leveraged loans, and even BBB grade corporate bonds (which are really redefined junk bonds not investment grade bonds).

In other words, the collapse of supply chains, production-distribution, and industry by industry demand in the US may become even worse should the financial markets price collapse can lead to a general credit crunch. And that translates into a general economic real contraction. That’s precisely what happened in 2008, in a similar chain reaction from financial crisis to real economic crisis.
Workers are aware of all this possibly leading to longer run economic stress. In the short run, they consider possible wages loss if they reveal or report they have the virus, or get tested: i.e. lost wage incomes: the cost of immediate medical care; the cost of child care, etc. Better to tough it through and continue to go to work is a typical, and rational, response.

This is already going on. Hundreds of thousands with, and without, symptoms are not being tested; nor will most of them volunteer to be. Except for those on cruise ships who are forced to be tested (and they’re mostly retirees and elderly), few workers can afford to allow themselves to be. The infection rate is thus already much higher and will continue to rise. Voluntary quarantining doesn’t work much (again just look at Italy, or even Germany, where in one week cases (tested) rose from 66 to more than 1000). So out of economic necessity and to avoid personal economic devastation, they continue to work. But that doesn’t have to be.

US Policy Response: No Help for Working Class

US policy has been, is, and will continue to be a disaster. Trump’s cuts to health and human services in the past seriously hampered the US initial response. Tests had to be sent to Atlanta and the CDC for processing. Early test kits often failed. Only now are they getting to the states–to late to have a positive initial effect on the spread. Those suspected of exposure to others confirmed infected were simply sent home for ‘voluntary quarantine’. Initial legislation of $8.3 billion just passed by Congress provides for ‘reimbursement’ for voluntary testing, with no clarification if that covers the $1,000 hospital visit as well or just the cost of the actual test!

There could be, however, a government response that financially supports workers and allows them to be properly tested and treated.
An Alternative Policy Response

Why doesn’t the government simply say ‘go get tested for free’ and the hospital will bill the government for the costs? Not the worker pay up front with money he/she likely doesn’t have. Why isn’t there emergency legislation by Congress or the states to require employers to provide at least 14 days of paid sick leave, like other countries? And law guaranteeing employers can’t fire a worker sick with the virus for any reason? Or tax credits to working class families for the full cost of child care–paid to a nanny or to the worker–if they have to stay home in the event of a school district shutdown?

While business-investor tax cuts will almost certainly be the official government response, few of the above measures for working class Americans are likely. In America working class folks always get the short end of the economic stick. Congress and presidents pass trillions of dollars in tax cut legislation ($15 trillion since 2001 to investors, businesses and the 1%), but have raised taxes on the working class. Companies with billions of dollars in annual profits pay nothing in taxes–and actually get a subsidy check from the government to boot. Just ask Amazon, IBM, many big banks, pharmaceutical companies and more!

It can be expected the virus will have a large negative impact the standard of living and wages of millions of working class families. They will have to bear the burden of the cost with little help from their government. Meanwhile, businesses and investors will get bailed out, ‘made whole’, once again. In the process Consumption spending–the only area holding up the economy in 2019–will take a big hit. That means recession starting next quarter is more than a 50-50 likelihood.

In fact, the investment bank, Goldman Sachs, has just forecast that the effect on the US economy in the coming second quarter of this year will be a collapse of GDP to 0% growth.

Jack Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism;US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.

posted March 13, 2020
Global Financial Asset Deflation Underway: Prelude to Next ‘Great Recession’?

This morning, Monday, March 9, financial asset markets continue to implode: US stocks are further collapsing -6% (Dow down 1650, Nasdaq >500 mid-day). Ditto Asian and Europe stock markets -6%. They were already declining sharply last week due to coronavirus induced supply chain shocks (reducing production) and expanding demand shocks (consumer spending contraction in select industries like travel, hotels, entertainment)–all of which are being forecast by investors to whack corporate earnings in 2Q20 big time. But imposed on the equities market crash of the past 2 weeks now is the acceleration of the global oil price deflation that erupted yesterday as the Saudis deal with Russia last year to cut production and prop up prices fell apart. Collapsing oil & commodities futures prices are now feeding back up equities and other financial asset prices. Financial price deflation is spreading, including to currency exchange rates. Money capital is fleeing everywhere into ‘safe havens’ (gold, Treasuries, Yen). Historic decline of US Treasuries that are now below 1% (30 yr.) and .5% (10 yr).

Will the financial asset markets deflation soon spill over to the credit system (especially corporate bonds) and accelerate the decline of real economies worldwide in turn? Are traditional monetary & fiscal policy tools now less effective compared to 2008-09? If so, why? Is the global economy on the precipice of another ‘great recession’?

Financial Asset Markets Imploding

So we have oil futures market prices–i.e. another financial asset market–collapsing now and impacting the stock markets. In other words, a feedback contagion underway on stocks market prices in turn. Feedback is occurring as well on other industrial commodity futures prices that are following oil futures prices downward in tandem. But that’s not all the financial contagion and deflation underway.

The freefall in financial assets (stocks, oil, commodities) is also translating into currency exchange price deflation in turn, especially in emerging market economies in Latin America, Africa, Asia highly dependent on commodity sales with which to earn needed foreign exchange with which to finance their past debt (e.g. case of Argentina whose negotiations with IMF on how to restructure their debt will now break down, I predict).

Currency exchange rates are in sharp decline everywhere as a result. For emerging market economies that means money capital is more rapidly flowing out of their economy, toward safe havens globally like the US dollar, US Treasury bonds, gold, and the Japanese Yen currency.

In short, stocks, oil-commodity futures, and forex currency markets are all imploding and increasingly feeding back on each other in a general deflating downward spiral. This is a classic ‘cross-contagion effect’ that occurs in financial asset market crashes. And crashing financial markets eventually have the effect of contracting the real economy in turn, by freezing up what’s called the credit markets. Businesses can’t roll over their loans and refi their corporate bonds. Banks stop lending. The rest of the real economy then contracts sharply. It starts in the financial markets, spreads to credit markets (corporate junk bonds, BBB corporate bonds, then top grade bonds).

Coronavirus Effect as Precipitating Cause

But it even earlier begins in a slowing real US and global economy that precedes the markets crash. The global economy was already weakening seriously in 2019. The US economy at year end 2019 was also weak, held up only by household consumption. Business investment had already contracted nine months in a row in 2019 and inventories built up too much. And, of course, the Trump trade war took its toll throughout 2018-19.

Then came the Coronavirus which shut down supply chains in China, and then in So. Korea and Japan in turn. That then began impacting Europe, already weakened by the trade war (especially Germany) and Brexit concerns. The supply chain economic impact of the virus developed into a consumer demand economic impact as well, as travel spending was reduced (airlines, cruise ships, hotels, resorts, etc.) and now, in latest development, other areas of consumer spending too. Both supply chain (production cutbacks) and demand (consumption cutbacks) are interpreted by investors as leading soon to a big fall in corporate earnings–which translates in turn into stock price collapse we see now underway. Investors have decided the 11 year growth cycle is over. They’re cashing in and taking their money and running to the sidelines, moving it from stocks to cash or Treasuries or gold or other near liquid financial assets.

So the Coronavirus event is really a ‘precipitating cause’ of the current markets crash. The real economy weakness was already there. The virus just accelerated and exacerbated the process big time. (see my 2010 book, ‘Epic Recession:Prelude to Global Depression’ for explanation how financial causation comes in different forms as precipitating causes, enabling causes, and fundamental causes. Book reviews are on my website). Again, worth repeating: global and US economies were weakening noticeably in late 2019. The virus further impacted supply chains (production) and demand (consumption), reduced corporate earnings in the near term and thereby simply pushed stock markets over the cliff.

Mutual Feedback Effects: Real & Financial Economies

But financial crashes have the effect of feeding back into the real economy as well, causing it to contract further in turn. What starts as a weakening of the real economy that translates into financial markets crashing, in turn feeds back into a further weakening of the real economy. Mainstream economists don’t understand this ‘mutual feedback effect’; don’t understand the various causal relationships between financial asset cycles and real investment cycles. (For my explanation of this relationship there’s my 2016 book, ‘Systemic Fragility in the Global Economy’ and specifically chapters on the need to distinguish between financial asset investing and real investing and how late capitalism’s financial structure has changed such that the inter-causal effects of financial-real investment have deepened and intensified.) Financial crashes accelerate and deepen the contraction of the real economy. Recessions turn into ‘Great Recessions’ as in 2008-09. They may even turn into bona fide ‘Depressions’ as in the 1930s should the banking system not get bailed out quickly.

Corporate Bonds & Credit Markets Next?

The feedback effect of the current financial asset price deflation–now underway in stocks, commodity futures, forex, (and derivatives)–on the real economy will soon emerge as the financial markets deflation affects the various credit markets. The key credit market is the corporate bond market. Bond markets are far more important to capitalism than equity-stock markets. The credit markets to watch now are the corporate junk bonds (sometimes called high yield corporates). Junk bonds are debt issued to companies that have been performing poorly for years. They are kept alive by banks helping them issue their bonds at high interest rates. Investors demand a high rate because the companies may not survive. In good times they do. But when markets and economies turn down, companies over loaded with junk financing typically default–i.e. can’t pay the interest or principal on their bonds. They go under. The investors that bought their risky bonds are then left holding their debt that becomes near worthless. The US junk bond market today is ‘worth’ more than $2 trillion. At least a third of that is oil & energy (fracking) companies. A large part of their bonds must be rolled over, refinanced, in 2021. But many of them will not be able to refinance. Why? Because global oil prices have just collapsed to $30 a barrel, perhaps falling further to $20 a barrel. At that price, the oil-energy junk bond laden companies will not be able to refinance. They will default.

That will spread fear and contagion to other sectors of the $2 trillion junk bond sector–especially big box and other retail companies (e.g. JC Penneys, etc.) that also loaded up on junk financing in recent years. Investors will disgorge themselves of junk bonds in general.
The fear of a crash in junk bonds will almost certainly spread to other corporate bonds, first to what’s called BBB grade corporates. That’s another $3 trillion market. But most of BBBs are really also junk that’s been improperly reclassified as BBB, the lowest (unsafe) level of corporate Investment grade bonds (the safest). So at least $5 trillion in corporate credit is at risk for potential default. If even a part defaults, it will send shock waves throughout the corporate economy that will have very serious implications–for both the financial and real economies, US and global, which are increasingly fragile.

Is Another ‘Great Recession’ on the Horizon?

For example, Japan is already in recession as of late last year. Now it’s contracting, reportedly, by 7% more. Europe was stagnant at best, with Italy and Germany slipping into recession before the virus hit. So. Korea and Australia are in recession now, as other economies in Asia and Latin America are now contracting as well. China economy reportedly will come to a halt in terms of GDP this quarter, or even contract, according to some sources. Meanwhile, Goldman Sachs forecasts the US economy growth will stall to 0% in the second quarter 2020.

So a collapse in risky corporate bonds will occur overlaid on this already weak real economic scenario. Should that happen, then the recession could easily morph into another ‘great recession’ as in 2008-09; maybe even worse if the banking system freezes up and central banks cannot bail them out quickly enough. Or if banks in a major economy elsewhere experience a crash–as in India or even Europe or Japan where more than $10 trillion in non-performing bank loans exist–and the contagion spreads rapidly to banking systems elsewhere

Failed Monetary & Fiscal Policies, 2009-2019

Which leads to the question can central banks now do so? After the 2008-09 crash, the Fed bailed out the US banks by 2010. But it kept interest rates near zero under Obama for six more years. Banks could still get free money from the Fed at 0.15% interest. (The Fed then paid them 0.25% if they left the money with the Fed). The Fed bailed out other financial companies to the tune of $5 trillion more as it bought up bad loans and Treasuries from investors at above then market rates. That is, it subsidized them. And did so for six more years. All this free money flowed, mostly into financial markets in the US and worldwide, creating the stock bubbles that are now imploding. So the Fed and other central banks went on a binge subsidizing banks for years, and in the process broke their own interest rate tool needed for instances like the present crisis. The Fed tried desperately to raise interest rates in 2017-18 so it could have a cushion for times like this. But it then capitulated to Trump and began reducing interest rates again in 2019–as it had under Obama for six years.

The free money from the Fed artificially boosted stock prices. On top of this Trump added a further subsidization of banks and non-bank corporations, businesses, and investors with his $4.5 trillion 10 year tax cuts passed January 2018. Most of that went as a windfall to corporate-business bottom lines. 23% of the 27% rise in corporate profits in 2018 is attributable to the windfall tax cuts. And where did that go? It too was redirected to stock and other financial markets, further inflating the bubbles. Here’s the channel and proof: Fortune 500 corporations in the US alone spent $1.2 trillion in both 2018 and 2019 in stock buybacks and dividend payouts to their shareholders. The stock buybacks inflated the stock markets, and most of the dividend payouts did as well. (Buybacks+dividends under Obama were nearly as generous, averaging more than $800 billion a year for six years).

In other words, the 25% run up in US stock markets in 2017-19 under Trump was totally artificial, driven by the tax cuts and by the Fed capitulating to Trump and lowering rates again in 2019. Very little of the annual $1.2 trillion went into the real US economy. For the past year real investment in structures, plant, equipment, etc. actually contracted for nine months in 2019, and is now contracting even faster in 2020.

Just as the Fed has busted its own interest rate monetary tool as it continually subsidized banks and businesses with low interest rates for years, the chronic corporate-investor tax cutting has busted fiscal policy responses to recession as well. Since 2001 the US has provided $15 trillion in tax cuts, the vast majority of which have gone to corporations, banks, and wealthy investors. That has led to government deficits averaging more than $1 trillion a year since 2008. And accelerated the US federal debt to more than $22 trillion. Fiscal policy is now seriously constrained by the deficits and debt–just as monetary policy as interest rates is now constrained by virtually all Treasury bond rates below 1% in the US and negative rates in Europe and Japan.

Interest rate policy responses to today’s emerging crisis is thus dead in the water. (As this writer predicted it would become in 2016 in the book, ‘Central Bankers at the End of Their Rope: Monetary Policy and the Coming Depression’). After years of monetary policy used as a tool to subsidize banks, it is now ineffective as a tool to stabilize the economy. Ditto for fiscal policy as tax policy. Used by Obama and even more so by Trump to subsidize corporations, stock buybacks, and financial markets, it is confronted by massive annual US budget deficits and accelerating national debt.

The likely responses by politicians and policy makers to the current emerging financial crisis and recessions in the real economy will be to cut taxes even further for businesses. It will have little effect, however. But will exacerbate levels of deficit and debt. That means the follow up will be to attack and reduce government spending, especially targeting social security, medicare, healthcare and education in 2021. Trump has already publicly indicated his intent to do so. On the Fed side, expect more injection of money directly into the economy and failing businesses by means of another major round of ‘quantitative easing’ (QE). That’s coming soon. Ditto for Europe and Japan where negative rates already exist. Watch China too should its economy contract for the first time in 30 years. And watch India, where it’s banking system is already fracturing due to causes totally separate from the virus effect. A banking crash in India is on the agenda. It could result in yet another financial blow to the global economy, adding to the current Saudi-produced oil price shock and the virus effect on supply chains and demand.

Summary and Conclusions

In summary, the global capitalist economy is unraveling financially, and soon further in real terms. Massive job layoffs in coming months in the US are a growing possibility. That will drive the US economy deep in contraction as household consumption, the only area holding up the US economy in 2019, now joins the contraction. It remains to be seen how US monetary and fiscal policy can restore economic stability given its self-destruction by US politicians since 2008. Trump policies have been no different than Obama’s-just more generous to corporate America and investors. Trump’s policies are best described as ‘Neoliberalism 2.0’ or ‘Neoliberal on steroids’. (see my just published 2020 book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’).

The US and global economies are well on their way to a repeat of the ‘great recession’ (or worse) of 2008-09. Only this time traditional monetary-fiscal policy is much less effective. More radical policy responses will likely be developed to try to stabilize the capitalist economies both in USA and elsewhere (where problems are even more severe). Watch closely as the crisis on the financial side moves on from equity (stock), commodities, and forex financial markets into derivatives markets and credit markets–especially junk bond and other corporate bond markets. Watch as the Fed tries desperately to provide liquidity to business and markets via its Repo channel and QE since its traditional rate channels are now ineffective. And watch as US and global capitalist advanced economies try to coordinate new fiscal policy responses to the general dual crisis in financial and real economic sectors of global capital.

Dr. Jack Rasmus
March 9, 2020

Dr. Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. His website is http://kyklosproductions.com. He blogs at jackrasmus.com and tweets @drjackrasmus. Dr. Rasmus hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network, fridays, at 2pm eastern.

posted February 24, 2020
Coronavirus Global Economic Contagion Channels: From China to ROW


posted February 15, 2020
2 on US Neoliberalism in Crisis

PART 1: THE SCOURGE OF NEOLIBERALISM: IDEAS & IDEOLOGY vs. HISTORICAL PRACTICE
by Dr. Jack Rasmus, Z Magazine, December 2019
copyright 2019

“Hundreds of books and articles, perhaps thousands, have been written to date on the meaning and consequences of what’s called Neoliberalism. But clarity as to what it means, what has driven its evolution for the past four decades, and what’s its likely future trajectory remain insufficient at best.

Critics of Neoliberalism have yet to explain it fully or adequately. They are therefore unable to say little about its future evolution.
Some key questions that remain unanswered are: Has Neoliberalism been unraveling since the 2008-09 recent economic crisis and the slow growth, often stagnant recovery that followed? Is it being restored under Trump? Will it survive the next capitalist crisis almost certain to occur by the early 2020s? What are the material forces maturing within 21st century capitalist economy that will precipitate and drive that next crisis, and will Neoliberalism be able to successfully adapt? If not, what ideas and policies might replace the current Neoliberal era (1979-2019) of capitalism?

Most analyses concur that Neoliberalism represents an economic shift introduced by capitalists and their political elites—initially in the US and UK—in response to the crisis capitalism encountered in the 1970s decade. In other words, it has something to do with capitalist economy in crisis.

Other accounts attempt to explain its origins and evolution primarily from the perspective of an Idea that inspired, defined, and enabled US and UK capitalist-elites’ to respond successfully to the 1970s crisis.

Still others explain Neoliberalism as an historical practice, i.e. as a new regime of policies introduced in the late 1970s in the US and UK—later adopted by other capitalist economies worldwide to varying degree and form—that emphasizes austerity in government spending and reliance in policy matters on free markets.

But all that doesn’t really tell us much. Defined that way leaves its meaning still opaque and ambiguous—and therefore unable to predict where and how Neoliberalism may evolve in the future.

The analysis of Neoliberalism to date has produced so many interpretations, often contradictory, that readers remain confused as to what exactly it means. Is it about introducing free market principles into economic and social policy? Is it about austerity in fiscal spending? Is it just a substitute term for what was formerly referred to as Imperialism abroad and class exploitation at home? As one analysis concluded, “imprecision would seem to characterize its use, sometimes even among those for whom the concept is central to their analysis, and its over-use is seen to have resulted in a loss of analytical value.”


The Ideology of Neoliberalism

According to those approaching Neoliberalism from the perspective of the evolution of an Idea, the Neoliberal Idea originates around mid-10th century among ultra conservative intellectuals like Friedrich Hayek and Milton Friedman in economics; in the philosophy of radical individualism by Karl Popper and Robert Nozick; and in policy proposals from right wing pundits like Charles Krauthammer, William Kristol and Robert Kagan—to name but a few or the more notable.

As these intellectual originators viewed it, their task was to adapt, repackage and resell some of the main tenets of classical liberalism. To plant and nurture the seeds of new ideas, and counterpose those ideas to the prevailing dominant Keynesian economic and otherwise social compact views that prevailed post world war II. The new ideas would be resurrected, classic Liberal ideas adapted to the post-war environment. New ideas that were new-Liberal or Neoliberal, designed to displace the dominant Keynesian-social compact-collectivist ideas of the period and encourage and usher in a new set of policies based on the new ideas that would, in effect, represent pre-Keynesian, pre-social compact ideas once again. It was to be old classic Liberal wine in the new Neoliberal bottle.

But is Neoliberalism actually ‘Liberal’? How does it compare with the classic liberal economic and social theory of the 17th-18th century? Neoliberalism as an Idea claims it is based on classic liberal ideas of free markets and individual freedom. It claims that by adapting classic liberal principles and propositions to new economic and social policies the new policies will succeed in promoting economic growth and stability, whereas the old Keynesian-collectivist policies failed to do so. Thus it is Neoliberal Ideas that drive the eventual policies that came to be known as ‘Reaganomics’ in the US and ‘Thatcherism’ in the UK.

But Neoliberal Ideas have actually little in common with the classical Liberal; and it is an intellectual conceit to argue that Neoliberal Ideas drove and determined the Neoliberal policies that were eventually introduced in the late 1970s-early 1980s. In fact, a reasonable argument may be made to the contrary: it is Neoliberalism in Practice that reached back and adopted Neoliberal Idea propositions in order to justify and legitimize its policies. But what exactly are the basic propositions of Neoliberalism as Idea? What congruence is there between those propositions and the 17th-18th century Classic Liberalism? And do either—i.e. Classic Liberal and Neoliberal Ideas—have anything to do with Neoliberalism in Practice?


The Basic Propositions of Neoliberalism as Idea
:

• Markets should always be free of government interference and the economy and policies should be based on free markets

• Free markets require deregulation of business, as well as privatization of all public ownership of production of goods or services

• Free markets are always and everywhere more ‘efficient’ than regulated markets or government provided goods and services

• Free trade should always and everywhere govern the exchange of goods and services between economies and countries

• Government should never intervene in markets—whether to provide public works, correct negative ‘externalities’ created by those markets, or even to provide public education, health care, or other services

• Taxes should be cut to stimulate economic growth—especially taxes on business and investors. Cutting taxes creates additional investment and therefore employment and growth

• Government budgets should always be ‘balanced’, avoiding deficits and therefore accumulation of government debt

• To ensure stable economic growth, the money supply should be increased according to a ‘monetary growth rule’—i.e. a set amount every year.

But these elements of the Neoliberal Idea have very little to do with Classic Liberalism. And have even less to do with Neoliberalism in actual practice.

The Basic Ideas of Classic Liberalism:

• Markets should be free only to the extent that they fostered superior moral behavior and enable the development of the individual.

• Free markets were more efficient only if they promoted competition among capitalists, resulting in goods being produced at the lowest cost, and therefore lowest price, while providing the greatest possible amount of goods to the greatest number of individuals.

• Not all business activity should be deregulated or privatized. Some things markets would not produce, even if socially necessary and demanded by the public; or they would produce them for only a wealthy minority who might afford them only at the much high prices that markets might have to charge a smaller, privileged number of buyers.

• Markets sometime behave badly and at times must be regulated. Not all government services should be privatized. In fact, services like public education must be provided by government since markets would not find it profitable to provide them.

• Free trade is not always appropriate everywhere. Nor beneficial to all.

• Economic growth is stimulated by raising taxes on business, not cutting taxes. Higher taxes force business to introduce more efficient ways of producing to offset the cost of the tax increase. New technology that results actually increase jobs and stimulate economic growth.

• Budget deficits are justified for purposes of spending on defense, public safety, and critical social services (education) and public works that markets may not provide

• Money is ‘neutral’. An increase in its supply cannot, by itself, lead to economic growth and stability. Growth is generated only by increasing available land, labor, and capital and by raising its productiveness.

A close reading of the actual works of 17th-18th century Classic Liberal economists like Adam Smith, David Hume, and others shows the preceding points represent fundamental ideas of Classic Liberalism. But, as a comparative reading clearly shows, they are in sharp contrast to the basic propositions that define Neoliberalism as of the late 1970s. In short, in so far as classic liberalism is concerned, Neoliberalism is not ‘Liberal’ at all. Neoliberalism is not ‘new’ Liberalism or any kind of Liberalism. What it represents is something quite the contrary.

Comparing Neoliberalism as Idea with Neoliberalism in Practice

But what about Neoliberalism in actual, historic practice? How does it compare—to Classic Liberalism as well as Neoliberalism as Idea? Neoliberalism in Practice differs from both. It is even further removed from Classic Liberalism. And in a number of ways it is even the opposite of Neoliberalism as Idea.

1. First, Neoliberalism in practice is not at all about expanding free markets. There are few, if any, free markets under Neoliberal capitalism. The fiction is created by Neoliberalism as Idea writers is that, just because industry is deregulated and public goods privatized, deregulation is equivalent to the creation of ‘free markets’. Neoliberal capitalism is about the destruction of market competition and the concentration of economic power among fewer and fewer remaining businesses in an industry. It is about eliminating ‘free markets’ whenever and wherever possible. Capitalism always drives toward eliminating competition, and without competition there are no ‘free’ markets in the Liberal sense. So Neoliberalism in Practice is the antithesis of free markets.

It is also different in that, in practice, Governments in the Neoliberal era of capitalism are deeply and increasingly involved in the economy on behalf of capitalist interests in general, and in particular involved in assisting mergers and acquisitions and thus in advancing the concentration of capital and business into fewer producers and sellers. And the larger and fewer the remaining producers, the less ‘efficient’ they become. That is, the higher costs of their production and in turn the higher the prices they charge consumers. Markets in effect become more concentration, less efficient, and less ‘free’ as a consequence of Neoliberalism in Practice.

2. One might add to Neoliberalism’s contribution to ‘micro’ level inefficiency the even more massive macro inefficiency of capitalist Neoliberalism. How efficient is Neoliberal capitalism when it creates economic crashes like 2008-09, when 14 million homeowners in the US alone were foreclosed and lost their homes? Or when 20 million were left unemployed, and then underemployed for years more after 2009. Or when $4T in lost interest income occurred for retirees as a result of the near zero interest rate policy of the central bank, the Federal Reserve, in effect from 2009 to 2016? Or the additional $4T in collapsed retirement benefit program values. Meanwhile the same central bank zero rates resulted, in contrast, to more than a $1T a year on average in stock buybacks and dividend payouts to shareholders every year from 2010 through 2019. Corporations borrowed virtually ‘free’ money at near zero interest rates—either from loans or by issuing corporate bonds—and turned around and distributed most of it to shareholders at the rate of $1T plus a year. Or what of the macro-inefficiency of spending $7 trillion in US war products that were either blown up or dumped in deserts when declared obsolete. The ‘macro-inefficiencies’ of Neoliberal capitalism are massive and almost incalculable in the US economy alone.

In short, there is nothing ‘free’ or ‘efficient’ about markets in the Neoliberal era in practice. The founding intellectuals of Neoliberalism as Idea, when promoting that notion, are therefore simply peddling a lie—i.e. they are promoting the ideology of Neoliberalism not its reality. They are peddling a notion of Neoliberalism that doesn’t exist in the real world of Neoliberal practice. What Neoliberalism in Practice has done is simply used the lie that free markets are more efficient in order to justify and to ‘sell’ the actual policies of industry deregulation and public goods privatizations. In other words, deregulation and privatization have nothing to do with free and efficient markets. The latter are just the intellectual veil, the cover to justify the Neoliberal policy.

3. Nor is the Neoliberal idea that tax cuts create jobs and economic growth any more the case in fact. Tax cutting under in the Neoliberal era since 2000 alone has amounted to more than $15 trillion—80% of which has accrued to investors, businesses, and the wealthiest households. In turn, that $15 trillion has resulted in the weakest rate of investment, job creation, wage increases, and general economic growth in the US in the past half century. In other words, business-investor tax cuts did not create jobs. They destroyed them, as tax incentives strongly encouraged US multinational corporations to move operations offshore. Trump’s 2018 tax cuts—the latest iteration of this ‘business tax cuts create jobs’ shell game alone provide another $2 trillion for US multinational corporations over the next decade. They can now produce offshore tax free. Why then should they expand production and jobs in the US, one might ask, when they can henceforth produce offshore and pay no taxes?

4. Neoliberalism as Idea further maintains that free trade should be the norm everywhere. But in Neoliberal Practice free trade means incentives to further move US production offshore. US businesses then produce offshore at lower cost and ship the goods produced back into the US, now without tariffs, for US workers to buy, now with lower paid service jobs replacing the higher paid manufacturing jobs that were offshored due to free trade. Instead of higher wages, workers are now allowed to borrow (credit) to buy the products, incurring debt, the interest of which they now pay banks and stores issuing the credit cards. Free trade also means banks and finance capitalists, who get to borrow at near zero interest rates, invest the money offshore instead of in the US. Free trade is more about such international money flows from the US as it is about goods and product flows produced abroad back to the US. All this is the reality of Neoliberal free trade, compared to the fiction of the Neoliberal Idea of free trade where all parties somehow benefit from free trade—workers, consumers, as well as capitalist producers and bankers.

5. Perhaps nowhere is the distinction between the Neoliberal Idea on deficits and debt greater from the practice of Neoliberalism. The former declares the objective is to balance the budget and reduce government debt; whereas Neoliberalism in Practice is about allowing the uncontrolled escalation of annual budget deficits and therefore government debt. At barely $1 trillion when Neoliberalism in Practice began in 1979-80, deficits and debt had escalated to $4T by 2000, rising to $10T by 2009, and to nearly $23T by year end 2019. Trump 2018 tax cuts and annual war spending escalation will raise debt to more than $35T by 2028.

6. The monetary growth rule of Neoliberalism as Idea also contrasts sharply with the practice of Neoliberalism. Instead of allowing the central bank to slowly and steadily increase the supply of money in the economy according to an objective rule, or fixed formula, the practice of Neoliberalism has been to have the central bank continually inject massive amounts of money into the economy. In times of banking crises and after as well. The result is chronic, low interest rates, which enable lending at low cost to investors and corporations alike, much of which borrowed is then diverted to offshore investments, to re-investment in stock, bond and other financial markets, to distribution to shareholders in the form of stock buybacks and dividend payments, or into merger and acquisition of competitors by businesses. The Idea of Neoliberalism thus has little in common with its practice so far as money is concerned.

What the foregoing paragraphs reveal is that Neoliberalism as Idea has little in common with Classical Liberalism, but even less in common with Neoliberalism as Practice. The function of Neoliberalism as Idea is therefore to provide logic and pro-individual, pro-personal freedom arguments in order to justify the Neoliberal policies that occur in practice—i.e. policies that are often quite contrary to those arguments and that Idea. The practice of Neoliberalism is thus neither classical liberal nor even Neoliberal.

Contrary to many accounts of Neoliberalism, the Idea of Neoliberalism does not give rise to, or enable Neoliberalism as actual historical practice. The role of Neoliberal Ideas is to legitimize—after the fact—the actual policies and practice of Neoliberalism.

A problem with many accounts and analyses of Neoliberalism is that they assume that Neoliberalism as an Idea is what gave rise from the mid-1970s on to Neoliberalism as an actual historical practice. Somehow the ideas are what convince capitalists, their lobbyists, their business organizations, their trade associations, etc. to propose to their political elites in Congress and legislatures the actual Neoliberal policies, The policies are thus a reflection of their ideas. However, as just shown, Neoliberal ideas have little in common with the actual policies and practices of Neoliberalism that get introduced and implemented. So how can the ideas drive the actual historical practice, i.e. the policies, if they are different?

Perhaps the causation is actually the reverse: the policies and practices are developed by the capitalists and their political elites. The ideas of Neoliberalism—a strange amalgam of classic and non-classic liberal propositions—are after the fact then employed as justifications and legitimization of those policies. Embalmed in a veneer of personal freedom, individualism, efficiency, benefits from employment, etc., the dead body of Liberalism is resurrected in decayed form to argue that the corpse is still alive and liberal even though it has long deceased.

Nonetheless, many critics of Neoliberalism simply slip back and forth between the Idea and the Practice of Neoliberalism, with little explanation of how the one, the Idea or the Practice, causally determines the other.


Neoliberalism in Practice

What then are the actual policies associated with actual, historical Neoliberalism? Here too critics of Neoliberalism fail to provide a comprehensive explanation. As noted previously, major attention is given to Neoliberalism as Austerity policy, or as industry deregulation and privatization, or as free trade. But little attention is paid to Neoliberal monetary policy or Neoliberal external policies apart from trade—i.e. currency exchange rate policy or what is called the ‘twin deficits’ policy solution. Nor is much explanation given to how Neoliberal policy promotes the financialization of the global economy, financial deregulation, and cross border money capital flows. While fiscal policy and industrial policy (i.e. deregulation, privatization, de-unionization, wage compression, etc.) are addressed in most accounts of Neoliberalism, not much in the way of analysis and critique is given to External Policy and Monetary Policy. But Neoliberalism in Practice, i.e. as policy, is more than just Fiscal Policy and Industrial Policy.

Neoliberalism in Practice represents a particular policy regime, consisting of Fiscal policy (tax, spending, deficit-debt management), Industrial policy (deregulation, privatization, de-unionization, wage compression, financialization), Monetary policy (excess liquidity injection, chronic low interest rates), and External Policy (trade, low US dollar exchange rate, twin deficits).

Neoliberalism represents a particular mix of these policies. Before Neoliberalism, the four main policy areas also existed but in a different mix and different relationship to each other. It was a different policy ‘regime’.

The policy regime before the Neoliberal policy shift originated in the wake of of the second world war, originating roughly in the period, 1944-53. A still different policy regime was created in the US just prior to world war one, in the period 1908-13. Thus the US experience has been to restructure the economy in a major way at least three times in the last century: 1908-13, 1944-53, and 1979-88. The latter, 3rd restructuring is simply called the Neoliberal. Its policy mix or regime differed from the two prior regimes.

The policy restructuring in all three cases was designed to change policies in order for US capitalism to confront a challenge or crisis. In 1908-13 US capitalism prepared to restructure its economy in anticipation of becoming a more or less equal competitor with the UK and European capital in general on the stage of the world economy after world war one. In 1944-53, capitalists restructured once again as the US became the sole hegemon in the global economy following world war two. Both restructurings represent US capital shifting policy fundamentally in order to confront a major crisis and opportunity. In each case the restructurings were accompanied by a particular policy reordering. That reordering occurred a third time as a response to the crisis of the 1970s, not war. In that sense it differed from the earlier two restructurings and policy shifts.

In the Neoliberal case, the US re-established itself as the hegemon in the global capitalist economy for at least several more decades. Challenges domestically and abroad in the 1970s were successfully contained, and US capital emerged once again globally and internally as the key dominant player in the global economy.

Neoliberalism in Practice—i.e. as a particular new policy mix of the four areas—continued to expand and evolve throughout the 1990s and after 2000. The global crash of 2008-09 halted its development and evolution, however. As argued in this writers’ book, ‘The Scourge of Neoliberalism’, Neoliberal policy evolution hit a wall with the 2008-09 crash. Obama tried but failed to restore it and regain its momentum. Trump’s policies should be viewed as a future attempt to restore Neoliberalism as policy, albeit in a new virulent and aggression form that is still in progress.

Whether Trump will succeed remains to be seen. However, there are fundamental real and material forces in development—involving changes in technology, AI & machine/deep learning, the nature of money, production processes and distribution channels, new business models, product-capital-labor markets, and in political resistance both domestic and foreign—that may well prevent Trump’s restoration attempt.

Over the past four decades Neoliberal policy has evolved and expanded. It has also begun to develop its own internal contradictions—as discussed in more detail in the aforementioned book. As a partial summary of Neoliberalism in Practice at this point, the following elements may be said to now constitute Neoliberalism in Practice as of 2019:

• Social program policy cuts, focused heavily on reducing and eliminating government programs introduced from 1934 through 1965;

• Aggressive deregulation of industries, especially banking & finance, communications, public and private transport, education and healthcare;

• Privatization of employer contributed healthcare and retirement services introduced with the 2nd restructuring, privatization of military services, and privatization of public goods and services including federal lands access;

• Deep reduction of business-investor-wealthy household taxation on profits and capital incomes (interest, dividends, business rent, etc.);

• Chronic escalation of war and defense spending amidst social spending austerity;

• Tolerance of rising budget deficits, the national debt, and interest on that debt;

• Central bank monetary policies based on chronic liquidity injections designed to ensure long term low bank interest rates that subsidize business costs of investment;

• Incremental de-unionization and weakening of collective bargaining, as well as compression of wage incomes;

• Promotion by government of radical changes in the labor markets, creating millions of contingent labor employment, low paid service jobs, atrophy of minimum wages, massive offshoring of manufacturing employment, and encouragement of on-shoring of skilled labor visa policies;

• Substituting free trade for traditional trade policy measures based on tariffs, quotas, and administrative measures as the primary means to maximize US corporate exports;

• Acceptance of US trade deficits in exchange for a ‘twin deficits’ solution ensuring US offshore dollar recycling arrangements with major allies and global trading partners;

• Encouraging a long term low US dollar exchange rate and US money capital outflows and foreign direct investment;

• Promotion of financialization of the US economy at the direct expense of real asset investment based economic growth;

Thus Neoliberalism in Practice is not simply a set of policies associated with social program cutbacks and fiscal austerity, or industry deregulation or privatization, as many identify. It is much broader than that. It represents a basic economic system restructuring that involves a resurgence and aggressive expansion at the expense of both foreign capitalist competitors as well as domestic working classes. It is an attempt to re-establish US economic hegemony in the late 20th century and well into the 21st. In that it succeeded…until the crash of 2008-09, from which it is yet to fully recover.

What’s Missing in Critiques of Neoliberalism

Apart from not adequately addressing the material origins of the restructuring that gives rise to Neoliberalism, critics of Neoliberal policy fail to address key elements of its unique policy and program mix. To begin with there’s the lack of analysis of what’s called external policy—i.e. twin deficits, external debt, currency exchange rates, foreign direct investment and global money capital flows—are often largely missing. Neoliberalism is characterized by a particular set of external policies that differ from prior restructurings.

Consideration of trade or goods flows, and perhaps free trade treaties, are the limited focus of most critiques. Another area where critics fall short is a superficial treatment of Industrial policy. While de-unionization, job offshoring, general wage compression, and industry deregulation are addressed by critics, fundamental developments like the rise of contingent labor and the even more destructive now just emerging phenomenon—artificial intelligence and machine learning—are ignored for their effects on labor markets and the shift in capitalist vs. worker relative power they represent. Also missing, in all but minor terms, is the financialization of the global capitalist economy. Here the role of capital markets, shadow banks, derivatives, the rise of the new global finance capital elite, and the relative shift to financial asset investing, crowding out real investment, are left largely unconsidered; in other words, that which might be classified as the new phase of imperialism and US vs. global capitalist class competition and conflict is not adequately addressed. Not least, what is also missing in most accounts of Neoliberalism is how its advance is closely correlated with the atrophying and decline of Democracy in America—i.e. the norms, practices, parties, the electoral system, and even government institutions.

Dr. Jack Rasmus is author of the just released book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, October 2019, which is available for purchase at discount from the author’s blog, jackrasmus.com, and website, http://kyklosproductions.com. Jack hosts the weekly radio show, Alternative Visions, and tweets at @drjackrasmus.

PART 2: THE SCOURGE OF NEOLIBERALISM: TRUMP’s FAILING 2.0 RESTORATION,
by Dr. Jack Rasmus, Z Magazine, February 2020

The following is a continuation of the analysis of contemporary US Neoliberalism in practice that was begun in Part 1 in the preceding issue of Z Magazine. In Part 2 the arguments is made US Neoliberal policy experienced a crisis in 2008-09 US and the historic weak recovery that occurred thereafter under the Obama regime. The Trump administration should be understood as an effort to restore the Neoliberal offensive in a more virulent, aggressive, ‘2.0’ form.

Once again the four key areas that define Neoliberalism are considered: Fiscal policy, Monetary policy, Industrial policy, and Trade-External policy. And after three years of Trump it has become clear that Trump has restored momentum to Neoliberalism in the US, although only partially and in only select policy areas. The Trump restoration to date is thus incomplete.

In areas of Trade-External policy he has clearly failed to date, clearly succeeded in Fiscal-Tax policy, while in still others—such as Monetary policy—a restoration effort still ‘in progress’. Looking into the future, material forces that have been developing within US and global capitalism make it increasingly unlikely Trump will be able to success in fully restoring US Neoliberal policy momentum such as existed in the 1979-2007 period.

What will follow Trump’s failed restoration is yet to be determined. But whatever it is, it is unlikely to conform to the definition or character of Neoliberalism as it has been known up to now. What follows will either be something more radical and aggressive on behalf of capitalist America—at the expense of American capitalism’s domestic and global challengers—or else a return to a more progressive policy regime that will reverse the worst legacies of Neoliberalism.

(The following analysis of Trump Neoliberalism is an excerpt from the long chapter 8 in ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, by Dr. Jack Rasmus, published by Clarity Press, January 2020.)

Trump’s Reactionary Neoliberalism

Trump’s election and his economic policies that have followed is best understood as a reaction to the Neoliberal policy regime’s failure under Obama to successfully address the economic crisis of 2008-09, both domestically and globally. Furthermore, Trump’s attempt to resurrect Neoliberalism has more in common with the original neoliberal project initiated by Reagan: i.e. in both cases, their economic policies represent an attempt to confront a preceding period of extended stagnation of the US economy. With Reagan, the 1970s economic stagnation and crisis; with Trump, the weakest recovery from recession in the past fifty years that occurred 2008-2016. .
It remains to be seen, however, whether Trump can still succeed in resurrecting neoliberal policies by restoring to full effect the following twelve hallmark characteristics of neoliberal economic policy:

• significant expansion of US war-defense spending;

• subsidization of investors’ and businesses’ profits via business-investor tax cuts;

• shifting of total tax burdens to payroll taxes and other regressive taxes;

• reductions in social program and social benefits spending;

• restructuring of external trade and currency relationships with US global capitalist competitors, allies and adversaries alike;
• expansion of free trade treaties, whether multilateral or bilateral;

• long term low dollar exchange rate to maximize profits of US multinational corporations’ offshore operations and competitiveness of US corporate exporters;

• continuation of the ‘twin deficits’ solution to enable financing of ever larger US budget deficits and national debt;

• continuation of central bank policies ensuring chronic low interest rates via traditional bond buying operations, and/or Quantitative Easing (QE), to subsidize profits of the private banking system and financial markets;

• expansion of industry deregulations and privatizations of public goods, services and programs;

• destruction of unions and collective bargaining to compress nominal wage and negotiated fringe benefits;

• wage compression by means of delay of minimum and protective wage legislation inflation adjustments, by encouragement of growth of contingency labor employment, by offshoring of jobs, by encouraging displacement of labor with capital by automation, and by policies permitting importation of lower paid skilled labor by H1-B and L1-2 visas;

These are the major policy offensives that together have defined the US neoliberal policy regime since 1980. They are policies that in turn have facilitated the induced restructuring of US capitalist economic relations in the Neoliberal era— with both other capitalist economies as well as with US domestic non-capitalist groups and classes. Not least, they are also the policies that brought about the deleterious conditions faced by large masses of working people, which were responsible for Trump’s election victory.

Trump’s Neoliberalism: Successes, Failures, Work Still In Progress

After nearly three years of Trump policy initiatives it is evident that several of the key elements of neoliberal economic policy have been successfully resurrected and restored by Trump after the crisis of neoliberal policy experienced post-2008. These are:

• business-investor tax cutting,

• defense-war spending escalation,

• industry deregulation and privatizations, and

• labor compensation compression and union destruction.

The restoration of other neoliberal elements is a work still in progress:

• the restoration of chronic low interest rates (i.e. central bank monetary policy) and

• ensuring a low US dollar valuation (i.e. exchange rate policy).

But still other neoliberal policies thus far have been proving difficult for Trump to restore. These include, in particular:

• deep cuts to entitlement and other social program spending,

• the restructuring of US trade relationships, and

• ensuring the continuation of the ‘twin deficits’ solution required to continue to successfully finance US budget deficits and the US national debt.

Trump’s failure to restore neoliberal policy across all these fronts simultaneously is in part due to the fundamental contradictions between the four dimensions that constitute the Neoliberal policy mix and regime—i.e. fundamental contradictions lie at the heart of the neoliberal policy regime itself.

But Trump’s failure to date is not due only to these fundamental contradictions between Neoliberal policies. It is also due to the resistance, both domestic and foreign, that Trump’s attempted restoration has been generating, both home and abroad. Trump has launched a more aggressive, virulent form of neoliberalism in his effort to continue an ultimately untenable neoliberal policy regime for yet another decade. Hence, it’s a nastier, 2.0 version, introduced in the increasingly desperate effort to overcome the neoliberal contradictions and the resistance to it.

Trump Neoliberalism: Restructuring Economic & Social Relations

Trump’s more aggressive, nastier form of Neoliberalism requires not only launching new neoliberal initiatives—like global trade restructuring—but also requires fundamental structural change in US political-governmental institutions and US political culture.. Political change under Neoliberalism is thus necessary in order to achieve more aggressive economic policy objectives.

In other words, just as Neoliberal policy evolution drives economic restructuring, and economic restructuring requires ever more aggressive Neoliberal policy—so too does Neoliberal policy in turn drive political restructuring in order to address the resistance to its continuation as it becomes more virulent and aggressive.

Late stage neoliberal evolution thus requires a change in the relations within and between formal US government institutions (Congress, Executive, Judiciary), between the electorate and those institutions, within and between traditional political parties, and between new political rules and norms and traditional civil liberties and democratic practices protected by the Bill of Rights. Change in international political institutions is also driven by the effort to make way for, extend and expand Neoliberalism. Institutions like the IMF, World Bank, NATO, G7, G20, and national security arrangements among US and its allies, etc., become targets for restructuring by the US as the American empire reacts to its waning influence and power on the global stage.

Has Trump Restored Neoliberalism?

After nearly three years in office, Trump’s restoration of the Neoliberal policy regime is a mixed picture. On the one hand, Business-Investor tax cuts and War-Defense spending fiscal policies have clearly been set back on an accelerating growth course established under George W. Bush. In fact, they are being pursued even more aggressively. What we have here is clearly a more virulent Neoliberalism 2.0. The faltering of War-Defense spending under Obama—which was necessary to justify an even greater $1.-$1.5 trillion reduction in social program discretionary spending—has been especially restored. In addition, Trump’s tax cuts have exceeded in two years what Obama had achieved in eight. So its restoration—and then some—with regard to these two Neoliberal policies.

A similar case may be made for Trump’s Industrial Policy as it applies to deregulation and privatization. Other elements of Industrial Policy represent more of a continuation of preceding trends prior to Obama, and an elimination of Obama’s softer approach in some areas of wage, de-unionization, and other industrial policy programs. While Obama slowed and in some cases rolled back the privatization of public lands and public goods, Trump has succeeded in reversing those rollbacks. On the other hand, Obama was an advocate of privatizing education through Charter schools and his ‘No Child Left Behind’ program. Nor did he lift a finger to defend the attack on teachers unions and collective bargaining in the public sector. Industrial policy associated with wage compression and jobs under Trump represents a return, after Obama, to blocking federal and other legislated wage minimums, while reigniting the Neoliberal attack on reducing eligibility for overtime pay. But wage levels for most workers consistently fell under Obama, and under Trump have proved the same even as the high end of wage earners may have improved under Trump.

But there are three area of Neoliberal Policy where Trump restoration has clearly been failing to date. He has not been able to achieve even token reductions in social program spending and other non-defense discretionary spending. He has clearly been willing to forego those cutbacks in exchange for agreement by Democrats to allow his escalating War-Defense spending. Nor has he been willing to take on a fight to cut mandatory spending programs like social security retirement and Medicare as yet. Should he win another term in office, however, that attack is almost guaranteed as forthcoming after 2020.

His two highly successful restorations—i.e. War-Defense spending and Business-Investor ta cutting—combined with failure to cut social program-nondefense discretionary spending has resulted in a rapid rise of $1 trillion dollar annual budget deficits and accelerating US national debt. That too must be acknowledged as a failure at Neoliberal restoration.

The two areas of Neoliberal Policy where Trump’s restoration has failed most dramatically to date, however, are Monetary Policy and External Policy—the latter in particular with regard to trade relations restructuring and ensuring a low dollar exchange rate. Neoliberal Monetary Policy defined as ensuring chronic, long term low Federal Reserve interest rates might be called a fight over policy in process. Thus neither Monetary Policy nor External (especially trade) Policy to date represent a restoration of Neoliberalism by Trump by any definition.

The question is whether the contradictions inherent in these various elements of Neoliberal policy will, or even can be, overcome. As the beginning of this chapter indicated, Trump has clearly successfully restored some of the key elements of Neoliberal policy regime, has just as clearly failed to restore other elements, and other key elements remain a ‘work in progress’. Some long standing contradictions within Neoliberal Policy that have been there since the beginning under Reagan still remain—such as the difficulty achieving Neoliberal external/trade policy objectives without undermining Neoliberal fiscal and monetary policy elements; or new contradictions emerging and intensifying—such as the growing contradictions within fiscal policy between deficits & debt financing, on the one hand, and Neoliberal tax cutting and defense spending on the other. Or within Neoliberal monetary policy—in the form of central bank engineering lower interest rates while still selling Treasuries at an attractive rate yield in order to finance budget deficits. Contradictions within Neoliberal external/trade policy are also growing—such as keeping the dollar exchange rate low while simultaneously raising tariffs, even as the latter slows the global economy and raises demand (and therefore value) of the dollar.

Another long standing contradiction inherent in Neoliberalism since the beginning, under Reagan, has been the inability of U.S. capitalist economy to reconcile rising War-Defense spending with business-investor tax cutting while deepening Austerity in social program expenditures. Domestic resistance has prevented the latter, except for a brief period during the last crisis in 2011-13 under Obama. Neoliberalism’s ‘alternative solution’ to this was to establish the ‘twin deficits’ that would in effect provide the revenues (from borrowing) to cover the deficits created by Neoliberal continued War-Defense escalation and ever greater Business-Investor tax cutting. But this fiscal policy contradiction solution, by means of External policy (running trade deficits and introducing free trade agreements), has spawned a further and perhaps even more serious contradiction: namely, rising global capitalists’ opposition to Trump’s trade wars policy which itself threatens the twin deficits solution to the fiscal policy contradiction.

Thus domestic US popular opposition to austerity in social spending (which will certainly intensify should austerity apply to mandatory social programs like social security), on the one hand, and capitalist competitor opposition to Trump Neoliberal trade policy, on the other, together represent a political reflection of the contradictions that exist today within the Neoliberal policy regime and the opposition to which it gives rise. Neoliberalism cannot have it three ways: it can’t have social program austerity amidst escalating War-Defense spending and Business tax cutting. It can’t have its cake and eat it without having a bad bout of deficit-debt indigestion. And its effort to restore US hegemony via External policy (aka trade restructuring) may no longer be possible either. If so, the US twin deficit will be the eventual casualty.

Overlaid on all this is the realization that Neoliberal Monetary Policy has run its course and is exacerbating all of the above. Neoliberal low interest rates—so important to US multinational corporations’ foreign profits realization and to a low dollar exchange rate—appears increasingly unsustainable. Neoliberal Monetary Policy since the mid-1980s has been in the service of providing low cost money for US business, low dollar valuation for US multinational corps, cheap money for US bankers and borrowers, and a source of annual trillion dollar income redistribution for capitalist investors via stock buybacks and dividend payouts. In short, it has subsidized capital to the tune of trillions of dollars—in the process artificially boosting financial asset markets and speculative profits. In so doing, however, the chronic nearly four decades of cheap money & credit (and therefore the massive debt increase) ultimately engineered by the Federal Reserve and other central banks, has in effect ‘broken the back’ of monetary policy as a force for stimulating the real economy during periods of economic slow growth and recession. The chronic long term and artificially low interest rates have had several effects. One is provoking intensified inter-capitalist competition in the form of ‘competitive devaluations via central bank monetary policy’.

In the 1930s decade, competitive devaluations by government declaration or fiat played a major role in preventing the global capitalist economy from economic recovery from depression. Today the same is occurring, but through the intermediary of central bank monetary policy. As the US attempts to drive interest rates down, other world economies do the same and more so by central bank rate policies as well. The result is currency instability outside the US and capital flight to the US as other currencies fall. That capital flight’s destination drives up the value of the dollar. And that disrupts US trade restructuring objectives. So the nearly four decades of US central bank massive liquidity injections in the economy, designed to drive down interest rates, actually results in a rising dollar instead of its decline in response to interest rate cuts.

What the foregoing represents is that Neoliberal Monetary Policy increasingly contradicts Neoliberal trade restructuring and low dollar neoliberal policy objectives. Just as contradictions prevent the three objectives of Neoliberal Fiscal Policy, so too is Neoliberal Monetary Policy today serving as a contradiction to Neoliberal trade restructuring. The reflection of this contradiction on a personalities level is Trump’s simultaneous attacks on China president, Xi, as the US is thwarted in trade restructuring, and on US Federal Reserve chair, Jerome Powell, as he is blocked in the area of driving down interest rates.

Contradictions of Neoliberalism

At the highest level, Neoliberal Fiscal, External, Industrial, and Monetary Policies are ‘out of synch’. Or, more accurately, are increasingly in contradiction to one another. Ultimately this combined ‘grand contradiction’ is due to the financial restructuring and globalization of the international capitalist system since the 1980s, as well as the multiple other material forces that have been evolving within global capitalism during its current four decade Neoliberal phase. In other words, the evolution of the US and global capitalist economy itself is at the heart of the growing contradictions within the Neoliberal policy mix. This is no different than prior capitalist policy regimes that arose in the early and mid-twentieth centuries in the US. The new policy mix, associated with the prior natural restructuring of capitalism, at first serves to integrate and stabilize that restructuring. But the policy mix eventually comes into contradiction with the real evolution of the capitalist system. Under the new natural restructuring and changes in the system the prior new (now old) policy regime becomes a drag on the continued evolution of the system. It slows its growth. It destabilizes both its real and financial sectors. Capitalist agents—i.e. investors, corporate leaders, politicians and policy makers come to realize a more structural change must occur in the policy regime as well. Thus the 1907-16 policy regime, new at the time, eventually no longer serves its purpose. It gives way, after a crisis period, to a new and different 1944-53 policy regime. And that too begins to serve its purpose, as it did by the 1970s, to be replaced by the Neoliberal policy regime that followed.

The question today is whether the Neoliberal policy regime has now ‘run its course’. If not, then perhaps the Trump restoration might be successful. But if Neoliberalism has reached ‘the end of its rope’ (meaning it no longer continues to serve capitalist expansion and interests), then the Trump current attempt to restore Neoliberalism—even in a more aggressive 2.0 version—is doomed to fail.

In the 1970s decade, a particular evolution of material forces gave rise to, and drove the evolution, the Neoliberal policy regime from roughly 1978 up to the onset of the crisis of 2008-09. Some of the forces that gave rise to Neoliberalism are inherent to the evolution of capitalism itself—i.e. are thus ‘natural’. Others are due to changes in the character of US capitalism brought about by Neoliberal Policy—i.e. are ‘induced’. How then might have these ‘old’ material forces changed over the past four decades of Neoliberal policy regime hegemony? What new material forces have already emerged since 2000? Or are about to emerge next decade? What might these various material forces look like in the decade to come? Will they render Neoliberal Policies increasingly contradictory in the 2020s decade ahead, and therefore make Neoliberal policies even more ineffective? And more contradictory? To put it alternatively, will the new emerging material forces result in the continued, and even more fundamental, failure of Trump policies; and any similarly-minded successors to Trump attempting to restore the Neoliberal policy regime?

It is becoming increasingly cleaer that the material forces—whether old, new, and emerging—likely present a challenge that Neoliberalism cannot resolve. That means the new policy mix of the 2020s will be even more aggressive and violent in its implementation and effect than has Trump’s 2.0 failed restoration thus far. Or, whatever replaces Neoliberalism as we have known it, will be fundamentally different, including perhaps more progressive than imagined.

(Note: Part 3 in this series, ‘The Scourge of Neoliberalism’, will address the material and technological changes that have been developing in recent decades within US and global Capitalism—i.e. forces that constitute a source of contradictions that, next decade, will result in the demise of the Neoliberal policy regime that has dominated US Capitalism since the late 1970s).

Dr. Jack Rasmus
January 2020

Dr. Rasmus is the author of the ‘Scourge of Neoliberalism’, published by Clarity Press, January 2020, and other recent books on late US and global capitalism, including ‘Central Bankers at the End of Their Ropes’, ‘Systemic Fragility in the Global Economy’, ‘Looting Greece: A New Financial Imperialism Emerges’, Obama’s Economy: Recovery for the Few’, and Epic Recession: Prelude to Global Depression. Dr. Rasmus’ website is kyklosproductions.com, his blog jackrasmus.com, and his twitter handle is @drjackrasmus.

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WHAT REVIEWERS SAY ABOUT THE PLAY 'FIRE ON PIER 32'
"It has been said that the theater houses a nation's soul. If this is true, it can be said that 'Fire on Pier 32' is one place where the soul of American labor resides."

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